<PAGE>
As filed with the Securities and Exchange Commission on October 10, 1997
Registration No.: 333-19357
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
ON
FORM S-2
TO
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THOUSAND TRAILS, INC.
Co-Registrants are listed on the following page.
(Exact name of Registrant as specified in its charter)
DELAWARE 709 75-2138671
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
(972) 243-2228
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
WALTER B. JACCARD, ESQ.
Vice President, General Counsel and Secretary
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
(972) 243-2228
(Name, address including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
IRWIN F. SENTILLES, III, ESQ.
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
(214) 698-3100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: [X]
If the Registrant elects to deliver its annual report to security holders, or a
complete and legal facsimile thereof, pursuant to Item 11(a)(1) of this Form,
check the following box: [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The following direct and indirect wholly-owned subsidiaries of the Company have
guaranteed the Senior Subordinated Pay-In-Kind Notes Due 2003 and are co-
registrants under the Registration Statement on Form S-2:
State or Other
Jurisdiction
Exact Name of Co-Registrant of Incorporation I.R.S. Employer
as Specified in its Charter or Organization Identification No.
- ---------------------------------- ------------------ ------------------
Beech Mountain Lakes Corporation Pennsylvania 64-0689696
Carolina Landing Corporation South Carolina 64-0671029
Carriage Manor Corporation North Carolina 64-0652128
Cherokee Landing Corporation Tennessee 64-0671030
Chief Creek Corporation Tennessee 64-0660462
Coast Financial Services, Inc. Delaware 75-2696468
Dixie Resort Corporation Mississippi 64-0443811
Foxwood Corporation South Carolina 64-0605153
GL Land Development, Inc. Oklahoma 73-1000541
Lake Royale Corporation North Carolina 64-0605706
Lake Tansi Village, Inc. Delaware 62-0793983
LML Resort Corporation Alabama 64-0706403
Natchez Trace Wilderness Preserve
Corporation Tennessee 64-0661551
National American Corporation Nevada 64-0511406
Quail Hollow Plantation Corporation Tennessee 64-0717686
Quail Hollow Village, Inc. Pennsylvania 58-1660073
Recreation Land Corporation Pennsylvania 64-0832808
Recreation Properties, Inc. Mississippi 64-0685108
Resort Land Corporation Arkansas 64-0507641
Resort Parks International, Inc. Georgia 64-0605155
Tansi Resort, Inc. Tennessee 62-0754675
The Kinston Corporation South Carolina 64-0650944
The Villas of Hickory Hills, Inc. Mississippi 64-0660461
Thousand Trails (Canada) Inc. British Columbia 105274252RC
TT Offshore, Ltd. Virginia 75-2556366
UST Wilderness Management Corporation Nevada 88-0291374
Western Fun Corporation Texas 64-0507825
Westwind Manor Corporation Texas 64-0706404
Wolf Run Manor Corporation Pennsylvania 64-0654099
The transfer of the Subsidiary Guarantees incident to the transfer of the PIK
Notes has also been registered under the Registration Statement.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION
IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-2
<TABLE>
<CAPTION>
Item LOCATION IN PROSPECTUS
- -------------------------------------------------- ----------------------------------------------------
<S> <C>
1. Forepart of Registration Statement and Facing Page of Registration Statement; Outside
Outside Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Additional Information;
Prospectus Reports to Security Holders; Table of Contents
3. Summary Information, Risk Factors and Ratio Prospectus Summary; The Company; Risk Factors;
of Earnings to Fixed Charges Consolidated Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Description of PIK Notes
10. Interests of Named Experts and Counsel *
11. Information With Respect to the Registrant Prospectus Summary; Risk Factors; The Company;
Business; Incorporation of Certain Information by
Reference.
12. Incorporation of Certain Information by Incorporation of Certain Information by Reference.
Reference
13. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
</TABLE>
- -----------------
*Not applicable or answer thereto is negative.
i
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PROSPECTUS
THOUSAND TRAILS, INC.
Co-Registrants are listed on inside cover page.
$26,524,745 SENIOR SUBORDINATED PAY-IN-KIND
NOTES DUE 2003
The selling security holders (the "Selling Security Holders") may offer from
time to time Senior Subordinated Pay-In-Kind Notes Due 2003 (the "PIK Notes") of
Thousand Trails, Inc. (the "Company") in the principal amount of up to
$26,524,745 plus additional PIK Notes that may be from time to time received
under the pay-in-kind feature of the PIK Notes. The PIK Notes were issued in a
private placement in July 1996 as part of a restructuring (the "Restructuring")
of the Company's 12% Secured Notes due 1998 (the "Secured Notes"). Offers and
sales of PIK Notes may be made directly to other purchasers, through agents or
otherwise, in negotiated or market transactions. The prices, terms and
conditions of any sale will be determined at the time of sale by the seller or
as a result of negotiations between or on behalf of the buyer and the seller.
Expenses of any such sale will be borne by the parties to the sale as they may
agree. See "Selling Security Holders" and "Plan of Distribution." The Company
will not receive any of the proceeds from any sales of PIK Notes by the Selling
Security Holders.
Cash interest at the rate of 5 1/2% per annum on the PIK Notes for the period
ending January 15, 1998 has been prepaid. Interest at the rate of 12% per annum
on the PIK Notes is payable on January 15 and July 15 of each year. All
interest will be payable in cash or additional PIK Notes, at the Company's
option, through July 15, 2000 and in cash thereafter. The Company's Loan and
Security Agreement, dated as of July 10, 1996, as amended (the "Loan
Agreement"), prohibits the payment of interest on the PIK Notes in cash while
the indebtedness under the Loan Agreement is outstanding. The PIK Notes mature
on July 15, 2003 and are redeemable at any time at the election of the Company,
in whole or in part, at 100% of the principal amount thereof plus accrued
interest thereon. The Company's obligations under the PIK Notes are
unconditionally guaranteed, jointly and severally, by all subsidiaries of the
Company (other than an immaterial utility subsidiary). The PIK Notes and the
guarantee (the "Subsidiary Guarantee") are subordinated to the indebtedness
under the Loan Agreement and rank pari passu with all other existing and future
unsecured indebtedness of the Company and its subsidiaries and certain
refundings thereof, and senior to any subordinated indebtedness of the Company
and its subsidiaries. The indenture for the PIK Notes (the "Indenture") permits
the Company and its subsidiaries to incur the indebtedness under the Loan
Agreement and certain additional secured indebtedness. At June 30, 1997, the
Company and its subsidiaries had $14.7 million of such secured indebtedness,
consisting principally of indebtedness under the Loan Agreement. The PIK Notes
and the Subsidiary Guarantee are currently unsecured. Upon repayment in full of
the indebtedness under the Loan Agreement, the PIK Notes and the Subsidiary
Guarantee will be secured by the same assets as then secure the indebtedness
under the Loan Agreement, other than cash and cash equivalents and other assets
required to secure any refinancing or replacement of a portion of such
indebtedness for working capital purposes. The indebtedness under the Loan
Agreement is presently secured by substantially all of the assets of the Company
and its subsidiaries other than certain excluded assets. In the event of a
Change of Control (as defined), each holder of PIK Notes will have the right, at
such holder's option, subject to the terms and conditions of the Indenture, to
require the Company to repurchase such holder's PIK Notes at a cash price equal
to 101% of the principal amount thereof, plus accrued interest to the purchase
date.
Prior to the date of this Prospectus, there has been no active public market
for the PIK Notes, and there can be no assurance that a trading market will
develop.
<PAGE>
SEE "RISK FACTORS," BEGINNING AT PAGE 4, FOR A DISCUSSION OF CERTAIN FACTORS
THAT PROSPECTIVE PURCHASERS SHOULD CONSIDER IN EVALUATING A PURCHASE OF THE
SECURITIES OFFERED HEREBY.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is October 10, 1997.
(ii)
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CO-REGISTRANTS
The following direct and indirect wholly-owned subsidiaries of the
Company are Subsidiary Guarantors and therefore co-registrants under the
Registration Statement on Form S-2 of which this Prospectus is a part (herein,
together with all amendments, exhibits and schedules thereto, the "Registration
Statement"): Beech Mountain Lakes Corporation, a Pennsylvania corporation;
Carolina Landing Corporation, a South Carolina corporation; Carriage Manor
Corporation, a North Carolina corporation; Cherokee Landing Corporation, a
Tennessee corporation; Chief Creek Corporation, a Tennessee corporation; Coast
Financial Services, Inc., a Delaware corporation; Dixie Resort Corporation, a
Mississippi corporation; Foxwood Corporation, a South Carolina corporation; GL
Land Development, Inc., an Oklahoma corporation; Lake Royale Corporation, a
North Carolina corporation; Lake Tansi Village, Inc., a Delaware corporation;
LML Resort Corporation, an Alabama corporation; Natchez Trace Wilderness
Preserve Corporation, a Tennessee corporation; National American Corporation, a
Nevada corporation; Quail Hollow Plantation Corporation, a Tennessee
corporation; Quail Hollow Village, Inc., a Pennsylvania corporation; Recreation
Land Corporation, a Pennsylvania corporation; Recreation Properties, Inc., a
Mississippi corporation; Resort Land Corporation, an Arkansas corporation;
Resort Parks International, Inc., a Georgia corporation; Tansi Resort, Inc., a
Tennessee corporation; The Kinston Corporation, a South Carolina corporation;
The Villas of Hickory Hills, Inc., a Mississippi corporation; Thousand Trails
(Canada) Inc., a British Columbia corporation; TT Offshore, Ltd., a Virginia
corporation; UST Wilderness Management Corporation, a Nevada corporation;
Western Fun Corporation, a Texas corporation; Westwind Manor Corporation, a
Texas corporation; and Wolf Run Manor Corporation, a Pennsylvania corporation.
The transfer of the Subsidiary Guarantee incident to the transfer of the PIK
Notes has also been registered under the Registration Statement.
(iii)
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company has enclosed with this Prospectus its Annual Report on
Form 10-K for the fiscal year ended June 30, 1997 and its Proxy Statement for
the 1997 Annual Meeting of the Company filed on October 3, 1997 (collectively,
with such report, the "Annual Report"), which are incorporated herein by
reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). The
public may inspect and copy (at prescribed rates) the Registration Statement as
well as such reports, proxy and information statements and other information
that the Company has filed with the Commission at the public reference
facilities that the Commission maintains at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the Commission's regional offices located at Room
3190, Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048. In addition,
the public may obtain such reports, proxy and information statements and other
information concerning the Company from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a site accessible to the public by computer on the World Wide Web, at
http://www.sec.gov, that contains reports, proxy and information statements and
other information regarding the Company, which files electronically with the
Commission.
ADDITIONAL INFORMATION
The Company has filed the Registration Statement with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. Statements made in this Prospectus as to
the contents of any indenture, contract, agreement or other document referred to
are not necessarily complete. With respect to each such indenture, contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description thereof, and
each such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto may be
inspected and copied (at prescribed rates) at the public reference facilities
maintained by the Commission and without charge electronically at the
Commission's World Wide Web site. See "Available Information" for the office
and World Wide Web site addresses of the Commission.
REPORTS TO SECURITY HOLDERS
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company is required to deliver to
the Trustee under the Indenture within 15 days after it is or would have been
required to file such with the Commission annual and quarterly financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the Commission if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, together with a
management's discussion and analysis of financial condition and results of
operations that would be so required.
(iv)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated in this Prospectus by
reference. Unless the context otherwise requires, the term "the Company" refers
to Thousands Trails, Inc., a Delaware corporation, and its predecessors and
subsidiaries. In this Prospectus, the Company makes certain statements as to
its expected financial condition, results of operations, cash flows, and
business strategies and plans for future periods. All of these statements are
forward-looking statements based on the beliefs of management of the Company as
well as assumptions made by the Company and are made pursuant to the safe harbor
provisions of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These statements are not historical and involve risks and uncertainties.
The Company's actual financial condition, results of operations, cash flows, and
business strategies and plans for future periods may differ materially due to
certain risks, uncertainties and assumptions set forth under "Risk Factors" and
described elsewhere in this Prospectus or incorporated in this Prospectus by
reference.
THE COMPANY
The Company and its subsidiaries own and operate a system of 55
membership-based campgrounds located in 17 states and British Columbia, Canada,
serving 120,000 members as of June 30, 1997. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 380
recreational facilities and manages 48 public campgrounds for the US Forest
Service.
The Company entered the membership campground business on June 30,
1991, with the acquisition of 100% of the capital stock of National American
Corporation (collectively with its subsidiaries, "NACO," unless the context
otherwise requires) and 69% of the capital stock of Thousand Trails, Inc., a
Washington corporation (collectively with its subsidiaries, "Trails," unless the
context otherwise requires). The Company subsequently increased its ownership
in Trails to 80% through a tender offer and acquired the remaining 20% of the
stock of Trails in a merger. In July 1996, Trails was merged into the Company.
Prior to the acquisitions of NACO and Trails, the Company purchased contracts
receivable generated principally by NACO and Trails from the sale of campground
memberships and resort interests on an installment basis. In November 1996, the
Company, then known as USTrails Inc. ("USTrails"), reincorporated in the State
of Delaware and changed its name to Thousand Trails, Inc.
THE SELLING SECURITY HOLDERS
In connection with the Restructuring, the Company issued the PIK Notes
and provided other consideration in exchange for certain Secured Notes in a
transaction exempt from registration under the Securities Act. As part of the
transaction, the Company agreed to file a shelf registration statement
registering certain transfers of the PIK Notes. The Company has filed the
Registration Statement in accordance with such agreement.
THE OFFERING
Offering by
Selling Security Holders.. From time to time, the Selling Security Holders may
offer up to $26,524,745 principal amount of PIK
Notes, plus additional PIK Notes that may be from
time to time received under the pay-in-kind feature
of the PIK Notes.
Use of Proceeds........... The Company will not receive any of the proceeds from
any sales of PIK Notes by the Selling Security
Holders.
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THE PIK NOTES
Aggregate Principal
Amount.................... $30,965,255 principal amount of the PIK Notes
outstanding as of the date hereof, plus such
additional notes as are issued from time to time
under the pay-in-kind-feature of the PIK Notes.
Stated Maturity........... July 15, 2003.
Interest.................. 17 1/2% per annum through January 15, 1998 and 12%
per annum thereafter. Interest at 5 1/2% per annum
through January 15, 1998 was prepaid in cash on the
date of issuance of the PIK Notes. All remaining
interest will be payable in cash or additional PIK
Notes, at the Company's option, through July 15, 2000
and in cash thereafter. The Loan Agreement requires
that interest (other than the prepaid interest) be
paid only in kind while the indebtedness under the
Loan Agreement is outstanding.
Interest Payment Dates.... January 15 and July 15 of each year.
Subsidiary Guarantee...... The Company's obligations under the PIK Notes are
unconditionally guaranteed, jointly and severally, by
all subsidiaries of the Company (other than an
immaterial utility subsidiary), each of which is,
directly or indirectly, a wholly-owned subsidiary of
the Company, and all future wholly-owned
subsidiaries.
Ranking................... The PIK Notes and the Subsidiary Guarantee are
subordinated to the indebtedness under the Loan
Agreement and rank pari passu with all existing and
future unsecured indebtedness of the Company and its
subsidiaries and certain refundings thereof, and
senior to any subordinated indebtedness of the
Company and its subsidiaries. The Indenture permits
the Company and its subsidiaries to incur the
indebtedness under the Loan Agreement and certain
additional secured indebtedness. At June 30, 1997,
the Company and its subsidiaries had $14.7 million in
principal amount of such secured indebtedness
outstanding, consisting principally of indebtedness
under the Loan Agreement.
Security.................. The PIK Notes and the Subsidiary Guarantee are
currently unsecured. Upon repayment in full of the
indebtedness under the Loan Agreement, the PIK Notes
and the Subsidiary Guarantee will be secured by the
same assets as then secure the indebtedness under the
Loan Agreement, other than cash and cash equivalents
and other assets required to secure any refinancing
or replacement of a portion of the indebtedness under
the Loan Agreement for working capital purposes. The
indebtedness under the Loan Agreement is presently
secured by substantially all of the assets of the
Company and its subsidiaries other than certain
excluded assets. A refinancing or replacement of the
indebtedness under the Loan Agreement
2
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for working capital purposes is limited to $10
million in principal amount.
Optional Redemption....... The PIK Notes are redeemable at the option of the
Company, in whole or in part, at any time, at 100% of
the principal amount thereof, plus accrued and unpaid
interest to the redemption date. The Company is not
required to make any sinking fund payments on the PIK
Notes.
Change of Control......... In the event of a Change of Control (as defined),
each holder of PIK Notes will have the right, at such
holder's option, subject to the terms and conditions
of the Indenture, to require the Company to
repurchase all or any part of such holder's PIK Notes
at a cash price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the
purchase date.
Certain Covenants......... The Indenture restricts, among other things, (i) the
incurrence of additional indebtedness, (ii) the
incurrence of liens, (iii) the payment of dividends
and distributions, (iv) the making of loans and
investments, (v) transactions with affiliates, (vi)
agreements restricting the ability of certain of the
Company's subsidiaries to pay dividends or make other
distributions on their capital stock, (vii) the
Company's ability to conduct other businesses, (viii)
the sale or other disposition of assets, and (ix)
certain mergers, consolidations and transfers of all
or substantially all of the assets of the Company and
its subsidiaries.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that
prospective purchasers should consider in evaluating a purchase of the
securities offered hereby.
3
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RISK FACTORS
Prospective purchasers should review the risk factors discussed below
when considering whether to purchase the PIK Notes. These risk factors,
however, may not be the only risks involved in connection with a purchase of
such securities.
BUSINESS STRATEGY UNCERTAINTY
The Company's current business strategy is to improve its campground
operations and stabilize its campground membership base through increased sales
and marketing efforts. The Company believes there is a viable market for
campground memberships and that it has a significant opportunity to compete for
campers interested in higher quality facilities and a higher level of service
than is typically available at public campgrounds or competing private
campgrounds. The Company also believes that its flexible membership products
give it a competitive advantage because they offer consumers the ability to
choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five
fiscal years. In response to this decline, the Company has downsized its
business by closing and disposing of campgrounds and decreasing campground
operating costs and general administrative expenses. The Company intends to
continue to downsize its business while its membership base declines. In this
regard, the Company will likely close and dispose of additional campgrounds and
it will seek to decrease other expenses. At the same time, the Company intends
to expand its sales and marketing efforts with a view to stopping the membership
decline. The Company believes that the ultimate size of its campground system
and the amounts realized from future asset sales will depend principally upon
the degree to which the Company can successfully implement this strategy.
Although the Company's membership sales revenues have increased, the level of
sales in fiscal 1997 did not meet the Company's expectations. In addition, the
Company's intention to keep the cash it expends on selling and marketing
expenses within a close relation to the cash it receives from campground
membership sales may limit its ability to increase sales in the future.
Consequently, no assurance can be given that the Company will be successful in
stopping its membership decline.
If the Company is successful in increasing campground membership sales
significantly, the increase could adversely affect future operating results.
The Company's selling and marketing efforts require significant expenditures,
the majority of which must be expensed in the current period, while the related
sales revenues are deferred and recognized on a straight-line basis over the
expected life of the memberships sold. As a consequence, the Company's selling
and marketing expenses exceed its membership campground sales revenues, and this
disparity will likely increase to the extent the Company is able to grow
campground membership sales.
See Item 1. "Business," Item 6. "Selected Financial Data" and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report incorporated herein by reference.
NET OPERATING LOSS CARRYFORWARDS
Risk of Ownership Change. For federal income tax purposes, the
Company has estimated net operating loss carryovers ("NOLs") available for its
use of $47.9 million as of June 30, 1997. The NOLs can generally be used to
offset taxable income earned by the Company (and thus reduce the Company's
income tax liability) in subsequent years within a 15-year carryover period.
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that when a corporation undergoes an "ownership change," the
corporation's use of its NOLs is limited each year to an amount of losses
determined by multiplying the fair market value of the corporation's stock
immediately before the ownership change by the "long-term tax exempt rate." The
Restructuring was structured to avoid an "ownership change" under Section 382 of
the Code. However, the issuance of the Company's common stock (the "Common
Stock") in the Restructuring resulted in a change in ownership for purposes
of
4
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Section 382 of approximately 42.5%, which is less than the 50% change required
to cause an "ownership change." If the Company were to experience an "ownership
change," the Company estimates that it would not be entitled to use any
substantial amount of its available NOLs to reduce its taxable income. Such a
limitation on the use of the Company's NOLs would materially reduce the
Company's after-tax earnings as well as its ability to service its
indebtedness.
Transfer Restrictions. In order to reduce the risk of "ownership
change" in the future, the transfer of the Common Stock has been restricted
through the inclusion of transfer restrictions in the Company's certificate of
incorporation (the "Transfer Restrictions"). However, notwithstanding the
Transfer Restrictions, the Company may be unable to, or may elect not to,
prevent every transaction that could cause an "ownership change." In addition,
the Transfer Restrictions do not apply to the exercise of outstanding warrants
or certain options to purchase Common Stock. Further, while the Company
believes that the Transfer Restrictions are enforceable as to all of the Common
Stock, there can be no assurance that a court would so determine. Moreover,
while the Company believes that the remedial provisions in the Transfer
Restrictions are generally sufficient, it is possible that the relevant tax
authorities will take the position that the Transfer Restrictions do not provide
adequate remedies for tax purposes with respect to every transaction that the
Transfer Restrictions purport to prevent. Further, there can be no assurance a
court would enforce every remedial provision set forth in the Transfer
Restrictions if the binding nature of such provision were challenged.
Therefore, even with the Transfer Restrictions in place, it is possible that
transactions could occur that would limit the Company's ability to utilize the
NOLs. There can be no assurance that legislation will not be adopted that would
limit the Company's ability to utilize the NOLs in future periods. However, the
Company is not aware of any proposed legislation for changes in the tax laws
that could impact the ability of the Company to utilize the NOLs.
Use of NOLs. The extent of the actual future utilization of the NOLs
is subject to inherent uncertainty inasmuch as the utilization depends on the
amount of otherwise-taxable income against which the Company will be able to
utilize the NOLs in future years. Accordingly, even though the Transfer
Restrictions reduce the risk that an "ownership change" will occur that could
limit the Company's ability to use the NOLs, there can be no assurance that the
Company will have sufficient taxable income in future years to actually use the
NOLs before they would otherwise expire.
See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report incorporated herein by
reference.
SIGNIFICANT LEVERAGE
The Company remains significantly leveraged. As of June 30, 1997, the
Company had outstanding indebtedness of approximately $44.1 million. In
addition, as a result of their pay-in-kind feature, the PIK Notes will increase
at the rate of 12% per annum, compounded semi-annually, at least until the
indebtedness under the Loan Agreement is repaid. Subject to the restrictions of
the Loan Agreement and the Indenture, the Company may incur additional
indebtedness from time to time. This leverage increases the risk inherent in
the Company's business strategy and may limit the Company's ability to respond
to variances from the results sought, as well as changing business and economic
conditions. Required payments of principal and interest are expected to be
financed from operating cash flow, collections of contracts receivables and
proceeds from the disposition of non-core assets. The Company's ability to
generate such cash is subject to many factors, including stabilizing the
Company's membership base and the amount of asset sales to be effected as the
Company downsizes. See "Capitalization" and Item 6. "Selected Financial Data"
and Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Annual Report incorporated herein by reference.
MEMBERS RIGHTS
The Company believes that the success of its business strategy will
necessarily be tied to continued operation of a downsized campground system.
Some states, including California, Oregon and Washington, where 29 of the
Company's campgrounds are located, have nondisturbance statutes that limit the
ability of an owner to sell or close, or a lienholder to foreclose a lien on, a
campground. In certain
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states, these statutes permit sale, closure or foreclosure if the holders of
related memberships receive access to a comparable campground. Moreover, the
campground mortgages that could secure the PIK Notes will 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 Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report incorporated herein by reference and "Description of PIK Notes -
Events of Defaults and Remedies - Remedies with Respect to Collateral."
SUBORDINATION; PROVISION OF FUTURE COLLATERAL
The payment of principal, premium (if any) and interest on, and any
other amounts owing in respect of, the PIK Notes is subordinated in right of
payment to the indebtedness under the Loan Agreement. In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of the
Company, the assets of the Company will be available to pay obligations on the
PIK Notes only after the indebtedness under the Loan Agreement has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on the
PIK Notes. In addition, under certain circumstances, the Company may not pay
principal, premium (if any) or interest on, or any other amounts owing in
respect of, the PIK Notes or purchase, redeem or otherwise retire the PIK Notes
if a payment or nonpayment default exists with respect to the indebtedness under
the Loan Agreement. See "Description of PIK Notes - Ranking."
The Loan Agreement requires that the PIK Notes remain unsecured while
the indebtedness under the Loan Agreement remains outstanding. If the
indebtedness under the Loan Agreement remains outstanding for longer than
contemplated by the Loan Agreement, the provision of collateral for the PIK
Notes may be delayed materially and possibly indefinitely. Moreover, the
Indenture permits the Company to refinance or replace up to $10 million in
principal amount of the indebtedness under the Loan Agreement with a working
capital facility. Any assets required to secure such facility will not be
available to secure the PIK Notes, will likely be material and could represent
substantially all of the assets of the Company and its subsidiaries. See
"Description of PIK Notes - Security."
CERTAIN FRAUDULENT CONVEYANCE, PREFERENCE AND BANKRUPTCY CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if any subsidiary of the Company
that guarantees the PIK Notes (a)(i) is insolvent or rendered insolvent by
reason of the issuance of its guarantee or any liens securing the guarantee or
(ii) is engaged in a business or transaction or is about to engage in a business
or transaction for which the assets of such subsidiary constitute an
unreasonably small capital or (iii) intends to incur, or believes that it would
incur, debts beyond its ability to pay such debts as they mature and (b) such
subsidiary receives less than reasonably equivalent value or fair consideration
for its guarantee or such lien, the guarantee, and any liens securing such
guarantee, could be avoided. If any guarantee or lien were avoided, the holders
of the PIK Notes could lose the benefit of the guarantee and any collateral
therefor, and the holders of the PIK Notes could also be required to return to
such subsidiary or its estate the amount of any payment or foreclosure proceeds
received. In addition, if the guarantee of any subsidiary of the Company were
to be set aside, indebtedness permitted to be incurred by such subsidiary
pursuant to the Indenture could become, effectively, senior to the PIK Notes
with respect to such subsidiary, with the assets of such subsidiary being
available for the payment of the PIK Notes only after they are applied to the
payment of such indebtedness.
In the event that a bankruptcy is commenced by or against the Company
or any of its subsidiaries within 90 days after the Company or such subsidiary
makes a payment on or provides collateral to secure the PIK Notes or a person
becomes a guarantor, some or all of the payments received, or collateral
provided, during such 90-day period may be avoidable as a preference under the
United States Bankruptcy Code. Such 90-day period could be extended to one year
in certain cases. Neither the Company nor any of its subsidiaries will provide
collateral for the PIK Notes until the indebtedness under
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the Loan Agreement has been repaid. In addition, the Indenture provides that
subsidiaries formed or acquired after the issuance of the PIK Notes will be
required to guarantee the PIK Notes and the stock and assets of such guarantors
must be pledged as security for such guarantees. Such pledges and guarantees may
be avoidable as a preference if a bankruptcy case concerning the Company or such
subsidiaries, as applicable, were to be commenced within the applicable
statutory period. Any payment made, or collateral received, which is avoided as
a preference would be required to be returned to the bankruptcy estate of the
Company or such subsidiaries. See "Description of PIK Notes - Subsidiary
Guarantee" and "-Security."
POSSIBLE MANDATORY REPURCHASE OFFER
The Company will be required to offer to repurchase the PIK Notes and
the holders of the PIK Notes will have the right to require the Company to
repurchase all or any part of such holder's PIK Notes upon the occurrence of a
Change of Control (as defined in the Indenture). The Company's ability to
purchase the PIK Notes following a Change of Control will be limited by the
Company's financial resources and short-term financial obligations at the time
of the proposed purchase. See "Description of PIK Notes - Change of Control
Repurchase Offer."
UNSECURED NOTES; LIMITATIONS OF ANY FUTURE SECURITY
Scope of Collateral. The PIK Notes and the Subsidiary Guarantee are
currently unsecured obligations of the Company and its subsidiaries. Upon
repayment in full of the indebtedness under the Loan Agreement, the PIK Notes
and the Subsidiary Guarantee will be secured by the same assets as then secure
the indebtedness under the Loan Agreement, other than cash or cash equivalents
and other assets required to secure any refinancing or replacement of up to $10
million principal amount of the indebtedness under the Loan Agreement for
working capital purposes. The indebtedness under the Loan Agreement is
presently secured by substantially all of the assets of the Company and its
subsidiaries other than (i) leasehold interests and other leased assets, (ii)
certain vehicles, trailers and other equipment; (iii) equipment subject to
financing and any newly acquired or leased assets financed with permitted
indebtedness and (iv) any assets subject to agreements, permits, licenses or the
like that cannot be subjected to a lien under the collateral documents without
the consent of third parties, which consent has not been obtained. Certain of
these assets are material to the continued operations of the campgrounds of the
Company and its subsidiaries. However, pursuant to the covenant described below
under "Description of PIK Notes - Certain Covenants - Limitation on Liens,"
neither the Company nor any of its subsidiaries will be permitted to incur liens
on such excluded assets except to the limited extent described therein.
No assurance can be given that the value of the collateral, when
provided, will equal or exceed the principal amount of the PIK Notes or that any
proceeds that may be realized upon any foreclosure of the liens on any such
collateral would be sufficient to pay unpaid principal and interest on the PIK
Notes. See "Description of PIK Notes - Security," "-Certain Covenants
- - Limitations on Liens" and "-Certain Covenants - Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
Foreclosure Limitations. The ability to foreclose on any collateral
securing the PIK Notes will be subject to members rights under state law and
certain member contracts, procedural and other restrictions under state real
estate and commercial law, federal and state securities laws and other laws
affecting the rights of creditors generally in the jurisdictions applicable to
the collateral. See "Description of PIK Notes - Events of Default and Remedies -
Remedies with Respect to Collateral."
Bankruptcy Limitations. The ability to take possession and dispose of
any collateral directly or indirectly securing the PIK Notes upon acceleration
is also likely to be significantly impaired or delayed by applicable bankruptcy
laws if a bankruptcy case were to be commenced by or against the Company or the
subsidiary owning the collateral. Under applicable bankruptcy laws, the Trustee
and the holders of PIK Notes would be prohibited from taking possession or
disposing of the collateral absent bankruptcy court approval. Moreover, the
Company or subsidiary would be permitted to retain and use the collateral as
long as the Trustee and the holders are being provided "adequate protection" in
the form of periodic cash payments or substitute liens or in some other form
approved by the court in its discretion.
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While this requirement is generally intended to protect the value of the
security, it cannot be predicted what form of "adequate protection" might be
approved by the court in the particular case. The court has broad discretionary
powers in all these matters, including the valuation of the collateral. In
addition, since the collateral generally does not include cash and cash
equivalents derived from operations, the holders of the PIK Notes would not have
any consent rights with respect to the use of those funds by the Company or
subsidiary during the pendency of the proceedings. In view of these
considerations, it is not possible to predict for how long payments on the PIK
Notes would be delayed following the filing of a bankruptcy case, whether or
when the Trustee could take possession of or sell the collateral or to what
extent the holders of the PIK Notes would be compensated for any delay in
payment or loss of value of the collateral.
MARKET CONDITIONS
The PIK Notes are not actively traded, and an active public market for
the PIK Notes is not likely to develop. The Company does not intend to list the
PIK Notes on any national securities exchange. To the Company's knowledge, no
broker intends to make a market in the PIK Notes.
State and local securities laws may prohibit the trading of the PIK
Notes in certain jurisdictions. As a consequence, the investment in the PIK
Notes may be illiquid for an indefinite period. If a market for the PIK Notes
does develop, the PIK Notes could trade at a substantial discount from their
face amount and liquidity may be limited. If such a market does not develop,
holders may be unable to resell the PIK Notes for an extended period of time, if
at all.
CONCENTRATION OF OWNERSHIP
As of September 30, 1997, Mr. Andrew Boas, a director of the Company,
beneficially owned $11,539,640 in principal amount of PIK Notes (representing
approximately 37.3% in principal amount of PIK Notes) and an aggregate of 46.5%
of the outstanding Common Stock. As a result, Mr. Boas will be in a position to
significantly influence the outcome of certain actions by the holders of the PIK
Notes. As a holder of Common Stock, the interests of Mr. Boas may not be wholly
aligned with the interests of other holders of PIK Notes. See "Description of
PIK Notes - Requirements for Certain Actions," "Security Ownership" in the
Annual Report incorporated herein by reference and "Selling Security Holders."
THE COMPANY
The Company and its subsidiaries own and operate a system of 55
membership-based campgrounds located in 17Estates and British Columbia, Canada,
serving 120,000 members as of June 30, 1997. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 380
recreational facilities and manages 48 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 Lyndon B.
Johnson Freeway, Suite 200, Dallas, Texas 75234, and its telephone number is
(972) 243-2228.
The Company entered the membership campground business on June 30,
1991, with the acquisition of 100% of the capital stock of NACO and 69% of the
capital stock of Trails. The Company subsequently increased its ownership in
Trails to 100% through a tender offer and merger and, on July 16, 1996, Trails
was merged into the Company. Prior to acquiring NACO and Trails, the Company
purchased contracts receivable generated principally by them from the sale of
campground memberships and resort interests on the installment basis. In
November 1996, the Company, then known as USTrails, reincorporated in the State
of Delaware and changed its name to Thousand Trails, Inc.
1996 SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated the Restructuring whereby
all of the $101,458,000 principal amount of Secured Notes outstanding were
retired. In the Restructuring, the Company purchased $10,070,000 in aggregate
principal amount of Secured Notes pursuant to a tender offer for $780 per $1,000
principal amount, and exchanged $81,790,000 in aggregate principal amount
of
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Secured Notes pursuant to a private exchange offer for, in each case per $1,000
in principal amount: $400 in cash, $492 in principal amount of PIK Notes and 45
shares of Common Stock. The remaining $9,598,000 in aggregate principal amount
of Secured Notes were redeemed at 100% of principal amount, plus accrued
interest. In connection with the Restructuring, the Company entered into the
Loan Agreement under which Foothill Capital Corporation ("Foothill"). A total of
$32.0 million was drawn under the Loan Agreement at closing of the
Restructuring.
1997 PIK NOTE REPURCHASE
On June 25, 1997, the Company repurchased $13.4 million principal
amount of PIK Notes at a cost of $12.6 million, including accrued interest. The
Company made these repurchases at an average price of $897 per $1,000 of
principal amount in a Dutch auction available to all holders of PIK Notes. At
September 30, 1997, a total of $31 million principal amount of PIK Notes was
outstanding.
CURRENT BUSINESS STRATEGY
The Company's current business strategy is to improve its campground
operations and stabilize its campground membership base through increased sales
and marketing efforts. The Company believes that there is a viable market for
campground memberships and that it has a significant opportunity to compete for
campers interested in higher quality facilities and a higher level of service
than is typically available at public campgrounds or competing private
campgrounds. The Company also believes that its flexible membership products
give it a competitive advantage because they offer consumers the ability to
choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five
fiscal years. In response to this decline, the Company has downsized its
business by closing and disposing of campgrounds and decreasing campground
operating costs and general and administrative expenses. The Company intends to
continue to downsize its business while its membership base declines. In this
regard, the Company will likely close and dispose of additional campgrounds and
it will seek to decrease other expenses. At the same time, the Company intends
to expand its sales and marketing efforts with a view to stopping the membership
decline. The Company believes that the ultimate size of its campground system
and the amounts realized from future asset sales will depend principally upon
the degree to which the Company can successfully implement this strategy.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
For purposes of computing the following ratios of earnings to fixed
charges, earnings represent income (loss) from continuing operations before
fixed charges and taxes, and fixed charges represent interest on indebtedness,
amortization of debt discount and one-third of rental expense relating to
operating leases, which management believes is representative of the interest
factor. The following table demonstrates the Company's historic operating
coverage and deficiencies as reflected in the consolidated ratios of earnings to
fixed charges.
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------
(Restated)(1) (Restated)(1) (Restated)(1) (Restated)(1)
<S> <C> <C> <C> <C> <C>
Earnings to Fixed Charges Ratio 1.94:1 1.06:1 (2) (2) (2)
Dollar Amount of Deficiency (in N/A N/A ($11,573) ($4,992) ($7,854)
thousands)
</TABLE>
________________
(1) The ratios of earnings to fixed charges for fiscal years 1993 through 1996
have been restated to reflect the change in accounting method retroactively
applied by the Company in fiscal 1997 (see Note 1 to the consolidated
financial statements included in Item 8 of the Annual Report incorporated
herein by reference).
(2) As a result of losses incurred, the Company was unable to fully cover fixed
charges for the fiscal years 1993 through 1995.
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<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from sales by the Selling
Security Holders of the PIK Notes.
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company as of June 30, 1997 (in thousands). Investors
should read this table in conjunction with the Company's consolidated financial
statements and the notes thereto incorporated by reference herein.
<TABLE>
<S> <C>
June 30, 1997
-------------
Borrowings under Loan Agreement $ 14,097
PIK Notes, including deferred gain of $.2 million 29,393(1)
Notes and Mortgages Payable, Due June 2009 604
----------
Total Debt $ 44,094
==========
Preferred stock, $.01 par value, 1,500,000 shares
authorized, none issued and outstanding ---
Common Stock, $.01 par value, 15,000,000 shares
authorized, 7,383,276 shares issued and outstanding $ 74
Additional paid-in capital 20,502
Accumulated deficit subsequent to December 31, 1991,
date of emergence from bankruptcy (42,613)
Cumulative currency translation adjustment (131)
----------
Total Stockholders' Deficit $ (22,168)
==========
</TABLE>
_______________
(1) The Restructuring was accounted for as a Troubled Debt Restructuring
whereby the PIK Notes were recorded at the carrying value of the Secured
Notes, and no gain or loss was recorded on the transaction. As a result,
$40.2 million principal amount of PIK Notes issued in the Restructuring was
recorded with a deferred gain of $303,000. This deferred gain is being
amortized as a reduction of interest expense using the effective interest
method over the term of the PIK Notes.
BUSINESS
GENERAL
The Company and its subsidiaries own and operate a system of 55
membership-based campgrounds located in 17 states and British Columbia, Canada,
serving 120,000 members as of June 30, 1997. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 380
recreational facilities and manages 48 public campgrounds for the US Forest
Service.
CURRENT BUSINESS STRATEGY
The Company's current business strategy is to improve its campground
operations and stabilize its campground membership base through increased sales
and marketing efforts. The Company believes there is a viable market for
campground memberships and that it has a significant opportunity to compete for
campers interested in higher quality facilities and a higher level of service
than is typically available at public campgrounds or competing private
campgrounds. The Company also believes that its
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flexible membership products give it a competitive advantage because they offer
consumers the ability to choose the type of membership most suitable to their
needs.
However, the Company's membership base has declined over the past five
fiscal years and, accordingly, the Company has downsized its business by closing
and disposing of campgrounds and decreasing campground operating costs and
general and administrative expenses. The Company intends to continue to
downsize its business while its membership base declines. In this regard, the
Company will likely close and dispose of additional campgrounds and it will seek
to decrease other expenses. At the same time, the Company intends to expand its
sales and marketing efforts with a view to stopping the membership decline. The
Company believes that the ultimate size of its campground system and the amounts
realized from future asset sales will depend principally upon the degree to
which the Company can successfully implement this strategy.
RESTRUCTURING
On July 17, 1996, the Company consummated a restructuring of its
outstanding debt. This restructuring provided the Company with a new capital
structure and decreased the Company's outstanding debt to a level the Company
believes it can support under its downsized operations. See "The Company - 1996
Secured Note Restructuring" and "- 1997 PIK Note Repurchase."
CAMPGROUND OPERATIONS
Campgrounds. The Company and its subsidiaries own and operate a
network of 55 membership-based campgrounds located in 17 states and British
Columbia, Canada. The Company owns and operates a network of 34 of these
campgrounds under the Thousand Trails logo, and NACO owns and operates a network
of 21 of these campgrounds under the NACO logo. The 55 campgrounds contain a
total of approximately 10,200 acres and 18,400 campsites.
Members using the campgrounds may bring their own recreational
vehicles ("RVs"), tents or other sleeping equipment, or rent travel trailers or
cabins located at the campgrounds or visit for the day. As of JuneE30, 1997,
there were approximately 77,000 campground members in the Thousand Trails system
and 43,000 campground members in the NACO system. However, approximately 35% of
the NACO campground members and approximately 52% of the Thousand Trails
campground members possess the right to use the campgrounds in both networks.
The largest percentage of campground members reside in California (approximately
37%). Large numbers of campground members also reside in Florida, Oregon,
Texas, and Washington.
Memberships provide the member's family access to the Company's
network of campgrounds, but do not convey a deeded interest in campgrounds with
the exception of six campgrounds in which members have received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
Depending upon member usage, the campgrounds are open year-round or on
a seasonal basis. The campgrounds feature campsites with electrical, water, and
in some cases, sewer connections for RVs, restroom and shower facilities, rental
trailers or cabins, and other recreational amenities. At each campground, a
manager and staff provide security, maintenance, and recreational programs that
vary by location.
The Company derives other campground revenue from renting trailers,
cabins, and sports equipment to members, selling food and other items to members
from convenience stores located at the campgrounds, and providing the members
access to laundry facilities and game machines. The Company also charges
members a fee for storing recreational vehicles and providing food service.
Existing Membership. At June 30, 1997, the Company had 120,000
campground members. The majority of these members have been members for over 10
years. The Company's
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membership base has declined significantly over the past five fiscal years and,
net of new sales, the membership base is presently declining at the rate of
approximately 6% per year. The Company attributes this continuing decline
principally to its aging membership base, of whom approximately 50% are senior
citizens. In addition, the Company estimates that the memberships sold in
recent fiscal years will have an expected life that is significantly shorter
than the expected life of the memberships previously sold by the Company. To
stop the continuing decline in its membership base, the Company must
significantly increase its campground membership sales over current levels.
Membership Sales. In April 1992, the Company suspended the sale of
new campground memberships because its sales program was operating at a loss and
with negative cash flow. In the fall of 1992, the Company began to assist
campground members desiring to sell their memberships in the secondary market.
During fiscal 1994, the Company determined that it should increase its sales and
marketing efforts in order to replenish its declining campground membership
base, and it began selling new campground memberships on a limited basis. In
May 1995, the Company introduced new membership products, and significantly
increased its sales and marketing efforts. In recent years, the Company has
focused its membership sales efforts primarily on guests referred by existing
members and customers referred by RV dealers and RV manufacturers, who
management believes are more likely to purchase memberships.
The Company's current membership products offer the consumer a choice
of membership options ranging from the use of one campground to the entire
system of campgrounds with prices ranging from $695 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $329 for
30 nights of use to $1,095 for 365 nights of use. The member is charged a
nightly fee for camping more days than are included in the dues option selected.
During fiscal 1997 and 1996, the Company sold approximately 3,400 and 3,100 new
memberships, respectively. The average sales price was $707 in fiscal 1997 and
$779 in fiscal 1996, and the average annual dues level was $332 in fiscal 1997
and $306 in fiscal 1996. During the past two fiscal years, the Company offered
financing for sales with prices of $895 or higher. The Company required a down
payment of at least 25% of the sales price and would finance the balance over a
period of up to 12 months. In August 1997, the Company began offering financing
on certain memberships for periods of up to 36 months. The Company estimates
that the memberships sold in recent fiscal years will have an expected life that
is significantly shorter than the expected life of the memberships previously
sold by the Company.
The Company has the capacity to sell approximately 67,000 additional
new campground memberships in the future, assuming the sale of ten memberships
for each existing campsite. Further downsizing of the Company's business would
reduce this capacity.
Marketing. The Company's research indicates that camping is a popular
and growing activity in the United States. Camping was the second largest
participant sport/activity in the United States in 1995 with 23% of US
households camping at least once a year. Sales of camping equipment total $1.5
billion annually in 1995 and 1996. In addition, although RV sales were flat in
1995 and 1996, a recent study by the University of Michigan Survey Research
Center reported that RV sales revenues are expected to grow 4% annually for at
least the next ten years. Moreover, the Company believes that the aging of the
baby boomers should have a positive effect on sales of camping equipment and
RVs, and lead to further growth in family camping. The Company's campgrounds
are located in markets containing approximately 25% of all camping households in
the United States.
While most campers use national or state parks, the Company believes
that it has a significant opportunity to compete for campers interested in
higher quality facilities and a higher level of service than is typically
available at public campgrounds or competing private campgrounds. Based on the
Company's research, approximately 35% of campers are "amenity" campers, whose
needs match the benefits provided by the Company's campgrounds, such as pools,
lodges, sport courts, and recreational activities. The Company believes the
needs of amenity campers are not being met by underfunded national and state
campgrounds. In addition, the Company believes that it can differentiate its
campgrounds and services from other campgrounds by emphasizing the quality of
its facilities and the benefits and services available at its campgrounds.
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Dues. Campground members pay annual dues ranging from $100 to $1,095.
The annual dues collected from campground members constitute general revenue of
the Company. The Company uses the dues to fund its operating expenses,
including corporate expenses and the maintenance and operation of the
campgrounds. However, the membership agreements do not require the Company to
use the dues for any specific purpose.
The average annual dues paid by the Company's campground members were
$344 for the year ended June 30, 1997, $335 for the year ended June 30, 1996,
and $329 for the year ended June 30, 1995. The increases resulted primarily
from the annual increase in dues implemented by the Company each year in
accordance with the terms of the membership agreements. In addition, the
Company's new members generally pay annual dues at a higher level than the older
members retiring from the system.
The membership agreements generally permit the Company to increase
annually the amount of each member's dues by either (i) the percentage increase
in the consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. The Company, however, may not increase the dues on
existing contracts of senior citizens and disabled members who notify the
Company of their age or disability and request that their dues be frozen. At
the present time, approximately 35% of the members have requested that their
dues be frozen because of their age or disability. The Company estimates that
approximately 50% of the campground members are senior citizens eligible to
request that their dues be frozen. The Company is unable to estimate when or if
a significant number of these members will request that their dues be frozen in
the future.
Maintenance and Improvements. The Company's campgrounds require
annual capital and maintenance expenditures, which have been deferred, in part,
as a result of general cost-cutting measures. During fiscal 1997, the Company
spent $4.6 million on major maintenance, repairs, and improvements at the
campgrounds and anticipates that it will spend an additional $4.3 million on
similar costs in fiscal 1998.
Resort Parks International. NACO members and holders of dual-system
memberships, which permit the member to use the campgrounds in both the NACO and
Thousand Trails systems, may join Resort Parks International, Inc. ("RPI"), a
wholly owned subsidiary of the Company. The RPI program offers members
reciprocal use of approximately 380 participating recreational facilities.
Members of these participating facilities pay a fee to RPI that entitles them to
use any of the participating facilities, subject to the limitation that they
cannot use an RPI facility located within 125 miles of their home facility. As
of June 30, 1997, there were approximately 89,000 RPI members, of which
approximately 67,000 were members of campgrounds that are not affiliated with
the Company.
Campground Management. During fiscal 1994, UST Wilderness Management
Corporation, a wholly owned subsidiary of the Company ("Wilderness Management"),
began to manage public campgrounds for the US Forest Service. As of June 30,
1997, Wilderness Management had entered into management contracts covering 48
campgrounds containing a total of approximately 1,700 campsites. Pursuant to
these contracts, the Company incurs the expenses of operating the campgrounds
and receives the related revenues, net of a fee paid to the US Forest Service.
These management contracts typically have terms ranging from one to five years.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns
at eight resorts located in seven states. NACO currently owns and operates the
resort amenities at one of these locations. NACO's other interest in the
resorts presently consists of approximately 580 residential lots and other
miscellaneous real estate that NACO intends to sell over the next several years.
ASSET SALES
During fiscal 1997, 1996 and 1995, the Company sold certain of its
real estate assets and received proceeds of $4.7 million, $7.2 million, and $1.1
million, respectively. During this three year
13
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period, the Company sold the timeshare operations at the resorts, the country
club and golf operations at certain resorts, and various other properties at the
resorts. In addition, the Company sold or otherwise disposed of several
campgrounds and sold excess acreage associated with certain campgrounds.
Subsequent to year-end, the Company sold additional campgrounds for which it
received proceeds of $4.5 million. Over the next several years, the Company
intends to dispose of its remaining assets at the resorts, any campgrounds that
are closed as the Company downsizes, and other undeveloped, excess acreage
associated with the campgrounds. The sale of campgrounds requires addressing
the rights of members associated with such campgrounds. The impact of these
rights is uncertain and could adversely affect the availability or timing of
sale opportunities or the ability of the Company to realize recoveries from
asset sales. In addition, although the Company has successfully sold assets
during the past three years, no assurance exists that the Company will be able
to locate a buyer for any of the remaining assets or that sales on acceptable
terms can be effected.
Under the Loan Agreement, all proceeds from asset sales must be paid
to Foothill and applied to reduce outstanding borrowings under the Loan
Agreement.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its
campground memberships and resort interests on the installment basis, creating a
portfolio of contracts receivable. This portfolio has declined significantly
over the past five fiscal years as the Company has collected the outstanding
contracts receivable. Since April 1992, the Company has sold only a limited
number of campground memberships and resort interests on an installment basis
and, as a result, the portfolio of contracts receivable will continue to
decline.
Interest accrues on the unpaid balance of the contracts receivable at
fixed rates, which vary depending upon the size of the down payment and the
length of the contract. The contracts receivable bear interest at rates ranging
from 9.5% to 16.0%, with an approximate weighted average stated interest rate of
13.0% as of June 30, 1997. Monthly installment payments range from $41 to $170
over the term of the contracts receivable, which can be up to ten years. The
terms of most newer contracts receivable, however, have averaged two years or
less. At June 30, 1997, approximately 96% of the campground members and
purchasers of resort interests had paid for their membership or resort interest
in full, and the remaining outstanding contracts receivable had an average
remaining term of approximately two years.
As of June 30, 1997, the Company owned contracts receivable with an
aggregate principal balance of $12.4 million, consisting of $7.9 million of
contracts receivable associated with the Thousand Trails campgrounds, $3.3
million of contracts receivable associated with the NACO campgrounds, $1.1
million of contracts receivable associated with the resorts, and $113,000 of
contracts receivable associated with SoPac Resort Properties, Inc., a former
affiliate. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report incorporated herein by
reference.
Under the Loan Agreement, all collections on the contracts receivable,
including principal, interest, and fees, must be paid to Foothill and applied to
reduce outstanding borrowings under the Loan Agreement.
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the
Selling Security Holders' ownership, by class, of the PIK Notes as of September
30, 1997. Each of the Selling Security Holders has registered and may sell up
to the entire amount of PIK Notes that such Selling Security Holder holds as set
forth opposite each Selling Security Holder's name below. The Selling Security
Holders may also sell additional PIK Notes that may be issued from time to time
pursuant to the pay-in-kind feature of the PIK Notes. It is not currently
possible to predict the amount of PIK Notes, if any, which will be sold or the
price, terms or conditions of their sale. See "Plan of Distribution." Pursuant
to the Registration Rights Agreement, the Company has agreed to register the
resale of all "Restricted PIK Notes" (as defined in the
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<PAGE>
Registration Rights Agreement) in accordance with the terms and conditions of
such agreement. Therefore, the information set forth below and elsewhere in
this Prospectus may be amended from time to time in accordance with applicable
law and regulations, to include additional PIK Notes.
<TABLE>
<CAPTION>
PIK Notes after
SELLING SECURITY HOLDERS PIK NOTES Offering**
- ------------------------------------------------- ------------------------------------------------------ ---------------
Principal Amount(1) Percentage of Class
------------------- -------------------
<S> <C> <C> <C>
Jerry Abeles $ 10,103 * 0
The Beker Foundation 200,935 * 0
Andrew M. Boas(2) 84,191 * 0
Marjorie M. Boas 107,764 * 0
The Canyon Value Realization Fund (Cayman), Ltd. 69,502 * 0
Carl Marks Strategic Investments, L.P.(2) 5,372,486 17.4% 0
Carl Marks Strategic Investments II, L.P.(2) 4,942,462 16.0% 0
Mark L. Claster 207,670 * 0
GRS Partners II 17,109 * 0
Hallie Boas Trust(2) 10,103 * 0
The Institute for Aegean Pre-History 81,945 * 0
Linda B. Katz 33,676 * 0
The Malcolm H. Wiener Foundation 144,808 * 0
Edwin S. Marks 394,012 1.3% 0
Linda B. Marks 33,676 * 0
Millburn MCo Partners, L.P. 253,694 * 0
The Millburn Profit Sharing and Savings Trust 16,838 * 0
Bernard Nash 23,573 * 0
Phyllis Nash 4,490 * 0
Post Balanced Fund 3,225,057 10.4% 0
Post Total Return Fund 336,762 1.1% 0
Prospect Street High Income Portfolio Inc. 295,842 * 0
Mira Rabin 17,835 * 0
Rebecca Boas Trust(2) 7,858 * 0
SC Fundamental Value Fund BVI Ltd. 2,282,711 7.4% 0
SC Fundamental Value Fund, L.P. 5,695,961 18.4% 0
Third Avenue Value Fund, Inc. 1,004,026 3.2% 0
Uranus Fund, Ltd.(2) 1,122,540 3.6% 0
The Value Realization Fund, L.P. 86,943 * 0
James Q. Whitman 14,191 * 0
Martin J. Whitman 408,147 1.3% 0
Thomas I. Whitman 17,835 * 0
----------- ----
TOTAL $26,524,745 85.7% 0
=========== ====
</TABLE>
__________
* Less than 1%
** Assumes that all securities offered hereby are sold.
(1) The Selling Security Holders may also sell additional PIK Notes that may be
issued from time to time pursuant to the pay-in-kind feature of the PIK
Notes.
(2) Andrew M. Boas, a director of the Company, is a general partner of Carl
Marks Management Co., L.P., which is the general partner of Carl Marks
Strategic Investments, L.P. and Carl Marks Strategic Investments II, L.P.
In addition, Mr. Boas is an executive officer of an investment management
company which exercises investment discretion with respect to the PIK Notes
held by Uranus Fund, L.P. Mr. Boas is also a co-trustee of the Hallie Boas
Trust and the Rebecca Boas Trust.
PLAN OF DISTRIBUTION
The Selling Security Holders may offer and sell the PIK Notes from
time to time acting as principals for their own accounts, through agents or
otherwise, in negotiated or market transactions. The prices, terms and
conditions of any sale will be determined at the time of sale by the seller or
as a result of
15
<PAGE>
negotiations between or on behalf of the buyer and the seller. The sales of the
PIK Notes may be effected during such time as the Registration Statement is
effective. The sales may occur in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at other negotiated
prices. Moreover, the Selling Security Holders may make negotiated sales at any
time if such sales are exempt from the registration requirements of the
Securities Act pursuant to Rule 144 promulgated thereunder.
Under a registration rights agreement, the Company is obligated to
maintain the Registration Statement until the earlier of July 16, 1999 or the
date when all of the PIK Notes have been transferred or otherwise cease to be
registerable securities thereunder. Although the Company is obligated to pay
all costs of the registration of these securities, any other expenses of any
sale will be borne by the parties to the sale as they may agree, including any
distributors' or brokers' commissions. Currently, no underwritten public
offering is contemplated.
The Company has called to the Selling Security Holders' attention
certain restrictions under the federal securities laws applicable to sales
registered under the Registration Statement, including the requirements of
Regulation M under the Exchange Act. In such connection, the Selling Security
Holders have entered into agreements with the Company requiring that they will
not violate any federal or state securities laws in connection with the
distribution or transfer of the Company's securities. The Selling Security
Holders have each agreed to indemnify the Company for certain information
supplied in connection with the Registration Statement. The Company similarly
agreed to indemnify the Selling Security Holders for certain other information
contained in the Registration Statement.
DESCRIPTION OF PIK NOTES
The PIK Notes were issued pursuant to an Indenture dated as of July
17, 1996 (as supplemented, the "Indenture"), among the Company, the Guarantors
and Fleet National Bank, as Trustee. The Indenture was supplemented on November
20,1996, to evidence the assumption of the Indenture, the PIK Notes and the
other Note Documents by the Company, as successor by merger to its predecessor
corporation. The terms of the PIK Notes include those stated in the Indenture
and those made a part of the Indenture by reference to the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act").
Set forth below is a summary of certain provisions of the PIK Notes.
The following summary of certain provisions of the PIK Notes and the Indenture
does not purport to be complete and is qualified in its entirety by reference to
the PIK Notes and the Indenture, which have been included as exhibits to the
Registration Statement. These are available for inspection at the corporate
trust office of the Trustee and as described under "Additional Information."
Certain defined terms used in the following description have the
meanings set forth in this description under "Certain Definitions" below.
References to the Company in this section of the Prospectus do not include the
Company's subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The PIK Notes are limited to an aggregate principal amount of
$40,218,000 (as reduced for retirements thereof), excluding the Secondary Notes
(as defined below), and mature July 15, 2003. Interest on the PIK Notes accrues
at the rate of 17 1/2% per annum through and including January 15, 1998, and at
the rate of 12% per annum thereafter. Interest at 5 1/2% per annum for the
period through and including January 15, 1998 was prepaid to the initial holders
of the PIK Notes at the time of issuance. All remaining interest will be
payable semi-annually on January 15 and July 15 of each year to holders of
record on the immediately preceding January 1 and July 1, in cash or additional
PIK Notes (the "Secondary Notes"), at the Company's option, through July 15,
2000 and in cash thereafter. However, the Indenture requires that interest
payments on or prior to July 15, 2000 be paid only in Secondary Notes so long as
the Senior Indebtedness is outstanding. The interest rate is subject to
increase under certain circumstances if the Company is not in compliance with
certain obligations under the Registration Rights Agreement. Interest on the
PIK Notes will accrue from the most recent date to which interest has been paid
(or, in the
16
<PAGE>
case of Secondary Notes, from the relevant interest payment date). Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
The PIK Notes are payable both as to principal and interest at the
office or agency of the Company maintained for such purpose or, if the Company
and the holder agree, payment of interest may be made by check or through
certificates mailed to a holder of the PIK Notes at its respective address set
forth in the register of holders of the PIK Notes. The PIK Notes have been
issued in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof, except that Secondary Notes (or PIK Notes issued
upon transfer thereof) have been and may hereafter be issued in denominations of
other than $1,000.
SUBSIDIARY GUARANTEE
The Company's obligations under the PIK Notes and the other Note
Documents are unconditionally guaranteed, jointly and severally, pursuant to the
Subsidiary Guarantee by all existing Subsidiaries of the Company (other than an
immaterial utility subsidiary), each of which is Wholly Owned, and all future
Wholly Owned Subsidiaries of the Company. The Subsidiary Guarantee is limited
in amount to an amount not to exceed the maximum amount that can be guaranteed
by each Guarantor without rendering the Subsidiary Guarantee, as it relates to
such Guarantor, voidable under the United States Bankruptcy Code relating to
fraudulent conveyances or fraudulent transfers or similar state laws.
So long as an Event of Default has not occurred and the PIK Notes have
not been accelerated, the PIK Note Indenture and the Subsidiary Guarantee
provides that Guarantors may be released from their obligations under the
Subsidiary Guarantee without obtaining any consent or release from the Trustee
when they are disposed of in compliance with the requirements of the Senior
Subordinated PIK Note Indenture.
RANKING
The indebtedness represented by the PIK Notes is subordinated in right
of payment, as set forth in the Indenture, to the payment in full of the Senior
Indebtedness. The payment of the obligations of the Guarantors under the
Subsidiary Guarantee is also subordinated in right of payment, as set forth in
the Subsidiary Guarantee, to the payment in full of the Senior Indebtedness.
The outstanding principal amount of the Senior Indebtedness was $14.7 million as
of June 30, 1997.
Only the Senior Indebtedness ranks senior to the PIK Notes or the
Subsidiary Guarantee in accordance with the provisions of the PIK Note Indenture
and the Subsidiary Guarantee. The PIK Notes and the Subsidiary Guarantee in all
respects rank pari passu with all other Indebtedness of the Company and the
Subsidiaries, other than Subordinated Indebtedness, and rank senior to any
Subordinated Indebtedness permitted by the Indenture. However, the Indenture
permits a limited amount of Permitted Purchase Money Indebtedness, Capitalized
Lease Obligations and certain secured Indebtedness existing on the Issue Date,
as well as the Working Capital Replacement Facility that may refinance or
replace up to $10 million of the Senior Indebtedness for working capital
purposes. The Indenture provides that neither the Company nor a Subsidiary will
incur, directly or indirectly, any Indebtedness, other than the indebtedness
permitted above, which is subordinate or junior in ranking in any respect to the
Senior Indebtedness unless such Indebtedness is expressly subordinated in right
of payment to the PIK Notes.
The Company may not pay principal of, premium (if any) or interest
(other than interest payable in kind) on, the PIK Notes or make any deposit
pursuant to the provisions described under "Defeasance" below and may not
otherwise purchase or retire any PIK Notes (collectively, "pay the PIK Notes"),
and no Guarantor may pay any amount on the Subsidiary Guarantee, if (i) any of
the Senior Indebtedness is not paid when due or (ii) any other default on the
Senior Indebtedness occurs and the maturity of the Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived and any such acceleration has been rescinded or the Senior
Indebtedness has been paid in full; provided, that the Company may pay the PIK
Notes without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from the Representative of the
17
<PAGE>
Senior Indebtedness with respect to which either of the events in clause (i) or
(ii) of this sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to the Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, neither the Company nor any
Guarantor may pay the PIK Notes (other than interest payable in kind) or pay any
amount on the Subsidiary Guarantee, as the case may be, for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from such Representative; (ii) because the default giving rise to
such Blockage Notice is no longer continuing or (iii) because the Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the lenders under the Senior
Indebtedness or the Representative of such lenders has accelerated the maturity
of the Senior Indebtedness, the Company and the Guarantors may resume payments
on the PIK Notes or on the Subsidiary Guarantee, as the case may be, after the
end of such Payment Blockage Period. Not more than one Blockage Notice may be
given in any consecutive 360-day period, irrespective of the number of defaults
with respect to the Senior Indebtedness during such period. In no event may the
total number of days during which any Payment Blockage Period is in effect
exceed 179 days in the aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets of the Company or any
Guarantor, upon a total or partial liquidation or dissolution or reorganization
of or similar proceeding relating to the Company or any Guarantor, or any of
their respective property, the lenders under the Senior Indebtedness will be
entitled to receive payment in full of the Senior Indebtedness before the
holders of the PIK Notes are entitled to receive any payment and until the
Senior Indebtedness is paid in full in cash, any payment or distribution to
which holders of PIK Notes would be entitled but for the subordination
provisions of the Indenture and the Subsidiary Guarantee will be made to the
lenders under the Senior Indebtedness. If a distribution is made to holders of
PIK Notes that due to the subordination provisions should not have been made to
them, such holders will be required to hold it in trust for the lenders under
the Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the PIK Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the lenders under the
Senior Indebtedness or the Representative of such lenders of the acceleration.
The Company may not pay the PIK Notes until five Business Days after such
lenders or the Representative of the Senior Indebtedness receives notice of such
acceleration and, thereafter, may pay the PIK Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture
and the Subsidiary Guarantee, in the event of insolvency, creditors of the
Company or the Guarantors who are lenders under the Senior Indebtedness may
recover more, ratably, than the holders of PIK Notes, and creditors of the
Company who are not lenders under the Senior Indebtedness or holders of the PIK
Notes may recover less, ratably, than lenders under the Senior Indebtedness and
may recover more, ratably, than the holders of PIK Notes.
SECURITY
Generally. The PIK Notes and the Subsidiary Guarantee are currently
unsecured obligations of the Company and the Guarantors. Upon repayment in full
of the Senior Indebtedness, the PIK Notes and the Subsidiary Guarantee will be
secured by the same assets as then secure the Senior Indebtedness, other than
cash and other Cash Equivalents and other assets required to secure any Working
Capital Replacement Facility. Currently, the Loan Agreement is secured by
substantially all of the assets of the Company and the Subsidiaries other than
(i) certain leasehold interests and other leased assets, (ii) certain vehicles,
trailers and other equipment; (iii) equipment subject to financing and any newly
acquired or leased assets financed with Permitted Indebtedness and (iv) any
agreements, permits, licenses
18
<PAGE>
or the like that cannot be subjected to a Lien without the consent of third
parties, which consent has not been obtained.
Subject to the continuing collateral requirements of any Working
Capital Replacement Facility, the assets available to secure the PIK Notes and
the Subsidiary Guaranty after repayment of the Senior Indebtedness, include, as
of the date hereof, the following: (i) the capital stock of the Company's
subsidiaries, including NACO and its subsidiaries, RPI, and Wilderness
Management, (ii) campgrounds and common amenities at one resort owned by a
Subsidiary, together with related improvements, certain equipment, and certain
other tangible personal property located there to the extent existing mortgages
do not prohibit such Liens, (iii) other real estate that the Subsidiaries own
and are in the process of selling, (iv) the contracts receivable that the
Company and the Subsidiaries own and (v) all indebtedness owed to the Company by
its Subsidiaries, together with any related Liens.
Disposition of Collateral. So long as an Event of Default has not
occurred and the PIK Notes have not been accelerated, the Indenture provides
that the Company and the Subsidiaries may dispose of their properties free from
the Liens of the Collateral Documents without obtaining any consent or release
from the Trustee; provided that the Company complies with the requirements of
the Indenture and any applicable appraisal and other requirements of the Trust
Indenture Act.
OPTIONAL REDEMPTION
The PIK Notes are redeemable at the option of the Company, in whole or
in part, at any time upon not less than 30 nor more than 60 days' notice to each
holder of PIK Notes, at the redemption price of 100% of principal amount, plus
accrued interest to the redemption date. The Company is not required to make
sinking fund payments with respect to the PIK Notes.
If less than all of the PIK Notes are to be redeemed, the particular
PIK Notes or portions thereof to be redeemed shall be determined on a pro rata
basis, by lot or by such other method determined by the Trustee to be fair and
appropriate subject to compliance with the requirements of any securities
exchange or trading system on which the PIK Notes are then listed or approved
for trading. Notice of redemption shall be given to each holder of PIK Notes to
be redeemed not less than 30 nor more than 60 days prior to the Redemption Date.
CHANGE OF CONTROL REPURCHASE OFFER
In the event that a Change of Control (as defined below) has occurred,
each holder of PIK Notes has the right, at such holder's option, subject to the
terms and conditions of the Indenture, to require the Company to repurchase all
or any part of such holder's PIK Notes at a cash price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the purchase date.
Within 30 days following a Change of Control, in the event the terms of the
Senior Indebtedness prohibit the repurchase of PIK Notes after a Change of
Control, the Company will be required to (i) notify the lenders under the Senior
Indebtedness that a Change of Control has occurred and (ii) either (1) repay in
full the Senior Indebtedness or offer to repay in full all such Indebtedness and
repay the Indebtedness held by each lender who has accepted such offer or (2)
obtain the requisite consent under the Senior Indebtedness to permit the
repurchase of the PIK Notes.
Within 15 Business Days after fulfilling such obligation, the Company
is required to give written notice of a Change of Control to the Trustee.
Within 15 days after the Trustee receives such notice, the Trustee is required
to send a copy of such notice to each holder of PIK Notes.
"Change of Control" means (i) the sale, lease or transfer of all or
substantially all of the Company's assets to any "person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act)
other than the Existing Affiliates, (ii) the liquidation or dissolution of the
Company, (iii) the time that the Company first determines or reasonably should
have known that any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) other
than the Existing Affiliates is or becomes the "beneficial owner" (as such
19
<PAGE>
term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such "person" has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock then outstanding of the Company
normally entitled to vote in elections of directors or (iv) during any period of
12 consecutive months after the Issue Date, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for election by
the stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
Except as described above with respect to a Change of Control, the
holders of the PIK Notes will not be able to require the Company to repurchase
or redeem the PIK Notes in the event of a takeover, recapitalization or similar
restructuring. The Change of Control purchase feature may in certain
circumstances make more difficult or discourage a takeover of the Company, and
thus the removal of incumbent management. The Company has no knowledge of any
specific effort to accumulate the Company's stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise. Subject
to the limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could affect the Company's capital structure.
A holder may exercise its rights with respect to such a repurchase
offer by delivering to the Paying Agent, at the office of the Paying Agent, a
written notice prior to the close of business on the third Business Day prior to
the repurchase date set forth in the Company's offer. Any holder may withdraw
such notice at any time prior to the close of business on the third Business Day
prior to the repurchase date specified in the Company's offer by delivering a
written notice of withdrawal to the Paying Agent. The delivery of the PIK Notes
to be sold by the holder (together with any necessary endorsements) to the
Paying Agent at the office of the Paying Agent will be a condition to the
receipt by the holder of the purchase price therefor.
The notice mailed by the Company in respect of a repurchase offer will
contain all instructions and materials necessary to enable the holders of PIK
Notes to tender their PIK Notes to the Company, and each such repurchase offer
will be conducted in compliance with applicable federal and state securities
laws.
In the case of any repurchase offer where all of the PIK Notes are not
being repurchased at any time, selection of the PIK Notes to be repurchased will
be made by the Trustee from and among the outstanding PIK Notes in the same
manner as described under "Optional Redemption" where PIK Notes are redeemed in
part.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Indenture provides that the
Company will not, and will not cause or permit any of its Subsidiaries to, make,
directly or indirectly, any Restricted Payment; provided, however, that the
foregoing does not prohibit:
(a) the redemption, repurchase or other acquisition or retirement of
Capital Stock from the substantially concurrent sale of Qualified
Capital Stock or Capital Stock that is common stock; or
(b) the defeasance, redemption, repurchase or other acquisition or
retirement of Subordinated Indebtedness with the Net Proceeds received
by the Company from the substantially concurrent sale of Qualified
Capital Stock or Subordinated Indebtedness of the Company or in
exchange for Qualified Capital Stock or Subordinated Indebtedness of
the Company, which Subordinated Indebtedness (i)(A) is at least as
subordinated in ranking to the PIK
20
<PAGE>
Notes as, (B) has an Average Life not shorter than, and (C) has no
installment (contingent or otherwise) of principal or liquidation
amount (including upon the happening of an event or the passage of
time) due before any installment of principal of, the Subordinated
Indebtedness being so defeased, redeemed, repurchased, acquired or
retired and (ii) has a principal amount (or, if such Indebtedness is
issued at less than its principal amount, has an original issue price,
as determined in accordance with GAAP) not to exceed the sum of (A) the
lesser of (x) the principal amount of such Subordinated Indebtedness
being so defeased, redeemed, repurchased, acquired or retired in
exchange therefor and (y) if such Subordinated Indebtedness being
acquired was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such
transaction, plus (B) the out-of-pocket expenses incurred by the
Company or Subsidiary in connection with the acquisition or retirement
of such Subordinated Indebtedness or the sale of or its exchange for
such Qualified Capital Stock or Subordinated Indebtedness, including
without limitation any redemption, prepayment or similar premium paid
with respect to such acquisition or retirement.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, create, assume or suffer to exist any
consensual encumbrance or restriction on the ability of any Subsidiary to pay
dividends or make other distributions on the Capital Stock of such Subsidiary or
pay any obligation to the Company or any of its Subsidiaries or otherwise
transfer assets or make or pay loans or advances to the Company or any of its
Subsidiaries, except (a) restrictions imposed by the PIK Notes, the Indenture
and the Collateral Documents, (b) encumbrances and restrictions imposed by the
Senior Indebtedness, (c) customary non-assignment provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practices, (d) rights of members and other
customers arising in the ordinary cause of business from memberships, rights to
use or related or similar interests in campgrounds, resorts or other facilities
(whether arising from the holding of such memberships, rights to use or related
or similar interests, by applicable law or otherwise), (e) restrictions under
any agreement relating to any property, assets or business acquired by the
Company or its Subsidiaries, which restrictions existed at the time of
acquisition, were not put in place in anticipation of such acquisition and are
not applicable to any Person, other than the Person acquired or to any property,
assets or business other than the property, assets and business of the Person so
acquired, (f) any such contractual encumbrance imposed by or in connection with
the incurrence of any Permitted Purchase Money Indebtedness and Capitalized
Lease Obligations permitted pursuant to clause (d) of the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
provided such encumbrance does not have the effect of restricting (otherwise
than upon foreclosure) the payment of dividends to the Company or any Guarantor
or the payment of Indebtedness owed to the Company or any Guarantor or reducing
the amount of any such dividends or payments, (g) any such contractual
encumbrance or restriction in existence as of the Issue Date, (h) any
restrictions with respect to Capital Stock or assets, respectively, of a
Subsidiary imposed pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Subsidiary and (i) replacements of restrictions imposed pursuant to
clauses (a) through (h) that are no more restrictive than those being replaced.
Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock. The Indenture provides that, except as set forth below, the
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, issue, assume, Guarantee, incur, or otherwise become
directly or indirectly liable with respect to (including as a result of an
acquisition, merger or consolidation), or otherwise become responsible for,
contingently or otherwise (individually and collectively, to "incur," or, as
appropriate, an "incurrence of"), any Indebtedness or any Disqualified Capital
Stock from and after the Issue Date. The exceptions set forth below are not
exclusive of one another.
(a) The Company and the Subsidiaries may incur Existing Indebtedness.
(b) The Company and the Subsidiaries may incur Indebtedness under the Note
Documents.
(c) The Company and the Subsidiaries may incur the Senior Indebtedness and
any Working Capital Replacement Facility.
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(d) The Company and its Subsidiaries may incur (i) Permitted Purchase Money
Indebtedness and Capitalized Lease Obligations not exceeding $9,000,000
in principal amount (excluding Existing Indebtedness and any
Refinancing Indebtedness in respect thereof) at any time outstanding
and (ii) unsecured Indebtedness not exceeding $500,000 in principal
amount (excluding Existing Indebtedness and any Refinancing
Indebtedness in respect thereof) at any time outstanding.
(e) The Company may incur Subordinated Debt, provided that the Net Cash
Proceeds thereof are used for the substantially concurrent redemption,
repurchase or other acquisition or retirement of PIK Notes or the
Senior Indebtedness.
(f) The Company and the Subsidiaries may incur Refinancing Indebtedness
with respect to any Indebtedness permitted by this covenant, other than
clause (c) or (d) above.
(g) The Company may incur Indebtedness (i) in respect of bankers'
acceptances, letters of credit and performance bonds (to the extent
that such incurrence does not result in the incurrence of any
obligation for the payment of borrowed money of others), all in the
ordinary course of business, in amounts and for the purposes customary
in the Company's industry, (ii) arising under any appeal or
reimbursement obligations with respect to any judgment, which judgment
does not constitute a Default or (iii) constituting reimbursement
obligations with respect to letters of credit in respect of workers'
compensation claims, provided that the aggregate principal amount
outstanding of such Indebtedness (including any Existing Indebtedness
of like kind and any Refinancing Indebtedness with respect to such
Indebtedness) shall at no time exceed $5,000,000.
(h) The Company may incur Indebtedness to any Wholly Owned Subsidiary of
the Company, and any Wholly Owned Subsidiary of the Company may incur
Indebtedness to any other Wholly Owned Subsidiary or to the Company;
provided that such obligations, in each case, shall either be (i)
unsecured and subordinated in all respects to the prior payment in full
in cash of the Company's or such Subsidiary's obligations pursuant to
the Note Documents (other than with respect to payment of principal or
interest if no Default or Event of Default shall have occurred and be
continuing at the time of any payment of or with respect thereto) or
(ii) a Permitted Intercompany Secured Loan; provided that any such
Indebtedness of a Subsidiary that is not a Guarantor shall comply with
all requirements for a Permitted Intercompany Secured Loan.
(i) The Company and its Subsidiaries may incur Indebtedness representing
the balance deferred and unpaid of the purchase price of any property
or services used in the ordinary course of their business that would
constitute ordinarily a trade payable to trade creditors (other than
accounts payable or other obligations to trade creditors arising in the
ordinary course of business that have remained unpaid for greater than
90 days, unless such payable or obligation is being contested in good
faith and adequate reserves therefor have been established in
accordance with GAAP).
Limitation on Liens. The Indenture provides that the Company will
not, and will not permit its Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien in or on any right, title or interest
to any of their properties or assets, except,
(a) Permitted Liens,
(b) Liens that secure the Senior Indebtedness or any Working Capital
Replacement Facility,
(c) Liens created by the Collateral Documents, and
(d) Liens that secure Permitted Purchase Money Indebtedness and Capitalized
Lease Obligations permitted to be incurred under clause (d) of the
covenant "Limitation on
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Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
which Liens shall not attach to any assets other than the assets
financed thereby.
Limitation on Sales of Assets and Subsidiary Stock. The Indenture
provides that neither the Company nor any of its Subsidiaries will, in one
transaction or a series of related transactions, (i) convey, sell, lease,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets or (ii) engage in any sale or other transfer or
issuance of any Capital Stock of any Subsidiary of the Company, whether by the
Company or a Subsidiary of the Company, or through the issuance, sale or
transfer of Capital Stock by a Subsidiary of the Company (an "Asset Sale"),
unless (A) within 180 days after the date of such Asset Sale, the Net Cash
Proceeds therefrom are (x) applied to the repayment of the Senior Indebtedness
or (y) either applied to the repurchase of the PIK Notes (which may be made in
any manner selected by the Company, including, without limitation, open market
purchases, privately negotiated transactions, redemptions or repurchases), or
invested in assets or property directly related to a Related Business of the
Company or such Subsidiary (or the Company or such Subsidiary shall have entered
into a binding obligation to make such an investment), (B) in the case of any
Asset Sale (or series of related Asset Sales) for Net Proceeds in excess of
$1,250,000, at least 80% of the value of such consideration for such Asset Sale
consists of U.S. Legal Tender or Cash Equivalents, (C) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect to such Asset Sale and (D) the Board of Directors of the
Company determines in good faith that the Company or such applicable Subsidiary
receives fair market value for such Asset Sale.
Notwithstanding the provisions of the foregoing paragraph:
(i) the Company and its Subsidiaries may in the ordinary course of
business and consistent with past practices, convey, sell, lease,
transfer, assign or otherwise dispose of assets acquired and held
for resale in the ordinary course of business;
(ii) the Company and its Subsidiaries may convey, sell, lease, transfer
or otherwise dispose of assets pursuant to and in accordance with
the covenant "Limitation on Merger, Sale or Consolidation";
(iii) the Company and its Subsidiaries may sell damaged, worn out or other
obsolete property or abandon property in the ordinary course of
business so long as such property is no longer necessary for the
proper conduct of the business of the Company or such Subsidiary, as
applicable; and
(iv) the Company and its Subsidiaries may convey, sell, lease, transfer,
assign, or otherwise dispose of assets at no less than their fair
value to the extent that the Net Cash Proceeds for any Asset Sale
(or series of related Asset Sales) does not exceed $1,000,000.
Limitation on Transactions with Affiliates. The Indenture provides
that, subject to the last sentence of this paragraph, neither the Company nor
any of its Subsidiaries will be permitted to enter into or extend or renew any
transaction or series of related transactions with any Affiliate (an "Affiliate
Transaction"), unless (A) the Affiliate Transaction is on terms at least as
favorable to the Company or such Subsidiary, as the case may be, as those that
could have been obtained in a comparable transaction with an unaffiliated third
party; (B) in the case of an Affiliate Transaction with a value to either party
in excess of $1,000,000, a majority of the independent directors of the Company
determines that such transaction complies with clause (A); and (C) in the case
of any Affiliate Transaction (including any series of related transactions) with
an aggregate value (to either party) in excess of $5,000,000, the Company or
such Subsidiary must in addition, prior to the consummation thereof, obtain a
written favorable opinion as to the fairness of such transaction to the Company
from a financial point of view from any national or regional independent
investment banking firm. The foregoing shall not apply to (i) transactions
between one or more Guarantors or between the Company and one or more
Guarantors, (ii) Restricted Payments permitted to be made under the covenant
"Limitations on Restricted Payments," (iii) customary directors' fees and other
compensation, stock option grants and indemnities, (iv) extensions of and
payments made with respect to Permitted Intercompany Loans or unsecured
subordinated Indebtedness permitted to be incurred under clause (h) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
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Capital Stock" or (v) employment, consulting and related agreements entered into
by the Company or any of the Subsidiaries with their respective officers,
employees or directors in the ordinary course of business.
Maintenance of Insurance. The Indenture provides that the Company and
its Subsidiaries will have in effect customary insurance against such risks, on
terms, with deductibles (or self-insurance), and in amounts as are customarily
carried by similar businesses.
Limitation on Merger, Sale or Consolidation. The Indenture provides
that none of the Company or any Subsidiary will consolidate with or merge with
or into another Person or, directly or indirectly, sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets (computed on a consolidated basis), whether in a single transaction or
a series of related transactions, to another Person or group of affiliated
Persons, other than the Company or a Subsidiary, unless (i) either (a) the
Company or such Subsidiary, as the case may be, is the continuing entity or (b)
the resulting, surviving or transferee entity is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture or other appropriate document all of
the obligations of the Company or such Subsidiary, as the case may be, in
connection with the Note Documents to which the Company or the Subsidiary, as
the case may be, was a party (including any Liens thereunder); (ii) no Default
or Event of Default shall exist or shall occur immediately after giving effect
to such transaction; and (iii) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of the surviving or
transferee entity is at least equal to the Consolidated Net Worth of the Company
or such Subsidiary, as the case may be, immediately prior to such transaction
(exclusive of amounts paid in respect of dissenters' rights). Notwithstanding
the foregoing, the Company and its Subsidiaries may effect Asset Sales that
comply with the covenant "Limitation on Sales of Assets and Subsidiary Stock"
(or are expressly excluded from compliance with such covenant by the provisions
thereof) without complying with the foregoing covenant, provided that no such
Asset Sale (or series of related Asset Sales) involves all or substantially all
of the properties or assets of the Company and its Subsidiaries taken as a
whole.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company or such Subsidiary to which the
foregoing is applicable, the successor corporation formed by such consolidation
or into which the Company or such Subsidiary, as the case may be, is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of, the Company or such Subsidiary, as the
case may be, under the Note Documents to which the Company or Subsidiary is a
party with the same effect as if such successor corporation had been named
therein as the Company or such Subsidiary, as the case may be. Any such Person
will be required to ensure, by executing and delivering appropriate instruments
and opinions of counsel, that the Trustee continues to hold any Lien on any
Collateral for the benefit of the holders of the PIK Notes to the extent then
required by the Note Documents.
Limitation on Lines of Business. The Indenture provides that neither
the Company nor any Subsidiary will directly or indirectly engage in any line or
lines of business activity other than in a Related Business.
Financial Reports. Whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will be required to deliver to the Trustee under the Indenture within 15 days
after it is or would have been required to file such with the SEC, for delivery
to each holder of PIK Notes, annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the SEC if the Company were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, together with a management's discussion
and analysis of financial condition and results of operations that would be so
required.
In addition, the Company will be required to deliver to the Trustee
quarterly an Officers' Certificate regarding the absence of any Default or Event
of Default or specifying the nature of any such Default or Event of Default, the
period of existence thereof and any steps the Company or the relevant Subsidiary
proposes to take with respect thereto.
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PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its
Subsidiaries shall directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any PIK Notes for or as an inducement to any consent, waiver or amendment of any
of the provisions of the Indenture or the other Note Documents unless such
consideration is offered to be paid or agreed to be paid to all holders of the
PIK Notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
Events of Default. The Indenture defines an Event of Default to
include (i) the failure by the Company to pay any installment of interest on the
PIK Notes as and when due and payable and the continuance of any such failure
for 30 days, (ii) the failure by the Company to pay all or any part of the
principal, or premium, if any, on the PIK Notes when and as the same become due
and payable at maturity, redemption, by acceleration or otherwise, including
without limitation failure to make any payment required upon a Change of Control
Offer or Asset Sale, as and when due, (iii) the failure by the Company or any
Subsidiary to observe or perform any other covenant or agreement contained in
the Note Documents and, subject to certain exceptions, the continuance of such
failure for a period of 30 days after written notice is given to the Company by
the Trustee or to the Company and the Trustee by the holders of at least 30% in
aggregate principal amount of the PIK Notes outstanding, (iv) certain events of
bankruptcy, insolvency or reorganization in respect of the Company or any
Material Subsidiary, (v) default under (a) the Senior Indebtedness or (b) any
indenture, loan agreement, mortgage, bond, promissory note or other agreement or
instrument under which there may be issued or by which there may be secured or
evidenced any other Indebtedness by the Company or any Subsidiary, or the
payment of which is guaranteed by the Company or any Subsidiary, and such
default is either (i) caused by a failure to pay when due principal or interest
on such Indebtedness within any grace period applicable thereto or (ii) results
in or requires the prepayment, repurchase, redemption, or defeasance of any such
Indebtedness prior to its express maturity, or requires that the Company or any
Subsidiary offer to take any of the foregoing actions and, in each case in
respect of clause (b), the principal amount of such indebtedness, together with
the principal amount of any other such indebtedness under which there has been a
payment default or with respect to which there has been an acceleration,
aggregates $2,000,000 or more, (vi) final unsatisfied judgments not covered by
insurance aggregating at least $2,000,000 at any one time rendered against the
Company or any of its Subsidiaries and not stayed, bonded or discharged within
60 days and (vii) the repudiation by any Subsidiary of its obligations under the
Subsidiary Guarantee, or any judgment or decree by a court or governmental
agency of competent jurisdiction declaring the unenforceability of the payment
obligations under the Subsidiary Guarantee or any of the Collateral Documents
(subject to a 10-day grace period in the case of any Collateral Document). The
Trustee may withhold from the holders of PIK Notes notice of any continuing
Event of Default (except any Event of Default in payment of principal or
interest on the PIK Notes) if the Trustee determines that withholding such
notice is in the best interest of the holders of the PIK Notes.
Acceleration. If an Event of Default occurs and is continuing (other
than an Event of Default specified in clause (iv) above), then in every such
case unless the principal of all of the PIK Notes shall have already become due
and payable, either the Trustee or the holders of 30% in aggregate principal
amount of the PIK Notes then outstanding, by notice in writing to the Company,
and to the Trustee if given by such holders, may declare all principal and
accrued interest thereon to be due and payable immediately. If an Event of
Default specified in clause (iv) above relating to the Company or any of its
Material Subsidiaries occurs, all principal and accrued interest will be
immediately due and payable on all outstanding PIK Notes without any declaration
or other act on the part of the Trustee or the holders of PIK Notes. The
holders of no less than a majority in aggregate principal amount of PIK Notes
generally are authorized to rescind such acceleration if all existing Events of
Default, other than the non-payment of the principal on the PIK Notes that
became due as a result of the acceleration, have been cured or waived.
The holders of a majority in aggregate principal amount of the PIK
Notes at the time outstanding may waive on behalf of all such holders any
Default or Event of Default, except a Default in the payment of principal of or
interest on any PIK Note not yet cured, or a Default or Event of Default with
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respect to any covenant or provision that cannot be modified or amended without
the consent of the holder of each outstanding PIK Note affected.
Remedies with Respect to Collateral
In General. Specific rights and remedies of the Trustee under the
Collateral Documents ultimately include the right of the Trustee to sell the
Collateral and to apply the net proceeds to the PIK Notes in accordance with the
terms of the Indenture and the Collateral Documents.
Limitations on Foreclosure. Some states, including California, Oregon
and Washington, have non-disturbance statutes that place limitations on the
ability of the owner of a campground to close the campground or a lienholder to
foreclose its lien. In certain states, these statutes permit the owner of a
campground to close the campground or a lienholder to foreclose its lien if the
holders of memberships at the campground receive access to a comparable
campground. The Mortgages on the campgrounds included in any Collateral will
contain non-disturbance provisions that limit the ability of the Lienholder to
foreclose its Lien unless the holders of the related memberships receive access
to a comparable campground. The impact of the rights of members under these
laws and non-disturbance provisions is uncertain and could adversely effect the
implementation of, and the benefits or recoveries that may be available from,
foreclosures in respect of such Collateral.
Other General Restrictions. The Trustee's ability to foreclose upon
and sell any campgrounds, stock of Subsidiaries, any loans from the Company to
its Subsidiaries ("Affiliate Loans") or other Collateral will be subject to the
procedural and other restrictions of the relevant state's real estate law or
Uniform Commercial Code. The Collateral includes stock of Subsidiaries that is
not publicly traded and may only be sold in compliance with applicable Federal
and state securities laws.
As regards proceeding against any Guarantor and its assets, the
Trustee may either foreclose upon any Affiliate Loans outstanding to such
Guarantor included in the Collateral or proceed under the Subsidiary Guarantee.
If the Trustee chose to foreclose upon Affiliate Loans, the necessity of first
foreclosing on the pledge of the Affiliate Loans might result in delay and
increase the risk that a petition for relief under bankruptcy or insolvency law
could be filed by or against any one or more of the Company and the Guarantors.
If, on the other hand, the Trustee chose to proceed by demand and foreclosure
under the Subsidiary Guarantee, its ability to realize upon the Collateral could
be limited by the invocation of state-law suretyship defenses and laws relating
to fraudulent conveyances or fraudulent transfers or similar laws affecting the
rights of creditors generally.
Additional Foreclosure Limitations. The laws of the jurisdictions
where the Company's campgrounds are located contain limitations on foreclosure
that could delay or prevent realization pursuant to the Collateral Documents or
discourage bidders at a foreclosure sale. These limitations may include, among
others, (i) the right to reinstate the debt after commencement of foreclosure
proceedings by paying any delinquent installments, costs and expenses incurred
by the Trustee; (ii) the right to redeem the property after it has been sold in
a foreclosure sale; (iii) "one-action" rules which require a creditor to pursue
its remedies against a defaulting debtor in a single action, and which, after a
creditor determines to pursue a particular remedy, will deny that creditor any
other remedy that it may have; and (iv) anti-deficiency statutes which prohibit
a creditor from seeking a deficiency judgment following a non-judicial
foreclosure sale.
MODIFICATION OF THE INDENTURE AND COLLATERAL DOCUMENTS
The Indenture provides that the Indenture and the Collateral Documents
may be modified by a vote of holders of 66% in aggregate principal amount of the
PIK Notes, except in certain circumstances that require unanimous consent
including, without limitation, changes with respect to payment of principal,
premium and interest (upon redemption, maturity or otherwise) and the release of
Guarantors or Collateral, except as otherwise provided by the Indenture.
The Indenture also provides that the Company and the Trustee may
modify the Indenture or the Collateral Documents without the consent of the
holders of PIK Notes to, among other things, (i) add
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covenants, conditions and restrictions for the protection of the holders of PIK
Notes or to surrender any right or power of the Company or any Guarantor, (ii)
cure any ambiguity or correct any inconsistency that does not adversely affect
the legal or other rights of holders of PIK Notes or (iii) modify, eliminate or
add to the provisions to the extent necessary to qualify the Indenture under or
otherwise comply with the Trust Indenture Act or other applicable statutes. In
addition, Collateral may be released or modified as permitted in the Indenture
and in the Collateral Documents (including in connection with any Asset Sale) or
a Subsidiary ceasing to be a Guarantor as permitted under the Note Documents.
REQUIREMENTS FOR CERTAIN ACTIONS
The Indenture provides that for the purposes of any modification of
the Indenture or the Note Documents, the requisite 66% in principal amount of
outstanding PIK Notes will take into account PIK Notes held by Affiliates
controlling the Company in the absence of a Default or Event of Default.
However, the majority in principal amount of outstanding PIK Notes required for
any waivers or certain other actions after a Default or Event of Default, and
the 30% in principal amount required for notices of default or acceleration,
will disregard PIK Notes held by Affiliates controlling the Company.
FURTHER ASSURANCES
The Indenture provides that the Company will, and will cause each of
its Subsidiaries to, execute, acknowledge, deliver, record, re-record, file, re-
file, register and re-register, any and all such further acts, deeds,
conveyances, security agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments as
reasonably may be required from time to time in order (i) to carry out more
effectively the purposes of the Collateral Documents, (ii) to subject to the
Liens created by any of the Collateral Documents any of the properties, rights
or interests required to be encumbered thereby, (iii) to perfect and maintain
the validity, effectiveness and priority of any of the Collateral Documents and
the Liens intended to be created thereby, and (iv) to better assure, convey,
grant, assign, transfer, preserve, protect and confirm to the Trustee any of the
rights granted or now or hereafter intended by the parties thereto to be granted
to the Trustee or the Company under the Collateral Documents or under any other
instrument executed in connection therewith.
DISCHARGE OF THE INDENTURE
The Indenture will be discharged upon payment or redemption of all of
the PIK Notes issued thereunder. In addition, the Indenture will be discharged
(subject, among other things, to the rights of the holders of PIK Notes to
receive payment in respect of the principal, premium, if any, and interest on
the PIK Notes) 90 days after (i) irrevocable deposit by the Company with the
Trustee of U.S. Legal Tender and/or U.S. government obligations that will
provide money in an amount sufficient to pay the principal of, and premium, if
any, and each installment of interest on the outstanding PIK Notes and (ii)
delivery to the Trustee of a satisfactory opinion of counsel regarding Federal
income tax consequences to the holders of the PIK Notes.
The Company alternatively may omit to comply with certain restrictive
covenants (but must continue to otherwise comply with the Indenture) and such
omission shall not be deemed an Event of Default under the Indenture and the PIK
Notes if, among other things, the Company (i) makes the above-described deposit
and (ii) delivers to the Trustee a satisfactory opinion of counsel regarding the
absence of adverse Federal income tax consequences to the holders of the PIK
Notes.
In order for any discharge to be effective as described above, (i)
there can be no Default or Event of Default that has occurred and is then
continuing, and (ii) such act cannot result in a default under any agreement to
which the Company or any Subsidiary is a party or by which it is bound.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions with the Company; provided, however, if the Trustee acquires
any conflicting interest (as defined in the Senior Subordinated PIK Note
Indenture) and a default exists under the Indenture, the Trustee must eliminate
such conflict or resign.
The holders of 66 2/3% in aggregate principal amount of the PIK Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Senior Subordinated PIK Note Indenture will provide that
in case an Event of Default occurs and is not cured, the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
Person in similar circumstances in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no duty to exercise any of its rights
or powers under the Indenture at the request of any holder of PIK Notes, unless
such holder shall have offered to the Trustee security and indemnity
satisfactory to the Trustee.
CERTAIN DEFINITIONS
"Affiliate" means (i) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
of its Subsidiaries, (ii) any spouse, immediate family member, or other relative
who has the same principal residence of any Person described in clause (i)
above, and (iii) any trust in which any Person described in clause (i) or (ii)
above has a beneficial interest. For purposes of this definition, the term
"control" means (a) the power to direct the management and policies of a Person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise, (b) the beneficial ownership of
10% or more of the voting Capital Stock of a Person (on a fully diluted basis)
or of warrants or other rights to acquire such voting Capital Stock (whether or
not exercisable) in respect of the covenant "Limitation on Transactions with
Affiliates" or (c) the beneficial ownership of 25% or more of such voting
Capital Stock or warrants or other rights in respect of all other provisions of
the Indenture.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of the
products of the number of years from the date of determination to the dates of
each successive scheduled principal (or redemption) payment of such security or
instrument multiplied by the amount of such principal (or redemption) payment by
(ii) the sum of all such principal (or redemption) payments.
"Business Day" means any day other than a Saturday, Sunday or a legal
holiday in the states of Connecticut, New York, Texas or any other relevant
State.
"Capitalized Lease Obligation" of a Person means any obligation that
is required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty, and any refinancing or replacement of such obligation; and such
obligation shall be deemed secured by a Lien on any property or assets to which
such lease relates.
"Capital Stock" means, with respect to any Person, any and all shares
of stock, partnership or other interests, participations or other equivalents of
or interests in (however designated) such Person, including each class of common
stock and preferred stock of such Person, but excluding convertible
Indebtedness.
"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of two years or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or
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instrumentality thereof, provided that the full faith and credit of the United
States of America is pledged in support thereof; (ii) demand and time deposits
and certificates of deposit or acceptance with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$250,000,000; (iii) commercial paper with a maturity of 270 days or less issued
by a corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the Director of Columbia and rated
at least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; (v) overnight bank deposits and bankers
acceptances at any commercial bank meeting the qualifications specified in
clause (ii) above; (vi) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (ii) above
but which is a local depository bank, provided all deposits in the local
depository bank do not exceed $100,000 in the aggregate at any one time; (vii)
deposits available for withdrawal on demand with any commercial bank not meeting
the qualifications specified in clause (ii) above but which is a lender (or bank
affiliate thereof) under the Senior Indebtedness or any Working Capital
Replacement Facility, provided all such deposits do not exceed $5,000,000 in the
aggregate at any one time; (viii) demand and time deposits and certificates of
deposit with any commercial bank organized in the United States not meeting the
qualifications specified in clause (ii) above, provided that such deposits and
certificates support bond, letter of credit and other similar types of
obligations incurred in the ordinary course of business; and (ix) investments in
money market or other mutual funds substantially all of whose assets comprise
securities of the types described in clauses (i) through (v) above.
"Collateral" means any assets of the Company, the Guarantors or any of
their respective Subsidiaries securing the Senior Indebtedness on the date it is
satisfied and discharged in full and defined as Collateral in any of the
Collateral Documents.
"Collateral Documents" means, collectively, the Company Pledge
Agreement, the Company Security Agreement, the Subsidiary Pledge Agreement, the
Subsidiary Security Agreement, the Mortgages and any other security document
entered into by the Company or any Subsidiary to secure its obligations under
the Note Documents, in each case as amended from time to time as permitted by
the Indenture.
"Company Pledge Agreement" means the Company Pledge Agreement, dated
as of the date of the Indenture, between the Company and the Trustee, securing
the Company's obligations under the Note Documents and substantially in the form
attached to the Indenture, as amended from time to time as permitted by the
Indenture.
"Company Security Agreement" means the Company Security Agreement,
dated as of the date of the Indenture, between the Company and the Trustee,
securing the Company's obligations under the Note Documents and substantially in
the form attached to the Indenture, as amended from time to time as permitted by
the Indenture.
"Consolidated Net Worth" of any Person at any date means the aggregate
of capital, surplus and retained earnings of such Person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such Person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity) the amount of capital, surplus and accrued but unpaid dividends
attributable to any Disqualified Capital Stock or treasury stock.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of
such Person (whether now existing or hereafter created or acquired), the
financial statements of which shall be (or should have been) consolidated for
financial statement reporting purposes with the financial statements of such
Person in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time
would be, an Event of Default.
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"Disqualified Capital Stock" means, with respect to any Person,
Capital Stock of such Person that, by its terms or by the terms of any security
into which it is convertible or exchangeable, is, or upon the happening of an
event or the passage of time would be, required to be redeemed or repurchased
(including at the option of the holder thereof) by such Person or any of its
Subsidiaries, in whole or in part, on or prior to a date that is 91 days after
the Maturity Date.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Affiliate" means any Affiliate of the Company as of June 1,
1996, together with such Affiliate's Affiliates as of such date.
"Existing Indebtedness" means Indebtedness of the Company or its
Subsidiaries in existence on the Issue Date and listed on a schedule to the
Indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means any guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness or other obligation. "Guarantee", when used as a verb, has a
correlative meaning.
"Guarantor" means any Person that has executed and delivered the
Subsidiary Guarantee. Guarantor shall include each present and future Wholly
Owned Subsidiary of the Company, except as otherwise provided in the Indenture
regarding the release of Guarantors under certain circumstances.
"Indebtedness" means, without duplication, (a) all liabilities and
obligations, contingent or otherwise, of or with respect to any Person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
(iv) evidenced by bankers' acceptances or similar instruments issued or accepted
by banks, (v) for the payment of money relating to a Capitalized Lease
Obligation, or (vi) evidenced by a letter of credit or a reimbursement
obligation of such Person with respect to any letter of credit; (b) all
obligations of such Person under "interest rate swap," "cap" or "collar"
obligations, foreign currency hedges and similar agreements; (c) all liabilities
of others of the kind described in the preceding clause (a) or (b) that such
Person has Guaranteed or that is otherwise its legal liability and all
obligations to purchase, redeem or acquire any Capital Stock; and (d) all
obligations secured by a Lien (other than a Permitted Lien not described in
clause (g) of the definition of "Permitted Lien") not securing any liability or
obligation that would itself constitute Indebtedness to which the property or
assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such Person are subject, whether or
not the obligations secured thereby shall have been assumed by or shall
otherwise be such Person's legal liability, provided that the amount of such
obligations shall be limited to the lesser of the fair market value of the
assets or property to which such Lien attaches and the amount of the obligation
so secured; and (e) any and all deferrals, renewals, extensions, refinancings
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c) or (d), or this clause (e), whether or not between or
among the same parties.
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition by such Person (whether for cash, property,
services, securities or otherwise) of Equity Interests, bonds, notes,
debentures, partnership or other ownership interests or other securities of such
other Person or any agreement to make any such acquisition; (b) the making by
such Person of any deposit with, or advance, loan or other extension of credit
to, such other Person (including the purchase of property from
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another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other Person) or any commitment to
make any such advance, loan or extension; (c) the entering into by such Person
of any Guarantee of, or other contingent obligation with respect to,
Indebtedness or other liability of such other Person; or (d) the making of any
capital contribution by such Person to such other Person.
"Issue Date" means July 18, 1996.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge or encumbrance of any kind with respect to such asset (including any
agreement to give any Lien). For the purposes of the Indenture, a Person shall
be deemed to own subject to a Lien any asset that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreements, Capitalized Lease Obligation or other title retention agreement
relating to such asset.
"Material Subsidiary" means a Consolidated Subsidiary representing at
least 5% of the book value of the total assets of the Company and its
Consolidated Subsidiaries determined in accordance with GAAP.
"Maturity Date" means July 15, 2003, the Stated Maturity of the PIK
Notes.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Mortgage" means a mortgage or deed of trust and related assignment of
rents between the Company or any Subsidiary that owns or leases any campground
or other significant real estate asset and the Trustee, granting a Lien on such
campground or other real estate securing such Subsidiary's obligations under the
Note Documents (including under the Subsidiary Guarantee (in the case of a
Guarantor) and any Permitted Intercompany Loans) and substantially in the form
attached to the Indenture, as amended from time to time as permitted by the
Indenture.
"Net Cash Proceeds" means the aggregate amount of U.S. Legal Tender
and Cash Equivalents received by the Company or any Subsidiary in respect of an
Asset Sale or the sale of Capital Stock or Subordinated Debt, less the sum of
all reasonable fees, commissions and other out-of-pocket expenses incurred in
connection with such Asset Sale or sale, including the amount (estimated
reasonably and in good faith by the Company) of income, franchise, sales and
other applicable taxes to be paid by the Company or such Subsidiary in
connection with such Asset Sale or sale (as reasonably determined by the Company
in good faith based upon then applicable average tax rates and giving effect to
all applicable deductions, credits and other allowances and payments under tax
sharing agreements), and after giving effect to the repayment of all
Indebtedness secured by, and which became due and payable as a result of the
sale of the subject assets or such sale of Capital Stock or Subordinated Debt,
other than the Senior Indebtedness and the PIK Notes, provided that Net Cash
Proceeds shall in no event be less than zero.
"Net Proceeds" means the aggregate Net Cash Proceeds and fair market
value of property (valued at the fair market value thereof at the time of
receipt in good faith by the Board of Directors of the Company), other than
securities of the Company or any of its Subsidiaries, received by the Company
after the payment of expenses, taxes, commissions, discounts and the like
incurred in connection therewith.
"Note Documents" means, collectively, the PIK Notes, the Indenture
(including the Subsidiary Guarantee) and the Collateral Documents, in each case
as amended from time to time as permitted by the Indenture.
"Permitted Intercompany Secured Loan" means any loan made by the
Company to any Subsidiary that (i) is evidenced by a promissory note, (ii) is
secured by a Lien on substantially all assets of such Subsidiary other than
assets of the kind not required to be pledged as Collateral pursuant to the
Indenture, which Lien shall be subject only to a prior Lien on the same assets,
if any, securing the Senior Indebtedness or, after the date the Collateral
Documents are executed and delivered to the Trustee, the Subsidiary Guarantee,
and (iii) together with a promissory note and any related Collateral and Liens,
is
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pledged to secure the Senior Indebtedness or, after the date the Collateral
Documents are executed and delivered to the Trustee, the Trustee for the benefit
of the holders of the PIK Notes.
"Permitted Investments" means any (i) Investments in the Company, (ii)
Investments in a Wholly Owned Subsidiary or in a Person engaged in a Related
Business which, upon the making of such Investment, will become a Wholly Owned
Subsidiary, provided that such Subsidiary is not subject to any encumbrance or
restriction (other than under the Senior Indebtedness) that has the effect of
restricting the payment by such Subsidiary of dividends to the Company or any
Guarantor or the payment by such Subsidiary of Indebtedness owed to the Company
or any Guarantor or reducing the amount of any such dividends or payments, (iii)
Investments in another Person engaged in a Related Business in connection with a
consolidation, merger or disposition of assets permitted by the covenant
"Limitation on Merger, Sale or Consolidation" and "Limitations on Sales of
Assets and Subsidiary Stock," (iv) Investments in another Person engaged in a
Related Business which is not, or will not (upon the making of such Investment)
become a Wholly-Owned Subsidiary, provided that the aggregate amount invested in
all such Persons shall not exceed $1,000,000 at any time outstanding, (v)
Investments in Cash Equivalents, (vi) any securities received in connection with
Asset Sales to the extent permitted by the covenant "Limitation on Sales of
Assets and Subsidiary Stock," (vii) Investments paid for with Qualified Capital
Stock in a Person engaged in a Related Business, (viii) payments required under
Article IX of the Company's Certificate of Incorporation and (ix) payments in
respect of dissenters' rights to holders of not more than 5% of the Company's
Capital Stock.
"Permitted Liens" means any of the following:
(a) Liens arising by reason of any judgment, decree or order of any court
only to the extent for an amount and for a period not resulting in an
Event of Default with respect thereto and so long as such Lien is being
contested in good faith and is adequately bonded, and any appropriate
legal proceedings that may have been duly initiated for the review of
such judgment, decree or order shall not have been finally adversely
terminated or the period within which such proceedings may be initiated
shall not have expired;
(b) Security for the performance of bids, tenders, trade, contracts (other
than contracts for the payment of money) or leases, surety bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business or appeal bonds, and public and
statutory bonds;
(c) Liens (other than Liens arising under Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) for taxes, assessments or
other governmental charges not yet due or which are being contested in
good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of the Company in
accordance with GAAP;
(d) Liens of carriers, warehousemen, mechanics, landlords, materialmen,
repairmen or other like Liens arising by operation of law in the
ordinary course of business (other than Liens arising under ERISA) and
consistent with industry practices and Liens on deposits made to obtain
the release of such Liens if (i) the underlying obligations are not
overdue for a period of more than 90 days or (ii) such Liens are being
contested in good faith and by appropriate proceedings and adequate
reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP; and banker's liens and rights of set
off arising in the ordinary cause of business;
(e) Easements, rights of way, zoning and similar restrictions and other
similar encumbrances or title defects incurred in the ordinary course
of business and consistent with industry practices that, in the
aggregate, are not substantial in amount, and that do not in any case
materially detract from the value of the property subject thereto (as
such property is used by the Company or a Subsidiary) or interfere with
the ordinary conduct of the business of the Company or any of its
Subsidiaries; provided that any such Liens are not incurred in
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connection with any borrowing of money or any commitment to loan any
money or to extend any credit;
(f) Rights of members and other customers arising in the ordinary cause of
business from memberships, rights to use or related or similar
interests in campgrounds, resorts, or other facilities (whether arising
from the holding of such memberships, rights to use or related or
similar interests, by applicable law or otherwise);
(g) Leases, subleases, permits or other rights to use or occupy property
owned or hereafter acquired by the Company or any of its Subsidiaries
other than Capitalized Lease Obligations;
(h) Pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(i) Liens, incurred in connection with the incurrence of Refinancing
Indebtedness in compliance with the Indenture with respect to
Indebtedness secured by Liens, provided (i) such Liens do not extend to
any additional property or assets and (ii) such Liens are no more
adverse to the interests of holders of the PIK Notes than the Liens
replaced or extended thereby;
(j) Such Liens and items described in paragraph (e) above in existence and
outstanding on the Issue Date as permitted under the terms of the
Senior Indebtedness;
(k) Liens that secure Indebtedness of any Person existing at the time such
Person becomes a Subsidiary of the Company or is merged or consolidated
into or with the Company or a Subsidiary of the Company, provided that
such Liens do not extend to or cover any other property or assets and
were not put in place in anticipation of such acquisition;
(l) Liens in favor of the Trustee (or, in the case of Liens securing
Permitted Intercompany Loans, the Company or any Guarantor) under the
Collateral Documents;
(m) Liens in favor of the Company or any Guarantor, which are assigned to
the Trustee as Collateral for the PIK Notes or the Subsidiary
Guarantee, as applicable; and
(n) Liens of the Company or its Subsidiaries in existence on the Issue
Date, and set forth in Schedule 101B to the Indenture.
"Permitted Purchase Money Indebtedness" means Indebtedness that is
incurred to finance the acquisition or lease after the Issue Date of newly
acquired or leased trailers, vehicles and other movable equipment, fixtures and
other equipment used in connection with the operation of any campground, resort
or other asset, and any refinancing or replacement of such Indebtedness.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated association, government or any agency or political subdivision
thereof or any other entity.
"Qualified Capital Stock" means any preferred stock of the Company
that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed the sum of
(i) the reasonable and customary fees and expenses incurred in connection with
such Refinancing, including any prepayment premium or penalty, plus (ii) the
lesser of (A) the principal amount or, in the case of
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Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (B) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing;
provided that (1) Refinancing Indebtedness of any Subsidiary of the Company
shall only be used to Refinance outstanding Indebtedness or Disqualified Capital
Stock of such Subsidiary, (2) Refinancing Indebtedness shall (x) not have an
Average Life shorter than the Indebtedness or Disqualified Capital Stock to be
so refinanced at the time of such refinancing and (y) in all respects, be no
less subordinated, if applicable, to the rights of holders of the PIK Notes than
was the Indebtedness or Disqualified Capital Stock to be refinanced, (3) such
Refinancing Indebtedness shall have no installment of principal (or redemption)
scheduled to come due earlier than the scheduled maturity of any installment of
principal of the Indebtedness (or Disqualified Capital Stock) to be so
refinanced that was scheduled to come due prior to the Maturity Date and (4)
such Refinancing Indebtedness shall have no installment of interest payable in
cash without the Company's option to pay such interest in kind earlier than the
installments of cash interest on the Indebtedness to be refinanced.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 17, 1996, between the Company and Fleet National
Bank, as Trustee.
"Related Business" means the ownership, operation or management of
campgrounds (whether or not membership based), resorts or other facilities in
the vacation or recreation industry, and the provision of reservations or other
services related thereto, as well as sales and marketing activities related
thereto, conducted or proposed in good faith to be conducted by the Company or
any of its Subsidiaries and any and all materially related businesses conducted
or proposed in good faith to be conducted by the Company or any of its
Subsidiaries in support of and ancillary to the foregoing.
"Representative" means the trustee, agent or representative (if any)
for an issue of Indebtedness.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Payment" means, with respect to any Person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such Person or any Subsidiary of such Person (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Capital Stock) of the Company, dividends or distributions payable to the Company
or any Subsidiary and pro rata dividends or distributions payable to a minority
stockholder of a Subsidiary), (b) any payment on account of the purchase,
redemption or other acquisition or retirement for value of Equity Interests of
such Person or any Subsidiary of such Person other than any such Equity
Interests owned by the Company or any Subsidiary (but excluding (i) payments
required by Article IX of the Company's Certificate of Incorporation and (ii)
payments in respect of dissenters' rights to holders of not more than 5% of the
Company's Capital Stock), (c) any purchase, redemption or other acquisition or
retirement for value of, or any payment in respect of any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such Person or a
Subsidiary of such Person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such Person.
"S&P" means Standard & Poor's Corporation and its successors.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means the indebtedness under the Loan Agreement
(including, without limitation, all credit, guarantee and collateral documents
in respect thereof) whether outstanding on the Issue Date or incurred thereafter
(as the same may be amended, modified, extended, refinanced or replaced from
time to time, provided that the final maturity thereof is not extended more than
one year after the initial final maturity thereof). Any Subordinated
Indebtedness, the proceeds of which are used to refinance the Senior
Indebtedness, shall not be included within this definition.
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"Stated Maturity," means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof).
"Subordinated Indebtedness" means all Indebtedness of the Company or
of its Subsidiaries that (a) is unsecured, (b) is subordinated in right of
payment to the prior payment in full in cash of the PIK Notes or the Subsidiary
Guarantee or Permitted Intercompany Secured Loans owing by such Subsidiary to
the same extent as the PIK Notes and the Subsidiary Guarantee are subordinated
to the Senior Indebtedness, (c) provides that interest thereon may be paid in
cash only after July 15, 2000, (d) matures after the Maturity Date and (e) has
an Average Life not shorter than that applicable to the PIK Notes.
"Subsidiary," with respect to any Person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person or (ii) any other Person (other than a corporation)
in which such Person, one or more Subsidiaries of such Person, or such Person
and one or more Subsidiaries of such Person, directly or indirectly, at the date
of determination thereof has at least a majority ownership interest. Unless
otherwise specified, "Subsidiary" means any Subsidiary of the Company.
"Subsidiary Guarantee" means the unconditional and irrevocable
Guarantees by the Guarantors of the obligations of the Company under the PIK
Notes and the other Note Documents, as contained in the Indenture, as amended
from time to time as permitted by the Indenture.
"Subsidiary Pledge Agreement" means the Subsidiary Pledge Agreement,
dated as of the date of the Indenture, among the Subsidiaries (other than Yuba)
and the Trustee, securing such Subsidiaries' respective obligations under the
Note Documents (including under the Subsidiary Guarantee and Permitted
Intercompany Loans) and substantially in the form attached to the Indenture, as
amended from time to time as permitted by the Indenture.
"Subsidiary Security Agreement" means the Subsidiary Security
Agreement, dated as of the date of the Indenture, among the Subsidiaries (other
than Yuba) and the Trustee, securing the Subsidiaries' respective obligations
under the Note Documents (including under the Subsidiary Guarantee and Permitted
Intercompany Loans) and substantially in the form attached to the Indenture, as
amended from time to time as permitted by the Indenture.
"Trustee" means Fleet National Bank.
"U.S. Legal Tender" means any lawful money of the United States of
America.
"Wholly Owned" means, with respect to any Subsidiary of the Company,
that all the issued and outstanding Capital Stock of such Subsidiary is owned by
the Company, directly or through other Wholly Owned Subsidiaries, as the case
may be.
"Working Capital Replacement Facility" means a credit facility for
working capital purposes (including, without limitation, all credit, guarantee
and collateral documents in respect thereof) not exceeding $10,000,000 in
principal amount at any time outstanding that refinances or replaces the Senior
Indebtedness (as such credit facility for working capital purposes may be
amended, modified, extended, refinanced or replaced from time to time).
"Yuba" means Yuba Investment Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated federal
income tax consequences with respect to the ownership and disposition of the PIK
Notes. This discussion is general in
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nature, and does not discuss all aspects of federal income taxation that may be
relevant to a particular investor in light of the investor's particular
circumstances, or to certain types of investors subject to special treatment
under federal income tax laws (such as individual retirement accounts, insurance
companies, tax-exempt organizations, financial institutions, brokers, dealers,
foreign entities, and taxpayers that are neither citizens nor residents of the
United States). In addition, the discussion does not consider the effect of any
foreign, state, local, or other tax laws, or any United States tax consequences
other than income tax (e.g., estate or gift tax) consequences, that may be
applicable to particular investors. The summary is based upon the Code and
applicable Treasury Regulations (including proposed regulations), rulings,
administrative pronouncements and decisions as of the date hereof, all of which
are subject to change or differing interpretations at any time and in some
circumstances with retroactive effect.
The discussion assumes that holders of the PIK Notes hold their PIK
Notes as "capital assets" (generally property held for investment) within the
meaning of Section 1221 of the Code. Further, this discussion assumes that the
PIK Notes will be treated as debt and not equity for federal income tax
purposes. There can, however, be no assurance that the Internal Revenue Service
(the "Service") would not successfully assert that the PIK Notes were equity of
the Company, in which event the Company would not be allowed a deduction for
original issue discount ("OID") accrued on the PIK Notes. Furthermore, the
Service takes the position that a corporate holder would not be entitled in such
an event to a dividends received deduction.
No rulings from the Service have been or will be requested with
respect to any of the tax issues discussed herein. Moreover, as noted in the
discussion, certain of the issues material to the income tax consequences of
certain transactions are inherently factual in nature, and other issues involve
areas of the law that are ambiguous or with respect to which legal authority is
lacking and as to which the Company is able to offer only limited guidance.
Accordingly, there can be no assurance that the Service will not challenge one
or more of the tax consequences described herein.
THE COMPANY URGES EACH HOLDER OF PIK NOTES TO CONSULT ITS OWN TAX
ADVISOR TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES TO IT OF THE OWNERSHIP AND DISPOSITION OF THE PIK NOTES.
OID With Respect To The PIK Notes
In general, subject to a de minimis rule, a debt obligation will be
treated as being issued with OID if the "stated redemption price at maturity" of
the instrument exceeds such instrument's "issue price."
The stated redemption price at maturity of a debt obligation is the
aggregate of all payments due to the holder under such debt obligation at or
prior to its maturity date, other than interest that is actually and
unconditionally payable in cash or property (other than debt instruments of the
issuer) at a single fixed (or a qualified floating) rate (or a permitted
combination of the two) at least annually ("QSIPs"). During the first four
years of the PIK Notes, interest is payable on a semiannual basis commencing on
January 15, 1997, either in cash or (at least in part) by the issuance of
additional PIK Notes ("Payment-In-Kind Notes"). Because interest on the Notes
may be paid through the issuance of additional Payment-In-Kind Notes, none of
the interest payments on the PIK Notes will qualify as QSIPs, so the stated
redemption price at maturity of the PIK Notes will include all payments of
principal and interest required under the PIK Notes. Furthermore, under the
regulations issued pursuant to the OID provisions of the Code (the "OID
Regulations"), a PIK Note and any Payment-In-Kind Notes issued with respect
thereto are treated as part of the same debt instrument. Accordingly, the
adjusted issue price of the combined PIK Note and Payment-In-Kind Note will not
be reduced upon the issuance of the Payment-In-Kind Note, and the stated
redemption price at maturity of the combined PIK Note and Payment-In-Kind Note
will not change upon the issuance of the Payment-In-Kind Note and will include
the interest payable under the Payment-In-Kind Note.
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Assuming that neither the Secured Notes nor the PIK Notes are traded
on an established securities market within the meaning of the OID provisions of
the Code and the regulations thereunder, the Company believes that the issue
price of each PIK Note equals its stated principal amount, which for purposes of
the OID Regulations is reduced by the prepaid interest paid at the time of the
Restructuring with respect to the PIK Note. (If any of the Secured Notes or the
PIK Notes received in exchange therefor had been traded on an established
securities market within the 30-day period before and after the date of the
exchange of Secured Notes for PIK Notes pursuant to the Restructuring (the
"Exchange"), the investment unit consisting of the PIK Notes and the Common
Stock received on the Exchange would have an issue price equal to its fair
market value, and the issue price of the PIK Notes would be determined by
allocating the issue price of the investment unit between the PIK Notes and the
Common Stock based on their relative fair market values.)
Since the stated redemption price at maturity exceeds the stated
principal amount of the PIK Notes, the PIK Notes were issued with OID.
CONSEQUENCES AS A RESULT OF THE PIK NOTES BEING ISSUED WITH OID
Because the PIK Notes were issued with OID, a holder of PIK Notes,
subject to the adjustments discussed below, will be required to include in gross
income for federal income tax purposes the sum of the daily portions of OID for
each day during the taxable year or portion thereof during which the holder
holds the PIK Notes, whether or not the holder actually receives a payment
relating to OID in such year. The daily portion is determined by allocating to
each day of the relevant "accrual period" a pro rata portion of an amount equal
to (a) the product of (i) the "adjusted issue price" of the PIK Notes at the
beginning of each accrual period, multiplied by (ii) the yield to maturity of
the PIK Notes (determined by semi-annual compounding) less (b) the sum of any
QSIPs during the accrual period. The "adjusted issue price" of a PIK Note at
any given time is its issue price increased by all accrued OID for prior accrual
periods (without regard to the acquisition premium rules discussed below) and
decreased by the amount of any payment previously made on the PIK Notes other
than a QSIP. The accrual period for a PIK Notes (except for any initial short
period) is each six-month period which ends on the day in each calendar year
corresponding to the maturity date of the PIK Notes or the date six months
before such maturity date. As discussed above, none of the payments on the PIK
Notes will qualify as QSIPs. (See "--OID with Respect to the PIK Notes.")
A holder of PIK Notes is required to include OID in income as such OID
accrues, regardless of the holder's method of accounting and regardless of when
such holder receives cash payments relating to the OID. A holder's tax basis in
PIK Notes will be increased by the amount of OID included in the holder's income
and reduced by the amount of all interest payments (other than payments in the
form of Payment-In-Kind Notes) received on the PIK Notes.
The computation of OID and adjusted issue price with respect to the
combined PIK Notes and Payment-In-Kind Notes will take into account accruals and
payments with respect to both instruments, with the result that the holder of
PIK Notes generally will be required to include in income as OID the interest
that accrues under both the PIK Note and any Payment-In-Kind Note issued in
respect thereof, regardless of whether any cash payments are received. Since
each holder of a PIK Note will recognize, as ordinary income, through the
accrual of OID, the full amount of interest with respect to the PIK Notes (as
well as with respect to any Payment-In-Kind Notes issued with respect to such
Notes), such holder generally should not recognize additional ordinary income
upon receipt of a Payment-In-Kind Note or a cash payment of stated interest.
Upon a disposition of a PIK Note or a Payment-In-Kind Note issued in
respect thereof, the holder will be required (unless it disposes of a PIK Note
together with all Payment-In-Kind Notes issued in respect thereof) to allocate
adjusted issue price, stated redemption price at maturity and acquisition
premium (discussed below), if any, of the combined PIK Note and Payment-In-Kind
Note among the instruments retained and the instruments disposed of in order to
determine OID with respect to the retained instruments. Although it is not
clear, it is likely that the adjusted tax basis and adjusted issue price of a
PIK Note would be allocated between such PIK Note and any Payment-In-Kind Notes
issued with respect
37
<PAGE>
thereto at the time of such issuance, based on their respective principal
amounts. OID on the Payment-In-Kind Notes will accrue in the same manner as
described above in respect of the PIK Notes.
A purchaser of a PIK Note who purchases the note at a cost less than
the remaining stated redemption price at maturity but greater than its adjusted
issue price (a purchase at an "acquisition premium") also will be required to
include in gross income the sum of the daily portions of OID on that PIK Note.
(For purposes of these rules, a "purchase" is any acquisition of a debt
instrument.) In computing the daily portions of OID for such a purchaser,
however, the daily portion is reduced by the amount that would be the daily
portion for such day (computed in accordance with the rules set forth above)
multiplied by a fraction, the numerator of which is the amount, if any, by which
the purchaser's basis in the PIK Note on the date of purchase exceeds the
adjusted issue price of the PIK Note at that time, and the denominator of which
is the sum of the daily portions for that PIK Notes for all days beginning on
the date after the purchase date and ending on the maturity date.
Since the PIK Notes will be subject to the AHYDO rules discussed
below, a portion of the OID on the PIK Notes will be taxed as a stock
distribution. See "--Application of High Yield Debt Obligation Rules."
The Company will furnish annually to the Service, and to each U.S.
holder of PIK Notes to whom it is required to report, information relating to
the OID accruing during the calendar year. Holders will be required to
determine for themselves whether, by reason of the rules described above, they
are eligible to report a reduced amount of OID for federal income tax purposes.
MARKET DISCOUNT
A holder of a PIK Note generally will be required to treat any gain
recognized on the sale, exchange, redemption or other disposition of the PIK
Note as ordinary income to the extent of any accrued market discount. The
market discount rules also provide that a holder who acquires a PIK Note at a
market discount may be required to defer the deduction of a portion of any
interest expense that may otherwise be deductible on any indebtedness incurred
or maintained to purchase or carry such PIK Note until the holder disposes of
the PIK Note in a taxable transaction. Accrued market discount on a Secured
Note that was not recognized on the Exchange will carry over and be treated as
accrued market discount on the PIK Note received in the Exchange.
"Market discount" generally is the excess of the stated redemption
price at maturity of a PIK Note (adjusted to exclude any unaccrued OID) over the
holder's tax basis in the PIK Note immediately after its acquisition. In
addition, under a de minimis exception, the amount of market discount is
considered to be zero if it is less than the product of .25% of the stated
redemption price of the PIK Note at maturity multiplied by the number of
complete years from acquisition to maturity. Market discount generally will
accrue ratably during the period from the date of acquisition to the maturity
date of the PIK Note, unless the holder elects to accrue such discount on the
basis of the constant yield method.
A holder of a PIK Note acquired at a market discount may elect to
include the market discount in income as interest as it accrues, in which case
the foregoing rules would not apply. This election would apply to all debt
instruments with market discount acquired by the electing holder on or after the
first day of the first taxable year to which the election applies. The election
may be revoked only with the consent of the Service.
Pursuant to the OID Regulations, holders of debt instruments are
permitted to elect to include all interest, discount (including de minimis
market discount) and premium on a debt instrument in income currently on a yield
to maturity basis. Such election would constitute an election to include market
discount currently in income on all market discount bonds held by such holders.
Holders of PIK Notes are urged to consult their own tax advisors regarding the
availability and advisability of making such an election.
38
<PAGE>
SALE, EXCHANGE OR REDEMPTION
Upon the sale, exchange or redemption of a PIK Note, a holder
generally will recognize gain or loss in an amount equal to the difference
between the amount of cash and the fair market value of the property received
and the holder's adjusted tax basis in the PIK Note. Such gain or loss will be
capital gain or loss, except to the extent of any accrued market discount (see
"Market Discount" above), and will be mid-term gain if the holder's holding
period for the PIK Note exceeds one year but does not exceed eighteen months at
the time of the sale or exchange or redemption, or will be long-term capital
gain or loss if the holder's holding period for the PIK Note exceeds eighteen
months at the time of the sale or exchange, or redemption. Current legislation
does not address how capital loss incurred on the PIK Note will be treated if
the holder's holding period for the PIK Note exceeds one year but does not
exceed eighteen months at the time of the sale or exchange or redemption.
As noted above, the OID Regulations treat a PIK Note and any Payment-
In-Kind Notes issued with respect thereto as a part of the same debt instrument.
If, however, a holder disposes of a PIK Note or a Payment-In-Kind Note
separately, in order to determine the amount of its gain or loss recognized the
holder will be required to allocate adjusted issue price and acquisition premium
of the combined PIK Note and the Payment-In-Kind Notes issued with respect
thereto among the debt instruments retained and disposed of, using the methods
described above. See "Consequences as a Result of a PIK Notes Being Issued With
OID" above.
Under the OID Regulations, an unscheduled payment made on a debt
instrument such as a PIK Note prior to maturity that results in a substantially
pro rata reduction of each payment of principal and interest remaining on the
instrument is treated as a payment in retirement of a portion of the instrument,
which may result in gain or loss to the holder. The gain or loss is calculated
by treating the debt obligation as consisting of two instruments, one that is
retired and one that remains outstanding, and by allocating the adjusted issue
price and the holder's adjusted basis between the two instruments based upon the
relative principal amount of the portion of the obligation that is treated as
retired by the pro rata prepayment. The stated redemption price at maturity of
the OID on the remaining instrument will be determined according to the same
principles discussed earlier. See "-- OID With Respect to the PIK Notes;" " --
Consequences as a Result of the PIK Notes Being Issued with OID."
APPLICATION OF HIGH YIELD DEBT OBLIGATION RULES
As noted above, the PIK Notes were issued with original issue discount
for federal income tax purposes. Under the "AHYDO" rules contained in Sections
163(e) and (i) of the Code, if a debt obligation with a term of more than five
years has "significant" OID, and has a yield to maturity of five percentage
points or more in excess of the "applicable federal rate" (which is announced
monthly by the Service and is generally based on the U.S. Treasury note rate for
instruments of similar maturities), interest deductions with respect to OID
accruing on such instrument may be deferred until such OID is paid in cash, or,
if the yield to maturity exceeds six percentage points above the specified rate,
the deduction for such excess will be denied completely and the OID with respect
to such excess will be treated as dividend income, rather than interest income,
to the holder (provided the issuer has adequate earnings and profits to support
such a dividend).
The PIK Notes were issued with significant OID. Furthermore, assuming
that neither the Secured Notes or the PIK Notes are traded on an established
securities market, the resulting yield to maturity of the PIK Notes of
approximately 13.39% exceeded the July 1996 applicable federal rate of 6.63% by
more than six percentage points (the yield in excess of 12.63% is referred to as
the "disqualified yield"). As a result, the PIK Notes are subject to the AHYDO
rules, and the Company's deduction of OID on the PIK Notes is deferred until the
OID is paid in cash. Furthermore, a portion of the OID (the "disqualified
portion") equal to the portion of the total return on the PIK Note that bears
the same ratio to the total return as the disqualified yield bears to the yield
to maturity on the PIK Note will not be allowed to the Company as a deduction.
A holder of a PIK Note will treat the disqualified portion as a dividend to the
extent that it would have been treated as a dividend if distributed by the
Company with respect to stock in
39
<PAGE>
the Company, and for corporate holders any amount so treated as a dividend is
eligible for the dividends received deduction permitted under the Code.
THE REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement entered into between the Company and
the Trustee should not, absent certain defaults under such agreement (each a
"Registration Default"), have a material effect on the terms of the PIK Notes.
However, if the Company causes a Registration Default with respect to the PIK
Notes, the interest rate on the PIK Notes will increase, thereby creating
additional OID on the PIK Notes. Furthermore, any such increase could increase
the yield to maturity of the PIK Notes for the time period during which the
increased interest rate applied to the PIK Notes such that an additional portion
of the OID on the PIK Notes would be treated as dividend income. See " --
Application of High Yield Debt Obligation Rules." The Company urges each holder
to consult its tax advisor to determine the federal income tax consequences to
it with respect to the possible increased interest rate caused by a Registration
Default.
BACKUP WITHHOLDING
Under the Code, a holder of a PIK Note may be subject, under certain
circumstances, to "backup withholding" at a rate of 31% with respect to payments
in respect of interest and OID thereon or the gross proceeds from the
disposition thereof. This withholding generally applies only if the holder (i)
fails to furnish his or her social security or other taxpayer identification
number ("TIN"), (ii) furnishes an incorrect TIN, (iii) is notified by the
Service that he or she has failed to report properly payments of interest and
dividends and the Service has notified the Company that he or she is subject to
backup withholding, or (iv) fails, under certain circumstances, to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
its correct number and that it is not subject to backup withholding. Any amount
withheld from a payment to a holder under the backup withholding rules does not
constitute additional tax, and is allowable as a credit against such holder's
federal income tax liability, provided that the required information is
furnished to the Service. Holders of PIK Notes should consult their tax
advisers as to their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
EXPERTS
The consolidated financial statements incorporated by reference in
this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
LEGAL MATTERS
The validity of the PIK Notes offered hereby has been passed upon for
the Company by Gibson, Dunn & Crutcher LLP, Dallas, Texas.
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
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 THOUSAND TRAILS, INC.
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
$26,524,745
SENIOR SUBORDINATED
PAY-IN-KIND
NOTES DUE 2003
-------------
Table of Contents
Page
----
Co-Registrants.............................. (iii)
Incorporation of Certain Information
by Reference............................... (iv)
Available Information....................... (iv)
Additional Information...................... (iv)
Reports to Security Holders................. (iv)
Prospectus Summary.......................... 1
Risk Factors................................ 4
The Company................................. 8
Consolidated Ratios of Earnings
to Fixed Charges........................... 9
Use of Proceeds............................. 10
Capitalization.............................. 10
Business.................................... 10
Selling Security Holders.................... 14
Plan of Distribution........................ 15
Description of PIK Notes.................... 16
Certain Federal Income Tax Considerations... 35
Experts..................................... 40
Legal Matters............................... 40 PROSPECTUS
DATED OCTOBER 10, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses (other than the registration fee) are
estimated; however, they include amounts expended in connection with pre-
effective filings. None of them is to be paid by the Selling Security Holders.
The Registrant anticipates that it will incur additional expenses in connection
with any additional post-effective amendments to the Registration Statement and
any supplements to the Prospectus included therein:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.. $ 14,569
Blue Sky fees and expenses........................... 35,000
Printing............................................. 10,000
Accountants' fees and expenses....................... 10,000
Legal fees and expenses.............................. 100,000
Registrar fees and expenses.......................... 9,000
Miscellaneous........................................ 5,431
Total............................................ $184,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Under its Bylaws, the Registrant must indemnify its present and former
directors and officers for the damages and expenses that they incur in
connection with threatened or pending actions, suits, or proceedings arising
because of their status as directors and officers, provided that they acted in
good faith and in a manner that they reasonably believed to be in or not opposed
to the best interests of the Company (or with respect to any criminal action or
proceeding, provided that they had no reasonable cause to believe that their
conduct was unlawful).
The Registrant must advance funds to these individuals to enable them
to defend any such threatened or pending action, suit, or proceeding. The
Registrant cannot release such funds, however, until it receives an undertaking
by or on behalf of the requesting individual to repay the amount if a court of
competent jurisdiction ultimately determines that such individual is not
entitled to indemnification. The Registrant has established trusts (the
"Indemnification Trusts") that will reimburse its present and former directors
and officers for any indemnifiable damages and expenses that they incur and that
will advance to them defense funds. The Registrant contributed $800,000 to the
Indemnification Trusts. Pursuant to the trust agreements, interest on the
Indemnification Trusts corpus becomes part of the trust estate.
The Indemnification Trusts will terminate on the earlier of: (i) the
execution by a majority of the beneficiaries of a written instrument terminating
the trusts, (ii) the exhaustion of the entire trust estate, or (iii) the
expiration of ten years from the establishment of the trusts. The
Indemnification Trusts may not terminate, however, if there is pending or
threatened litigation with respect to a claim by a beneficiary against the
Indemnification Trust, until: (i) a final judgment in such proceeding, (ii) the
execution and delivery of a statement by such beneficiary that assertion of a
threatened claim is unlikely, or (iii) the expiration of all applicable statutes
of limitations. The Registrant possesses a residuary interest in the trust
estates upon termination of the Indemnification Trusts.
Section 145 of the Delaware Corporate Law provides that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a
II-1
<PAGE>
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 actually and reasonably
incurred by him in connection with such action, suit or proceeding if such
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had not reasonable cause to believe was
unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with defense or settlement of such an
action and then, where the person is adjudged to be liable to the corporation,
only if and to the extent that the Court of Chancery of the State of Delaware or
the court in which such action was brought determines that such person is fairly
and reasonably entitled to such indemnity and then only for such expenses as the
court shall deem proper.
The Registrant has entered into Indemnity Agreements with its
directors and officers contractually obligating the Company to provide
indemnification rights substantially similar to those described above.
The Registrant is empowered by Section 102(b)(7) of the Delaware
Corporate Law to include a provision in its Certificate of Incorporation that
limits a director's liability to the Registrant or its stockholders for monetary
damages for breaches of his or her fiduciary duty as a director. The
Registrant's Certificate of Incorporation states that directors shall not be
liable for monetary damages for breaches of their fiduciary duty to the fullest
extent permitted by the Delaware Corporate Law.
The Registrant maintains directors' and officers' insurance for
certain expenses and losses.
Under the Registrant's stock option plans, the Registrant must
indemnify the members of the Board of Directors of the Company and the
Compensation Committee thereof, which committee administers the plans, for any
damages and expenses that they incur in connection with such plans or the making
of awards thereunder, so long as they act in good faith.
Additionally, National American Corporation ("NACO"), a wholly-owned
subsidiary of the Registrant and a Co-Registrant, has indemnification
obligations to its directors and officers. In connection therewith, NACO
contributed $200,000 to a trust. The trust will reimburse the NACO directors
and officers for any indemnifiable damages and expenses that they incur and will
advance defense funds to them.
ITEM 16. EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of October 1, 1996, between the
Registrant and USTrails Inc. (predecessor in interest to the Registrant)
(incorporated by reference to the proxy statement/prospectus filed with
the SEC on October 3, 1996 as part of the Registration Statement on Form
S-4, Registration Statement No. 333-13339 (the "S-4 Registration
Statement")).
2.2 Plan of Reorganization of USTrails Inc. ("USTrails") (which was formerly
known as NACO Finance Corporation), dated October 15, 1991, as
supplemented (incorporated by reference to Exhibit 2.1 to USTrails'
Annual Report on Form 10-K for the year ended June 30, 1992, File No. 0-
19743).
2.3 Exchange Agreement, dated as of June 11, 1992, between the Company and
certain holders of Trails' 14-5/8% Senior Subordinated Notes
(incorporated by reference to Exhibit 4.1 to the Company's Report on Form
8-K filed with the SEC on June 25, 1992, File No. 0-19743).
II-2
<PAGE>
2.4 Agreement and Plan of Merger, dated as of August 2, 1993, among the
Company, Trails Acquisition, Inc., and Trails, as amended (incorporated
by reference to Exhibit C(1) to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 that the Company, Trails Acquisition, Inc., and Trails
originally filed with the SEC on December 21, 1993).
2.5 Offer to Purchase for Cash USTrails' 12% Secured Notes Due 1998 and
Additional Series 12% Secured Notes Due 1998 by USTrails, dated June 5,
1996 (the "Offer to Purchase") (incorporated by reference to Exhibit 99.2
to USTrails' Current Report on Form 8-K filed with the SEC on June 7,
1996, File No. 0-19743).
2.6 Supplement to the Offer to Purchase, dated June 21, 1996 (incorporated by
reference to Exhibit 2.5 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
2.7 Private Placement Memorandum by USTrails offering to exchange USTrails'
12% Secured Notes Due 1998 and Additional Series 12% Secured Notes Due
1998 to certain holders of such notes, dated June 28, 1996 (the "Private
Placement Memorandum") (incorporated by reference to Exhibit 2.6 to
USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
2.8 Letter of Transmittal pertaining to the transmittal of USTrails' 12%
Secured Notes Due 1998 and Additional Series 12% Secured Notes Due 1998
by certain holders of such notes pursuant to the exchange offer made by
USTrails in the Private Placement Memorandum (incorporated by reference
to Exhibit 2.7 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996, File No. 0-19743).
2.9 Supplement to the Private Placement Memorandum, dated July 15, 1996
(incorporated by reference to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
2.10 Offer to Purchase for Cash the Company's 12% Senior Subordinated Pay-In-
Kind Notes Due 2003, dated as of May 20, 1997 (incorporated by reference
to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with
the SEC on July 8, 1997, File No. 0-19743).
4.1 Indenture, dated as of July 17, 1996, among USTrails, Fleet National
Bank, as Trustee, and certain other parties described therein, pertaining
to USTrails' Senior Subordinated Pay-In-Kind Notes Due 2003 (the
"Indenture") (incorporated by reference to Exhibit 4.36 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June 30,
1996).
4.2 First Supplemental Indenture, dated as of November 20, 1996, by and among
the Registrant, each subsidiary of the Registrant named as a subsidiary
guarantor therein and Fleet National Bank, as Trustee (incorporated by
reference to Exhibit 4.2 to the Form 8-B filed by the Registrant with the
SEC on November 27, 1996).
4.3 Form of Senior Subordinated Pay-In-Kind Note Due 2003 (incorporated by
reference to Exhibit 4.37 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
4.4 Registration Rights Agreement, dated as of July 17, 1996, between
USTrails and Fleet National Bank as Trustee (incorporated by reference to
Exhibit 4.38 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996, File No. 0-19743).
II-3
<PAGE>
5.1 Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant, as to
the validity of the securities being registered.
10.1 Loan Agreement, dated as of December 31, 1991, between USTrails and NACO
(incorporated by reference to Exhibit 10.27 to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1992, File No. 0-19743).
10.2 First Amendment to Loan Agreement, dated as of May 20, 1993, between
USTrails and NACO (incorporated by reference to Exhibit 10.48 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1993,
File No. 0-19743).
10.3 Second Amendment to Loan Agreement, dated as of November 10, 1994,
between USTrails and NACO (incorporated by reference to Exhibit 10.3 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.4 Third Amendment to Loan Agreement, dated as of July 1, 1996, between NACO
and the Registrant.
10.5 Amended and Restated Revolving Credit Note, dated as of July 1, 1996,
pursuant to which the Registrant provides a $40,000,000 revolving credit
facility to NACO.
10.6 Amended and Restated Term Loan Note, dated as of July 1, 1996, pursuant
to which the Registrant provided a $10,765,000 term loan to NACO.
10.7 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes USTrails
(incorporated by reference to Exhibit 10.5 to USTrails' Registration
Statement No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.8 Release From Guaranty, dated as of May 31, 1993, among certain
subsidiaries of USTrails, USTrails, and Shawmut Bank Connecticut,
National Association, as Trustee (incorporated by reference to Exhibit
10.56 to USTrails' Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No. 0-19743).
10.9 Release under Loan Agreement and Security Agreement, dated as of May 31,
1993, among certain subsidiaries of USTrails, USTrails, and Shawmut Bank
Connecticut, National Association, as Trustee (incorporated by reference
to Exhibit 10.57 to USTrails' Registration Statement No. 33-571261 on
Form S-2, originally filed with the SEC on January 15, 1993, File No. 0-
19743).
10.10 Security Agreement, dated as of December 31, 1991, pursuant to which
NACO granted to USTrails a security interest in substantially all of its
personal and real property including the pledge of NACO's stock in its
subsidiaries as required by the credit agreement between USTrails and
NACO (incorporated by reference to Exhibit 10.31 to USTrails' Annual
Report on Form 10-K for the year ended June 30. 1992, File No. 0-19743).
10.11 First Supplement and Amendment to Security Agreement, dated as of May
20, 1993, among NACO and certain of its subsidiaries, RPI, USTrails, and
Shawmut Bank Connecticut, National Association, as Trustee (incorporated
by reference to Exhibit 10.53 to USTrails' Registration Statement No. 33-
571261 on Form S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
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<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, File No. 0-19743).
10.13 Form of First Amendment to Mortgage from NACO and its subsidiaries to
USTrails amending certain terms of a Mortgage that previously granted a
beneficial security interest in certain property to USTrails pursuant to
the credit agreement between USTrails and NACO, and schedule of documents
substantially identical to the Form of First Amendment to Mortgage
(incorporated by reference to Exhibit 10.13 to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743).
10.14 Loan and Security Agreement, dated as of July 10, 1996 (the "Loan
Agreement"), between USTrails and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.19 to USTrails' Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
10.15 First Amendment to Loan and Security Agreement, dated as of May 16,
1997, between the Company and Foothill Capital Corporation (incorporated
by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K
filed with the SEC on July 8, 1997, File No. 0-19743).
10.16 Secured Promissory Note (Account Note), dated July 10, 1996, from
USTrails payable to Foothill Capital Corporation (incorporated by
reference to Exhibit 10.20 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
10.17 Secured Promissory Note (Term Note), dated July 10, 1996, from USTrails
payable to Foothill Capital Corporation (incorporated by reference to
Exhibit 10.21 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996, File No. 0-19743).
10.18 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between USTrails and Foothill Capital Corporation, and schedule of
documents substantially identical to the form of Pledge and Security
Agreement (incorporated by reference to Exhibit 10.22 to USTrails' Annual
Report on Form 10-K filed with the SEC for the year ended June 30, 1996,
File No. 0-19743).
10.19 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill
Capital Corporation to secure USTrails' obligations under the Loan
Agreement, and schedule of documents substantially identical to the form
of Mortgage (incorporated by reference to Exhibit 10.23 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June 30,
1996, File No. 0-19743).
10.20 Form of Assignment of Indebtedness and Mortgage, dated as of July 10,
1996, transferring the liens securing certain indebtedness that NACO owes
to USTrails to Foothill Capital Corporation under the Loan Agreement, and
schedule of documents substantially identical to the form of Assignment
of Indebtedness and Mortgage (incorporated by reference to Exhibit 10.24
to USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
II-5
<PAGE>
10.21 Form of Subordination Agreement, dated as of July 10, 1996, between
USTrails and Foothill Capital Corporation, subordinating the security
interests under the credit agreement between USTrails and NACO to the
security interests under the Loan Agreement, and schedule of documents
substantially identical to the form of Subordination Agreement
(incorporated by reference to Exhibit 10.25 to USTrails' Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
10.22 USTrails' 1991 Employee Stock Incentive Plan (incorporated by reference
to Exhibit 10.40 to USTrails' Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
10.23 USTrails' 1993 Stock Option and Restricted Stock Purchase Plan
(incorporated by reference to Exhibit 10.22 to USTrails' Registration
Statement No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.24 USTrails' 1993 Director Stock Option Plan (incorporated by reference to
Exhibit 10.23 to USTrails' Registration Statement No. 33-73284 on Form
S-2, originally filed with the SEC on December 22, 1993, File No.
0-19743).
10.25 Amendment No. 1 to USTrails' 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.8 to USTrails' Quarterly Report
on Form 10-Q for the period ending September 30, 1996, File No. 0-19743).
10.26 Amendment No. 1 to USTrails' 1993 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit 10.9 to USTrails'
Quarterly Report on Form 10-Q for the period ending September 30, 1996,
File No. 0-19743).
10.27 Amendment No. 1 to USTrails' 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to USTrails' Quarterly Report
on Form 10-Q for the period ending September 30, 1996, File No. 0-19743).
10.28 Stock Option Agreement, dated as of August 1, 1996 between USTrails and
William J. Shaw (incorporated by reference to Exhibit 10.26 to the Form
8-B filed by the Registrant with the SEC on November 27, 1996, File No.
0-19743).
10.29 Assumption of Obligations, dated as of November 20, 1996, by the
Registrant, assuming the obligations of USTrails under the USTrails Inc.
1991 Employee Stock Incentive Plan, as amended; the USTrails Inc. 1993
Stock Option and Restricted Stock Purchase Plan, as amended; the USTrails
Inc. 1993 Director Stock Option Plan, as amended; Warrant Certificates
originally issued on December 31, 1991, June 12, and March 2, 1994 to May
16, 1995; and the Stock Option Agreement, dated as of August 1, 1996,
between USTrails and William J. Shaw (incorporated by reference to
Exhibit 10.27 to the Form 8-B filed by the Registrant with the SEC on
November 27, 1996, File No. 0-19743).
10.30 Employment Agreement, dated as of May 11, 1995, between USTrails and
William J. Shaw, and related Standby Letter of Credit, dated September
22, 1995, issued by The Bank of California, N.A., for the benefit of Mr.
Shaw, and Letter, dated September 20, 1995, from The Wyatt Company,
regarding Mr. Shaw's Employment Agreement (incorporated by reference to
Exhibit 10.25 to USTrails' Annual Report on Form 10-K for the year ended
June 30, 1995, File No. 0-19743).
10.31 Letter dated June 29, 1996, from William J. Shaw to USTrails, regarding
Mr. Shaw's election to receive the Enterprise Bonus payable under his
Employment Agreement, and Letter, dated
II-6
<PAGE>
July 8, 1996, from Deloitte & Touche LLP, regarding the computation of
the amount of the Enterprise Bonus payable to Mr. Shaw under his
Employment Agreement (incorporated by reference to Exhibit 10.30 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1996,
File No. 0-19743).
10.32 Amended and Restated Employment Agreement, dated as of September 10,
1992, among NACO, USTrails, RPI, and William F. Dawson (incorporated by
reference to Exhibit 10.49 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1993, File No. 0-19743), and Letter, dated
December 1, 1995, from RPI to William F. Dawson, regarding certain
compensation arrangements (incorporated by reference to Exhibit 10.4 to
USTrails' Quarterly on Form 10-Q for the quarter ended December 31, 1995,
File No. 0-19743).
10.33 Amended and Restated Employment Agreement, dated as of December 2, 1992,
among NACO, USTrails and Walter B. Jaccard (incorporated by reference to
Exhibit 10.1 to USTrails' Quarterly Report on Form 10-Q for the quarter
ended December 31, 1992), and amendment dated November 15, 1994
(incorporated by reference to Exhibit 10.30 to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743), and
amendment dated December 7, 1995 (incorporated by reference to Exhibit
10.1 to USTrails' Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995, File No. 0-19743).
10.34 Amended and Restated Employment Agreement, dated as of October 21, 1993,
between USTrails and Harry J. White, Jr. (incorporated by reference to
Exhibit 99.3 to USTrails' Quarterly Report on Form l0-Q for the quarter
ended September 30, 1993, File No. 0-19743), and amendment dated December
7, 1995 (incorporated by reference to Exhibit 10.2 to USTrails' Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995, File No. 0-
19743).
10.35 Employment Agreement, dated as of August 31, 1995, between USTrails and
R. Gerald Gelinas (incorporated by reference to Exhibit 10.32 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.36 Indemnification Agreement, dated as of February 18, 1992, between
USTrails and Andrew Boas (incorporated by reference to Exhibit 10.23 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1992,
File No. 0-19743), and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.33 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.37 Indemnification Agreement, dated as of September 1, 1995, between
USTrails and William J. Shaw, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.36 to
USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
10.38 Indemnification Agreement, dated as of September 1, 1995, between NACO
and William J. Shaw, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.37 to
USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
10.39 Indemnification Agreement, dated as of May 8, 1991, between USTrails and
Donald W. Hair, and schedule of substantially identical Indemnification
Agreements (incorporated by reference to Exhibit 10.38 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June 30,
1996, File No. 0-19743).
II-7
<PAGE>
10.40 Indemnification Agreement, dated as of November 20, 1996, between the
Registrant and William J. Shaw and schedule of substantially identical
Indemnification Agreements.
10.41 Lease, dated February 24, 1994, as amended, between Carter-Crowley
Properties, Inc. as lessor, and USTrails as lessee, relating to USTrails'
offices in Dallas, Texas (incorporated by reference to Exhibit 10.35 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1994,
File No. 0-19743).
10.42 Lease, dated October 7, 1987, as amended, between Hardy Court Shopping
Center, Inc. as lessor, and NACO as lessee, relating to NACO's offices in
Gautier, Mississippi (incorporated by reference to Exhibit 10.36 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1994,
File No. 0-19743).
10.43 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as The Bank of California, N.A.)
and Old Trails (the "Old Trails Trust Agreement") (incorporated by
reference to Trails' Annual Report on Form 10-K for the year ended June
30, 1992, File No. 0-9246).
10.44 Supplement No. 1 to Grantor Trust Agreement, dated as of July 16, 1996,
by USTrails in favor of Union Bank of California, N.A. (formerly known as
The Bank of California, N.A.) supplementing the Old Trails Trust
Agreement.
10.45 Supplement No. 2 to Grantor Trust Agreement, dated as of November 20,
1996, by the Registrant in favor of Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.) supplementing the Old
Trails Trust Agreement.
10.46 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as The Bank of California, N.A.)
and NACO (incorporated by reference to Exhibit 10.43 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992, File No. 0-19743).
10.47 Grantor Trust Agreement, dated May 8, 1991, between USTrails and Texas
Commerce Bank, N.A. (the "TCB Trust Agreement") (incorporated by
reference to Exhibit 10.41 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-19743).
10.48 Supplement and Succession Agreement to Grantor Trust Agreement, dated as
of October 13, 1992, among Union Bank of California, N.A. (formerly known
as The Bank of California, N.A.), Texas Commerce Bank, National
Association, USTrails, and certain beneficiaries under the TCB Trust
Agreement (incorporated by reference to Exhibit 10.51 to USTrails'
Registration Statement No. 33-571261 on Form S-2, originally filed with
the SEC on January 15, 1993, File No. 0-19743).
10.49 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by
the Registrant in favor of Union Bank of California, N.A. supplementing
the TCB Trust Agreement (incorporated by reference to Exhibit 10.43 to
the Form 8-B filed by the Registrant with the SEC on November 27, 1996,
File No. 0-19743).
10.50 Trust Agreement, dated as of July 22, 1992, establishing USTrails'
Flexible Benefits Plan Trust Fund (incorporated by reference to Exhibit
10.45 to USTrails' Annual Report on Form 10-K for the year ended June 30,
1992, File No. 0-19743).
II-8
<PAGE>
10.51 USTrails Inc. Employee Savings Trust, dated as of July 1, 1994, between
USTrails and its subsidiaries and The Bank of California, N.A., as
trustee (incorporated by reference to Exhibit 10.42 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1994, File No. 0-19743).
10.52 Tax Allocation Agreement, dated as of September 10, 1992, between
USTrails and Resort Parks International (incorporated by reference to
Exhibit 99.6 to USTrails' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, File No. 0-19743).
10.53 Tax Allocation Agreement, dated as of July 1, 1991, between USTrails and
NACO (incorporated by reference to Exhibit 10.44 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1994, File No. 0-19743).
10.54 Tax Allocation Agreement, dated as of October 29, 1993, between USTrails
and Wilderness Management (incorporated by reference to Exhibit 10.46 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1994,
File No. 0-19743).
10.55 Sample form of current Membership Contract (incorporated by reference to
Exhibit 10.54 to the Company's Annual Report on Form 10-K filed with the
SEC for the year ended June 30, 1997, File No. 0-19743).
11.1 Statement re: Computation of Per Share Earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1997, File No. 0-19743).
12.1 Statement of computation of ratio of earnings to fixed charges.
13.1 The Company's Annual Report on Form 10-K for the year ended June 30,
1997.
13.2 The Company's Proxy Statement for the 1997 Annual Meeting of the Company
filed on October 3, 1997.
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 11.1
to the Company's Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1997, File No. 0-19743).
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see signature page of this Registration Statement, as
filed on January 7, 1997).
25.1 Statement of Eligibility of the Trustee on Form T-1.
99.1 Form of Compliance Agreement between the Registrant and Selling Security
Holders.
99.2 Supplement to Compliance Agreement between the Registrant and Selling
Security Holders.
99.3 Additional Supplement to Compliance Agreement between the Registrant and
Selling Security Holders.
II-9
<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-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant and the Co-Registrants named below have duly caused this
Post-Effective Amendment No. 1 to Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 10th day of October, 1997.
THOUSAND TRAILS, INC.,
A DELAWARE CORPORATION
By: /s/ William J. Shaw
-----------------------------------------------
Name: William J. Shaw
Title: President and Chief Executive Officer
CO-REGISTRANTS:
--------------
BEECH MOUNTAIN LAKES CORPORATION
CAROLINA LANDING CORPORATION
CARRIAGE MANOR CORPORATION
CHEROKEE LANDING CORPORATION
CHIEF CREEK CORPORATION
COAST FINANCIAL SERVICES, INC.
DIXIE RESORT CORPORATION
FOXWOOD CORPORATION
G L LAND DEVELOPMENT, INC.
LAKE ROYALE CORPORATION
LAKE TANSI VILLAGE, INC.
LML RESORT CORPORATION
NATCHEZ TRACE WILDERNESS PRESERVE CORPORATION
NATIONAL AMERICAN CORPORATION
QUAIL HOLLOW PLANTATION CORPORATION
QUAIL HOLLOW VILLAGE, INC.
RECREATION LAND CORPORATION
RECREATION PROPERTIES, INC.
RESORT LAND CORPORATION
TANSI RESORT, INC.
THE KINSTON CORPORATION
THE VILLAS OF HICKORY HILLS, INC.
THOUSAND TRAILS (CANADA) INC.
TT OFFSHORE, LTD.
UST WILDERNESS MANAGEMENT CORPORATION
WESTERN FUN CORPORATION
II-11
<PAGE>
WESTWIND MANOR CORPORATION
WOLF RUN MANOR CORPORATION
By: /s/ William J. Shaw
-----------------------------------------------
Name: William J. Shaw
Title: President and Chief Executive Officer
RESORT PARKS INTERNATIONAL, INC.
By: /s/ William F. Dawson*
-----------------------------------------------
Name: William F. Dawson
Title: Chief Executive Officer
*By: /s/ William J. Shaw
---------------------------------------------
William J. Shaw
---------------
Attorney-in-fact
----------------
II-12
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities indicated on October 10, 1997.
REGISTRANT OFFICERS AND DIRECTORS
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
/s/ H. Sean Mathis* Director
- -------------------------------
H. Sean Mathis
/s/ Douglas K. Nelson* Director
- -------------------------------
Douglas K. Nelson
*By: /s/ William J. Shaw
--------------------------
William J. Shaw
Attorney-in-fact
II-13
<PAGE>
CO-REGISTRANT OFFICERS AND DIRECTORS (OTHER THAN RESORT PARKS INTERNATIONAL,
INC. AND COAST FINANCIAL SERVICES, INC.)
Signature Title
- ------------------------------- ------------------------------------------------
/s/ William J. Shaw Director, President
- -------------------------------
William J. Shaw
/s/ Harry J. White, Jr.* Director*, Vice President and Assistant
- ------------------------------- Secretary
Harry J. White, Jr.
/s/ Kenneth E. Hendrycy* Director, Vice President and Secretary or
- ------------------------------- Assistant Secretary
Kenneth E. Hendrycy
/s/ Walter B. Jaccard* Director, Vice President and Secretary or
- ------------------------------- Assistant Secretary
Walter B. Jaccard
/s/ David A. McCrum* Treasurer
- -------------------------------
David A. McCrum
_________________
* National American Corporation only
*By: /s/ William J. Shaw
--------------------------
William J. Shaw
Attorney-in-fact
RESORT PARKS INTERNATIONAL, INC.
Signature Title
- ------------------------------- ------------------------------------------------
/s/ William J. Shaw Director, Vice President
- -------------------------------
William J. Shaw
/s/ Harry J. White, Jr.* Vice President and Assistant Secretary
- -------------------------------
Harry J. White, Jr.
/s/ William F. Dawson* Chief Executive Officer
- -------------------------------
William F. Dawson
/s/ Kenneth E. Hendrycy* Director, Vice President and Assistant Secretary
- -------------------------------
Kenneth E. Hendrycy
/s/ Walter B. Jaccard* Director, Vice President and Secretary
- -------------------------------
Walter B. Jaccard
/s/ Richard D. Kemp* President and Chief Operations Officer
- -------------------------------
Richard D. Kemp
/s/ David A. McCrum* Treasurer
- -------------------------------
David A. McCrum
II-14
<PAGE>
*By: /s/ William J. Shaw
--------------------------
William J. Shaw
Attorney-in-fact
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 October 10, 1997.
COAST FINANCIAL SERVICES, INC.
Signature Title
- ------------------------------- ------------------------------------------------
/s/ William J. Shaw Director, President and Chief Executive Officer
- -------------------------------
William J. Shaw
/s/ Harry J. White, Jr. Director, Vice President and Chief Financial
- ------------------------------- Officer
Harry J. White, Jr.
/s/ Walter B. Jaccard Director, Vice President and Secretary
- -------------------------------
Walter B. Jaccard
/s/ David A. McCrum Vice President and Treasurer
- -------------------------------
David A. McCrum
II-15
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger, dated as of October 1, 1996, between the
Registrant and USTrails Inc. (predecessor in interest to the Registrant)
(incorporated by reference to the proxy statement/prospectus filed with
the SEC on October 3, 1996 as part of the Registration Statement on Form
S-4, Registration Statement No. 333-13339 (the "S-4 Registration
Statement")).
2.2 Plan of Reorganization of USTrails Inc. ("USTrails") (which was formerly
known as NACO Finance Corporation), dated October 15, 1991, as
supplemented (incorporated by reference to Exhibit 2.1 to USTrails'
Annual Report on Form 10-K for the year ended June 30, 1992, File No. 0-
19743).
2.3 Exchange Agreement, dated as of June 11, 1992, between the Company and
certain holders of Trails' 14-5/8% Senior Subordinated Notes
(incorporated by reference to Exhibit 4.1 to the Company's Report on Form
8-K filed with the SEC on June 25, 1992, File No. 0-19743).
2.4 Agreement and Plan of Merger, dated as of August 2, 1993, among the
Company, Trails Acquisition, Inc., and Trails, as amended (incorporated
by reference to Exhibit C(1) to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 that the Company, Trails Acquisition, Inc., and Trails
originally filed with the SEC on December 21, 1993).
2.5 Offer to Purchase for Cash USTrails' 12% Secured Notes Due 1998 and
Additional Series 12% Secured Notes Due 1998 by USTrails, dated June 5,
1996 (the "Offer to Purchase") (incorporated by reference to Exhibit 99.2
to USTrails' Current Report on Form 8-K filed with the SEC on June 7,
1996, File No. 0-19743).
2.6 Supplement to the Offer to Purchase, dated June 21, 1996 (incorporated by
reference to Exhibit 2.5 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
2.7 Private Placement Memorandum by USTrails offering to exchange USTrails'
12% Secured Notes Due 1998 and Additional Series 12% Secured Notes Due
1998 to certain holders of such notes, dated June 28, 1996 (the "Private
Placement Memorandum") (incorporated by reference to Exhibit 2.6 to
USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
2.8 Letter of Transmittal pertaining to the transmittal of USTrails' 12%
Secured Notes Due 1998 and Additional Series 12% Secured Notes Due 1998
by certain holders of such notes pursuant to the exchange offer made by
USTrails in the Private Placement Memorandum (incorporated by reference
to Exhibit 2.7 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996, File No. 0-19743).
<PAGE>
2.9 Supplement to the Private Placement Memorandum, dated July 15, 1996
(incorporated by reference to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
2.10 Offer to Purchase for Cash the Company's 12% Senior Subordinated Pay-In-
Kind Notes Due 2003, dated as of May 20, 1997 (incorporated by reference
to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with
the SEC on July 8, 1997, File No. 0-19743).
4.1 Indenture, dated as of July 17, 1996, among USTrails, Fleet National
Bank, as Trustee, and certain other parties described therein, pertaining
to USTrails' Senior Subordinated Pay-In-Kind Notes Due 2003 (the
"Indenture") (incorporated by reference to Exhibit 4.36 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June 30,
1996).
4.2 First Supplemental Indenture, dated as of November 20, 1996, by and among
the Registrant, each subsidiary of the Registrant named as a subsidiary
guarantor therein and Fleet National Bank, as Trustee (incorporated by
reference to Exhibit 4.2 to the Form 8-B filed by the Registrant with the
SEC on November 27, 1996).
4.3 Form of Senior Subordinated Pay-In-Kind Note Due 2003 (incorporated by
reference to Exhibit 4.37 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
4.4 Registration Rights Agreement, dated as of July 17, 1996, between
USTrails and Fleet National Bank as Trustee (incorporated by reference to
Exhibit 4.38 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996, File No. 0-19743).
5.1* Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant, as to
the validity of the securities being registered.
10.1 Loan Agreement, dated as of December 31, 1991, between USTrails and NACO
(incorporated by reference to Exhibit 10.27 to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1992, File No. 0-19743).
10.2 First Amendment to Loan Agreement, dated as of May 20, 1993, between
USTrails and NACO (incorporated by reference to Exhibit 10.48 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1993,
File No. 0-19743).
10.3 Second Amendment to Loan Agreement, dated as of November 10, 1994,
between USTrails and NACO (incorporated by reference to Exhibit 10.3 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.4* Third Amendment to Loan Agreement, dated as of July 1, 1996, between
NACO and the Registrant.
10.5* Amended and Restated Revolving Credit Note, dated as of July 1, 1996,
pursuant to which the Registrant provides a $40,000,000 revolving credit
facility to NACO.
10.6* Amended and Restated Term Loan Note, dated as of July 1, 1996, pursuant
to which the Registrant provided a $10,765,000 term loan to NACO.
2
<PAGE>
10.7 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes USTrails
(incorporated by reference to Exhibit 10.5 to USTrails' Registration
Statement No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.8 Release From Guaranty, dated as of May 31, 1993, among certain
subsidiaries of USTrails, USTrails, and Shawmut Bank Connecticut,
National Association, as Trustee (incorporated by reference to Exhibit
10.56 to USTrails' Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No. 0-19743).
10.9 Release under Loan Agreement and Security Agreement, dated as of May 31,
1993, among certain subsidiaries of USTrails, USTrails, and Shawmut Bank
Connecticut, National Association, as Trustee (incorporated by reference
to Exhibit 10.57 to USTrails' Registration Statement No. 33-571261 on
Form S-2, originally filed with the SEC on January 15, 1993, File No. 0-
19743).
10.10 Security Agreement, dated as of December 31, 1991, pursuant to which
NACO granted to USTrails a security interest in substantially all of its
personal and real property including the pledge of NACO's stock in its
subsidiaries as required by the credit agreement between USTrails and
NACO (incorporated by reference to Exhibit 10.31 to USTrails' Annual
Report on Form 10-K for the year ended June 30. 1992, File No. 0-19743).
10.11 First Supplement and Amendment to Security Agreement, dated as of May
20, 1993, among NACO and certain of its subsidiaries, RPI, USTrails, and
Shawmut Bank Connecticut, National Association, as Trustee (incorporated
by reference to Exhibit 10.53 to USTrails' Registration Statement No. 33-
571261 on Form S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
10.12 Form of Mortgage from NACO and its subsidiaries to USTrails pursuant to
the credit agreement between USTrails and NACO (incorporated by reference
to Exhibit 10.32 to USTrails' Annual Report on Form 10-K for the year
ended June 30, 1992), and schedule of documents substantially identical
to the Form of Mortgage (incorporated by reference to Exhibit 10.55 to
USTrails' Registration Statement No. 33-571261 on Form S-2, originally
filed with the SEC on January 15, 1993, File No. 0-19743).
10.13 Form of First Amendment to Mortgage from NACO and its subsidiaries to
USTrails amending certain terms of a Mortgage that previously granted a
beneficial security interest in certain property to USTrails pursuant to
the credit agreement between USTrails and NACO, and schedule of documents
substantially identical to the Form of First Amendment to Mortgage
(incorporated by reference to Exhibit 10.13 to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743).
10.14 Loan and Security Agreement, dated as of July 10, 1996 (the "Loan
Agreement"), between USTrails and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.19 to USTrails' Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
10.15 First Amendment to Loan and Security Agreement, dated as of May 16,
1997, between the Company and Foothill Capital Corporation (incorporated
by reference to Exhibit 99.2 to the
3
<PAGE>
Company's Current Report on Form 8-K filed with the SEC on July 8, 1997,
File No. 0-19743).
10.16 Secured Promissory Note (Account Note), dated July 10, 1996, from
USTrails payable to Foothill Capital Corporation (incorporated by
reference to Exhibit 10.20 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
10.17 Secured Promissory Note (Term Note), dated July 10, 1996, from USTrails
payable to Foothill Capital Corporation (incorporated by reference to
Exhibit 10.21 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996, File No. 0-19743).
10.18 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between USTrails and Foothill Capital Corporation, and schedule of
documents substantially identical to the form of Pledge and Security
Agreement (incorporated by reference to Exhibit 10.22 to USTrails' Annual
Report on Form 10-K filed with the SEC for the year ended June 30, 1996,
File No. 0-19743).
10.19 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill
Capital Corporation to secure USTrails' obligations under the Loan
Agreement, and schedule of documents substantially identical to the form
of Mortgage (incorporated by reference to Exhibit 10.23 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June 30,
1996, File No. 0-19743).
10.20 Form of Assignment of Indebtedness and Mortgage, dated as of July 10,
1996, transferring the liens securing certain indebtedness that NACO owes
to USTrails to Foothill Capital Corporation under the Loan Agreement, and
schedule of documents substantially identical to the form of Assignment
of Indebtedness and Mortgage (incorporated by reference to Exhibit 10.24
to USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
10.21 Form of Subordination Agreement, dated as of July 10, 1996, between
USTrails and Foothill Capital Corporation, subordinating the security
interests under the credit agreement between USTrails and NACO to the
security interests under the Loan Agreement, and schedule of documents
substantially identical to the form of Subordination Agreement
(incorporated by reference to Exhibit 10.25 to USTrails' Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
10.22 USTrails' 1991 Employee Stock Incentive Plan (incorporated by reference
to Exhibit 10.40 to USTrails' Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
10.23 USTrails' 1993 Stock Option and Restricted Stock Purchase Plan
(incorporated by reference to Exhibit 10.22 to USTrails' Registration
Statement No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.24 USTrails' 1993 Director Stock Option Plan (incorporated by reference to
Exhibit 10.23 to USTrails' Registration Statement No. 33-73284 on Form S-
2, originally filed with the SEC on December 22, 1993, File No. 0-19743).
4
<PAGE>
10.25 Amendment No. 1 to USTrails' 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.8 to USTrails' Quarterly Report
on Form 10-Q for the period ending September 30, 1996, File No. 0-19743).
10.26 Amendment No. 1 to USTrails' 1993 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit 10.9 to USTrails'
Quarterly Report on Form 10-Q for the period ending September 30, 1996,
File No. 0-19743).
10.27 Amendment No. 1 to USTrails' 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to USTrails' Quarterly Report
on Form 10-Q for the period ending September 30, 1996, File No. 0-19743).
10.28 Stock Option Agreement, dated as of August 1, 1996 between USTrails and
William J. Shaw (incorporated by reference to Exhibit 10.26 to the Form
8-B filed by the Registrant with the SEC on November 27, 1996, File No.
0-19743).
10.29 Assumption of Obligations, dated as of November 20, 1996, by the
Registrant, assuming the obligations of USTrails under the USTrails Inc.
1991 Employee Stock Incentive Plan, as amended; the USTrails Inc. 1993
Stock Option and Restricted Stock Purchase Plan, as amended; the USTrails
Inc. 1993 Director Stock Option Plan, as amended; Warrant Certificates
originally issued on December 31, 1991, June 12, and March 2, 1994 to May
16, 1995; and the Stock Option Agreement, dated as of August 1, 1996,
between USTrails and William J. Shaw (incorporated by reference to
Exhibit 10.27 to the Form 8-B filed by the Registrant with the SEC on
November 27, 1996, File No. 0-19743).
10.30 Employment Agreement, dated as of May 11, 1995, between USTrails and
William J. Shaw, and related Standby Letter of Credit, dated September
22, 1995, issued by The Bank of California, N.A., for the benefit of Mr.
Shaw, and Letter, dated September 20, 1995, from The Wyatt Company,
regarding Mr. Shaw's Employment Agreement (incorporated by reference to
Exhibit 10.25 to USTrails' Annual Report on Form 10-K for the year ended
June 30, 1995, File No. 0-19743).
10.31 Letter dated June 29, 1996, from William J. Shaw to USTrails, regarding
Mr. Shaw's election to receive the Enterprise Bonus payable under his
Employment Agreement, and Letter, dated July 8, 1996, from Deloitte &
Touche LLP, regarding the computation of the amount of the Enterprise
Bonus payable to Mr. Shaw under his Employment Agreement (incorporated by
reference to Exhibit 10.30 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1996, File No. 0-19743).
10.32 Amended and Restated Employment Agreement, dated as of September 10,
1992, among NACO, USTrails, RPI, and William F. Dawson (incorporated by
reference to Exhibit 10.49 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1993, File No. 0-19743), and Letter, dated
December 1, 1995, from RPI to William F. Dawson, regarding certain
compensation arrangements (incorporated by reference to Exhibit 10.4 to
USTrails' Quarterly on Form 10-Q for the quarter ended December 31, 1995,
File No. 0-19743).
10.33 Amended and Restated Employment Agreement, dated as of December 2, 1992,
among NACO, USTrails and Walter B. Jaccard (incorporated by reference to
Exhibit 10.1 to USTrails' Quarterly Report on Form 10-Q for the quarter
ended December 31, 1992), and amendment dated November 15, 1994
(incorporated by reference to Exhibit 10.30 to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743), and
amendment dated December 7, 1995 (incorporated by reference to Exhibit
10.1 to USTrails' Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995, File No. 0-19743).
5
<PAGE>
10.34 Amended and Restated Employment Agreement, dated as of October 21, 1993,
between USTrails and Harry J. White, Jr. (incorporated by reference to
Exhibit 99.3 to USTrails' Quarterly Report on Form l0-Q for the quarter
ended September 30, 1993, File No. 0-19743), and amendment dated December
7, 1995 (incorporated by reference to Exhibit 10.2 to USTrails' Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995, File No. 0-
19743).
10.35 Employment Agreement, dated as of August 31, 1995, between USTrails and
R. Gerald Gelinas (incorporated by reference to Exhibit 10.32 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.36 Indemnification Agreement, dated as of February 18, 1992, between
USTrails and Andrew Boas (incorporated by reference to Exhibit 10.23 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1992,
File No. 0-19743), and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.33 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.37 Indemnification Agreement, dated as of September 1, 1995, between
USTrails and William J. Shaw, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.36 to
USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
10.38 Indemnification Agreement, dated as of September 1, 1995, between NACO
and William J. Shaw, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.37 to
USTrails' Annual Report on Form 10-K filed with the SEC for the year
ended June 30, 1996, File No. 0-19743).
10.39 Indemnification Agreement, dated as of May 8, 1991, between USTrails and
Donald W. Hair, and schedule of substantially identical Indemnification
Agreements (incorporated by reference to Exhibit 10.38 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June 30,
1996, File No. 0-19743).
10.40* Indemnification Agreement, dated as of November 20, 1996, between the
Registrant and William J. Shaw and schedule of substantially identical
Indemnification Agreements.
10.41 Lease, dated February 24, 1994, as amended, between Carter-Crowley
Properties, Inc. as lessor, and USTrails as lessee, relating to USTrails'
offices in Dallas, Texas (incorporated by reference to Exhibit 10.35 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1994,
File No. 0-19743).
10.42 Lease, dated October 7, 1987, as amended, between Hardy Court Shopping
Center, Inc. as lessor, and NACO as lessee, relating to NACO's offices in
Gautier, Mississippi (incorporated by reference to Exhibit 10.36 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1994,
File No. 0-19743).
6
<PAGE>
10.43 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as The Bank of California, N.A.)
and Old Trails (the "Old Trails Trust Agreement") (incorporated by
reference to Trails' Annual Report on Form 10-K for the year ended June
30, 1992, File No. 0-9246).
10.44* Supplement No. 1 to Grantor Trust Agreement, dated as of July 16, 1996,
by USTrails in favor of Union Bank of California, N.A. (formerly known as
The Bank of California, N.A.) supplementing the Old Trails Trust
Agreement.
10.45* Supplement No. 2 to Grantor Trust Agreement, dated as of November 20,
1996, by the Registrant in favor of Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.) supplementing the Old
Trails Trust Agreement.
10.46 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as The Bank of California, N.A.)
and NACO (incorporated by reference to Exhibit 10.43 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992, File No. 0-19743).
10.47 Grantor Trust Agreement, dated May 8, 1991, between USTrails and Texas
Commerce Bank, N.A. (the "TCB Trust Agreement") (incorporated by
reference to Exhibit 10.41 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-19743).
10.48 Supplement and Succession Agreement to Grantor Trust Agreement, dated as
of October 13, 1992, among Union Bank of California, N.A. (formerly known
as The Bank of California, N.A.), Texas Commerce Bank, National
Association, USTrails, and certain beneficiaries under the TCB Trust
Agreement (incorporated by reference to Exhibit 10.51 to USTrails'
Registration Statement No. 33-571261 on Form S-2, originally filed with
the SEC on January 15, 1993, File No. 0-19743).
10.49 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by
the Registrant in favor of Union Bank of California, N.A. supplementing
the TCB Trust Agreement (incorporated by reference to Exhibit 10.43 to
the Form 8-B filed by the Registrant with the SEC on November 27, 1996,
File No. 0-19743).
10.50 Trust Agreement, dated as of July 22, 1992, establishing USTrails'
Flexible Benefits Plan Trust Fund (incorporated by reference to Exhibit
10.45 to USTrails' Annual Report on Form 10-K for the year ended June 30,
1992, File No. 0-19743).
10.51 USTrails Inc. Employee Savings Trust, dated as of July 1, 1994, between
USTrails and its subsidiaries and The Bank of California, N.A., as
trustee (incorporated by reference to Exhibit 10.42 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1994, File No. 0-19743).
10.52 Tax Allocation Agreement, dated as of September 10, 1992, between
USTrails and Resort Parks International (incorporated by reference to
Exhibit 99.6 to USTrails' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, File No. 0-19743).
10.53 Tax Allocation Agreement, dated as of July 1, 1991, between USTrails and
NACO (incorporated by reference to Exhibit 10.44 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1994, File No. 0-19743).
7
<PAGE>
10.54 Tax Allocation Agreement, dated as of October 29, 1993, between USTrails
and Wilderness Management (incorporated by reference to Exhibit 10.46 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1994,
File No. 0-19743).
10.55 Sample form of current Membership Contract (incorporated by reference to
Exhibit 10.54 to the Company's Annual Report on Form 10-K filed with the
SEC for the year ended June 30, 1997, File No. 0-19743).
11.1 Statement re: Computation of Per Share Earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1997, File No. 0-19743).
12.1** Statement of computation of ratio of earnings to fixed charges.
13.1** The Company's Annual Report on Form 10-K for the year ended June 30,
1997.
13.2** The Company's Proxy Statement for the 1997 Annual Meeting of the
Company filed on October 3, 1997.
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 11.1
to the Company's Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1997, File No. 0-19743).
23.1* Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
24.1* Power of Attorney (see signature page of this Registration Statement, as
filed on January 7, 1997).
25.1* Statement of Eligibility of the Trustee on Form T-1.
99.1* Form of Compliance Agreement between the Registrant and Selling Security
Holders.
99.2* Supplement to Compliance Agreement between the Registrant and Selling
Security Holders.
99.3** Additional Supplement to Compliance Agreement between the Registrant
and Selling Security Holders.
______________
* Previously filed with this Registration Statement.
** Filed herewith.
8
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
THOUSAND TRAILS, INC.
STATEMENT OF COMPUTATION OF RATIO
OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
Year Ended Year Ended Year Ended Year Ended Year Ended
30-Jun-97 30-Jun-96 30-Jun-95 30-Jun-94 30-Jun-93
-------------------------------------------------------------
(Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before taxes $7,169 $1,150 ($11,573) ($4,992) ($7,854)
Plus:
Interest expense 5,551 13,128 15,900 17,310 18,403
Amortization of debt dsct, defd gain,
DICosts 1,770 4,565 5,060 4,136 3,846
Interest portion of rental expense (a) 294 319 386 450 503
=============================================================
Total Earnings (Loss) $14,784 $19,162 $9,773 $16,904 $14,898
=============================================================
Fixed Charges:
Interest costs (both expensed and
capitalized) $5,551 $13,128 $15,900 $17,310 $18,403
Amortization of debt discount 1,770 4,565 5,060 4,136 3,846
Interest portion of rental expense 294 319 386 450 503
=============================================================
Total Fixed Charges $7,615 $18,012 $21,346 $21,896 $22,752
=============================================================
Earnings to Fixed Charges Ratio 1.94:1 1.06:1 0.46:1 0.77:1 0.65:1
=============================================================
Deficiency ($7,169) ($1,150) $11,573 $4,992 $7,854
=============================================================
</TABLE>
(a) One-third of rental expense relating to
operating leases has been designated as the
interest portion therof. Management believes
this is a reasonable approximation of the
interest factor.
<PAGE>
Exhibit 13.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-19743
THOUSAND TRAILS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2138671
- ---------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TX 75234
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-2228
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>
At September 19, 1997, the latest practicable date, the aggregate market value
of voting common stock of the Registrant held by nonaffiliates was $12.5
million.
At September 19, 1997, there were 7,386,776 shares of Common Stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10-13) is incorporated by reference
from the Registrant's definitive Proxy Statement for the Registrant's 1997
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission (the "SEC") pursuant to Regulation 14A.
Page 2
<PAGE>
INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
----
PART I
Item 1. Business............................................ 4
Item 2. Properties.......................................... 11
Item 3. Legal Proceedings................................... 15
Item 4. Submission of Matters to a Vote of Security-Holders. 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 16
Item 6. Selected Financial Data............................ 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 21
Item 8. Financial Statements and Supplementary Data........ 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 76
PART III
Item 10. Directors and Executive Officers of the Registrant 77
Item 11. Executive Compensation............................ 77
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 77
Item 13. Certain Relationships and Related Transactions.... 77
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................... 78
Signature Page................................................ 88
Page 3
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
GENERAL. Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is
the successor by merger to USTrails Inc., a Nevada corporation ("USTrails").
Thousand Trails and its subsidiaries (the "Company") own and operate a system of
55 membership-based campgrounds located in 17 states and British Columbia,
Canada, serving 120,000 members as of June 30, 1997. Through its subsidiaries,
the Company also provides a reciprocal use program for members of approximately
380 recreational facilities and manages 48 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 LBJ
Freeway, Suite 200, Dallas, Texas 75234, and its telephone number is (972) 243-
2228.
The Company entered the membership campground business on June 30, 1991, with
the acquisition of 100% of the capital stock of National American Corporation, a
Nevada corporation (collectively with its subsidiaries, "NACO") and 69% of the
capital stock of Thousand Trails, Inc., a Washington corporation (collectively
with its subsidiaries, "Trails"). The Company subsequently increased its
ownership in Trails to 100% through a tender offer and merger and, on July 16,
1996, Trails was merged into the Company. Prior to acquiring NACO and Trails,
the Company purchased contracts receivable generated by them from the sale of
campground memberships on the installment basis. The Company was incorporated
in 1984, NACO was incorporated in 1967, and Trails was incorporated in 1969.
On November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc. The
reincorporation was effected through a merger with a newly formed wholly owned
subsidiary of USTrails that was approved by USTrails' stockholders at their
annual meeting.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts. The Company believes there is a
viable market for campground memberships and that it has a significant
opportunity to compete for campers interested in higher quality facilities and a
higher level of service than is typically available at public campgrounds or
competing private campgrounds. The Company also believes that its flexible
membership products give it a competitive advantage because it offers consumers
the ability to choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five fiscal
years and, accordingly, the Company has downsized its business by closing and
disposing of campgrounds and decreasing campground operating costs and general
and administrative expenses. The Company intends to continue to downsize its
business while its membership base declines. In this regard, the Company will
likely close and dispose of additional campgrounds and it will seek to decrease
other expenses. At the same time, the Company intends to expand its sales and
marketing efforts with a view to stopping the membership decline. The Company
believes that the ultimate size of its campground system and the amounts
realized from future asset sales will depend principally upon the degree to
which the Company can successfully implement this strategy.
Page 4
<PAGE>
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated a restructuring
of its outstanding debt (see "Liquidity and Capital Resources - Debt
Restructuring" in Item 7). This restructuring provided the Company with a new
capital structure and decreased the Company's outstanding debt to a level the
Company believes it can support under its downsized operations.
CAMPGROUND OPERATIONS
CAMPGROUNDS. The Company and its subsidiaries own and operate a network of 55
membership-based campgrounds located in 17 states and British Columbia, Canada.
The Company owns and operates a network of 34 of these campgrounds under the
Thousand Trails logo, and NACO owns and operates a network of 21 of these
campgrounds under the NACO logo. The 55 campgrounds contain a total of
approximately 10,200 acres and 18,400 campsites.
Members using the campgrounds may bring their own recreational vehicles ("RVs"),
tents or other sleeping equipment, or rent travel trailers or cabins located at
the campgrounds or visit for the day. As of June 30, 1997, there were
approximately 77,000 campground members in the Thousand Trails system and 43,000
campground members in the NACO system. However, approximately 35% of the NACO
campground members and approximately 52% of the Thousand Trails campground
members possess the right to use the campgrounds in both networks. The largest
percentage of campground members reside in California (approximately 37%).
Large numbers of campground members also reside in Florida, Oregon, Texas, and
Washington.
Memberships provide the member's family access to the Company's network of
campgrounds, but do not convey a deeded interest in the campgrounds with the
exception of six campgrounds in which members received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
Depending upon member usage, the campgrounds are open year-round or on a
seasonal basis. The campgrounds feature campsites with electrical, water, and
in some cases, sewer connections for RVs, restroom and shower facilities, rental
trailers or cabins, and other recreational amenities. At each campground, a
manager and staff provide security, maintenance, and recreational programs that
vary by location.
The Company derives other campground revenue from renting trailers, cabins, and
sports equipment to members, selling food and other items to members from
convenience stores located at the campgrounds, and providing the members access
to laundry facilities and game machines. The Company also charges members a fee
for storing recreational vehicles and providing food service.
EXISTING MEMBERSHIP. At June 30, 1997, the Company had 120,000 campground
members. The majority of these members have been members for over 10 years.
The Company's membership base has declined significantly over the past five
fiscal years and, net of new sales, the membership base is presently declining
at the rate of approximately 6% per year. The Company attributes this
continuing decline principally to its aging membership base, of whom
approximately 50% are senior citizens. In addition, the Company estimates that
the memberships sold in recent fiscal years will have an expected life that is
significantly shorter than the expected life of the memberships previously sold
by the Company. To stop the continuing decline in its membership base, the
Company must significantly increase its campground membership sales over current
levels.
MEMBERSHIP SALES. As noted above, the majority of the Company's existing
members have been members for over 10 years. The Company's membership sales
declined significantly in the early 1990's due to increasing marketing costs and
other factors. In April 1992, the Company suspended the sale of new campground
memberships because its
Page 5
<PAGE>
sales program was operating at a loss and with negative cash flow. In the fall
of 1992, the Company began to assist campground members desiring to sell their
memberships in the secondary market. During fiscal 1994, the Company determined
that it should increase its sales and marketing efforts in order to replenish
its declining campground membership base, and it began selling new campground
memberships on a limited basis. In May 1995, the Company introduced new
membership products and significantly increased its sales and marketing efforts.
In recent years, the Company has focused its membership sales efforts primarily
on guests referred by existing members and customers referred by RV dealers and
RV manufacturers, whom management believes are more likely to purchase
memberships.
The Company's current membership products offer the consumer a choice of
membership options ranging from the use of one campground to the entire system
of campgrounds with prices ranging from $695 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $329 for
30 nights of use to $1,095 for up to 365 nights of use. The member is charged a
nightly fee for camping more days than are included in the dues option selected.
During fiscal 1997 and 1996, the Company sold approximately 3,400 and 3,100 new
memberships, respectively. The average sales price was $707 in fiscal 1997 and
$779 in fiscal 1996, and the average annual dues level was $332 in fiscal 1997
and $306 in fiscal 1996. During the past two fiscal years, the Company offered
financing for sales with prices of $895 or higher. The Company required a down
payment of at least 25% of the sales price and would finance the balance over a
period of up to 12 months. In August 1997, the Company began offering financing
on certain memberships for periods of up to 36 months. The Company estimates
that the memberships sold in recent fiscal years will have an expected life that
is significantly shorter than the expected life of the memberships previously
sold by the Company.
The Company has the capacity to sell approximately 67,000 additional new
campground memberships in the future, assuming the sale of ten memberships for
each existing campsite. Further downsizing of the Company's business would
reduce this capacity.
MARKETING. The Company's research indicates that camping is a popular and
growing activity in the United States. Camping was the second largest
participant sport/activity in the United States in 1995 with 23% of all
households camping at least once a year. Sales of camping equipment totaled
$1.5 billion annually in 1995 and 1996. In addition, although RV sales were
flat in 1995 and 1996, a recent study by the University of Michigan Survey
Research Center reported that RV sales revenues are expected to grow 4% annually
for at least the next 10 years. Moreover, the Company believes the aging of the
baby boomers will have a positive effect on sales of camping equipment and RVs,
and lead to further growth in family camping. The Company's campgrounds are
located in markets containing approximately 25% of all camping households in the
United States.
While most campers use national or state parks, the Company believes that it has
a significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. Based on the Company's research,
approximately 35% of campers are "amenity" campers, whose needs match the
benefits provided by the Company's campgrounds, such as pools, lodges, sport
courts, and recreational activities. The Company believes the needs of amenity
campers are not being met by underfunded national and state campgrounds. In
addition, the Company believes that it can differentiate its campgrounds and
services from other campgrounds by emphasizing the quality of its facilities and
the benefits and services available at its campgrounds.
DUES. The Company's campground members currently pay annual dues ranging from
$100 to $1,095. The annual dues collected from campground members constitute
general revenue of the Company. The Company uses the dues to fund its operating
expenses, including corporate expenses and the maintenance and operation of the
campgrounds.
Page 6
<PAGE>
However, the membership agreements do not require the Company to use the dues
for any specific purpose.
The average annual dues paid by the Company's campground members was $344 for
the year ended June 30, 1997, $335 for the year ended June 30, 1996, and $329
for the year ended June 30, 1995. The increases resulted primarily from the
annual increase in dues implemented by the Company in accordance with the terms
of the membership agreements. In addition, the Company's new members generally
pay annual dues at a higher level than the older members retiring from the
system.
The membership agreements generally permit the Company to increase annually the
amount of each member's dues by either (i) the percentage increase in the
consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. The Company, however, may not increase the dues on
existing contracts of senior citizens and disabled members who notify the
Company of their age or disability and request that their dues be frozen. At
the present time, approximately 35% of the members have requested that their
dues be frozen because of their age or disability. The Company estimates that
approximately 50% of the campground members are senior citizens eligible to
request that their dues be frozen. The Company is unable to estimate when or if
a significant number of these members will request that their dues be frozen in
the future.
MAINTENANCE AND IMPROVEMENTS. The Company's campgrounds require annual capital
and maintenance expenditures, which have been deferred, in part, as a result of
general cost-cutting measures. During fiscal 1997, the Company spent $4.6
million on major maintenance, repairs, and improvements at the campgrounds and
anticipates that it will spend an additional $4.3 million on similar costs in
fiscal 1998.
RESORT PARKS INTERNATIONAL. NACO members and holders of dual-system
memberships, which permit the member to use the campgrounds in both the NACO and
Thousand Trails systems, may join a reciprocal program operated by Resort Parks
International, Inc. ("RPI"), a wholly owned subsidiary of the Company. The RPI
program offers members reciprocal use of approximately 380 participating
recreational facilities. Members of these participating facilities pay a fee to
RPI that entitles them to use any of the participating facilities, subject to
the limitation that they cannot use an RPI facility located within 125 miles of
their home facility. As of June 30, 1997, there were approximately 89,000 RPI
members, of which approximately 67,000 were members of campgrounds that are not
affiliated with the Company.
CAMPGROUND MANAGEMENT. During fiscal 1994, UST Wilderness Management
Corporation ("Wilderness Management"), a wholly owned subsidiary of the Company,
began to manage public campgrounds for the US Forest Service. As of June 30,
1997, Wilderness Management had entered into management contracts covering 48
campgrounds containing a total of 1,700 campsites. Pursuant to these contracts,
Wilderness Management incurs the expenses of operating the campgrounds and
receives the related revenues, net of a fee paid to the US Forest Service.
These management contracts typically have terms ranging from one to five years.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns at eight
resorts located in seven states. NACO currently owns and operates the resort
amenities at one of these locations. NACO's other interest in the resorts
presently consists of approximately 580 residential lots and other miscellaneous
real estate that NACO intends to sell over the next several years.
Page 7
<PAGE>
SEGMENT FINANCIAL INFORMATION
Segment financial information for the campgrounds and resorts is set forth in
Note 16 to the consolidated financial statements included in Item 8.
ASSET SALES
During fiscal 1997, 1996, and 1995, the Company sold certain of its real estate
assets and received proceeds of $4.7 million, $7.2 million, and $1.1 million,
respectively. During this three-year period, the Company sold the timeshare
operations at the resorts, the country club and golf operations at certain
resorts, and various other properties at the resorts. In addition, the Company
sold or otherwise disposed of several campgrounds and sold excess acreage
associated with certain campgrounds. Subsequent to year-end, the Company sold
additional campgrounds for which it received proceeds of $4.5 million. Over the
next several years, the Company intends to dispose of its remaining assets at
the resorts, any campgrounds that are closed as the Company downsizes, and other
undeveloped, excess acreage associated with the campgrounds. The sale of
campgrounds requires addressing the rights of members associated with such
campgrounds. The impact of these rights is uncertain and could adversely affect
the availability or timing of sale opportunities or the ability of the Company
to realize recoveries from asset sales. In addition, although the Company has
successfully sold assets during the past three years, no assurance exists that
the Company will be able to locate a buyer for any of the remaining assets or
that sales on acceptable terms can be effected.
Under the Credit Agreement (as amended, the "Credit Agreement"), between the
Company and Foothill Capital Corporation ("Foothill"), all proceeds from asset
sales must be paid to Foothill and applied to reduce outstanding borrowings
under the Credit Agreement.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its campground
memberships and resort interests on the installment basis, creating a portfolio
of contracts receivable. This portfolio has declined significantly over the
past five fiscal years as the Company has collected the outstanding contracts
receivable. Since April 1992, the Company has sold only a limited number of
campground memberships and resort interests on an installment basis and, as a
result, the portfolio of contracts receivable will continue to decline.
Interest accrues on the unpaid balance of the contracts receivable at fixed
rates, which vary depending upon the size of the down payment and the length of
the contract. The contracts receivable bear interest at rates ranging from 9.5%
to 16%, with a weighted average stated interest rate of 13% as of June 30, 1997.
Monthly installment payments range from $41 to $170 over the term of the
contracts receivable, which can be up to ten years. The terms of most newer
contracts receivable, however, have averaged two years or less. At June 30,
1997, approximately 96% of the campground members and purchasers of resort
interests had paid for their membership or resort interest in full, and the
remaining outstanding contracts receivable had an average remaining term of
approximately two years.
As of June 30, 1997, the Company owned contracts receivable with an aggregate
principal balance of $12.4 million, consisting of $7.9 million of contracts
receivable associated with the Thousand Trails campgrounds, $3.3 million of
contracts receivable associated with the NACO campgrounds, $1.1 million of
contracts receivable associated with the resorts, and $113,000 of contracts
receivable associated with SoPac Resort Properties, Inc., a former affiliate.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Contracts Receivable " in Item 7.
Page 8
<PAGE>
Under the Credit Agreement between the Company and Foothill, all collections on
the contracts receivable, including principal, interest, and fees, must be paid
to Foothill and applied to reduce outstanding borrowings under the Credit
Agreement.
SEASONALITY
The Company experiences its most significant demand for working capital between
May and October of each year, which period coincides with the highest level of
operating expenses. During the summer, operating expenses increase
significantly because the peak usage of the campgrounds requires seasonal
workers and increased maintenance and operating expenses. In addition, the
majority of the Company's sales and marketing efforts occur during the spring
and summer. On the other hand, most dues collection activity for campground
members occurs during the months of November through April, which is a period of
relatively lower expenses.
GOVERNMENT REGULATION
To operate its campgrounds, the Company must comply with major discretionary
permits or approvals issued by local governments under local zoning ordinances,
master plans for shoreline use, and state environmental policy statutes. The
Company has complied in all material respects with the discretionary permits and
approvals regulating its existing operations.
In addition, to construct improvements at its campgrounds, the Company has
usually been required to obtain permits that are typically non-discretionary and
routinely issued such as building and sanitary sewage permits. The Company has
generally resolved problems concerning the issuance of such permits through
design, operating, or engineering solutions negotiated with local government
officials.
The Company's campgrounds are also subject to a variety of federal and state
environmental statutes and regulations. Certain environmental issues may exist
at some of the campgrounds concerning underground storage tanks, sewage
treatment plants and septic systems, and waste disposal. Management believes
that these issues will not have a material adverse impact on the Company's
operations or financial position, as the Company has conducted environmental
testing to identify and correct a number of these problems, and has removed
substantially all of the underground storage tanks. The Company does not
possess insurance or indemnification agreements with respect to any
environmental liability that it may incur.
Most of the states in which the Company does business have laws regulating
campground membership, timeshare, and lot sales. These laws generally require
comprehensive disclosure to prospective purchasers, and give purchasers the
right to rescind their purchase for three-to-five days after the date of sale.
Some states have laws requiring the Company to register with a state agency and
obtain a permit to market.
In some states, including California, Oregon, and Washington, laws place
limitations on the ability of the owner of a campground to close the campground
unless the members at the campground receive access to a comparable campground.
In these states, members from campgrounds that have been closed by the Company
were reassigned to other campgrounds located in the same general area as the
closed campgrounds. The impact of the rights of members under these laws is
uncertain and could adversely affect the implementation of, and the benefits or
recoveries that may be available from, additional downsizing of the Company's
business.
The government authorities regulating the Company's activities have broad
discretionary power to enforce and interpret the statutes and regulations that
they administer, including the power to enjoin or suspend sales activities,
require or restrict construction of additional
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<PAGE>
facilities, and revoke licenses and permits relating to business activities. The
Company monitors its sales presentations and debt collection activities to
control practices that might violate consumer protection laws and regulations or
give rise to consumer complaints. The Company believes that it has conducted its
sales programs and debt collection activities in substantial compliance with all
applicable federal and state laws and regulations.
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction
may affect the Company's portfolio of contracts receivable. Examples of such
laws include state and federal consumer credit and truth-in-lending laws
requiring the disclosure of finance charges, and usury and retail installment
sales laws regulating permissible finance charges. The Company believes that it
has complied in all material respects with these laws.
In certain states, as a result of government regulations and provisions in
certain of the membership agreements, the Company is prohibited from selling
more than 10 memberships per campsite. At the present time, these restrictions
do not preclude the Company from selling memberships in any state. However,
these restrictions may limit the Company's ability to downsize by closing
campgrounds and reassigning members to other campgrounds.
In a decision to which the Company was not a party, the Mississippi Supreme
Court ruled that the Mississippi Timeshare Rules apply to the sale of campground
memberships in Mississippi. The Company has discussed the ramifications of this
decision with the Mississippi state agency responsible for the administration of
these rules. The Company does not believe that the agency will require the
Company to rescind any sales of campground memberships because of the decision;
however, the agency has the power to do so. The Company has sold $15.9 million
of campground memberships in Mississippi.
COMPETITION
There are approximately 46,000 campgrounds in the United States today, of which
approximately 500 are membership campgrounds. The balance of the campgrounds
are generally open to the public and usually charge fees based on the length of
stay. The 500 membership campgrounds have approximately 400,000 members, of
which 120,000 are the Company's members.
Several companies compete directly with the Company's campground operations.
For example, Resorts USA, Inc., which does business as Outdoor World, sells
memberships to its system of 14 campgrounds, Travel America, Inc. (formerly All
Seasons Resorts, Inc. and Thousand Adventures, Inc.) sells memberships to its
system of 38 campgrounds, and Leisure Time Resorts, Inc. sells memberships to
its system of nine campgrounds. Other companies or individuals operate the
balance of the membership campgrounds. The Company's direct competitors
generally offer their members reciprocal use of other campgrounds through
affiliations. Over the past several years, many of the Company's direct
competitors have experienced financial difficulties, and several competitors
have filed for bankruptcy.
The vast majority of the campgrounds in the United States are operated for the
public by Federal, state, and local governments. Although these public
campgrounds are used by most campers, in recent years, many of these public
campgrounds have experienced overcrowding and increased user fees. The
Company's campgrounds also compete indirectly with timeshare resorts and other
types of recreational land developments that do not involve camping.
The Company's campground operations compete on the basis of location and the
quality of facilities and services offered at the campgrounds. The Company
believes it has a significant opportunity to compete for campers interested in
higher quality facilities and a
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<PAGE>
higher level of service than is typically available at public campgrounds or
competing private campgrounds (see "Marketing").
The operations of Wilderness Management compete directly with approximately five
other companies in bidding for contracts to manage public campgrounds for the US
Forest Service. The Company currently has contracts to manage 48 campgrounds
for the US Forest Service out of a total of 760 such campgrounds operated by
private companies.
Coast to Coast Resorts, RPI's primary competitor and the largest reciprocal use
system, has approximately 350 affiliated campgrounds and in excess of 250,000
members. Both RPI and Coast to Coast Resorts operate vacation clubs offering
travel and lodging discounts and services to their members.
EMPLOYEES
As of June 30, 1997, the Company had 1,289 full-time equivalent employees. Due
to the seasonal nature of the Company's business, the Company has a greater
number of employees during the summer months. The Company does not have any
collective bargaining agreements with its employees and considers its relations
with employees to be satisfactory.
ITEM 2. PROPERTIES
OFFICES. The Company leases office space at 2711 LBJ Freeway, Suite 200,
Dallas, Texas 75234. NACO leases office space at 2325 Highway 90, Gautier,
Mississippi 39553. RPI leases office space at 3711 Long Beach Blvd., Suite
110, Long Beach, California 90807.
CAMPGROUNDS. The Company currently operates 55 campgrounds in 17 states and
British Columbia, Canada. The locations of these campgrounds are shown on the
map on page 13. The amenities presently available at each campground are
indicated on the chart on page 14. The Company owns 54 of these campgrounds and
leases the LaConner campground and a portion of the Lake Tawakoni campground.
The Company has sold undivided interests to members at six of the campgrounds.
Of the 55 campgrounds, 26 operate all year, 22 operate all year, but provide
only limited services during the off-season, and seven operate seasonally only.
ENCUMBRANCES. The Company has granted liens on substantially all of its assets
to secure its obligations under the Credit Agreement between the Company and
Foothill. Under the Credit Agreement, Foothill has agreed to make revolving
loans to the Company in the maximum amount of $12.2 million as of September 19,
1997. Total outstanding borrowings under the Credit Agreement were $8.8 million
as of such date. All of the Company's subsidiaries (other than an immaterial
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the Credit Agreement, and subject to certain limitations, have
granted liens on substantially all of their assets to secure their guarantees.
NACO has also granted liens, subject to certain limitations, on substantially
all of its assets to secure the repayment of its indebtedness to the Company,
which totaled $28.2 million at June 30, 1997. These security interests were
subordinated to the security interests securing the guarantees of the Credit
Agreement. The indebtedness that these security interests secure, however, is
pledged by the Company to Foothill to secure its obligations under the Credit
Agreement, and these security interests have been collaterally assigned to
Foothill. Furthermore, the subsidiaries of NACO each guaranteed their parent's
indebtedness to the
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Company and granted security interests in substantially all of their assets to
secure such guarantees.
The Subsidiary Guarantors have also fully and unconditionally guaranteed, on a
joint and several basis, the Company's obligations under the Senior Subordinated
Pay-In-Kind Notes Due 2003 (the "PIK Notes") that were issued on July 17, 1996,
as well as the PIK Notes issued in lieu of cash payment of interest. The PIK
Notes are presently unsecured. However, upon payment in full of all of the
Company's obligations under the Credit Agreement with Foothill, the PIK Notes
will be secured by the same assets as then secure the Credit Agreement other
than cash and cash equivalents and other assets required to secure any
refinancing or replacement of the borrowings provided by the Credit Agreement
for working capital purposes. This replacement credit facility may be secured by
substantially all of the assets of the Company and its subsidiaries other than
certain excluded assets, provided it does not exceed $10.0 million in principal
amount.
One of the Thousand Trails campgrounds and two of the NACO campgrounds are also
subject to mortgages in favor of the party from whom the property was purchased.
Some states, including California, Oregon, and Washington, have nondisturbance
statutes that place limitations on the ability of the owner of a campground to
sell or close, or a lienholder to foreclose a lien on, a campground. In certain
states, these statutes permit sale, closure, or foreclosure if the holders of
related memberships receive access to a comparable campground. The mortgages on
the Company's campgrounds that were granted to secure the Company's obligations
under the Credit Agreement, and any mortgages on the Company's campgrounds that
are granted in the future to secure the Company's obligations under the PIK
Notes, contain or will contain similar nondisturbance provisions. As a
consequence, although the Company may be able to sell or close some of its
campgrounds as it has done in the past, a sale or closure of significant numbers
of campgrounds would likely be limited by state law or the membership contracts
themselves, and foreclosure of the campground liens in such significant numbers
would also likely be limited. The impact of the rights of members under these
laws and nondisturbance provisions is uncertain and could adversely affect the
availability or timing of sale opportunities or the ability of the Company or
lienholder to realize recoveries from asset sales.
OTHER. The Company owns approximately 580 residential lots and other
miscellaneous real estate at eight resorts located in seven states, and various
other parcels of undeveloped real estate, that it intends to sell over time.
Page 12
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THOUSAND TRAILS, INC.
CAMPGROUNDS
[A MAP OF THE UNITED STATES OF AMERICA WITH PLOT POINTS DEPICTING
THOUSAND TRAILS AND NACO CAMPGROUND LOCATIONS APPEARS HERE]
THOUSAND TRAILS CAMPGROUNDS NACO CAMPGROUNDS
--------------------------- ----------------
BRITISH COLUMBIA TEXAS WASHINGTON INDIANA
- ---------------- ----- ---------- -------
Cultus Lake Medina Lake Birch Bay Indian Lakes
Galveston Island Little Diamond
WASHINGTON Lake Conroe Rainier VIRGINIA
- ---------- Colorado River Long Beach --------
LaConner Lake Whitney Virginia Landing
Mount Vernon Lake Texoma OREGON
Chehalis Lake Tawakoni ------ NEW JERSEY
Leavenworth South Jetty ----------
MICHIGAN Chestnut Lakes
OREGON -------- CALIFORNIA
- ------ St. Clair ----------
Bend Lake Minden
Pacific City INDIANA Russian River
------- Snowflower
CALIFORNIA Horseshoe Lakes Turtle Beach
- ---------- Yosemite
Donner Pass OHIO Windsor
Lake of the Springs ---- Rancho Oso
Morgan Hill Wilmington Wilderness Lakes
San Benito Kenissee Lake
Soledad Canyon TEXAS
Idyllwild PENNSYLVANIA ------
Pio Pico ------------ Bay Landing
Oakzanita Springs Hershey
Palm Springs MISSISSIPPI
VIRGINIA -----------
NEVADA -------- Indian Point
- ------ Lynchburg
Las Vegas Chesapeake Bay SOUTH CAROLINA
--------------
ARIZONA NORTH CAROLINA Carolina Landing
- ------- --------------
Verde Valley Forest Lake TENNESSEE
---------
FLORIDA Natchez Trace
- ------- Cherokee Landing
Orlando
Page 13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAMPGROUND FAMILY TRAILERS
FACILITIES AND ACREAGE RV TENT ADULT CENTER/ POOL TENNIS ATHLETIC VEHICLE RESTROOMS (SEASONAL
AMENITIES SITES SITES LODGES PAVILION COURT COURT STORAGE SHOWERS AVAILABILITY
- ------------------------------------------------------------------------------------------------------------------------------------
Thousand Trails
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bend 93 300 10 1 1 2 2 1 1 6 17
- ------------------------------------------------------------------------------------------------------------------------------------
Chehalis 306 278 1 1 2 2 2 1 8 9
- ------------------------------------------------------------------------------------------------------------------------------------
Chesapeake Bay 280 373 19 1 1 2 1 1 1 4 50
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado River 217 128 1 1 1 1 1 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cultus Lake 14 216 12 1 1 1 2 2 1 4 5
- ------------------------------------------------------------------------------------------------------------------------------------
Donner Pass 360 414 6 1 2 2 1 8 18
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Lake 205 294 12 1 1 2 2 1 1 3 14
- ------------------------------------------------------------------------------------------------------------------------------------
Galveston Island 85 122 1 1 1 1 1 10
- ------------------------------------------------------------------------------------------------------------------------------------
Hershey 196 310 1 1 1 1 1 1 3 38
- ------------------------------------------------------------------------------------------------------------------------------------
Horseshoe Lakes 202 118 1 1 2 1 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
Idyllwild 181 287 38 1 1 1 3 1 6 35
- ------------------------------------------------------------------------------------------------------------------------------------
Kenisee Lake 159 110 10 1 1 1 1 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
LaConner 106 313 1 1 1 1 6 18
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Conroe 130 285 1 1 1 2 2 1 4 25
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Of The Springs 176 541 12 1 1 1 1 2 1 12 25
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Tawakoni 300 318 1 1 1 2 1 1 5 30
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Texoma 198 319 2 1 1 2 1 1 6 34
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Whitney 253 244 3 1 1 2 1 1 1 5 22
- ------------------------------------------------------------------------------------------------------------------------------------
Las Vegas 11 217 2 1 1 2 1 3 10
- ------------------------------------------------------------------------------------------------------------------------------------
Leavenworth 279 275 1 1 2 4 2 1 8 7
- ------------------------------------------------------------------------------------------------------------------------------------
Lynchburg 150 223 1 1 1 2 6 1 5 20
- ------------------------------------------------------------------------------------------------------------------------------------
Medina Lake 260 387 1 1 1 1 1 4 34
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Hill 62 317 28 1 1 1 1 1 1 7 27
- ------------------------------------------------------------------------------------------------------------------------------------
Mount Vernon 185 248 3 1 1 1 1 1 6 4
- ------------------------------------------------------------------------------------------------------------------------------------
Oakzanita Springs 148 135 30 1 1 1 1 1 2 15
- ------------------------------------------------------------------------------------------------------------------------------------
Orlando 269 734 1 1 2 2 1 7 30
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific City 105 305 1 1 1 1 2 1 5 16
- ------------------------------------------------------------------------------------------------------------------------------------
Palm Springs 28 392 1 1 1 1 1 4 24
- ------------------------------------------------------------------------------------------------------------------------------------
Pio Pico 182 500 12 1 1 2 5 3 8 20
- ------------------------------------------------------------------------------------------------------------------------------------
San Benito 200 517 51 1 1 2 1 1 7 32
- ------------------------------------------------------------------------------------------------------------------------------------
Soledad Canyon 230 809 9 1 1 2 2 3 1 14 45
- ------------------------------------------------------------------------------------------------------------------------------------
Saint Clair 110 96 8 1 1 1 1 3 13
- ------------------------------------------------------------------------------------------------------------------------------------
Verde Valley 300 333 6 2 1 1 2 3 12
- ------------------------------------------------------------------------------------------------------------------------------------
Wilmington 109 125 1 1 1 1 2 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
NACO
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Landing 305 257 1 1 1 1 2 24
- ------------------------------------------------------------------------------------------------------------------------------------
Birch Bay 30 215 8 1 1 1 1 3 8
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Landing 119 193 1 2 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Cherokee Landing 55 341 1 1 1 1 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Chestnut Lake 31 179 1 1 1 1 1 23
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Lakes 545 1088 50 2 1 3 2 2 1 5 12
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Point 11 157 1 2 1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Minden 97 162 161 1 1 1 1 3 13
- ------------------------------------------------------------------------------------------------------------------------------------
Little Diamond 200 541 100 1 4 1 1 1 5 4
- ------------------------------------------------------------------------------------------------------------------------------------
Long Beach 17 120 20 1 1 1 2 6
- ------------------------------------------------------------------------------------------------------------------------------------
Natchez Trace 623 561 1 2 1 1 5
- ------------------------------------------------------------------------------------------------------------------------------------
Rainier 107 609 300 1 1 1 1 10 9
- ------------------------------------------------------------------------------------------------------------------------------------
Rancho Oso 310 219 50 1 1 1 1 1 3 25
- ------------------------------------------------------------------------------------------------------------------------------------
Russian River 42 125 30 1 4 7
- ------------------------------------------------------------------------------------------------------------------------------------
Snowflower 720 248 10 1 1 11 7
- ------------------------------------------------------------------------------------------------------------------------------------
South Jetty 60 162 10 1 1 1 1 5 18
- ------------------------------------------------------------------------------------------------------------------------------------
Turtle Beach 39 72 120 1 2 6
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Landing 339 262 1 1 1 3 10
- ------------------------------------------------------------------------------------------------------------------------------------
Wilderness Lakes 74 523 5 1 1 2 1 1 1 8 34
- ------------------------------------------------------------------------------------------------------------------------------------
Windsor 17 95 25 1 1 1 1 8
- ------------------------------------------------------------------------------------------------------------------------------------
Yosemite Lakes 387 379 131 1 1 1 8 33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAMPGROUND CHILDREN'S BOAT
FACILITY AND HORSESHOE PLAY TRADING MINIATURE SHUFFLE LAUNCH/ LAUNDRY CABINS/
AMENITIES PITS AREA POST GOLF BOARD SPA VOLLEYBALL MARINA FACILITY LODGING
- ------------------------------------------------------------------------------------------------------------------------------------
Thousand Trails
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bend 4 2 1 1 1 1 1 7
- ------------------------------------------------------------------------------------------------------------------------------------
Chehalis 7 1 1 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Chesapeake Bay 6 3 1 1 2 1 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado River 4 2 1 1 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Cultus Lake 2 2 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Donner Pass 6 2 1 8 1 1 1 6
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Lake 4 2 1 1 2 2 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Galveston Island 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Hershey 4 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Horseshoe Lakes 4 10 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Idyllwild 4 3 1 1 2 1 3 4
- ------------------------------------------------------------------------------------------------------------------------------------
Kenisee Lake 2 2 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LaConner 6 3 1 1 3 1 1 1 1 17
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Conroe 8 2 1 1 2 1 2 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Of The Springs 8 3 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Tawakoni 8 2 1 1 8 2 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Texoma 6 2 1 1 2 2 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Whitney 8 2 1 1 2 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Las Vegas 2 1 1 1 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Leavenworth 5 2 1 1 4 1 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
Lynchburg 7 2 1 1 2 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Medina Lake 4 3 1 1 4 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Hill 4 3 1 1 4 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Mount Vernon 4 2 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Oakzanita Springs 4 3 1 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Orlando 6 2 1 1 16 1 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific City 12 2 1 1 1 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Palm Springs 4 1 2 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Pio Pico 12 3 1 1 8 2 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
San Benito 4 4 1 1 6 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Soledad Canyon 13 7 1 1 8 1 4 1
- ------------------------------------------------------------------------------------------------------------------------------------
Saint Clair 2 2 1 1 1 1 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Verde Valley 8 3 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Wilmington 2 2 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
NACO
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Landing 6 1 1 1 4 1 1 1 34
- ------------------------------------------------------------------------------------------------------------------------------------
Birch Bay 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Landing 4 1 1 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Cherokee Landing 3 1 1 1 2 1 1 30
- ------------------------------------------------------------------------------------------------------------------------------------
Chestnut Lake 2 1 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Lakes 8 3 1 1 2 3 1 3 54
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Point 1 1 1 1 1 1 1 16
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Minden 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Little Diamond 3 3 1 2 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Long Beach 2 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Natchez Trace 1 4 1 1 1 1 1 58
- ------------------------------------------------------------------------------------------------------------------------------------
Rainier 8 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Rancho Oso 4 1 1 1 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Russian River 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Snowflower 3 1 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
South Jetty 3 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Turtle Beach 2 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Landing 2 2 1 1 2 1 1 1 19
- ------------------------------------------------------------------------------------------------------------------------------------
Wilderness Lakes 6 2 1 1 3 3 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Windsor 3 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Yosemite Lakes 4 1 1 1 1 1 2 32
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Johnnie Lacy v. Thousands Trails, Inc., Civil Action No C-96 004411, filed
- -------------------------------------
February 1, 1996, in the United States District Court for the Northern District
of California. In this action, the plaintiffs allege that the Company's
campgrounds in California fail to comply with the Americans with Disabilities
Act and related California statutes (collectively, the "ADA"). On July 23,
1997, the Court certified a class of plaintiffs and tentatively approved a
settlement agreement between the Company and representatives of the class. The
settlement agreement requires the Company to bring its campgrounds in California
into compliance with the ADA by spending $75,000 on such campgrounds every 18
months until they comply fully with the ADA. The settlement agreement also
requires the Company to pay $10,500 to the individual representative of the
class of plaintiffs, $10,000 to a disability rights foundation, and $39,500 to
the plaintiffs' attorneys. The settlement agreement is not binding on the
parties until it is approved by the Court following a "fairness" hearing, which
is tentatively scheduled to be held on November 4, 1997. Assuming it is
approved by the Court, management does not believe that the settlement agreement
will have a material adverse impact on the Company's operations or financial
position.
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
Page 15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
REINCORPORATION MERGER. On November 20, 1996, the Company, then known as
USTrails, reincorporated in the state of Delaware and changed its name to
Thousand Trails, Inc. The reincorporation was effected through a merger (the
"Merger") with a newly formed wholly owned subsidiary of USTrails that was
approved by USTrails' stockholders at their annual meeting. In the Merger, each
share of USTrails common stock, par value $.01 per share ("USTrails Common
Stock"), outstanding prior to the Merger was converted into one share of the
Company's common stock, par value $.01 per share ("Common Stock"), and each
outstanding stock option, warrant, or other right to purchase or receive
USTrails Common Stock was converted into a similar stock option, warrant, or
other right to acquire Common Stock. The principal purposes of the Merger were
to implement the transfer restrictions described below and to change the
Company's state of incorporation to Delaware.
MARKET AND TRADING. From 1992 through November 20, 1996, the USTrails Common
Stock was publicly traded in the over-the-counter market under the symbol USTQ.
Since the Merger on November 20, 1996, the Common Stock has been publicly traded
in the over-the-counter market under the symbol TRLS. As the Common Stock does
not trade every day and the trading volume is often small, the Common Stock may
not be deemed to be traded in an established public trading market. The
following chart and table set forth for the fiscal periods indicated, the high
and low bid quotations as quoted through the NASD OTC Bulletin Board and the
National Quotation Bureau's Pink Sheets. Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
[A CHART WITH PLOT POINTS DEPICTING THE HIGH AND LOW BID QUOTATIONS
FOR EACH OF THE FOUR FISCAL QUARTERS OF 1996 AND 1997 APPEARS HERE]
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1996: First Quarter 5/8 1/4
Second Quarter 5/8 1/4
Third Quarter 3/4 1/4
Fourth Quarter 5/8 1/4
1997: First Quarter 1 1/8 1/2
Second Quarter 1 5/16 15/16
Third Quarter 1 31/32 1 5/16
Fourth Quarter 2 7/16 1 3/4
</TABLE>
Page 16
<PAGE>
As of September 19, 1997, the Company's Common Stock was held by 118 holders of
record. Moreover, security position listings available to the Company listed
approximately 700 beneficial holders of Common Stock.
ABSENCE OF DIVIDENDS. Since inception, the Company has not paid any dividends.
The Credit Agreement with Foothill prohibits the payment of any cash dividends
on the Common Stock, without the consent of Foothill, until the borrowings under
the Credit Agreement are repaid. In addition, the Indenture for the PIK Notes
prohibits the payment of any cash dividends on the Common Stock until the PIK
Notes are repaid.
TRANSFER RESTRICTIONS. The Company's Common Stock is subject to transfer
restrictions designed to avoid an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended ("the Code").
These transfer restrictions are designed to help assure that the Company's
substantial net operating loss carryforwards ("NOLs"), which are estimated to
total $47.9 million at June 30, 1997, will continue to be available to offset
future taxable income. Section 382 of the Code limits the use of NOLs and other
tax benefits by a company that has undergone an ownership change.
Such restrictions are set forth in Article IX of the Company's Restated
Certificate of Incorporation. Article IX generally restricts, until June 30,
2011 (or earlier in certain events), direct or indirect transfer of Common Stock
that would without the approval of the Board of Directors of the Company (i)
increase to more than 4.75% the percentage ownership of Common Stock of any
person who at any time during the preceding three-year period did not own more
than 4.75% of the Common Stock, (ii) increase the percentage of Common Stock
owned by any person that during the preceding three-year period owned more than
4.75% of the Common Stock, or by any group of persons treated as a "5 Percent
Shareholder" (as defined in the Code but substituting "4.75%" for "5 Percent"),
or (iii) cause an "ownership change" of the Company. Article IX provides that
any direct or indirect transfer of Common Stock in violation of Article IX is
void ab initio as to the purported transferee, and the purported transferee will
not be recognized as the owner of shares acquired in violation of Article IX for
any purpose, including for purposes of voting and receiving dividends or other
distributions in respect of Common Stock. Any shares purportedly acquired in
violation of Article IX will be transferred to a trustee who will be required to
sell them.
Generally, the transfer restrictions contain several exceptions. For example,
the restrictions will not prevent a transfer if, in the determination of the
Board of Directors of the Company, the transfer does not result in any greater
aggregate increase in Common Stock ownership by 5% shareholders. Also, the
restrictions will not prevent a transfer if the purported transferee obtains the
approval of the Board of Directors of the Company, which approval shall be
granted or withheld in the sole and absolute discretion of the Board of
Directors, after considering all facts and circumstances including, but not
limited to, future events deemed by the Board of Directors to be relevant.
Finally, the transfer restrictions only apply with respect to the amount of
Common Stock purportedly transferred in excess of the threshold established in
the transfer restrictions.
These transfer restrictions (i) may have the effect of impeding the attempt of a
person or entity to acquire a significant or controlling interest in the
Company, (ii) may render it more difficult to effect a merger or similar
transaction even if such transaction is favored by a majority of the
stockholders, and (iii) may serve to make a change in management more difficult.
The purpose of the transfer restrictions is to preserve tax benefits, however,
not to insulate the Company or management from change. The Company believes the
tax benefits of the transfer restrictions outweigh any anti-takeover effect they
may have.
The application of these transfer restrictions to any particular stockholder
will depend on the stockholder's ownership of Common Stock, determined after
applying numerous
Page 17
<PAGE>
attribution rules prescribed by the Code and related regulations, and will also
depend on the history of trading of the Common Stock. As a result, stockholders
are urged to consult their tax advisors with respect to any planned purchase or
sale of Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES. On July 17, 1996, the Company
consummated a restructuring (the "Restructuring") of its 12% Secured Notes due
1998 (the "Secured Notes") whereby all of the $101,458,000 principal amount of
Secured Notes outstanding were retired. As part of the Restructuring, the
Company issued $40,218,000 principal amount of PIK Notes and 3,680,550 shares of
Common Stock, and paid $32,716,000 in cash, plus accrued interest on the Secured
Notes, in exchange for $81,790,000 in principal amount of Secured Notes. The PIK
Notes and Common Stock were acquired by exchanging Secured Noteholders, all of
whom confirmed their status as "accredited investors," in an exchange that met
the requirements of Rule 506 under Regulation D under the Securities Act of
1933, as amended. The PIK Notes were guaranteed by the Subsidiary Guarantors. On
January 15, 1997, the Company issued to the holders of the PIK Notes an
additional $2.4 million principal amount of PIK Notes as interest.
At the time of the Restructuring, the Company agreed to file registration
statements with respect to the resale by exchanging Secured Noteholders of the
Common Stock and PIK Notes received by them in the Restructuring. The Common
Stock was registered in October 1996 in connection with the Company's
reincorporation merger. The resale of the PIK Notes is covered by a
registration statement in which a majority of the exchanging Secured Noteholders
are participating.
Page 18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
The following historical Selected Financial Data has been restated for all
periods presented because the Company has changed its accounting method to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold (see Note 1 to the consolidated financial statements
included in Item 8).
<TABLE>
<CAPTION>
For the year ended June 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
(Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $ 78,413 $ 91,022 $ 91,392 $101,697 $ 97,620
Campground membership dues 39,945 39,924 41,175 43,200 39,555
Other campground/resort revenues 17,906 22,288 23,506 23,524 26,856
Membership and resort interest sales 3,477 3,013 4,074 4,750 3,858
Interest income 3,726 6,756 9,935 12,202 16,345
Interest expense 9,084 17,693 20,960 21,446 22,249
Income (loss) from operations before
taxes, minority interest and
Extraordinary item 7,169 (240) (11,573) (5,338) (10,124)
Extraordinary gain on debt repurchases - 1,390 - 671 2,507
Net income (loss) 6,799 1,109 (11,828) (5,417) (7,925)
Dividends paid (1) - - - - -
Earnings (loss) per share data (2):
Income (loss) before extraordinary item .89 (.08) (3.19) (1.64) (2.82)
Extraordinary item - .38 - .18 .68
Net income (loss) .89 .30 (3.19) (1.46) (2.14)
Weighted average shares 7,658 3,703 3,703 3,703 3,702
BALANCE SHEET DATA:
(AT END OF YEAR)
Cash and cash equivalents (3) 1,343 37,403 50,596 50,596 44,359
Receivables, net 7,517 13,219 18,698 32,585 57,731
Campground properties 42,764 46,309 51,960 49,761 48,359
Resort properties 1,530 2,902 5,736 6,612 11,252
Total assets 63,302 111,631 137,517 149,546 171,595
PIK Notes, including deferred gain 29,393 - - - -
Borrowings under Credit Agreement 14,097 - - - -
Secured Notes, net of discount - 94,350 115,490 110,854 115,389
Other notes payable 604 1,102 4,753 5,503 7,558
Stockholders' equity (deficit) (22,168) (31,952) (33,054) (21,240) (15,750)
STATISTICAL DATA:
(AT END OF YEAR)
Number of operating campgrounds 55 58 60 62 65
Number of campsites 18,400 19,300 19,400 20,000 20,400
Number of members 120,000 128,000 136,000 149,000 157,000
Average annual dues per member $ 344 $ 335 $ 329 $ 315 $ 290
Average cost per camper night $18.13 $18.03 $19.69 $ 18.36 $ 17.29
</TABLE>
(continued)
Page 19
<PAGE>
(continued)
FOOTNOTES
(1) During the periods presented, the Company has been prohibited from paying
any cash dividends by the indentures governing its Secured Notes and PIK
Notes and the Credit Agreement with Foothill.
(2) As part of a restructuring of the Company, on July 17, 1996, the Company
issued 3,680,550 additional shares of Common Stock, which represent
approximately 50% of the shares of Common stock currently outstanding.
(3) During the periods presented, the Company has generally been required to
deposit its cash, other than that required for operations, in accounts that
were pledged for the benefit of the holders of the Secured Notes or, after
July 17, 1996, for the benefit of Foothill.
Page 20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies and plans for periods after June 30, 1997. All
of these statements are forward-looking statements made pursuant to the safe
harbor provisions of Section 21 (E) of the Securities Exchange Act of 1934, as
amended. These statements are not historical and involve risks and
uncertainties. The Company's actual financial condition, results of operations,
cash flows, and business strategies and plans for future periods may differ
materially due to several factors, including but not limited to the Company's
continued ability to control costs and implement its sales and marketing plan,
the actual rate of decline in the campground membership base, the actual use of
the campgrounds by members and guests, the effects on members and guests of the
Company's efforts to downsize its business, the Company's success in collecting
its contracts receivable and selling assets, and the other factors affecting the
Company's operations described in this report.
CHANGE IN ACCOUNTING METHOD
Subsequent to year-end, the Staff of the Securities and Exchange Commission (the
"SEC") informed the Company that the SEC will now require the Company to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold. This accounting method differs from the revenue
recognition method historically used by the Company for over 20 years.
Accordingly, to show comparable results for the periods presented, the
consolidated financial statements included in Item 8 have been restated from
those originally reported to reflect this change in accounting method (see Note
1 to the consolidated financial statements included in Item 8). The deferral of
historical sales revenues and expenses resulting from this change in accounting
method had no impact on the Company's liquidity or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
STABILIZED OPERATIONS. During fiscal 1996, the Company stabilized its
operations, which it had been seeking to accomplish for several years. In
fiscal 1997, the Company achieved a positive contribution from operations of
$8.2 million, an improvement over the $4.1 million achieved in fiscal 1996 (as
restated). For this purpose, the contribution from operations is defined as
operating income (loss) before interest income and expense, gain on asset
dispositions, restructuring costs, nonrecurring income and expenses, taxes, and
extraordinary item. See the table on page 29 for the elements of the
contribution from operations and the Company's operating income (loss) before
taxes and extraordinary item for the historical periods presented.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts. The Company believes there is a
viable market for campground memberships and that it has a significant
opportunity to compete for campers interested in higher quality facilities and a
higher level of service than is typically available at public campgrounds or
competing private campgrounds. The Company also believes that its flexible
membership products give it a competitive advantage because they offer consumers
the ability to choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five fiscal
years. In response to this decline, the Company has downsized its business by
closing and disposing of campgrounds and decreasing campground operating costs
and general and administrative expenses. The Company intends to continue to
downsize its business while its
Page 21
<PAGE>
membership base declines. In this regard, the Company will likely close and
dispose of additional campgrounds and it will seek to decrease other expenses.
At the same time, the Company intends to expand its sales and marketing efforts
with a view to stopping the membership decline. The Company believes that the
ultimate size of its campground system and the amounts realized from future
asset sales will depend principally upon the degree to which the Company can
successfully implement this strategy.
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated the Restructuring
of the Secured Notes whereby all of the $101,458,000 principal amount of Secured
Notes outstanding were retired. The Restructuring provided the Company with a
new capital structure and decreased the Company's outstanding debt to a level
the Company believes it can support under its downsized operations. The Secured
Notes were issued in the Company's 1991 bankruptcy reorganization and in a 1992
restructuring of a subsidiary's debt.
In the Restructuring, the Company purchased $10,070,000 in aggregate principal
amount of Secured Notes pursuant to a tender offer for $780 per $1,000 principal
amount, and exchanged $81,790,000 in aggregate principal amount of Secured Notes
pursuant to a private exchange offer for, in each case per $1,000 in principal
amount: $400 in cash, $492 in principal amount of PIK Notes, and 45 shares of
Common Stock. The remaining $9,598,000 in aggregate principal amount of Secured
Notes were redeemed at 100% of principal amount, plus accrued interest. In
connection with the Restructuring, the Company entered into the Credit Agreement
with Foothill.
CASH. On June 30, 1997, the Company had approximately $1.3 million of cash and
cash equivalents, a decrease of $36.1 million during fiscal 1997. The Company's
cash declined primarily because $28.6 million was used to retire Secured Notes
and pay legal and other costs related to the Restructuring (including accrued
interest), and $30.5 million was used to repay borrowings under the Credit
Agreement with Foothill. See Borrowings. These expenditures were partially
offset by proceeds of $4.7 million from the sale of assets, and $12.6 million
provided by operating activities.
In the Restructuring, $50.2 million of cash was paid to the holders of the
Secured Notes as full or partial consideration for the retirement of the Secured
Notes, and $6.2 million of cash was paid to the holders of the Secured Notes for
the semi-annual interest due July 15, 1996, and additional interest through the
date of the Restructuring. In addition, $1.1 million of cash was used to pay
the costs of the Restructuring, and $3.1 million of cash was used to pay the
costs of obtaining the Credit Agreement with Foothill. The Company funded these
cash payments with $28.6 million of its cash and $32.0 million of new borrowings
under the Credit Agreement with Foothill.
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes in a Dutch auction for a total cost of $12.6 million, which the Company
funded through borrowings in that amount under the Credit Agreement with
Foothill.
The Company's principal sources of operating cash for the year were $11.4
million in principal and interest collections on contracts receivable and
invested cash, and $65.9 million in dues collections and other campground
revenues. Principal uses of operating cash for fiscal 1997 consisted of $40.9
million in operating expenses, $14.1 million in general and administrative
expenses (including corporate member services and restructuring costs), $4.5
million in sales and marketing expenses, $1.7 million in insurance premiums, and
$8.1 million in interest payments, $6.2 million of which related to the Secured
Notes that were retired in the Restructuring. During fiscal 1997, the Company
also spent $1.0 million on capital expenditures and HUD-related improvements,
and made $384,000 in principal payments on mortgages and other notes.
Page 22
<PAGE>
Under the Credit Agreement with Foothill, as of June 30, 1997, the Company had
an outstanding term loan totaling $28,000 and a revolving loan in the maximum
amount of $19.3 million, of which $14.1 million was outstanding and $5.2 million
was available for borrowing. Under the Credit Agreement, the Company must use
all collections of principal and interest on the contracts receivable and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the Credit Agreement. The
maximum amount of the revolving loan declines as these principal reductions are
made. The Credit Agreement must be paid in full on July 16, 1999.
As of September 19, 1997, the outstanding loans under the Credit Agreement had
been reduced to a total of $8.8 million, and $3.4 million was available for
borrowing. Based upon its current business plan, the Company believes that
future cash flows provided from operations, asset sales, and borrowings
available under the revolving loan will be adequate for the Company's operating
and other cash requirements during the remaining term of the Credit Agreement.
All cash held by the Company and its wholly owned subsidiaries is generally
deposited in accounts that are controlled by and pledged to Foothill.
CONTRACTS RECEIVABLE. As of June 30, 1997, the Company on a consolidated basis
owned $12.4 million of contracts receivable related to the sale of campground
memberships and resort interests. See "Contracts Receivable" in Item 1.
Because of low interest rates available in the marketplace during fiscal 1997,
1996, and 1995, some members chose to prepay their accounts, and the Company
received principal payments of $1.6 million, $2.5 million, and $3.3 million,
respectively, in excess of scheduled payments. The Company may continue to
experience such prepayments in the future, although at a decreasing rate as the
contracts receivable portfolio continues to decline.
Allowance for Doubtful Accounts
- -------------------------------
The Company's allowance for doubtful accounts was 31% of gross contracts
receivable at June 30, 1997, compared with 30% of gross contracts receivable at
June 30, 1996, and 39% at June 30, 1995. The overall cancellation rate as a
percentage of gross contracts receivable was 7% for fiscal 1997, compared with
8% for fiscal 1996 and 1995. In fiscal 1997, 1996, and 1995, the Company
reduced the allowance for doubtful accounts on the contracts receivable by $1.2
million, $5.1 million, and $457,000, respectively. These adjustments were made
because the Company experienced lower contract losses than anticipated in these
years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. The
Company does not presently anticipate any further adjustments to the allowance
for doubtful accounts on the contracts receivable. However, the allowance and
the rate at which the Company provides for future losses on its contracts
receivable could be increased or decreased in the future based on the Company's
actual collection experience.
Other Allowances
- ----------------
In connection with the purchase of NACO and Trails, the Company recorded an
allowance for interest discount of $3.9 million to increase to 14.75% the
weighted average yield on the contracts receivable then owned by NACO and
Trails. Additionally, in connection with the purchase of NACO and Trails and
the Company's bankruptcy reorganization in 1991, the Company recorded an
allowance of $7.5 million for future collection costs, which is being applied to
reduce future general and administrative expenses. In fiscal 1995, the Company
reduced the allowance for future collection costs related to the contracts
receivable by $540,000 more than the scheduled amortization amount because the
estimated cost to collect the remaining contracts receivable was less than the
amount estimated when
Page 23
<PAGE>
the allowance was recorded. The allowance is continuing to be amortized as a
reduction of general and administrative expenses based on cash collected on the
related portfolio.
Repurchase of Receivables Owned by Third Party
- ----------------------------------------------
On March 22, 1995, the Company purchased $3.0 million of contracts receivable
from a third party, effective as of June 30, 1994, for $1.6 million. The
Company received contracts receivable with a gross balance of $2.0 million and
$1.0 million in cash representing principal and interest collections on the
contracts receivable from July 1, 1994 to March 22, 1995. The Company recorded
the $2.0 million gross balance of the contracts receivable net of an allowance
for doubtful accounts of $523,000 and a valuation allowance of $550,000. The
valuation allowance is being amortized over the remaining term of the contracts
receivable.
These contracts receivable had previously been sold by NACO to the third party.
In connection with this sale, a portion of the purchase price was withheld as a
dealer holdback against which the purchaser could offset canceled and delinquent
contracts receivable. As of March 22, 1995, the canceled and delinquent
contracts receivable charged against the dealer holdback had consumed it and a
deficiency of $2.7 million existed. Although the Company took the position that
it was not liable for the deficiency based upon the terms of certain agreements
and releases with the third party, the Company had recorded a contingent
liability for the amount of the deficiency. When the Company repurchased the
contracts receivable, this contingent liability was released, and the Company
reversed the $2.7 million recorded liability.
Changes in Receivables
- ----------------------
The net balance of contracts receivable decreased by $5.7 million during fiscal
1997, due primarily to $8.0 million in cash collections on contracts receivable,
offset by a reduction of $1.2 million in the allowance for doubtful accounts,
new financed sales, and scheduled amortization of the allowances for interest
discount, collection costs, and valuation discount.
CAMPGROUND AND RESORT PROPERTIES. The Company's campground properties consist
of land, buildings, and other equipment used in administration and operations as
well as land held for sale. Campground properties decreased by $3.5 million in
fiscal 1997, primarily as a result of the sale of several campgrounds and
certain other real estate, and depreciation on property and equipment.
The Company's campgrounds require annual capital and maintenance expenditures, a
portion of which has been deferred. During fiscal 1997 and 1996, the Company
spent $4.6 million and $4.0 million, respectively, on major maintenance,
repairs, and improvements at the campgrounds.
During the periods presented, the Company's resort properties consisted of
timeshare and lot inventory, buildings and equipment used in operations, and
land held for sale. Resort properties decreased by $1.4 million in fiscal 1997,
due primarily to the sale of the timeshare operations at the resorts, the golf
operations at one of the resorts, excess acreage and buildings at certain
resorts, and lots in the normal course of business. Over the past several
years, the Company has been selling the assets it owns at the resorts.
At June 30, 1997, the Company had obligations to spend $2.8 million in
connection with reports that it filed with the Department of Housing and Urban
Development ("HUD"). Although certain of these HUD obligations remain
substantially incomplete, during fiscal 1997 and 1996, the Company spent
$212,000 and $300,000, respectively, in fulfilling these obligations. A person
who purchased a lot when a particular HUD report was in effect may allege that
the failure to make timely improvements constitutes a breach of his or her
agreement with the Company and could seek damages from the Company or rescission
of the lot purchase. Approximately 1,400 persons purchased lots from the
Company when
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<PAGE>
the HUD reports in effect described improvements that the Company has not yet
constructed. An insignificant number of persons have asserted claims against the
Company for the failure to make these improvements.
BORROWINGS. On June 30, 1997, the Company had outstanding $44.1 million of
debt, which consisted of $14.1 million of borrowings under the Credit Agreement,
$29.2 million principal amount of PIK Notes plus a deferred gain of $180,000,
and $604,000 in outstanding mortgages and other notes.
On June 30, 1996, the Company had outstanding $101.5 million principal amount of
Secured Notes which were retired in full on July 17, 1996, in the Restructuring
for a combination of cash, PIK Notes, and Common Stock (see "Debt Restructuring"
above). The Restructuring was accounted for as a Troubled Debt Restructuring,
whereby the restructured debt was recorded at the carrying value of the old
debt, and no gain or loss was recorded on the transaction.
Credit Agreement with Foothill
- ------------------------------
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement.
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.0 million to repurchase the principal amount of PIK Notes, and up to
$750,000 to pay accrued interest on the PIK Notes repurchased. Because of the
substantial modifications made to the original Credit Agreement, the amendment
of the Credit Agreement was accounted for as an extinguishment of debt and the
remaining unamortized balance of the original debt issue costs of $1.3 million
was charged to expense.
The Company must use all collections of principal and interest on the contracts
receivable, which are estimated to be $4.7 million in fiscal 1998, and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the agreement. The maximum
amount of the revolving loan declines as these principal reductions are made.
The remaining borrowings under the Credit Agreement must be paid in full on July
16, 1999. Availability of such working capital is subject to continued
compliance by the Company with the financial covenants and other requirements of
the Credit Agreement, including certain covenants respecting minimum earnings
before interest, taxes, depreciation and amortization, and minimum tangible net
worth. The Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
PIK Notes
- ---------
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes that do not require the cash payment of interest until fiscal 2001 and
mature on July 15, 2003 without earlier scheduled principal payments. On
January 15, 1997, the Company issued an additional $2.4 million principal amount
of PIK Notes as interest.
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<PAGE>
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. The Company made
these repurchases at an average price of $897 per $1,000 of principal amount in
a Dutch auction available to all holders of PIK Notes. A gain of $1.2 million
was recognized on this transaction. At June 30, 1997, a total of $29.2 million
principal amount of PIK Notes were outstanding.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount, plus interest, in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sale proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial
covenants, but it does prohibit the Company from borrowing from other sources in
significant amounts except for the Credit Agreement with Foothill, a $10.0
million replacement working capital facility, and equipment purchases.
The Company is not permitted to pay cash interest on the PIK Notes until the
borrowings under the Credit Agreement are repaid in full. As a result, the
principal amount of PIK Notes outstanding will increase at the rate of 12% per
year, compounded semi-annually, at least until the borrowings under the Credit
Agreement are repaid in full. The payment-in-kind feature of the PIK Notes will
decrease the Company's cash interest costs over this period. However, the
payment-in-kind feature of the PIK Notes will also decrease the rate at which
the Company is able to retire its total debt outstanding.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
DEFERRED REVENUES AND EXPENSES. Deferred revenues of $23.6 million and $23.4
million at June 30, 1997 and 1996, respectively, include $15.6 million and $15.9
million, respectively, of membership dues collections which relate to future
periods, $6.3 million and $5.8 million, respectively, of campground membership
sales revenues to be recognized in future periods, and other deferred revenues
related primarily to the resort operations. Deferred membership selling expenses
of $1.4 million and $1.2 million at June 30, 1997 and 1996, respectively,
represent incremental direct selling costs to be recognized in future periods.
SELF INSURANCE. The Company is self-insured for general liability losses up to
$250,000 per occurrence, with an annual aggregate exposure to the Company of
$2.0 million. The Company's liability insurance program provides coverage in
excess of the self-insured amounts up to an annual limit of $26.8 million. The
Company has provided a liability for estimated known and unknown claims related
to uninsured general liability risks of $2.0 million and $1.6 million at June
30, 1997 and 1996, respectively. This liability is determined based on actuarial
estimates.
The medical and dental benefits provided to the Company's employees under the
Company's employee benefit plans (collectively, the "Plans") are funded
primarily through employer and employee contributions. In addition, the Company
has purchased a stop loss insurance policy which protects the Plans against
claims in excess of set policy amounts. The Company has provided a liability for
estimated future claims of $1.4 million and $1.8 million at June 30, 1997 and
1996, respectively. This liability is based on actuarial estimates of amounts
needed to fund expected claims, as well as premium payments and administrative
costs of the Plans. During fiscal 1997, the Company determined that its actual
claims experience for certain previous years was significantly below the
estimates for those years. As a result, the Company reduced its liability for
estimated future claims, which resulted in nonrecurring income of $611,000.
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<PAGE>
WORKERS' COMPENSATION INSURANCE. During fiscal 1997, the Company determined
that it is entitled to refunds in future periods of $865,000 for deposits made
in previous years to cover workers' compensation claims in excess of those
covered by the standard premium paid by the Company. These deposits were
expensed in the years the deposits were made because the Company anticipated
that the deposits would be used to cover workers' compensation claims. At June
30, 1997, the Company recorded the refundable amount as an asset, resulting in
nonrecurring income of $865,000. The refundable amount is included in other
assets in the accompanying consolidated balance sheet at June 30, 1997.
In fiscal 1996, the Company changed its method of determining workers'
compensation premiums, whereby it no longer records the cost of such premiums
based on estimates that are subject to potential audit adjustments at year end.
As a result, in fiscal 1996, the Company reversed its recorded contingent
liability related to workers' compensation premium audits. The $799,000
reversal amount is included in nonrecurring income in the accompanying
consolidated statement of operations.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board (the "FASB")
has recently issued several accounting pronouncements that are effective for the
Company in either fiscal 1997 or fiscal 1998. The adoption of certain of these
accounting pronouncements in fiscal 1997 did not have a material impact on the
Company's financial statements for fiscal 1997, and the Company anticipates that
the one accounting pronouncement to be adopted in fiscal 1998 will not have a
material impact on the Company's financial statements for fiscal 1998 (see Note
1 to the Company's consolidated financial statements included in Item 8).
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the years ended June 30, 1997, 1996, and 1995, as
restated (see "Change in Accounting Method"). The deferral of historical sales
revenues and expenses resulting from the change in accounting method had no
impact on the Company's liquidity or cash flows.
The financial information set forth below should be read in conjunction with the
Company's consolidated financial statements included in Item 8.
NET INCOME (LOSS). For the year ended June 30, 1997, the Company reported net
income of $6.8 million or $.89 per share on revenues of $78.4 million. This
compares with net income of $1.1 million or $.30 per share on revenues of $91.0
million for the year ended June 30, 1996, and a net loss of $11.8 million or
$3.19 per share on revenues of $91.4 million for the year ended June 30, 1995.
Excluding extraordinary gains, nonrecurring income and expenses, and
restructuring costs, the Company would have had net income of $5.3 million for
fiscal 1997, compared with a net loss of $2.8 million for fiscal 1996, and a net
loss of $14.5 million for fiscal 1995. Excluding these items, the Company's
results improved in the current fiscal year, despite declining revenues, due
primarily to decreases in expenses, principally campground operating costs and
interest.
The results for fiscal 1997 include $2.7 million of nonrecurring income
consisting of a $1.2 million reduction in the allowance for doubtful accounts
and a $1.5 million reduction in certain insurance reserves. The fiscal 1997
results also include $1.1 million of restructuring costs related to the
Restructuring and $132,000 of nonrecurring expenses representing the net loss
resulting from the amendment of the Credit Agreement and the repurchase of PIK
Notes.
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<PAGE>
The results for fiscal 1996 include a $1.4 million extraordinary gain on the
repurchase of Secured Notes and $5.9 million of nonrecurring income consisting
of $5.1 million from a reduction in the allowance for doubtful accounts and
$799,000 from the reversal of a contingent liability. The fiscal 1996 results
also include $1.1 million of restructuring costs related to the Company's
efforts to restructure the Secured Notes, and $2.3 million of other nonrecurring
expenses consisting of a $1.0 million charge to record a provision for certain
uncollectible membership dues receivable and a $1.3 million charge to accrue a
one-time bonus for the Company's Chief Executive Officer.
The results for fiscal 1995 include $3.7 million of nonrecurring income
consisting of $1.0 million from reductions in the allowances for doubtful
accounts and collection costs and $2.7 million from the reversal of a contingent
liability. The fiscal 1995 results also include $637,000 of restructuring costs
incurred in connection with the relocation of the Company's corporate office to
Dallas, Texas, and $437,000 of other nonrecurring expenses representing
severance payments made to certain management employees who left the Company in
the fourth quarter of fiscal 1995.
The table on the next page shows separately the results of the campground
operations, Resort Parks International, and resort operations, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the years ended June 30, 1997, 1996,
and 1995, as restated (see "Change in Accounting Method").
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<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands)
Year ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(Restated) (Restated)
CAMPGROUND OPERATIONS
<S> <C> <C> <C>
Membership dues $ 39,945 $ 39,924 $ 41,175
Campground revenues 15,302 15,313 15,411
Cost of campground revenues (7,608) (7,726) (8,150)
Operating expenses (32,454) (35,211) (40,236)
-------- -------- --------
Contribution from campground operations 15,185 12,300 8,200
-------- -------- --------
SALES
Sales revenues 2,892 1,656 1,626
Selling expenses (2,654) (3,094) (1,736)
Marketing expenses (1,383) (1,294) (3,639)
-------- -------- --------
Loss on sales (1,145) (2,732) (3,749)
-------- -------- --------
RESORT PARKS INTERNATIONAL
Revenues 4,086 4,579 4,845
Expenses (1,978) (2,237) (2,727)
-------- -------- --------
Contribution from RPI 2,108 2,342 2,118
-------- -------- --------
16,148 11,910 6,569
-------- -------- --------
RESORT OPERATIONS
Revenues 3,189 8,332 10,543
Expenses (3,218) (8,297) (10,125)
-------- -------- --------
Contribution (loss) from resort
operations (29) 35 418
-------- -------- --------
16,119 11,945 6,987
-------- -------- --------
Other income 3,673 4,479 3,485
Corporate member services (1,532) (1,843) (2,200)
General and administrative expenses (10,100) (10,473) (12,118)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE INTEREST
INCOME AND EXPENSE, GAIN ON ASSET
DISPOSITIONS, NONRECURRING INCOME AND
EXPENSES, RESTRUCTURING COSTS, TAXES
AND EXTRAORDINARY ITEM 8,160 4,108 (3,846)
-------- -------- --------
Interest income 3,726 6,756 9,935
Interest expense (9,084) (17,693) (20,960)
Gain on asset dispositions 2,892 4,038 658
Nonrecurring income 2,708 5,945 3,714
Nonrecurring expenses (132) (2,270) (437)
Restructuring costs (1,101) (1,124) (637)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE TAXES
AND EXTRAORDINARY ITEM $ 7,169 $ (240) $(11,573)
======== ======== ========
</TABLE>
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<PAGE>
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The
Company receives the majority of the dues revenue from its members during the
winter, which are recognized as income ratably during the year. However, the
Company incurs a higher level of operating expenses during the summer. In
addition, a majority of the Company's sales and marketing efforts occur during
the summer.
Campground membership dues revenue was $39.9 million for the years ended June
30, 1997 and 1996, compared with $41.2 million for the year ended June 30, 1995.
Dues revenue declined in fiscal 1996 due primarily to the net loss of campground
members during the year, partially offset by the annual dues increase. In
fiscal 1997, the effect of the annual dues increase substantially offset the net
loss of members during the year.
Campground revenues were $15.3 million for the years ended June 30, 1997 and
1996, compared with $15.4 million for the year ended June 30, 1995. The expenses
associated with these campground revenues were $7.6 million, $7.7 million, and
$8.2 million for fiscal 1997, 1996, and 1995, respectively. The continuing
improvement in the contribution from these programs resulted primarily from
better expense control in fiscal 1997 and 1996.
Campground operating expenses were $32.5 million for the year ended June 30,
1997, compared with $35.2 million for the year ended June 30, 1996, and $40.2
million for the year ended June 30, 1995. The continuing reduction in expenses
between years was due primarily to the closure and disposition of campgrounds
and to operational changes made at the campgrounds in fiscal 1996 and 1997. In
fiscal 1996, the Company closed and disposed of several campgrounds, reduced
campground management and personnel, and changed to seasonal operations at
campgrounds with low usage during off-season periods. In fiscal 1997, the
Company closed and disposed of several additional campgrounds and lengthened the
off-season for the campgrounds with seasonal closures. The lower operating
expenses in fiscal 1997 also reflect the full effects of the personnel
reductions made in fiscal 1996. In addition, the Company incurred lower
insurance and maintenance costs in fiscal 1997 compared with the prior periods.
Insurance costs decreased due to the lower number of campgrounds and personnel
and the Company's continued efforts to reduce insurance claims. Furthermore,
maintenance costs were lower in fiscal 1997 compared with fiscal 1996 due to
expenditures made in fiscal 1996 to refurbish rental trailers.
The Company intends to continue to downsize its campground operations while its
membership base declines. The Company will likely close and dispose of
additional campgrounds and it will seek to decrease other expenses. Subsequent
to year-end, the Company sold additional campgrounds for net proceeds of $4.5
million. The sale of these campgrounds and other anticipated changes should
result in lower operating expenses in fiscal 1998, but no assurance can be given
that such changes will not reduce revenues by an amount in excess of the expense
reductions.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold (see "Change in Accounting Method"). For
the years ended June 30, 1997, 1996, and 1995, the Company recognized campground
membership sales revenues of $2.9 million, $1.7 million, and $1.6 million,
respectively. These amounts include revenues of $1.7 million, $1.1 million, and
$854,000, respectively, that were deferred in prior periods. Moreover, for
fiscal 1997, 1996, and 1995, the Company deferred revenues of $2.1 million, $2.1
million, and $1.0 million, respectively, which will be recognized in future
periods.
The increase in sales revenues resulted primarily from the Company's increased
sales and marketing efforts during the past three fiscal years. The Company has
expanded its sales and marketing efforts with a view to stopping the decline in
its membership base.
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<PAGE>
Although the Company's membership sales revenues have increased, the level of
sales in fiscal 1997 did not meet the Company's expectations. In an effort to
improve its membership sales, the Company has been working to increase the
number of prospects that attend its sales presentations. In this regard, in
fiscal 1997, the Company entered into a joint marketing arrangement with
Fleetwood Industries, Inc., the largest manufacturer of RVs. Under this
marketing arrangement, commencing in June 1997, purchasers of Fleetwood RVs
receive a temporary membership and are invited to visit one of the Company's
campgrounds. In the future, the Company intends to pursue joint marketing
relationships with other companies.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the years ended June 30,
1997, 1996, and 1995, the Company recognized selling expenses of $2.7 million,
$3.1 million, and $1.7 million, respectively. These amounts include expenses of
$358,000, $235,000, and $172,000, respectively, that were deferred in prior
periods. Moreover, for fiscal 1997, 1996, and 1995, the Company deferred
expenses of $505,000, $481,000, and $219,000, respectively, which will be
recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $1.1 million, $2.7 million, and $3.7 million
for the years ended June 30, 1997, 1996, and 1995, respectively. These expenses
exceeded sales revenue because of the increased marketing activity, and the low
volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales revenues than selling expenses in each of the periods
presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are deferred and recognized on a straight-line basis over the
expected life of the memberships sold. As a consequence, the Company expects
that its selling and marketing expenses will continue to exceed its campground
membership sales revenues. This disparity will increase as the Company grows
campground membership sales. However, the Company intends to keep the cash it
expends on selling and marketing expenses within a close relation to the cash it
receives from campground membership sales.
The Company must significantly increase its campground membership sales over
current levels in order to stop the continuing decline in the Company's
membership base. The success of the Company's business strategy over the long
term is dependent upon the Company's ability to market new memberships in
sufficient numbers on a cost-effective basis.
CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the
Company, manages 48 public campgrounds for the US Forest Service. For the year
ended June 30, 1997, these operations produced revenues of $1.1 million with
related expenses (excluding certain shared administrative costs) of $1.0
million. This compares with revenues for fiscal 1996 of $853,000 and related
expenses (excluding certain shared administrative costs) of $831,000, and
revenues for fiscal 1995 of $589,000 and related expenses (excluding certain
shared administrative costs) of $665,000. The increase in revenues and expenses
between years was due primarily to new contracts entered into in fiscal 1997 and
1996.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the campgrounds participating in RPI's reciprocal
use system, subject to certain limitations. For the year ended June 30, 1997,
RPI's operations produced a net contribution of $2.1 million, compared with $2.3
million for the year ended June 30, 1996, and $2.1 million for the year ended
June 30, 1995. RPI's revenues have
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<PAGE>
declined over the three year period as a result of declining sales in the
membership camping industry generally. During this period, however, RPI has been
able to maintain its positive contribution by reducing its expenses. To maintain
its net contribution in the future, RPI is working to introduce new products to
increase its revenues; however, there is no assurance that it will be
successful.
RESORT OPERATIONS. During the last five years, the Company sold a substantial
portion of the assets it owned at eight resorts. In fiscal 1997, the sale of
resort assets produced cash proceeds totaling $1.7 million plus notes receivable
of $1.1 million. This compares with cash proceeds of $5.0 million in fiscal
1996, and $902,000 in fiscal 1995. The differences between years was due to the
timing of asset sales. As the resort assets were sold, the revenues and
expenses from the resort operations decreased accordingly. The Company's
present operations at the resorts are limited primarily to the sale of
residential lots.
During the year ended June 30, 1997, the resort operations produced a net
negative contribution of $29,000, compared with a net positive contribution of
$35,000 and $418,000 for the years ended June 30, 1996 and 1995, respectively.
The Company expects a negative contribution from the resort operations in the
future as it continues its efforts to sell the remaining assets it owns at the
resorts. These assets consist primarily of approximately 580 residential lots
and other miscellaneous real estate. The Company presently plans to dispose of
the remaining assets that it owns at the resorts over the next several years.
However, there is no assurance that the Company will be able to locate a buyer
for any of the remaining resort assets or that sales on acceptable terms can be
effected.
INTEREST INCOME AND EXPENSE. Interest income decreased by $3.0 million and $3.2
million for the years ended June 30, 1997 and 1996, respectively, from the
previous year, due primarily to a decrease in interest earned on the Company's
diminishing portfolio of contracts receivable, and a decrease in interest earned
on lower cash balances. Also included in interest income is amortization of the
allowance for interest discount and valuation allowance related to the contracts
receivable, of which $379,000 was amortized during fiscal 1997 and $607,000 was
amortized in fiscal 1996 and fiscal 1995 (see "Liquidity and Capital Resources -
Contracts Receivable").
Interest expense decreased by $8.6 million for the year ended June 30, 1997,
from the previous year, due primarily to a net $50.9 million reduction in the
Company's outstanding debt resulting from the Restructuring and subsequent
repayments under the Credit Agreement, the repurchase of $7.4 million principal
amount of Secured Notes in January 1996, a $2.5 million reduction in mortgage
notes payable due to the abandonment of two operating campgrounds in the Fall of
1995, and scheduled repayments of notes payable. Interest expense decreased by
$3.3 million for the year ended June 30, 1996, from the previous year, due
primarily to a mandatory redemption of $18.6 million of Secured Notes in July
1995, the repurchase of Secured Notes in January 1996, the $2.5 million
reduction in mortgage notes payable in the Fall of 1995, and scheduled
repayments of notes payable.
Interest expense for the year ended June 30, 1997, includes (i) amortization of
debt issue costs incurred in connection with obtaining the Credit Agreement in
July 1996, which increased interest expense by $1.8 million, and (ii)
amortization of the deferred gain related to the PIK Notes, which reduced
interest expense by $39,000. The remaining unamortized balance of the debt
issue costs and a portion of the deferred gain were eliminated in connection
with the amendment of the Credit Agreement and repurchase of PIK Notes at the
end of fiscal 1997.
Interest expense for fiscal 1996 and 1995 includes amortization of the discount
on the Secured Notes, which increased interest expense by $4.2 million and $4.6
million in these years, respectively. The discount on the Secured Notes was
recorded to reduce the
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<PAGE>
carrying value of the Secured Notes to their estimated fair value on the date of
issuance. On July 17, 1996, the unamortized balance of this discount was
eliminated in connection with the retirement of the Secured Notes in the
Restructuring.
Interest expense is expected to continue to decrease in fiscal 1998 due to the
repurchase of PIK Notes in June 1997, and continued repayment of borrowings
under the Credit Agreement. Since the Company is prohibited from making cash
interest payments on the PIK Notes until all borrowings under the Credit
Agreement are repaid, during this period, a significant portion of the Company's
interest expense will represent non-cash interest. Moreover, during this
period, the principal amount of PIK Notes outstanding will increase at the rate
of 12% per year, compounded semi-annually, which will increase interest expense
in the future.
GAINS ON ASSET SALES. During the years ended June 30, 1997, 1996, and 1995, the
Company sold certain of its real estate assets and recognized related gains of
$2.9 million, $4.0 million, and $658,000, respectively. The differences between
years was due to the timing of asset sales. During this three-year period, the
Company sold the timeshare operations at the resorts, the country club and golf
operations at certain resorts, and various other properties at the resorts. In
addition, the Company sold or otherwise disposed of several campgrounds and sold
excess acreage associated with certain campgrounds. Subsequent to year-end, the
Company sold additional campgrounds for which it recognized related gains of
$3.2 million. Over the next several years, the Company intends to dispose of
the remaining assets it owns at the resorts, any campgrounds that are closed as
the Company downsizes, and other undeveloped, excess acreage associated with the
campgrounds. The sale of campgrounds requires addressing the rights of members
associated with such campgrounds. The impact of these rights is uncertain and
could adversely affect the availability or timing of sale opportunities or the
ability of the Company to realize recoveries from asset sales. In addition,
although the Company has successfully sold assets during the past three years,
no assurance exists that the Company will be able to locate a buyer for any of
the remaining assets or that sales on acceptable terms can be effected.
OTHER INCOME. Other income consists principally of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections on written-off contracts, subscription fees
received from members who subscribe to the Company's member magazine, and
beginning in fiscal 1997, fees charged to members for making more than five
operator-assisted reservations in a given year.
Other income was $3.7 million for the year ended June 30, 1997, compared with
$4.5 million for the year ended June 30, 1996, and $3.5 million for the year
ended June 30, 1995. Other income was higher in fiscal 1996, compared with the
other years, because in fiscal 1996 the Company increased it use of outside
collection agencies to collect on written-off contracts, which resulted in a
one-time increase in such collections.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$10.1 million for the year ended June 30, 1997, compared with $10.5 million for
the year ended June 30, 1996, and $12.1 million for the year ended June 30,
1995. During fiscal 1997, the Company's continued efforts to lower
administrative costs were partially offset by higher legal fees incurred in
connection with the Company's reincorporation merger, the registration of the
PIK Notes, and the formation of a new wholly owned subsidiary to provide debt
collection services for third parties. The decrease in fiscal 1996 from the
prior year was due primarily to cost reductions implemented in the last quarter
of fiscal 1995 and the first quarter of fiscal 1996.
General and administrative expenses include costs related to collecting the
contracts receivable and membership dues of $2.4 million, $3.0 million, and $3.1
million for the
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years ended June 30, 1997, 1996, and 1995, respectively. These collection costs
were reduced by $314,000, $513,000, and $854,000, respectively, as a result of
the amortization of the allowance for collection costs related to the contracts
receivable ("see "Liquidity and Capital Resources - Contracts Receivable"). The
Company anticipates that these costs will continue to decrease as the contracts
receivable portfolio continues to decline.
CORPORATE MEMBER SERVICES. Corporate member services include the reservation
and member support services performed at the corporate office, as well as the
costs incurred to produce the Company's member magazine. These costs were $1.5
million for the year ended June 30, 1997, compared with $1.8 million for the
year ended June 30, 1996, and $2.2 million for the year ended June 30, 1995.
The decrease in costs between periods reflects the Company's continued efforts
to reduce administrative costs.
NONRECURRING INCOME. Nonrecurring income was $2.7 million, $5.9 million, and
$3.7 million for the years ended June 30, 1997, 1996, and 1995, respectively.
Nonrecurring income for fiscal 1997 consists of $1.2 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and $1.5
million from a reduction of certain insurance reserves (see "Liquidity and
Capital Resources - Self Insurance and Workers' Compensation Insurance").
Nonrecurring income for fiscal 1996 consists of $5.1 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and
$799,000 from the reversal of a contingent liability. Nonrecurring income for
fiscal 1995 consists of $1.0 million from reductions in the allowances for
doubtful accounts and collection costs related to the contracts receivable and
$2.7 million from the reversal of a contingent liability.
NONRECURRING EXPENSES. Nonrecurring expenses were $132,000, $2.3 million, and
$437,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
Nonrecurring expenses for fiscal 1997 consist of a $1.3 million loss resulting
from expensing unamortized debt issue costs upon significantly modifying the
Credit Agreement, reduced by a $1.2 million gain resulting from repurchasing PIK
Notes at a discount (see "Liquidity and Capital Resources-Debt Restructuring").
Nonrecurring expenses for fiscal 1996 consist of a $1.0 million charge to record
a provision for certain uncollectible membership dues receivable and a $1.3
million charge to accrue a one-time bonus for the Company's Chief Executive
Officer (see "Accrued Bonus" below). Nonrecurring expenses for fiscal 1995
represent severance payments made to certain management employees who left the
Company in the fourth quarter of fiscal 1995.
ACCRUED BONUS. The employment agreement between the Company and its Chief
Executive Officer ("CEO") provided that the CEO would receive a one-time bonus
equal to between 4% and 6% of the amount by which the enterprise value of the
Company (including the value of its debt and equity securities) exceeded $75
million at the time the CEO elected to receive the bonus. The bonus would have
been adversely affected by the consummation of the Restructuring. As a result,
on June 29, 1996, the CEO exercised his right to receive the bonus, which
entitled the CEO to $1,270,589. In accordance with the agreement, $952,927 of
the bonus was paid on July 9, 1996, and the remaining $317,662 was paid in May
1997. The Company obtained an irrevocable standby letter of credit on which the
CEO could draw this bonus if the Company failed to pay the bonus after receiving
a request from the CEO. The letter of credit was secured by a $1.5 million cash
deposit, which was subsequently reduced to $317,662 after the payment of the
initial bonus amount, and released in February 1997. The Company accrued the
entire amount of the bonus at June 30, 1996.
RESTRUCTURING COSTS. In fiscal 1997, the Company incurred $1.1 million of costs
in connection with the consummation of the Restructuring. The Company also
incurred $3.1 million of costs in connection with obtaining the Credit Agreement
with Foothill, which were capitalized as debt issue costs. In May 1997, the
unamortized balance of these debt
Page 34
<PAGE>
issue costs of $1.3 million was charged to expense upon amendment of the Credit
Agreement, as previously discussed in Nonrecurring Expenses above.
During the year ended June 30, 1996, the Company incurred $1.1 million of
restructuring costs related to its efforts to restructure the Secured Notes.
During the year ended June 30, 1995, the Company incurred $922,000 of costs
related to expanding its Dallas office and hiring and training new employees.
$637,000 of these costs were expensed as restructuring costs, and $285,000 of
these costs were capitalized. The Company moved its administrative offices to
Dallas during fiscal 1994.
INCOME TAXES. The Company's provision for income taxes was $370,000, $41,000,
and $255,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
The provision for fiscal 1997 includes amounts related to federal alternative
minimum taxes, as well as amounts related to state income taxes payable in the
various states where the Company conducts its operations. The provisions for
fiscal 1996 and 1995 relate primarily to state income taxes. With the exception
of the alternative minimum tax amounts, the Company does not have federal income
taxes payable on a consolidated basis due to its net operating tax loss
carryforwards, which are estimated to total $47.9 million at June 30, 1997, and
expire in years 2007 through 2011.
EXTRAORDINARY ITEM. The $1.4 million extraordinary gain in fiscal 1996 resulted
from a repurchase of Secured Notes in January 1996.
INFLATION. During the past three fiscal years, the Company's results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by the campground members
because the Company cannot increase the dues on existing contracts of senior
citizens and disabled members who notify the Company of their age or disability
and request that their dues be frozen. At the present time, approximately 35%
of the members have requested that their dues be frozen because of their age or
disability (see "Campground Operations - Dues").
Page 35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements Index
---------------------------------------
Page
----
Report of Independent Public Accountants................... 37
Consolidated Balance Sheets - June 30, 1997 and 1996....... 38
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995............................. 39
Consolidated Statements of Stockholders' Deficit
for the years ended June 30, 1997, 1996 and 1995......... 40
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995............................. 41
Notes to Consolidated Financial Statements................. 43
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts... 75
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
Page 36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Thousand Trails, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Thousand Trails,
Inc. (formerly USTrails Inc.) and subsidiaries (the "Company") as of June 30,
1997 and June 30, 1996, as restated (see Note 1) and the related consolidated
statements of operations, stockholders' deficit and cash flows for the two years
ended June 30, 1996 and 1995, as restated and for the year ended June 30, 1997.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Thousand Trails, Inc. and
subsidiaries as of June 30, 1997 and June 30, 1996, as restated, and the results
of their operations and their cash flows for each of the two years ended June
30, 1996 and 1995, as restated and for the year ended June 30, 1997, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas
September 11, 1997
Page 37
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
--------------------
ASSETS 1997 1996
------ -------- ---------
CURRENT ASSETS (Restated)
<S> <C> <C>
Cash and cash equivalents $ 1,343 $ 37,403
Current portion of receivables, net of
allowances and discount of $1.7
million in 1997 and $2.7 million in
1996 3,134 4,270
Accounts and dues receivable, net 542 522
Current portion of deferred membership
selling expenses 478 357
Inventory and other current assets 3,536 4,672
-------- --------
Total Current Assets 9,033 47,224
Restricted cash 1,407 2,912
Receivables, net of allowances and
discount of $3.3 million in 1997 and
$5.4 million in 1996 4,383 8,949
Campground land 13,359 14,101
Lot and timeshare inventory 342 1,159
Buildings and equipment, net of
accumulated depreciation of
$12.8 million in 1997 and $10.4
million in 1996 23,211 27,130
Land held for sale 7,382 6,821
Deferred membership selling expenses 913 887
Other assets 3,272 2,448
-------- --------
Total Assets $ 63,302 $111,631
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,864 $ 3,030
Accrued interest 1,693 5,617
Other accrued liabilities 7,485 9,329
Current portion of long term debt 5,864 28,530
Accrued construction costs 2,809 3,154
Current portion of deferred revenue 19,455 19,265
-------- --------
Total Current Liabilities 39,170 68,925
Long term debt 38,230 66,922
Deferred revenue 4,158 4,172
Other liabilities 3,912 3,564
-------- --------
Total Liabilities 85,470 143,583
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value,
1,500,000 shares authorized, none
issued and outstanding
Common Stock, $.01 par value,
15,000,000 shares authorized,
7,383,276 and 3,702,726 shares issued
and outstanding 74 37
Additional paid-in capital 20,502 17,549
Accumulated deficit subsequent to
December 31, 1991, date of emergence
from bankruptcy (42,613) (49,412)
Cumulative foreign currency translation
adjustment (131) (126)
-------- --------
Total Stockholders' Deficit (22,168) (31,952)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 63,302 $111,631
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 38
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------
1997 1996 1995
-------- ---------- ----------
REVENUES (Restated) (Restated)
<S> <C> <C> <C>
Membership dues $39,945 $39,924 $ 41,175
Other campground/resort revenue 17,906 22,288 23,506
Membership and resort interest sales 3,477 3,013 4,074
RPI membership fees 4,086 4,579 4,845
Interest income 3,726 6,756 9,935
Gain on asset dispositions 2,892 4,038 658
Nonrecurring income 2,708 5,945 3,714
Other income 3,673 4,479 3,485
------- ------- --------
Total Revenues 78,413 91,022 91,392
------- ------- --------
EXPENSES
Campground/resort operating expenses 42,860 50,308 57,097
Selling expenses 3,074 4,020 3,150
Marketing expenses 1,383 1,294 3,639
RPI membership expenses 1,978 2,237 2,727
Corporate member services 1,532 1,843 2,200
Interest expense and amortization 9,084 17,693 20,960
General and administrative expenses 10,100 10,473 12,118
Nonrecurring expenses 132 2,270 437
Restructuring costs 1,101 1,124 637
------- ------- --------
Total Expenses 71,244 91,262 102,965
------- ------- --------
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM 7,169 (240) (11,573)
Income tax provision (370) (41) (255)
------- ------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 6,799 (281) (11,828)
Extraordinary gain on debt repurchases 1,390
------- ------- --------
NET INCOME (LOSS) $ 6,799 $ 1,109 $(11,828)
======= ======= ========
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ .89 $ (.08) $ (3.19)
EXTRAORDINARY ITEM .38
------- ------- --------
NET INCOME (LOSS) $ .89 $ .30 $ (3.19)
======= ======= ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,658 3,703 3,703
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 39
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign
----------------- Additional Currency
Number of Paid-In Accumulated Translation
Shares Amount Capital Deficit Adjustment Total
--------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994
(restated) 3,702,726 $ 37 $17,549 $(38,693) $(133) $(21,240)
Foreign currency
translation adjustment 14 14
Net loss (restated) (11,828) (11,828)
--------- ---- ------- -------- ----- --------
Balance, June 30, 1995
(restated) 3,702,726 37 17,549 (50,521) (119) (33,054)
Foreign currency
translation adjustment (7) (7)
Net income (restated) 1,109 1,109
--------- ---- ------- -------- ----- --------
Balance, June 30, 1996
(restated) 3,702,726 37 17,549 (49,412) (126) (31,952)
Issuance of common shares
in Restructuring 3,680,550 37 2,953 2,990
Foreign currency
translation adjustment (5) (5)
Net income 6,799 6,799
--------- ---- ------- -------- ----- --------
Balance, June 30, 1997 7,383,276 $74 $20,502 $(42,613) $(131) $(22,168)
========= ==== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 40
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 7,978 $ 12,251 $ 16,678
Interest received 3,407 6,202 9,270
Interest paid (8,107) (14,545) (15,873)
General and administrative, corporate
member services and restructuring costs (14,061) (13,827) (18,233)
Cash collected from operations,
including deferred revenue 65,894 73,220 77,231
Cash from sales of memberships and
resort interests at the point of sale 3,705 3,789 4,036
Expenditures for property operations (40,872) (49,627) (56,768)
Expenditures for sales and marketing (4,472) (5,370) (5,645)
Expenditures for insurance premiums (1,706) (5,176) (4,553)
Payment of income taxes (370) (41) (256)
Reduction of (deposit made to secure)
standby letter of credit 1,500 (1,500)
Other, net (345) 221
-------- -------- --------
Net cash provided by operating
activities 12,551 5,597 5,887
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (1,046) (1,022) (5,732)
Proceeds from asset sales 4,663 7,239 1,132
-------- -------- --------
Net cash provided by (used in)
investing activities 3,617 6,217 (4,600)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit
Agreement 44,640
Net repayments under Credit Agreement (30,543)
Payment of debt issue costs (3,132)
Retirement of Secured Notes (50,169)
Repurchase of PIK Notes/Secured Notes (12,640) (5,275)
Mandatory redemption of Secured Notes (18,599)
Repayments of notes and mortgages (384) (1,133) (750)
-------- -------- --------
Net cash used in financing activities (52,228) (25,007) (750)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (36,060) (13,193) 537
CASH AND CASH EQUIVALENTS:
Beginning of year 37,403 50,596 50,059
-------- -------- --------
End of year $ 1,343 $ 37,403 $ 50,596
======== ======== ========
</TABLE>
(continued)
Page 41
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------
1997 1996 1995
-------- -------- --------
RECONCILIATION OF NET INCOME (LOSS) TO (Restated) (Restated)
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 6,799 $ 1,109 $(11,828)
------- ------- --------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES-
Depreciation 3,195 2,866 2,591
Amortization of interest yield,
collection costs and valuation
allowance (693) (1,120) (1,461)
Amortization of PIK Note deferred gain
and debt issue costs 1,770
Amortization of debt discount and
consent fees 4,565 5,060
Gain on asset dispositions (2,892) (4,038) (658)
Net loss resulting from amendment of
Credit Agreement and repurchase of
PIK Notes 132
Extraordinary gain on debt repurchases (1,390)
Net deferral of sales revenues and
selling expenses 318 728 107
Reduction of allowances for doubtful
accounts, net (1,232) (4,146) (457)
Reduction of insurance excesses (1,476) (799)
Reversal of contingent liability (2,717)
CEO bonus accrual 1,270
Reduction of allowance for collection
costs (540)
Decrease (increase) in restricted cash 1,505 (1,283) (404)
Decrease in receivables 7,592 11,721 16,322
Decrease (increase) in other assets 767 (747) 29
Decrease in other liabilities (3,347) (3,354) (633)
Other, net 113 215 476
------- ------- --------
Total adjustments 5,752 4,488 17,715
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $12,551 $ 5,597 $ 5,887
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 42
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is the
successor by merger to USTrails Inc., a Nevada corporation ("USTrails") (see
Note 3). Thousand Trails and its subsidiaries (the "Company") own and operate a
system of 55 membership-based campgrounds located in 17 states and British
Columbia, Canada. In addition, the Company provides a reciprocal use program
for members of approximately 380 recreational facilities and manages 48 public
campgrounds for the US Forest Service. Prior to November 21, 1996, the Company
also managed timeshare facilities at eight resorts located in seven states (see
Note 6). The Company currently owns certain real estate at these resorts and
owns and operates the resort amenities at one of these locations. The campground
business represents the most significant portion of the Company's business
comprising 89% of the Company's operating revenues in fiscal 1997. The
reciprocal use and resort businesses provided the remaining 11%. Operating
revenues consist primarily of membership dues received from campground members,
fee revenue from members of the reciprocal use program, and management fees,
guest fees and other fees and revenues received from the campground and resort
operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: National
American Corporation and its subsidiaries ("NACO"), Resort Parks International,
Inc. ("RPI"), Thousand Trails (Canada), Inc., UST Wilderness Management
Corporation ("Wilderness Management"), and until July 16, 1996, Thousand Trails,
Inc., a Washington corporation, and its subsidiaries ("Trails"). The Company
acquired 100% of the capital stock of NACO and 69% of the capital stock of
Trails on June 30, 1991. The Company subsequently increased its ownership in
Trails to 100% through a tender offer and merger and, on July 16, 1996, Trails
was merged into the Company. The acquisitions of NACO and Trails were accounted
for as a purchase with the purchase price being allocated to the assets acquired
and liabilities assumed based on their estimated fair value on the date of
acquisition. RPI was a wholly owned subsidiary of NACO until September 10, 1992,
when it became a direct subsidiary of the Company. Wilderness Management
commenced operations in January 1994.
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, "fresh start reporting," as required by
AICPA Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," was reflected as of December 31, 1991
in the Company's consolidated financial statements. Under fresh start
reporting, a new reporting entity was created and assets and liabilities were
restated to reflect their reorganization value which approximated fair value at
the date of reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the years ended
June 30, 1997, 1996 and 1995.
The accompanying consolidated financial statements were prepared in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Page 43
<PAGE>
New Accounting Pronouncements
- -----------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121") which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS 121 in the first quarter of fiscal 1997, and the adoption
did not have a material impact on the Company's operations or financial
position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") effective for fiscal years beginning after December
15, 1995. SFAS 123 defines a fair value method of accounting for employee stock
options which provides for compensation cost to be charged to results of
operations at the grant date. The Company intends to continue to account for
stock-based compensation under Accounting Pronouncement Bulletin Opinion No. 25
("APB 25") as allowed under SFAS 123, while providing additional disclosure
required under SFAS 123 (see Note 14).
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company adopted this statement,
which is effective for transactions occurring after December 31, 1996, in its
consolidated financial statements for the year ended June 30, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No.
128 establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted. The
Company does not anticipate that the adoption of this standard will have a
material impact on the Company's financial statements.
Restatement
- -----------
Subsequent to year-end, the staff of the Securities and Exchange Commission (the
"SEC") informed the Company that the SEC will now require the Company to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold. The staff of the SEC has indicated that it will
require all membership-based campground registrants selling similar memberships
to change to this method of accounting.
The Company's campground memberships provide the member with access to an
established network of membership-based campgrounds in return for an initial
upfront membership fee (which in certain instances may be financed) and annual
dues. The member's right to use the Company's campgrounds generally continues
as long as the annual dues are paid. Since inception, the Company has
recognized revenue from initial membership fees at the time of sale, while
recognizing revenue from the annual dues ratably over the year of provided
service. Under the new accounting method, revenue from initial membership fees
is deferred and recognized on a straight-line basis over the expected life of
the memberships sold.
This new accounting method differs from the revenue recognition method
historically used by the Company for over 20 years. Accordingly, to show
comparable results for the periods presented, the accompanying consolidated
financial statements have been restated from those originally reported to
reflect this change in accounting method. The deferral of historical sales
revenues and expenses resulting from this change in accounting method had no
impact on the Company's liquidity or cash flows.
Page 44
<PAGE>
The following table provides selected summarized information illustrating the
effect of the restatement on the Company's consolidated financial position and
results of operations for the years ended June 30, 1996 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------------------ ------------------------
As As
As Originally As Originally
Restated Reported Restated Reported
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
FINANCIAL POSITION:
Campground land $ 14,101 $ 13,468 $ 15,964 $ 15,331
Deferred selling expenses -
Current 357 - 235 -
Long term 887 - 763 -
-------- --------
Total 1,244 998
Deferred revenue -
Current 19,265 17,599 19,764 18,622
Long term 4,172 3,722
-------- -------- -------- ---------
Total 23,437 17,599 23,486 18,622
Stockholders' Equity (Deficit) (31,952) (27,991) (33,054) (29,821)
RESULTS OF OPERATIONS:
Membership and resort interest sales 3,013 3,987 4,074 4,228
Total revenues 91,022 91,996 91,392 91,546
Income (loss) before extraordinary item (281) 447 (11,828) (11,923)
Net income (loss) 1,109 1,837 (11,828) (11,923)
Net income (loss) per common share .30 .50 (3.19) (3.22)
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
The Company sells campground memberships pursuant to membership contracts that
give purchasers the right to use one or more of the Company's campgrounds, but
do not convey a deeded interst in the campgounds. Until 1990, the Company also
sold campground memberships that gave purchasers an undivided fractional
interest in one of six campgrounds. A membership requires the payment of an
upfront membership fee and permits the member's family to use one or more of the
Company's campgrounds for an initial period, subject to renewal each year upon
payment of annual dues.
Resort interest sales have historically included interval ownerships
("timeshares") that gave purchasers exclusive use of fully furnished vacation
homes in weekly intervals and fee simple ownership of lots located at the
resorts. Resort interest sales are currently limited to sales of lots as the
timeshare operations and timeshare inventory were sold in November 1996 (see
Note 6).
The Company has offered financing on certain campground memberships for a period
of up to 12 months with a down payment of 25% of the sales price, and has
offered financing on the sale of resort interests for periods up to five years
with a down payment of at least 10% of the sales price. However, during the
periods presented, the majority of the Company's campground membership and
resort interest sales were not financed.
Sales revenue from the sale of resort interests and campground memberships that
convey a deeded interest in real estate is recognized upon execution of a sales
contract and receipt of a down payment of at least 10% of the sales price.
Historically, sales revenue from the sale of campground memberships that do not
convey a deeded interest in real estate was recognized in
Page 45
<PAGE>
the same manner. However, as discussed above, the staff of the SEC has required
the Company to change its accounting method to recognize sales revenue from the
sale of campground memberships that do not convey a deeded interest in real
estate on a straight-line basis over the expected life of the memberships sold.
In addition, costs directly related to the sale of such campground memberships
are deferred and recognized as selling expenses on a straight-line basis over
the expected life of the memberships sold.
The annual dues paid by the campground members are used to fund the Company's
operating expenses, including corporate expenses and the maintenance and
operation of the campgrounds. The membership contracts generally permit the
Company to increase annually the amount of each member's dues by either (i) the
percentage increase in the consumer price index ("CPI") or (ii) the greater of
10% or the percentage increase in the CPI. The Company, however, may not
increase the dues on existing contracts of senior citizens and disabled members
who notify the Company of their age or disability and request that their dues be
frozen. At the present time, approximately 35% of the members have requested
that their dues be frozen because of their age or disability. The Company
estimates that approximately 50% of the campground members are senior citizens
eligible to request that their dues be frozen. The Company is unable to
estimate when or if a significant number of these members will request that
their dues be frozen in the future. Annual dues are recognized as revenue
ratably over 12 months as services are provided, and are recorded net of an
allowance to provide for uncollectible amounts. Dues paid in advance are
deferred as unearned revenue.
Cash and Cash Equivalents
- -------------------------
The Company considers demand accounts and short-term investments with maturities
of nine months or less when purchased to be cash equivalents.
Restricted Cash
- ---------------
Restricted cash generally consists of deposits to collateralize performance
bonds and letters of credit in the ordinary course of business.
Receivables
- -----------
Prior to June 30, 1991, the Company purchased contracts receivable from NACO,
Trails and SoPac Resort Properties, Inc. ("SoPac"), a former affiliate (the
"Selling Companies"). The Company recorded the contracts receivable at the
Selling Company's carrying value net of a discount to reflect the current market
yield at the time of acquisition of NACO and Trails. Interest income is
recognized on purchased contracts receivable based upon the effective yield at
which they were purchased and on other contacts receivable at their stated rates
based on the outstanding principal balances.
Allowance for Doubtful Accounts
- -------------------------------
The Company provides an allowance for future cancellations of contracts
receivable. The allowance is based on management's estimate of future contract
cancellations considering the Company's historical cancellation rates as well as
other factors deemed relevant to the analysis. The allowance is reviewed on a
periodic basis with changes in management's estimates recognized in the period
known. The Company presently believes that the allowance for doubtful accounts
is adequate. However, if cancellations occur at a different rate than is
presently anticipated, it may be necessary for the Company to revise its
estimates and increase or decrease the allowance, which would affect the
Company's operating results and financial condition.
Allowance for Interest Discount
- -------------------------------
In connection with the acquisition of NACO and Trails, the Company recorded an
allowance for interest discount to increase to 14.75% the weighted average yield
on the contracts receivable then owned by NACO and Trails. The interest
discount is being amortized using the effective interest method over the
respective terms of the contracts.
Page 46
<PAGE>
Allowance for Collection Costs
- ------------------------------
In connection with the Company's acquisition of NACO and Trails and its
emergence from bankruptcy in 1991, the Company recorded an allowance for future
costs associated with the collection of the contracts receivable portfolio. The
allowance is being amortized as a reduction to general and administrative
expenses based on cash collected on the related portfolio.
Valuation Allowance
- -------------------
In connection with purchases of contracts receivable from third parties, the
Company recorded a valuation allowance to record the contracts receivable at the
purchase price. The allowance is being amortized as an increase to interest
income over the respective terms of the contracts.
Campground Land and Timeshare and Lot Inventory
- -----------------------------------------------
Campground land and timeshare and lot inventory are recorded at the lower of
cost or estimated net realizable value. The remaining timeshare inventory was
sold in November 1996. Prior to November 1996, the timeshare inventory was
charged to cost of sales based on the value of a timeshare week sold in relation
to total sellable weeks at the property. Similarly, while the Company sold
campground memberships that conveyed an undivided interest in the campground
property, the related campground property was charged to cost of sales based on
the total number of memberships available for sale at the campground. In
connection with the restatement (see Note 1), the land underlying the Company's
operating campgrounds was recaptioned as "campground land."
Buildings, Equipment and Depreciation
- -------------------------------------
Buildings and equipment are recorded at cost. The costs of betterments and
improvements which extend the useful life of the asset are capitalized whereas
the costs of maintenance and repairs which do not extend the useful life of the
asset are expensed in the period incurred. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets which range
from three to thirty years.
Consent Fees
- ------------
In fiscal 1994, to obtain an amendment of the Indenture for the 12% Senior
Secured Notes Due 1998 (the "Secured Notes"), the Company paid aggregate cash
consent fees of $1.6 million to the holders of the Secured Notes who consented
to the amendment. The consent fees were capitalized, and through fiscal 1996,
were amortized on the effective interest method over the remaining term of the
Secured Notes. The remaining unamortized balance of the consent fees was
eliminated when the Secured Notes were retired in a restructuring (the
"Restructuring") that was completed on July 17, 1996 (see Note 8).
Discount on Secured Notes
- -------------------------
In connection with the issuance of the Secured Notes, a discount was recorded to
reduce the carrying value of the Secured Notes to their estimated fair value as
of December 31, 1991, the fresh start reporting date. The discount resulted in
an effective interest yield of 18% for the Secured Notes, and through fiscal
1996, was being amortized as additional interest expense using the effective
interest method over the term of the Secured Notes. The remaining unamortized
balance of this discount was eliminated when the Secured Notes were retired in
the Restructuring on July 17, 1996 (see Note 8).
Income Taxes
- ------------
The Company recognizes certain revenues and expenses in periods which differ for
tax and financial reporting purposes.
Net Income (Loss) Per Common Share
- ----------------------------------
Net income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding, as determined
by the treasury stock method, whereby proceeds, if any, from the assumed
exercise of common stock equivalents, would be used to purchase shares at
current market prices. Net loss per common share is computed based on weighted
average common shares outstanding only. Warrants
Page 47
<PAGE>
outstanding as well as common stock equivalents that would be assumed
outstanding are excluded from the net loss per common share computation as they
would be anti-dilutive.
As part of the Restructuring, on July 17, 1996, the Company issued an aggregate
of 3,680,550 shares of common stock as partial consideration for the retirement
of the Secured Notes (see Note 8). These shares represent approximately 50% of
the shares of common stock currently outstanding.
Foreign Currency Translation Adjustments
- ----------------------------------------
The Company translates the balance sheet of its Canadian subsidiary into US
dollars at exchange rates in effect as of the balance sheet date. Profit and
loss accounts are translated monthly at exchange rates in effect at that time.
NOTE 3 - REINCORPORATION MERGER
On November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc. The
reincorporation was effected through a merger (the "Merger") with a newly formed
wholly owned subsidiary of USTrails that was approved by USTrails' stockholders
at their annual meeting. In the Merger, each share of USTrails common stock,
par value $.01 per share ("USTrails Common Stock"), outstanding prior to the
Merger was converted into one share of the Company's common stock, par value
$.01 per share ("Common Stock"), and each outstanding stock option, warrant or
other right to purchase or receive USTrails Common Stock was converted into a
similar stock option, warrant or other right to acquire Common Stock. The
principal purposes of the Merger were to implement certain transfer restrictions
on the Common Stock (see Note 11) and to change USTrails' state of incorporation
to Delaware.
NOTE 4 - RESTRUCTURING COSTS
In fiscal 1997, the Company incurred $1.1 million of costs in connection with
the consummation of the Restructuring (see Note 8), which are presented as
restructuring costs in the accompanying consolidated statement of operations.
In connection with the Restructuring, the Company also incurred $3.1 million of
costs to obtain a Credit Agreement (the "Credit Agreement") with Foothill
Capital Corporation ("Foothill"), which were capitalized as debt issue costs in
fiscal 1997. In May 1997, the unamortized balance of these debt issue costs of
$1.3 million was charged to expense upon amendment of the Credit Agreement (see
Note 8).
In fiscal 1996, the Company incurred $1.1 million of restructuring costs related
to its efforts to restructure the Secured Notes. In fiscal 1995, the Company
incurred $922,000 of costs related to expanding its Dallas office and hiring and
training new employees. $637,000 of these costs are included in restructuring
costs in the accompanying consolidated statement of operations, and $285,000 of
these costs were capitalized and are included in buildings and equipment in the
accompanying consolidated balance sheets. The Company moved its administrative
offices to Dallas during fiscal 1994.
Page 48
<PAGE>
NOTE 5 - RECEIVABLES
CONTRACTS RECEIVABLE
Contracts receivable are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
Contracts receivable -
Memberships/undivided interests $11,293 $18,689
Timeshares and lots 1,069 2,440
------- -------
12,362 21,129
Allowance for doubtful accounts (3,855) (6,290)
Allowance for interest discount (455) (722)
Allowance for collection costs (464) (778)
Valuation allowance (150) (262)
------- -------
7,438 13,077
Interest receivable 79 142
------- -------
$ 7,517 $13,219
======= =======
</TABLE>
Contracts Receivable
- --------------------
Contracts receivable bear interest at rates which generally range from 9.5% to
16%, with a weighted average stated rate of 13% and 12.9% at June 30, 1997 and
1996, respectively. The obligor's weighted average equity in the contracts
receivable at June 30, 1997 and 1996, was 70% and 65%, respectively. As of June
30, 1997, approximately 96% of the campground members and purchasers of resort
interests had paid for their membership or resort interest in full.
The Company has no obligation to refund moneys received or to provide further
services to purchasers in the event a contract is canceled for the purchaser's
nonperformance of contractual obligations. Contracts receivable related to
undivided interests, lot sales and timeshare interests are secured by deeds of
trust on the related real estate. The Company does not require campground
members to provide collateral or other security for related contracts
receivable.
Repurchase of Receivables From a Third Party
- --------------------------------------------
On March 22, 1995, the Company purchased $3.0 million of contracts receivable
from a third party, effective as of June 30, 1994, for $1.6 million. The
Company received contracts receivable with a gross balance of $2.0 million and
$1.0 million in cash representing principal and interest collections on the
contracts receivable from June 30, 1994 to March 22, 1995. The Company recorded
the $2.0 million gross balance of the contracts receivable net of an allowance
for doubtful accounts of $523,000 and a purchase price discount of $550,000.
These contracts receivable had previously been sold by NACO to the third party.
In connection with this sale, a portion of the purchase price was withheld as a
dealer holdback against which the purchaser could offset canceled and delinquent
contracts receivable. As of March 22, 1995, the canceled and delinquent
contracts receivable charged against the dealer holdback had consumed it and a
deficiency of $2.7 million existed. Although the Company took the position that
it was not liable for the deficiency based upon the terms of certain agreements
and releases with the third party, the Company had recorded a contingent
liability for the amount of the deficiency. When the Company repurchased the
contracts receivable, this contingent liability was released. As a result, the
Company reversed the $2.7 million recorded liability and included this amount in
nonrecurring income in the accompanying consolidated statement of operations.
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<PAGE>
Allowance for Doubtful Accounts
- -------------------------------
In fiscal 1997, 1996 and 1995, the Company reduced the allowance for doubtful
accounts on the contracts receivable by $1.2 million, $5.1 million and $457,000,
respectively. These amounts are included in nonrecurring income in the
accompanying consolidated statements of operations. These adjustments were made
because the Company experienced lower contract losses than anticipated in these
years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. The
Company does not presently anticipate any further adjustments to the allowance
for doubtful accounts on the contracts receivable. However, the allowance and
the rate at which the Company provides for future losses on its contracts
receivable could be increased or decreased in the future based on the Company's
actual collection experience.
Allowance for Interest Discount
- -------------------------------
The allowance for interest discount had a remaining balance of $455,000 and
$722,000 at June 30, 1997 and 1996, respectively. Amortization of the allowance
for interest discount totaled $267,000, $357,000 and $486,000 for the years
ended June 30, 1997, 1996 and 1995, respectively, which increased interest
income.
Allowance for Collection Costs
- ------------------------------
The allowance for collection costs had a remaining balance of $464,000 and
$778,000 at June 30, 1997 and 1996, respectively. Amortization of the allowance
for collection costs totaled $314,000, $513,000 and $854,000 for the years ended
June 30, 1997, 1996 and 1995, respectively, which decreased general and
administrative expenses. In fiscal 1995, the Company reduced the allowance for
future collection costs by $540,000 more than the normal accrual because the
estimated future cost to collect the remaining contracts receivable was less
than the amount anticipated when the allowance was recorded. This amount is
included in nonrecurring income in the accompanying consolidated statement of
operations.
Valuation Allowance
- -------------------
The valuation allowance had a balance of $150,000 and $262,000 at June 30, 1997
and 1996, respectively. Amortization of the valuation allowance totaled
$112,000, $250,000 and $121,000 for the years ended June 30, 1997, 1996 and
1995, respectively, which increased interest income.
At June 30, 1997, scheduled future receipts on contracts receivable are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Memberships
and Undivided Timeshares
Interests and Lots Total
------------- ---------- -------
<S> <C> <C> <C>
1998 $ 4,171 $ 556 $ 4,727
1999 3,452 284 3,736
2000 2,470 138 2,608
2001 1,025 58 1,083
2002 135 25 160
Thereafter 40 8 48
------- ------ -------
Total $11,293 $1,069 $12,362
======= ====== =======
</TABLE>
The Company operates 55 campgrounds located in 17 states and British Columbia,
Canada. The largest volume of campground membership sales occurred at
campgrounds located in California, and that is where the largest percentage of
campground members reside (approximately 37%). As of June 30, 1997, the
Company's contracts receivable from
Page 50
<PAGE>
members who purchased memberships in the state of California totaled
approximately $4.9 million.
MEMBERSHIP DUES RECEIVABLE
In fiscal 1996, the Company increased the allowance for uncollectible dues by
$1.0 million, related to certain aged dues accounts that were determined
uncollectible in fiscal 1996. This charge is included in nonrecurring expenses
in the accompanying consolidated statement of operations.
NOTE 6 - CAMPGROUND AND RESORT PROPERTIES
Campground properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
Land held for sale $ 6,211 $ 5,339
Campground land at campgrounds where
right-to-use memberships are sold 11,288 12,030
Campground land at campgrounds where
undivided interests were sold 2,071 2,071
Property and equipment 35,826 37,138
Construction in progress 172 67
Accumulated depreciation (12,804) (10,336)
-------- --------
$ 42,764 $ 46,309
======== ========
</TABLE>
The Company sells campground memberships that give members the right to use one
or more of the Company's campgrounds but do not convey a deeded interest in the
campgrounds. Until 1990, the Company also sold campground memberships that gave
members a deeded undivided interest in one of six campgrounds. At the six
campgrounds where undivided interests were sold, the Company is not required to
seek the consent of the campground members to sell or encumber the Company's
interest in the campgrounds.
Resort properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------ ------
<S> <C> <C>
Land held for sale $1,171 $1,482
Timeshare and lot inventory 342 1,159
Property and equipment 23 311
Construction in progress 24
Accumulated depreciation (6) (74)
------ ------
$1,530 $2,902
====== ======
</TABLE>
The campground and resort properties are encumbered by certain borrowings as
described in Note 8.
Over the past several years, the Company has been selling the assets it owns at
the resorts. On November 21, 1996, the Company sold its timeshare management
operations and timeshare
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<PAGE>
inventory at the resorts to a newly formed corporation owned by two former
employees (the "Buyer"). The sales price was $850,000, of which $50,000 was paid
in cash at closing with the balance represented by a promissory note in the
principal amount of $800,000. The first principal installment on the note of
$300,000 was paid by its due date of May 15, 1997, and the remaining $500,000 is
due on May 15, 1998. Interest accrues on the note at the rate of 14 1/2% per
annum and is payable with the principal installments. The Buyer may extend
payment of $150,000 of the second principal installment for up to one year, with
interest accruing at 20% per annum. The note is secured by liens on
substantially all of the assets of the Buyer, a pledge of the Buyer's
outstanding stock, and the personal guarantees of the two shareholders of the
Buyer.
A deferred gain of $471,000 recorded in connection with this sale is being
recognized on the installment method of accounting as payments on the note are
received. The deferred gain has been netted against the principal amount of the
note. The net amount is included in inventory and other assets in the
accompanying consolidated balance sheet as of June 30, 1997.
NOTE 7 - DEFERRED REVENUE AND SELLING EXPENSES
Deferred revenue is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
------- ---------
Deferred Revenue - (Restated)
<S> <C> <C>
Campground membership sales $ 6,303 $ 5,838
Membership dues 15,611 15,889
Other 1,699 1,710
------- -------
$23,613 $23,437
======= =======
</TABLE>
Components of the change in deferred membership selling expenses and deferred
membership sales revenue are as follows (dollars in thousands):
<TABLE>
<CAPTION>
For the years ended June 30,
-------------------------------
1997 1996 1995
------- ------- ------
(Restated) (Restated)
<S> <C> <C> <C>
Deferred Membership Selling Expenses,
beginning of year $ 1,244 $ 998 $ 951
Deferred 505 481 219
Recognized (358) (235) (172)
------- ------- ------
Net change 147 246 47
------- ------- ------
Deferred Membership Selling Expenses,
end of year $ 1,391 $ 1,244 $ 998
======= ======= ======
Deferred Membership Sales Revenue,
beginning of year $ 5,838 $ 4,864 $4,710
Deferred 2,131 2,116 1,008
Recognized (1,666) (1,142) (854)
------- ------- ------
Net change 465 974 154
------- ------- ------
Deferred Membership Sales Revenue,
end of year $ 6,303 $ 5,838 $4,864
======= ======= ======
</TABLE>
Page 52
<PAGE>
NOTE 8 - LONG TERM DEBT
SECURED NOTES
At June 30, 1996, the Company had outstanding $101.5 million principal amount of
Secured Notes, which were retired in full on July 17, 1996 (see "Secured Note
Restructuring" below). The original principal amount of the Secured Notes was
recorded net of a discount to yield an effective interest rate of 18%. During
the years ended June 30, 1996 and 1995, $4.2 million and $4.6 million,
respectively, of this discount was amortized as additional interest expense.
The Secured Notes bore interest at 12% per annum, payable semi-annually on
January 15 and July 15 of each year. The Company was required to redeem $18.6
million in principal amount of Secured Notes on each of July 15, 1995, 1996 and
1997, with the remaining unpaid principal due at maturity on July 15, 1998. The
Secured Notes were secured by substantially all of the assets of the Company.
On July 15, 1995, the Company made the mandatory redemption of $18.6 million
principal amount of Secured Notes. On January 31, 1996, the Company repurchased
$7.4 million principal amount of Secured Notes from unrelated sellers for $5.3
million, including accrued interest. The Company recognized a gain of $1.4
million on this transaction, which is presented as an extraordinary item in the
accompanying consolidated statement of operations. No taxes were provided as
cancellation of debt income is not included in taxable income to the extent that
the Company's liabilities exceeded the value of its assets immediately prior to
the acquisition of the Secured Notes.
SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated the Restructuring of the Secured
Notes, whereby all of the $101,458,000 principal amount of Secured Notes
outstanding were retired. In the Restructuring, the Company purchased
$10,070,000 in aggregate principal amount of Secured Notes pursuant to a tender
offer for $780 per $1,000 principal amount, and exchanged $81,790,000 in
aggregate principal amount of Secured Notes pursuant to a private exchange offer
for, in each case per $1,000 in principal amount: $400 in cash, $492 in
principal amount of 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK
Notes") and 45 shares of Common Stock. The remaining $9,598,000 in aggregate
principal amount of Secured Notes were redeemed at 100% of principal amount,
plus accrued interest. In connection with the Restructuring, the Company
entered into the Credit Agreement with Foothill.
The Restructuring was accounted for as a Troubled Debt Restructuring, whereby
the restructured debt was recorded at the carrying value of the old debt and no
gain or loss was recorded on the transaction. A deferred gain of $303,000
recorded in connection with the Restructuring is being amortized as a reduction
of interest expense using the effective interest method over the term of the PIK
Notes.
CREDIT AGREEMENT WITH FOOTHILL
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement.
The Company incurred debt issue costs of $3.1 million related to obtaining the
original Credit Agreement. These costs, which were capitalized, included
prepaid interest, legal costs, financial advisory fees and other direct costs of
obtaining the loans.
Page 53
<PAGE>
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.0 million to repurchase the principal amount of PIK Notes, and up to
$750,000 to pay accrued interest on the PIK Notes repurchased. As a result of
such amendment and repurchases of PIK Notes (see discussion below), as of June
30, 1997, the Company had an outstanding term loan totaling $28,000 and a
revolving loan in the maximum amount of $19.3 million, of which $14.1 million
was outstanding and $5.2 million was available for borrowing. Because of the
substantial modifications made to the original Credit Agreement, the amendment
of the Credit Agreement was accounted for as an extinguishment of debt and the
remaining unamortized balance of the original debt issue costs of $1.3 million
was charged to expense and recorded as a loss on extinguishment of debt. This
$1.3 million charge has been presented as a nonrecurring expense in the
accompanying consolidated statement of operations, offsetting a $1.2 million
gain resulting from the PIK Note repurchases, as further discussed below.
The Company must use all collections of principal and interest on the contracts
receivable, which are estimated to be $4.7 million in fiscal 1998, and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the agreement. The maximum
amount of the revolving loan declines as these principal reductions are made.
The remaining borrowings under the Credit Agreement must be paid in full on July
16, 1999. Availability of such working capital is subject to continued
compliance by the Company with the financial covenants and other requirements of
the Credit Agreement, including certain covenants respecting minimum earnings
before interest, taxes, depreciation and amortization, and minimum tangible net
worth. The Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
The Company has granted liens on substantially all of its assets to secure its
obligations under the Credit Agreement. In addition, the Company's subsidiaries
other than an immaterial utility subsidiary have guaranteed the Company's
obligations under the Credit Agreement and, subject to certain limitations, have
granted liens on substantially all of their assets to secure their guarantees.
PIK NOTES AND PIK NOTE REPURCHASES
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes which mature on July 15, 2003. The PIK Notes bear interest at (i) 17 1/2%
per annum through January 15, 1998 (the "Initial Period"), and (ii) 12% per
annum thereafter. Upon issuance, the holders of the PIK Notes were paid prepaid
interest in the amount of $40.59 per $1,000 of principal amount (the "Prepaid
Interest") representing the incremental 5 1/2% per annum of interest during the
Initial Period. With the exception of the Prepaid Interest, interest on the PIK
Notes is due semiannually on January 15 and July 15 and is payable in the form
of additional PIK Notes (the "Secondary Notes") as long as borrowings remain
outstanding under the Credit Agreement. After the borrowings under the Credit
Agreement are repaid in full, the Company has the option to issue Secondary
Notes in lieu of cash payment of interest through July 15, 2000. After July 15,
2000, interest on the PIK Notes must be paid in cash.
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. The Company made
these repurchases at an average price of $897 per $1,000 of principal amount in
a Dutch auction available to all holders of PIK Notes. The Company borrowed the
$12.6 million it used for these repurchases under the amended Credit Agreement.
Because the Credit Agreement was amended primarily to provide the funding for
the PIK Note repurchases, the $1.2 million gain resulting from the PIK Note
repurchases was netted with the $1.3 million loss on the debt extinguishment
discussed
Page 54
<PAGE>
above. The net $132,000 loss has been presented as a nonrecurring expense in the
accompanying consolidated statement of operations.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount plus interest in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sales proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial
covenants, but it does prohibit the Company from borrowing from other sources in
significant amounts except for the Credit Agreement with Foothill, a $10.0
million replacement working capital facility and equipment purchases.
The PIK Notes were guaranteed by the Company's subsidiaries other than an
immaterial utility subsidiary and are presently unsecured. However, upon
payment in full of all of the Company's obligations under the Credit Agreement,
the PIK Notes will be secured by the same assets as then secure the Credit
Agreement other than cash and cash equivalents and other assets required to
secure any refinancing or replacement of the borrowings provided by the Credit
Agreement for working capital purposes. This replacement credit facility may be
secured by substantially all of the assets of the Company and its subsidiaries
other than certain excluded assets, provided it does not exceed $10.0 million in
principal amount. The mortgages on the Company's campgrounds that were granted
to secure the Company's obligations under the Credit Agreement, and any
mortgages on the Company's campgrounds that are granted in the future to secure
the Company's obligations under the PIK Notes, contain or will contain
nondisturbance provisions designed to protect the rights of the campground
members.
NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------
1997 1996
------ ------
<S> <C> <C>
Real estate mortgages, interest payable
at fixed rates ranging from 7.0% to
12% due through May 2012 $ 381 $ 867
Note payable with interest at
escalating rates ranging from 8.9% to
10.4%, semi-annual payments due
through February 2008 223 235
----- ------
$ 604 $1,102
===== ======
</TABLE>
Real estate mortgages totaling $2.5 million were eliminated in connection with
the abandonment of two operating campgrounds in the Fall of 1995.
Page 55
<PAGE>
BALANCE SHEET PRESENTATION
Balance sheet presentation of the current and long term components of the
Company's outstanding debt is reflected below, as of June 30, 1997 and 1996
(dollars in thousands):
<TABLE>
<CAPTION>
June 30,
----------------
1997 1996
------- -------
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT:
Borrowings under Credit Agreement $ 5,799
Secured Notes, net of discount of $7.1
million $28,264
Notes and mortgages payable 65 266
------- -------
$ 5,864 $28,530
======= =======
LONG TERM DEBT:
Borrowings under Credit Agreement $ 8,298
PIK Notes, including deferred gain of
$.2 million 29,393
Secured Notes $66,086
Notes and mortgages payable 539 836
------- -------
$38,230 $66,922
======= =======
Total long term debt $44,094 $95,452
======= =======
</TABLE>
The following table presents scheduled maturities of the principal amount of the
Company's outstanding debt as of June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------------------- -------
<S> <C>
1998 $ 5,864
1999 7,123
2000 1,334
2001 94
2002 50
Thereafter 29,449
-------
43,914
Deferred gain 180
-------
$44,094
=======
</TABLE>
NOTE 9 - INCOME TAXES
The Company and its subsidiaries have entered into tax sharing agreements,
pursuant to which they file federal income tax returns on a consolidated basis
and allocate tax benefits and liabilities as provided in the agreements. The
agreements generally provide that a subsidiary will reimburse or be reimbursed
by the Company in an amount equal to 100% of any tax amounts that would have
been due or refundable, calculated as if the subsidiary were a stand-alone
taxpayer.
Page 56
<PAGE>
[CAPTION]
The differences, expressed as a percentage of pretax loss, between statutory and
effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------
1997 1996 1995
------- ------ -------
(Restated) (Restated)
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% (34.0)%
Provision for state income taxes 3.5 3.6 2.2
Alternative minimum taxes 1.7
Unrecordable net operating loss (34.0) (34.0) 34.0
------ ------ ------
Effective tax rate 5.2% 3.6% 2.2%
====== ====== ======
</TABLE>
At June 30, 1997, the Company had an estimated net operating tax loss
carryforward of $47.9 million, expiring in years 2007 through 2011, as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ending Amount
June 30, Expiring
----------- --------
<S> <C>
2007 $ 9,006
2008 5,897
2009 11,215
2010 16,147
2011 5,655
--------
$ 47,920
========
</TABLE>
Components of deferred income taxes are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property Basis Differences ($2,717) ($2,872)
Purchase Discount Amortization (160) (342)
Bad Debt Provision (2,017) (1,956)
-------- --------
(4,894) (5,170)
-------- --------
DEFERRED TAX ASSETS:
Membership sales 1,670 1,562
Secured Note Offering Costs and
Consent Fee Amortization 81 305
Deferred Gain on Secured Notes 788 1,231
PIK Note Interest 1,572
Unpaid Expenses 3,454 4,387
Restructuring Costs 1,675 1,936
Deferred Revenue 553 536
Net Operating Loss 17,022 19,917
Other 40 516
-------- --------
26,855 30,390
-------- --------
Net Deferred Tax Asset 21,961 25,220
Valuation Account (21,961) (25,220)
-------- --------
Net Deferred Tax Asset $ 0 $ 0
======== ========
</TABLE>
Page 57
<PAGE>
SFAS No. 109, which provides guidance on reporting for income taxes, requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has recorded a valuation
allowance for the amount by which deferred tax assets exceed deferred
liabilities and, as a result, the Company has not recorded any liability or
asset for deferred taxes as of June 30, 1997 or 1996.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Lease Commitments
- -----------------
The Company leases equipment and facilities under non-cancelable operating
leases with terms in excess of one year. At June 30, 1997, the Company's future
obligations under non-cancelable operating leases were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------- ------
<S> <C>
1998 $730
1999 565
2000 262
2001 125
2002 108
</TABLE>
Accrued Construction Costs
- --------------------------
At June 30, 1997, the Company had a recorded liability of $2.8 million for
amounts necessary to complete certain improvements at the resorts as provided in
registration statements filed with the US Department of Housing and Urban
Development. The costs of such improvements are based upon engineering
estimates and are classified as a current liability in the accompanying
consolidated balance sheets.
CEO Bonus Accrual
- -----------------
The employment agreement between the Company and its Chief Executive Officer
("CEO") provided that the CEO would receive a one-time bonus equal to between 4%
and 6% of the amount by which the enterprise value of the Company (including the
value of its debt and equity securities) exceeded $75.0 million at the time the
CEO elected to receive the bonus. The bonus would have been adversely affected
by the consummation of the Restructuring. As a result, on June 29, 1996, the
CEO exercised his right to receive the bonus and became entitled to $1,270,589,
of which $952,927 was paid on July 9, 1996 and $317,662 was paid on May 11,
1997. The Company obtained an irrevocable standby letter of credit on which the
CEO could draw payment if the Company failed to pay the bonus after receiving a
request from the CEO. The letter of credit was secured by a $1.5 million cash
deposit, which was reduced to $317,662 after the payment of the initial bonus
amount, and released in February 1997. The Company accrued the entire amount of
the bonus at June 30, 1996, which is included in nonrecurring expenses in the
Company's consolidated statement of operations.
CONTINGENCIES
Self Insurance
- --------------
The Company is self-insured for general liability losses up to $250,000 per
occurrence, with an annual aggregate exposure to the Company of $2.0 million.
The Company's liability insurance program provides coverage in excess of the
self-insured amounts up to an annual limit of $26.8 million. The Company has
provided a liability for estimated known and unknown claims related to uninsured
general liability risks of $2.0 million and $1.6 million at June 30, 1997 and
1996, respectively, which is included in other liabilities in the accompanying
consolidated balance sheets. This liability is determined based on actuarial
estimates.
Page 58
<PAGE>
The Company also has employee benefit plans that are funded primarily through
employer and employee contributions (see Note 15).
Workers' Compensation Insurance
- -------------------------------
During fiscal 1997, the Company determined that it is entitled to refunds of
$865,000 in future periods for deposits made in previous years to cover workers'
compensation claims in excess of those covered by the standard premium paid by
the Company. These deposits were expensed in the years the deposits were made
because the Company anticipated that the deposits would be used to cover
workers' compensation claims. At June 30, 1997, the Company recorded the
refundable amount as an asset, resulting in nonrecurring income of $865,000.
The refundable amount is included in other assets in the accompanying
consolidated balance sheet as of June 30, 1997.
In fiscal 1996, the Company changed its method of determining workers'
compensation premiums, whereby it no longer records the cost of such premiums
based on estimates that are subject to potential audit adjustments at year-end.
As a result, in fiscal 1996, the Company reversed its recorded contingent
liability related to workers' compensation premium audits. The $799,000
reversal amount is included in nonrecurring income in the accompanying
consolidated statement of operations.
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (89% in fiscal 1997). The Company's membership base has
declined significantly over the past five fiscal years, and net of new sales,
the membership base is presently declining at the rate of approximately 6% per
year. The Company attributes this continuing decline principally to its aging
membership base, of whom approximately 50% are senior citizens. In addition,
the Company estimates that the memberships sold in recent fiscal years will have
an expected life that is significantly shorter than the expected life of the
memberships previously sold by the Company. To stop the continuing decline in
the Company's membership base, the Company must significantly increase its
campground membership sales over current levels.
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campgrounds
concerning underground storage tanks, sewage treatment plants and septic
systems, and waste disposal. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations or
financial position.
Litigation
- ----------
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT)
USTrails issued 3,702,726 shares of USTrails Common Stock in connection with its
emergence from bankruptcy on December 31, 1991. USTrails issued an additional
3,680,550 shares of USTrails Common Stock in the Restructuring on July 17, 1996
(see Note 8). Upon the completion of the Company's reincorporation merger on
November 20, 1996, the former USTrails Common Stock was exchanged for the
Company's Common Stock (see Note 3). Transfer of the Common Stock is subject to
transfer restrictions that are described below.
Transfer of Common Stock is subject to restrictions designed to avoid an
"ownership change" within the meaning of section 382 of the Internal Revenue
Code of 1986, as amended (the "Code"). Such restrictions are set forth in
Article IX of the Company's Restated Certificate of Incorporation. Article IX
generally restricts, until June 30, 2011 (or earlier in certain events),
Page 59
<PAGE>
direct or indirect transfer of Common Stock that would without the approval of
the board of directors of the Company (i) increase to more than 4.75% the
percentage ownership of Common Stock of any person who at any time during the
preceding three-year period did not own more than 4.75% of the Common Stock,
(ii) increase the percentage of Common Stock owned by any person that during the
preceding three-year period owned more than 4.75% of the Common Stock, or by any
group of persons treated as a "5 Percent Shareholder" (as defined in the Code
but substituting "4.75%" for "5 Percent"), or (iii) cause an "ownership change"
of the Company. Article IX provides that any direct or indirect transfer of
Common Stock in violation of Article IX is void ab initio as to the purported
transferee, and the purported transferee will not be recognized as the owner of
shares acquired in violation of Article IX for any purpose, including for
purposes of voting and receiving dividends or other distributions in respect of
Common Stock. Any shares purportedly acquired in violation of Article IX will be
transferred to a trustee who will be required to sell them.
The Company's Restated Certificate of Incorporation provides for the issuance of
15,000,000 shares of Common Stock, par value of $.01 per share. In addition,
the Company's Restated Certificate of Incorporation provides for the issuance of
1,500,000 shares of preferred stock, par value $.01 per share, none of which
have been issued to date.
On December 31, 1991, the Company issued warrants to acquire 194,521 shares of
Common Stock at $4.24 per share. These warrants expire on June 30, 1999. In
June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock
at $4.24 per share. These warrants expire on June 30, 1999. In March 1994, the
Company issued warrants to acquire 10,170 shares of Common Stock at $1.625 per
share. These warrants expire on March 31, 1999. To date, none of these
warrants have been exercised. The Company has also granted stock options to the
Company's CEO, other key employees, and non-employee directors (see Note 14).
Since inception, the Company has not paid any dividends. The Indenture for the
Secured Notes, which was discharged in the Restructuring on July 17, 1996,
prohibited the Company from paying any cash dividends on the Common Stock until
the Secured Notes were repaid. In addition, the Credit Agreement with Foothill
prohibits the payment of any cash dividends on the Common Stock without the
consent of Foothill until the borrowings under the Credit Agreement are repaid,
and the Indenture for the PIK Notes prohibits the payment of any cash dividends
on the Common Stock until the PIK Notes are repaid.
Page 60
<PAGE>
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by SFAS No. 95 "Statement of Cash Flows" are presented below for the years ended
June 30, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997
--------
Non-cash transactions related to the
Restructuring (see Note 8)
----------------------------------------
<S> <C>
Retirement of Secured Notes $(44,181)
Issuance of PIK Notes 40,521
Issuance of Common Stock 2,990
Write-off of unamortized portion of
consent fees 670
Non-cash transactions related to the
timeshare sale (see Note 6)
----------------------------------------
Note receivable from Buyer $ 800
Deferred gain (471)
Book value of timeshare inventory sold (58)
Book value of fixed assets sold (165)
Net receivables written off (156)
Non-cash payment of PIK Note interest
----------------------------------------
PIK Notes issued in lieu of cash
interest payment $ 2,372
1996
--------
Abandonment of two operating
campgrounds and elimination of related
nonrecourse obligations (see Note 8) $ 2,518
</TABLE>
The Company did not have any non-cash investing or financing activities during
the year ended June 30, 1995.
Page 61
<PAGE>
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
an entity to disclose the estimated fair value of its financial instrument
assets and liabilities. Significant estimates and present value calculations
were used by the Company for purposes of this disclosure. The estimated fair
values of the Company's financial instruments at June 30, 1997 and 1996, as well
as their carrying amounts as reported in the accompanying consolidated balance
sheets, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------- -------- -------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and Cash Equivalents
$ 1,343 $ 1,343 $37,403 $37,403
Restricted Cash 1,407 1,407 2,912 2,912
Contracts Receivable 12,441 21,271
Less: allowances and discount (4,924) (8,052)
------- -------
7,517 7,500 13,219 13,600
FINANCIAL LIABILITIES:
Secured Notes, net of discount - - 94,350 80,743
Borrowings under Credit Agreement 14,097 14,097 - -
PIK Notes 29,393 26,204 - -
Notes and Mortgages 604 604 1,102 1,000
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of the Company's financial instruments at June 30, 1997 and 1996, for
which it is practical to estimate that value.
Cash and Cash Equivalents, Restricted Cash and Borrowings under Credit Agreement
- --------------------------------------------------------------------------------
The carrying amount approximates fair value because of the short maturity of
these instruments.
Contracts Receivable
- --------------------
The fair value of contracts receivable was estimated by discounting the future
cash flows using the current rates at which the Company estimates a similar loan
portfolio would be purchased by a willing third party, after considering risk
factors regarding collectibility and future collection costs.
Secured Notes
- -------------
The fair value of the Secured Notes was estimated using (i) $18.6 million for
the mandatory redemption of Secured Notes due on July 15, 1996, and for the
balance, (ii) quoted market prices for the Company's securities at the balance
sheet date. These quoted prices may not represent actual transactions.
Page 62
<PAGE>
PIK Notes
- ---------
The fair value of the PIK Notes is estimated using the weighted average price
the Company paid to repurchase PIK Notes on June 25, 1997, in a Dutch auction.
Notes and Mortgages
- -------------------
The fair value of notes and mortgages is estimated based on the borrowing rates
currently available for bank loans with similar terms and average maturities.
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values. Additionally, lack of uniform valuation
methodologies introduces a greater degree of subjectivity to these estimated
values.
The Company did not have any financial instruments as of the balance sheet dates
presented that were held for trading purposes.
NOTE 14 - STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
CEO Options
- -----------
Upon consummation of the Restructuring, on August 1, 1996, the Company's CEO was
granted options to purchase 664,495 shares of Common Stock at $0.69 per share.
The grant of these options was approved by the Company's stockholders at their
annual meeting. These options are 100% vested and are exercisable for a period
of ten years while the CEO is in the employ of the Company, subject to certain
exceptions. The exercise of the options, however, is subject to restrictions
designed to prevent an "ownership change" for federal tax purposes (see Note
11). To date, none of these options have been exercised.
1991 Employee Plan
- ------------------
Effective December 31, 1991, the Company adopted the 1991 Employee Stock
Incentive Plan (the "1991 Employee Plan") to enable the Company and its
subsidiaries to attract, retain and motivate their officers, employees and
directors. Awards under the 1991 Employee Plan may take various forms,
including (i) shares of Common Stock, (ii) options to acquire shares of Common
Stock ("Options"), (iii) securities convertible into shares of Common Stock,
(iv) stock appreciation rights, (v) phantom stock or (vi) performance units.
Options granted under the 1991 Employee Plan may be (i) incentive stock options
("ISOs"), which have certain tax benefits and restrictions, or (ii) non-
qualified stock options ("Non-qualified Options"), which do not have any tax
benefits and have few restrictions.
The Compensation Committee, or in certain circumstances, the Board of Directors
may grant awards under the 1991 Employee Plan until December 30, 2001. The
recipient of an award duly granted on or prior to such date may thereafter
exercise or settle it in accordance with its terms, although the Company may not
issue any shares of Common Stock pursuant to any award after December 30, 2011.
The Board of Directors may amend or terminate the 1991 Employee Plan at any time
and in any manner, provided that (i) an amendment or termination may not affect
an award previously granted without the recipient's consent, and (ii) an
amendment will not be effective until the stockholders approve it if any
national securities exchange or securities association that lists any of the
Company's securities requires stockholder approval or if Rule 16b-3 requires
stockholder approval.
The Company reserved 291,780 shares of Common Stock for issuance under the 1991
Employee Plan. In fiscal 1993, the Company granted 285,000 ISOs to key
employees with an exercise price of $2.50 per share. Of these 285,000 ISOs,
190,000 were canceled in fiscal 1995 and fiscal 1996 as a result of employees
leaving the Company, and the remaining 95,000 were canceled in fiscal 1996 in
connection with the grant of replacement options issued under
Page 63
<PAGE>
the 1993 Stock Option and Restricted Stock Purchase Plan discussed below. In
September 1995, the Company granted key employees ISOs covering 140,000 shares
with an exercise price of $.625 per share, and in January 1996, the Company
granted certain non-employee directors Non-qualified Options to purchase 20,000
shares with an exercise price of $.81 per share. In September 1996, the Company
granted key employees ISOs covering 60,000 shares and one non-employee director
Non-qualified Options covering 5,000 shares, each with an exercise price of $.80
per share. In November 1996, the Company granted certain non-employee directors
Non-qualified Options covering 20,000 shares, each with an exercise price of
$1.08 per share. To date, 245,000 options are outstanding under the 1991
Employee Plan and none have been exercised. 105,000 of these options are fully
vested, and 140,000 of these options are 66 2/3% vested. All of the outstanding
options are fully vested, and they have a term of 10 years from the date of
grant.
1993 Employee Plan
- ------------------
On December 2, 1993, the Company adopted the 1993 Stock Option and Restricted
Stock Purchase Plan (the "1993 Employee Plan") in order to enable the Company
and its subsidiaries to attract, retain and motivate their officers and
employees. Awards under the 1993 Employee Plan are restricted to (i) awards of
the right to purchase shares of Common Stock ("Stock Awards"), or (ii) awards of
Options, which may be either ISOs or Non-Qualified Options. The purchase price
for any Stock Awards and the exercise price for any Non-Qualified Options may be
less than the fair market value of the Common Stock on the date of grant. The
exercise price of any ISOs may not be less than the fair market value of the
Common Stock on the date of grant.
The Compensation Committee, or in certain circumstances, the Board of Directors
may grant awards under the 1993 Employee Plan until October 20, 2003. The
termination of the 1993 Employee Plan, however, will not alter or impair any
rights or obligations under any award previously granted under the plan.
The Board of Directors may amend or terminate the 1993 Employee Plan at any time
and in any manner, provided that (i) an amendment or termination may not affect
an award previously granted without the recipient's consent, (ii) an amendment
will not be effective until the stockholders approve it if any national
securities exchange or securities association that lists any of the Company's
securities requires stockholder approval or if Rule 16b-3 requires stockholder
approval and (iii) the stockholders must approve any amendment decreasing the
minimum exercise price specified in the plan for any ISO granted thereunder.
The Company reserved 285,919 shares of Common Stock for issuance under the 1993
Employee Plan. The 1993 Employee Plan, however, limits the number of shares of
Common Stock with respect to which awards can be made in any calendar year to
any one participant to 200,000 shares. In May 1996, the Company granted 95,000
ISOs under the 1993 Employee Plan at an exercise price of $.59 per share,
contingent upon the termination of an equal number of ISOs granted under the
1991 Employee Plan at an exercise price of $2.50 per share. In September 1996,
the Company granted key employees ISOs covering 175,000 shares with an exercise
price of $.80 per share. To date, 266,500 options are outstanding under the
1993 Employee Plan and 3,500 options have been exercised. All of the
outstanding options are fully vested, and they have a term of 10 years from the
date of grant.
Director Plan
- -------------
On December 2, 1993, the Company adopted the 1993 Director Stock Option Plan
(the "Director Plan"), which provides for the grant of Non-Qualified Options to
non-employee directors of the Company. The Company reserved 50,000 shares of
Common Stock for issuance under the Director Plan. In January 1995, the non-
employee directors of the Company were granted Non-Qualified Options covering
20,000 shares with an exercise price of $.79 per share. In November 1996, the
non-employee directors of the Company were granted Non-qualified Options
covering 25,000 shares with an exercise price of $1.08 per share. Prior to this
grant, after approval by the Board of Directors, four of the non-employee
Page 64
<PAGE>
directors had voluntarily terminated options for 20,000 shares that were granted
in December 1994 with an exercise price of $2.75 per share. To date, 45,000
options are outstanding under the Director Plan and none have been exercised.
All of these options are fully vested, and they have a term of 10 years from the
date of grant.
The Director Plan is designed to be a "formula plan," pursuant to which each
non-employee director will automatically receive a grant of Non-Qualified
Options to purchase 5,000 shares of Common Stock on the day immediately after
each annual meeting of the stockholders at which directors are elected,
beginning with the annual meeting held in December 1993. If on any such day,
the number of shares of Common Stock remaining available for issuance under the
Director Plan is insufficient for the grant of the total number of Non-qualified
Options to which all participants would otherwise be entitled, each participant
will receive Non-qualified Options to purchase a proportionate number of the
available number of remaining shares. The exercise price of each Non-Qualified
Option is required to be equal to the fair market value on the date of grant of
such Option as determined under the Director Plan. Generally, the Director Plan
specifies that such fair market value is the average trading price of the Common
Stock during the period beginning 45 days before the date of grant and ending 15
days before the date of grant.
SFAS 123 Disclosures
- --------------------
As allowed under SFAS 123, the Company follows the accounting treatment
prescribed by APB 25 in accounting for stock options issued to its employees and
directors. Accordingly, no compensation cost was recognized in connection with
the grant of options during the periods presented. Had compensation cost for
the stock options issued been based on the fair value at the grant dates for
those issuances consistent with SFAS 123, the Company's net income and earnings
per share for the years ended June 30, 1997 and 1996, would have been $6.4
million or $.79 per share, and $1.0 million or $.29 per share, respectively.
Pro forma results under SFAS 123 in fiscal 1997 and 1996 are not likely to be
representative of future pro forma results because, for example, additional
awards may be made in future years.
Set forth below is a summary of awards of stock options made by the Company for
the years ended June 30, 1997, 1996 and 1995, and awards outstanding as of the
end of those years:
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------------------------------------------
1997 1996 1995
------------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 295,000 $ .78 291,000 $2.40 310,000 $2.52
Options granted 949,495 .74 255,000 .63 20,000 .79
Options canceled (20,000) 2.75 (251,000) 2.50 (39,000) 2.50
Options exercised -- -- --
--------- -------- --------
Options outstanding, end
of year 1,224,495 .71 295,000 .78 291,000 2.40
========= ======== ========
Options exercisable, end
of year 1,131,171 .72 155,000 .92 208,984 2.37
========= ======== ========
Shares available for
grant, end of year 67,699 n/a 332,699 n/a 336,699 n/a
========= ======== ========
</TABLE>
Page 65
<PAGE>
The weighted-average fair value of stock options granted by the Company during
the years ended June 30, 1997 and 1996 was $.38 and $.37, respectively. The
value of each option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted-average assumptions:
(1) a risk-free interest rate of 6.19% for fiscal 1997 and 6.66% for fiscal
1996, (2) an expected life of three years for fiscal 1997 and four years for
fiscal 1996, (3) expected volatility of 72.5% for fiscal 1997 and 71.58% for
fiscal 1996, and (4) no dividend yield, as the Company has not paid any
dividends since inception, and both the Credit Agreement and the Indenture for
the PIK Notes prohibit or substantially limit the payment of cash dividends.
The following table summarizes information about the Company's stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Prices 6/30/97 Life Price 6/30/97 Price
--------- -------------- ------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OPTION PLANS:
$.59 - $1.08 560,000 8.83 years $.74 466,676 $.77
CEO OPTIONS:
$.69 664,495 9.08 years $.69 664,495/1/ $.69
------------ ------------
1,224,495 8.97 years $.71 1,131,171 $.72
============ ===========
</TABLE>
/1/ As previously discussed, the options granted to the Company's CEO, although
100% vested, are subject to restrictions designed to prevent an "ownership
change" for federal tax purposes.
WARRANTS
On December 31, 1991, the Company issued warrants to acquire 194,521 shares of
Common Stock at $4.24 per share. These warrants expire on June 30, 1999. In
June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock
at $4.24 per share. These warrants expire on June 30, 1999. In March 1994, the
Company issued warrants to acquire 10,170 shares of Common Stock at $1.625 per
share. These warrants expire on March 31, 1999. To date, 494,922 warrants are
outstanding and none have been exercised.
The following table summarizes information about the Company's warrants
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
--------------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Outstanding at Contractual Exercise Exercisable Exercise
Price 6/30/97 Life Price at 6/30/97 Price
--------- -------------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$4.24 484,835 2 years $ 4.24 484,835 $ 4.24
$1.625 10,170 1.75 years $1.625 10,170 $1.625
</TABLE>
Page 66
<PAGE>
NOTE 15 - EMPLOYEE BENEFIT PLANS
Flexible Benefits Plan Trust Fund
- ---------------------------------
Effective July 1, 1992, the Company established a trust to fund the Company's
employee benefit plans (the "Trust Fund"). The benefit plans (collectively, the
"Plans") include the Company's medical plan, dental plan, disability plan, life
insurance plan, and accidental death and dismemberment plan, and any other
employee welfare benefit plan permissible under Section 3(1) of the Employee
Retirement Income Security Act of 1974. The Company has adopted a flexible
benefits plan established pursuant to Section 125 of the Code to furnish
eligible employees with a choice of receiving cash or certain statutory taxable
or non-taxable benefits under the above benefit plans.
The medical and dental benefits provided to the Company's employees under the
Plans are funded primarily through employer and employee contributions to the
Trust Fund. In addition, the Company has purchased a stop loss insurance policy
which protects the Plans against claims in excess of set policy amounts. The
Company has provided a liability for estimated future claims of $1.4 million and
$1.8 million at June 30, 1997 and 1996, respectively, which is included in other
liabilities in the accompanying consolidated balance sheets. This liability is
based on actuarial estimates of amounts needed to fund expected claims, as well
as premium payments and administrative costs of the Plans. During fiscal 1997,
the Company determined that its actual claims experience for certain previous
years was significantly below the estimates for those years. As a result, the
Company reduced its liability for its estimated future claims by $611,000, which
is reflected as nonrecurring income in the accompanying consolidated statement
of operations for the year ended June 30, 1997.
The Company from time-to-time makes contributions to the Trust Fund, which are
irrevocable. Trust assets may not revert to or inure to the benefit of the
Company. Neither the Company, administrator, nor trustee is responsible for the
adequacy of the Trust Fund.
While the trustee has virtual plenary authority to manage and invest trust
assets, the trustee is required to use trust assets and income exclusively to
provide benefits under the Plans and to defray reasonable expenses of
administering the Plans.
Employees Savings Trust
- ------------------------
Effective July 1, 1994, the Company adopted the Thousand Trails, Inc. Employees
Savings Trust for the purpose of establishing a contributory employee savings
plan exempt under Section 401(k) of the Code. An eligible employee
participating in this plan may contribute up to 10% of his or her annual salary,
subject to certain limitations. In addition, the Company may make discretionary
matching contributions as determined annually by the Company. The Company made
matching contributions totaling $154,000 for the year ended June 30, 1997, and
has committed to make matching contributions for the year ended June 30, 1998,
in an amount equal to 45% of the voluntary contributions made by each
participant, up to 4% of the participant's annual compensation (or a maximum of
1.8% of the participant's annual compensation). Employer contributions are
subject to a seven-year vesting schedule.
NOTE 16 - INDUSTRY SEGMENT INFORMATION
The Company's operations are classified into two business segments: campgrounds
and resorts. Operations within the campground segment include (i) the sale of
memberships which entitle the member to use certain campground facilities, (ii)
the sale of undivided interests related to fee simple sales of interests in
campground facilities, (iii) net revenues earned from the reciprocal use program
conducted by RPI, (iv) net revenues earned from operations at the campgrounds,
and (v) net fees earned from the management of campgrounds owned by third
parties. The Company's resort operations have historically included the sale of
timeshare interests in fully furnished vacation homes, management of the
timeshare facilities, and the sale of lots at certain resorts. In November
1996, the Company sold the timeshare operations and timeshare inventory at the
resorts. The Company's current operations at the resorts consist of
Page 67
<PAGE>
the sale of lots at certain resorts and the operation of the common amenities at
one resort which are not material to the Company's consolidated operations. The
Company has sold significant resort assets in the last three years and plans to
dispose of the remaining resort assets over the next several years.
Operating earnings by business segment are defined as membership dues and other
operating revenue less operating expenses. Sales are separately identified.
Income and expenses not allocated to business segments include interest income,
interest expense, corporate administrative costs, and other income and expenses.
Identifiable assets are those assets used exclusively in the operations of each
business segment. Industry segment information is not presented for the year
ended June 30, 1997, because revenues and identifiable assets related to the
resort operations during that year are less than 10% of the related consolidated
amounts. Separate information regarding the Canadian operations is not
presented as revenues and identifiable assets related to the Canadian operations
for the periods presented are less than 10% of the related consolidated amounts.
The following tables show sales, operating earnings (loss) and other financial
information by industry segment for the years ended June 30, 1996 and 1995, as
restated to reflect a change in accounting method for the recognition of revenue
from campground membership sales (see Note 1) (in thousands):
<TABLE>
<CAPTION>
Year ended June 30, 1996
-------------------------------------------------------------
Campground Resort Corporate and
Operations Operations Other Consolidated
------------ ----------- ------------- --------------
(Restated)
<S> <C> <C> <C> <C>
Operating revenues $59,816 $6,975 $ 66,791
Sales 1,656 1,357 3,013
Operating earnings (loss) 11,910 35 ($12,185) (240)
Identifiable assets 66,953 4,705 39,973 111,631
Depreciation 2,209 123 534 2,866
Capital expenditures 621 366 35 1,022
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1995
-------------------------------------------------------------
Campground Resort Corporate and
Operations Operations Other Consolidated
------------ ----------- ------------- --------------
(Restated)
<S> <C> <C> <C> <C>
Operating revenues $61,431 $8,095 $ 69,526
Sales 1,626 2,448 4,074
Operating earnings (loss) 6,569 418 ($18,560) (11,573)
Identifiable assets 76,564 9,012 51,941 137,517
Depreciation 1,940 165 486 2,591
Capital expenditures 3,984 998 750 5,732
</TABLE>
NOTE 17 - INDEMNIFICATION ARRANGEMENTS
Under its By-laws, the Company must indemnify its present and former directors
and officers for the damages and expenses that they incur in connection with
threatened or pending actions, suits or proceedings arising because of their
status as directors and officers, provided that they acted in good faith and in
a manner that they reasonably believed to be in or not opposed to the best
interests of the Company (or with respect to any criminal action or proceeding,
provided that they had no reasonable cause to believe that their conduct was
unlawful). In connection with this indemnification obligation, the Company has
entered into indemnification agreements with its directors and officers.
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<PAGE>
The Company must advance funds to these individuals to enable them to defend any
such threatened or pending action, suit or proceeding. The Company cannot
release such funds, however, until it receives an undertaking by or on behalf of
the requesting individual to repay the amount if a court of competent
jurisdiction ultimately determines that such individual is not entitled to
indemnification. In connection with this obligation, the Company and Trails
established trusts (the "Indemnification Trusts") that will reimburse their
present and former directors and officers for any indemnifiable damages and
expenses that they incur and that will advance to them defense funds. In 1991,
the Company and Trails contributed $500,000 and $300,000, respectively, to the
Indemnification Trusts. Pursuant to the trust agreements, interest on the trust
estates will become part of the trust estates. The Indemnification Trusts will
terminate on the earlier of (i) the execution by a majority of the beneficiaries
of a written instrument terminating the trusts, (ii) the exhaustion of the
entire trust estates, or (iii) the expiration of ten years from the
establishment of the trusts. The Indemnification Trusts may not terminate,
however, if there is pending or threatened litigation with respect to a claim by
a beneficiary against the Indemnification Trusts, until (i) a final judgment in
such proceeding, (ii) the execution and delivery of a statement by such
beneficiary that assertion of a threatened claim is unlikely, or (iii) the
expiration of all applicable statutes of limitations. The Company possesses a
residuary interest in the trust estates upon termination of the Indemnification
Trusts. NACO also has indemnification obligations to its directors and
officers. In connection therewith, NACO contributed $200,000 to a trust. This
trust will reimburse NACO directors and certain officers for any indemnifiable
damages and expenses that they incur and will advance defense funds to them.
The trust assets, which totaled $1.4 million at June 30, 1997, are included in
other assets in the accompanying consolidated balance sheets.
NOTE 18 - CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
All of the Company's wholly owned subsidiaries (other than an inconsequential
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the PIK Notes that were issued on July 17, 1996, as well as
the PIK Notes issued in lieu of cash payment of interest (see Note 8).
The following condensed consolidating balance sheets and statements of
operations present the financial position and results of operations of the
Company ("TTI"), NACO, RPI and Wilderness Management, and the eliminations
necessary to arrive at the information for the Company on a consolidated basis,
as of and for the years presented. Such financial information has been restated
to reflect a change in accounting method for the recognition of revenues from
campground membership sales (see Note 1). Prior to July 16, 1996, when Trails
was merged into the Company, Trails was a separate corporation. Therefore, the
financial position and results of operations of Trails as of and for the years
ended June 30, 1996 and 1995, have been presented in a separate column. The
assets and operations of Wilderness Management are not material and have
therefore been combined with the balances of RPI. The Company has not
presented separate financial statements and other disclosures concerning the
Subsidiary Guarantors because management believes such information is not
material to investors. These condensed consolidating financial statements are
presented to provide additional analysis of, and should be read in conjunction
with, the consolidated financial statements of the Company.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
Page 69
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI NACO WILDERNESS(e) NATIONS TOTAL
---------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS -
Cash and cash equivalents $ 787 $ 484 $ 72 $ 1,343
Current portion of receivables, net 2,768 438 $ (72)a 3,134
Accounts and dues receivable, net 232 310 542
Other current assets 2,104 2,670 6,328 (7,088)b 4,014
-------- -------- ------ -------- --------
Total current assets 5,891 3,902 6,400 (7,160) 9,033
Receivables, net 3,812 699 (128)a 4,383
Notes receivable from affiliates 28,154 (28,154)c
Real estate and property, net 20,943 23,254 97 44,294
Investment in subsidiaries (10,638) 10,638d
Other assets 3,571 1,782 239 5,592
-------- -------- ------ -------- --------
Total assets $ 51,733 $ 29,637 $6,736 $(24,804) $ 63,302
======== ======== ====== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES -
Accounts payable and accrued
liabilities $ 7,259 $ 3,575 $ 408 $ (200)a $ 11,042
Due to affiliates 6,685 403 (7,088)b
Current portion of long term debt 5,844 20 5,864
Accrued construction costs 2,809 2,809
Deferred revenue 11,913 6,324 1,218 19,455
-------- -------- ------ -------- --------
Total current liabilities 31,701 12,728 2,029 (7,288) 39,170
Notes payable to parent 28,154 (28,154)c
Long term debt 37,874 356 38,230
Other liabilities 4,326 3,734 10 8,070
-------- -------- ------ -------- --------
Total liabilities 73,901 44,972 2,039 (35,442) 85,470
-------- -------- ------ -------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (22,168) (15,335) 4,697 10,638 (22,168)
-------- -------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 51,733 $ 29,637 $6,736 $(24,804) $ 63,302
======== ======== ====== ======== ========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $375,000.
Page 70
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1996
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(e) NATIONS TOTAL
--------- -------- ------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS -
Cash and cash equivalents $ 37,298 $ 16 $ 89 $ 37,403
Current portion of receivables, net 1,921 $ 2,108 375 $ (134)a 4,270
Accounts and dues receivable, net 211 311 522
Other current assets 2,031 22,786 1,830 5,388 (27,006)b 5,029
-------- ------- ------- ------ -------- --------
Total current assets 41,250 25,105 2,532 5,477 (27,140) 47,224
Receivables, net 2,252 5,713 1,203 (219)a 8,949
Notes receivable from affiliates 29,417 (29,417)c
Real estate and property, net 104 22,704 26,323 80 49,211
Investment in subsidiaries 17,121 (17,121)d
Other assets 2,421 2,035 1,592 199 6,247
-------- ------- ------- ------ -------- --------
Total assets $ 92,565 $55,557 $31,650 $5,756 $(73,897) $111,631
======== ======= ======= ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES -
Accounts payable and accrued
liabilities $ 6,077 $ 7,969 $ 4,486 $ 753 $ (1,309)a $ 17,976
Due to affiliates 23,748 1,571 378 (25,697)b
Current portion of long term debt 28,264 232 34 28,530
Accrued construction costs 3,154 3,154
Deferred revenue 11,782 6,307 1,176 19,265
-------- ------- ------- ------ -------- --------
Total current liabilities 58,089 19,983 15,552 2,307 (27,006) 68,925
Notes payable to parent 1 29,416 (29,417)c
Long term debt 66,086 346 490 66,922
Other liabilities 353 4,058 3,678 (353)a 7,736
-------- ------- ------- ------ -------- --------
Total liabilities 124,528 24,388 49,136 2,307 (56,776) 143,583
-------- ------- ------- ------ -------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (31,963) 31,169 (17,486) 3,449 (17,121) (31,952)
-------- ------- ------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 92,565 $55,557 $31,650 $5,756 $(73,897) $111,631
======== ======= ======= ====== ======== ========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $325,000.
Page 71
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI NACO WILDERNESS(d) NATIONS TOTAL
------- ------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $35,243 $21,514 $1,094 $57,851
Membership and resort interest sales 2,090 1,387 3,477
Interest income 5,318 1,093 $(2,685)a 3,726
Income from subsidiaries 3,400 (3,400)b
Other income 4,959 5,349 4,086 (1,035)c 13,359
------- ------- ------ ------- -------
Total Revenue 51,010 29,343 5,180 (7,120) 78,413
------- ------- ------ ------- -------
EXPENSES
Campground/resort operating
expenses 24,431 17,408 1,021 42,860
Selling and marketing 2,898 1,559 (2,685)a 4,457
Interest expense 9,130 2,639 (1,035)c 9,084
General and administrative 6,000 5,135 10,100
Restructuring costs 1,101 1,101
Other expenses 1,258 406 1,978 3,642
------- ------- ------ ------- -------
Total Expenses 44,818 27,147 2,999 (3,720) 71,244
------- ------- ------ ------- -------
Operating income 6,192 2,196 2,181 (3,400) 7,169
Income tax (provision) benefit 607 (44) (933) (370)
------- ------- ------ ------- -------
Net Income $ 6,799 $ 2,152 $1,248 $(3,400) $ 6,799
======= ======= ====== ======= =======
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $1.1 million
and $1.0 million, respectively.
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<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(d) NATIONS TOTAL
------- -------- ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $34,911 $26,481 $ 820 $62,212
Membership and resort interest sales 1,444 1,569 3,013
Interest income $ 6,445 3,446 1,219 267 $ (4,621)a 6,756
Income from subsidiaries 8,526 (8,526)b
Other income 66 4,669 10,977 4,585 (1,256)c 19,041
------- -------- ------- ------- -------- -------
Total Revenue 15,037 44,470 40,246 5,672 (14,403) 91,022
------- -------- ------- ------- -------- -------
EXPENSES
Campground/resort operating
expenses 25,647 23,865 796 50,308
Selling and marketing 3,504 1,810 5,314
Interest expense 17,346 146 4,822 (4,621)a 17,693
General and administrative 1,604 3,813 6,312 (1,256)c 10,473
Restructuring costs 1,124 1,124
Other expenses 3,721 392 2,237 6,350
------- -------- ------- ------- -------- -------
Total Expenses 20,074 36,831 37,201 3,033 (5,877) 91,262
------- -------- ------- ------- -------- -------
Operating income (loss) (5,037) 7,639 3,045 2,639 (8,526) (240)
Income tax (provision) benefit 4,756 (3,471) (77) (1,249) (41)
Extraordinary gain 1,390 1,390
------- -------- ------- ------- -------- -------
Net Income $ 1,109 $ 4,168 $ 2,968 $ 1,390 $ (8,526) $ 1,109
======= ======= ======= ======= ======== ========
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $826,000 and
$796,000, respectively.
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<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(d) NATIONS TOTAL
------- ------- -------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $36,261 $28,385 $ 554 $ (519)b $ 64,681
Membership and resort interest sales 1,009 3,065 4,074
Interest income $ 8,509 3,961 1,698 188 (4,421)a 9,935
Other income 660 1,891 7,155 4,845 (1,849)c 12,702
------- ------- -------- ------- ------- --------
Total Revenue 9,169 43,122 40,303 5,587 (6,789) 91,392
------- ------- -------- ------- ------- --------
EXPENSES
Campground/resort operating expenses 29,789 27,214 613 (519)b 57,097
Selling and marketing 3,393 3,396 6,789
Interest expense 20,370 449 4,562 (4,421)a 20,960
General and administrative 2,239 4,777 6,951 (1,849)c 12,118
Restructuring costs 124 308 205 637
Loss from subsidiaries 831 (831)b
Other expenses 2,104 534 2,726 5,364
------- ------- -------- ------- ------- --------
Total Expenses 23,564 40,820 42,862 3,339 (7,620) 102,965
------- ------- -------- ------- ------- --------
Operating income (loss) (14,395) 2,302 (2,559) 2,248 831 (11,573)
Income tax (provision) benefit 2,567 (1,656) (38) (1,128) (255)
------- ------- -------- ------- ------- --------
Net Income (Loss) $(11,828) $ 646 $(2,597) $ 1,120 $ 831 $(11,828)
======== ======= ======= ======= ======= =========
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $554,000 and
$613,000, respectively.
Page 74
<PAGE>
SCHEDULE II
THOUSAND TRAILS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at the Balance at
Valuation and qualifying beginning of the end of
accounts deducted from assets Year ended the year Additions Deductions the year
- -------------------------------- ------------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts 6/30/97 $ 6,290 $ 35 $2,470 a $ 3,855
6/30/96 13,806 24 7,540 a 6,290
6/30/95 17,495 546 b 4,235 a 13,806
Allowance for uncollectible dues 6/30/97 $ 4,666 $3,215 $4,313 $ 3,568
receivable 6/30/96 4,008 4,754 c 4,096 4,666
6/30/95 4,611 4,400 5,003 4,008
Allowance for interest discount, 6/30/97 $ 1,762 $0 $ 693 $ 1,069
collection costs and valuation 6/30/96 2,882 0 1,120 1,762
discount 6/30/95 4,333 550 d 2,001 e 2,882
Deferred tax valuation allowance 6/30/97 $25,220 $0 $3,259 $21,961
(as restated) 6/30/96 19,441 5,779 0 25,220
6/30/95 16,679 2,762 0 19,441
</TABLE>
a Includes a reduction in the allowance for doubtful accounts of $1,232;
$5,146, and $457 in fiscal 1997, 1996 and 1995, respectively.
b Includes an addition to the allowance for doubtful accounts of $523
recorded in connection with the repurchase of contracts receivable from
a third party.
c Includes an increase in the allowance for uncollectible dues receivable
of $1,000.
d Represents a valuation allowance of $550 recorded in connection with the
repurchase of contracts receivable from a third party.
e Includes a reduction in the allowance for collection costs of $540.
Page 75
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 76
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included under the captions
"Proposal I - Election of Directors," "Board of Directors," "Executive
Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Registrant's definitive Proxy Statement for the Registrant's 1997 Annual Meeting
of Stockholders, which will be filed with the SEC pursuant to Regulation 14A,
and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the caption
"Executive Compensation" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item will be included under the caption
"Security Ownership" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included under the caption
"Certain Transactions" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
Page 77
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS
The following documents are filed as part of this Report:
Report of Independent Public Accountants for the years ended June 30, 1997,
1996 and 1995.
Consolidated Balance Sheets as of June 30, 1997 and 1996.
Consolidated Statements of Operations for the years ended June 30, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Deficit for the years ended June
30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements.
Schedule II Valuation and Qualifying Accounts
(b) REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the quarter
ended June 30, 1997. However, on July 8, 1997, the Company filed a Current
Report on Form 8-K relating to its repurchase of $13.4 million principal amount
of PIK Notes on June 25, 1997. The Company made these repurchases in a Dutch
auction available to all holders of PIK Notes.
(c) EXHIBITS
The following documents are filed or incorporated by reference as exhibits to
this report:
Exhibit
Number Description
------- -----------
2.1 Plan of Reorganization of the Company (which was
formerly known as NACO Finance Corporation), dated
October 15, 1991, as supplemented (incorporated by
reference to Exhibit 2.1 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
2.2 Exchange Agreement, dated as of June 11, 1992, between
the Company and certain holders of Trails' 14 5/8%
Senior Subordinated Notes (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K
filed with the SEC on June 25, 1992, File No. 0-19743).
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<PAGE>
2.3 Agreement and Plan of Merger, dated as of August 2,
1993, among the Company, Trails Acquisition, Inc., and
Trails, as amended (incorporated by reference to Exhibit
(c)(1) to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 that the Company, Trails Acquisition,
Inc., and Trails originally filed with the SEC on
December 2, 1993).
2.4 Offer to Purchase for Cash the Company's 12% Secured
Notes due 1998 and Additional Series 12% Secured Notes
due 1998 by the Company, dated June 5, 1996 (the "Offer
to Purchase") (incorporated by reference to Exhibit 99.2
to the Company's Current Report on Form 8-K filed with
the SEC on June 7, 1996, File No. 0-19743).
2.5 Supplement to the Offer to Purchase, dated June 21, 1996
(incorporated by reference to Exhibit 2.5 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
2.6 Private Placement Memorandum by the Company offering to
exchange the Company's 12% Secured Notes due 1998 and
Additional Series 12% Secured Notes due 1998 to certain
holders of such notes, dated June 28, 1996 (the "Private
Placement Memorandum") (incorporated by reference to
Exhibit 2.6 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996, File No. 0-19743).
2.7 Letter of Transmittal pertaining to the transmittal of
the Company's 12% Secured Notes Due 1998 and Additional
Series 12% Secured Notes Due 1998 by certain holders of
such notes pursuant to the exchange offer made by the
Company in the Private Placement Memorandum
(incorporated by reference to Exhibit 2.7 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
2.8 Supplement to the Private Placement Memorandum, dated
July 15, 1996 (incorporated by reference to Exhibit 2.8
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
2.9 Agreement and Plan of Merger, dated as of October 1,
1996, between the Company and USTrails (predecessor in
interest to the Company) (incorporated by reference to
the proxy statement/prospectus filed with the the SEC on
October 3, 1996 as part of the Registration Statement on
Form S-4, Registration Statement No. 333-13339, File No.
0-19743 (the "S-4 Registration Statement").
2.10 Offer to Purchase for Cash the Company's 12% Senior
Subordinated Pay-In-Kind Notes due 2003, dated as of
May 20, 1997 (incorporated by reference to Exhibit 99.1
to the Company's Current Report on Form 8-K filed with
the SEC on July 8, 1997, File No. 0-19743).
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the proxy
statement/prospectus filed with the SEC on October 3,
1996 as part of the S-4 Registration Statement).
3.2 Amended and Restated By-laws of the Company
(incorporated by reference to Exhibit 3.2 to the Form 8-
B filed by the Company with the SEC on November 27,
1996, File No. 0-19743).
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<PAGE>
4.1 Form of Reorganization Warrant Certificate to purchase
shares of Common Stock and schedule of substantially
identical warrants (incorporated by reference to Exhibit
4.7 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1992, File No. 0-19743).
4.2 Letter Agreement, dated March 19, 1993, between the
Company and Carl Marks Strategic Investments, LP
(incorporated by reference to Exhibit 4.18 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
4.3 Form of Warrant Certificate to purchase shares of Common
Stock issued pursuant to the Exchange Agreement with
certain holders of Trails' indebtedness (incorporated by
reference to Exhibit 4.3 to the Company's Current Report
on Form 8-K filed with the SEC on June 25, 1992, File
No. 0-19743) and schedule of substantially identical
warrants (incorporated by reference to Exhibit 4.15 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
4.4 Warrant Agency Agreement, dated as of March 2, 1994,
between the Company and Shawmut Bank Connecticut,
National Association, as Warrant Agent (incorporated by
reference to Exhibit 4.4 to the Company's Current Report
on Form 8-K filed with the SEC on April 11, 1994, File
No. 0-19743).
4.5 Registration Rights Agreement, dated as of December 31,
1991, regarding the Company's Secured Notes and other
securities (incorporated by reference to Exhibit 4.8 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
4.6 Registration Rights Agreement, dated as of June 12,
1992, regarding the Company's Additional Series Secured
Notes and the shares of Common Stock issuable upon the
exercise of certain warrants (incorporated by reference
to Exhibit 4.4 of the Company's Current Report on Form
8-K filed with the SEC on June 25, 1992, File No. 0-
19743).
4.7 Indemnification Agreement, dated as of January 14, 1993,
between the Company and the selling security holders
under Registration Statement No. 33-571261 (incorporated
by reference to Exhibit 10.44 to the Company's
Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File
No. 0-19743).
4.8 Indenture, dated as of July 17, 1996, among the Company,
Fleet National Bank as Trustee, and certain other
parties described therein, pertaining to the Company's
Senior Subordinated Pay-In-Kind Notes Due 2003
(incorporated by reference to Exhibit 4.36 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
4.9 Form of Senior Subordinated Pay-In-Kind Note Due 2003
(incorporated by reference to Exhibit 4.37 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
4.10 Registration Rights Agreement, dated as of July 17,
1996, between the Company and Fleet National Bank as
Trustee (incorporated by reference to Exhibit 4.38 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
Page 80
<PAGE>
10.1 Credit Agreement, dated as of December 31, 1991,
between the Company and NACO (incorporated by reference
to Exhibit 10.27 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-
19743).
10.2 First Amendment to Credit Agreement, dated as of May
20, 1993, between the Company and NACO (incorporated by
reference to Exhibit 10.48 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1993,
File No. 0-19743).
10.3 Second Amendment to Credit Agreement, dated as of
November 10, 1994, between the Company and NACO
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1995, File No. 0-19743).
10.4 Amended and Restated Promissory Note, dated as of
November 10, 1994, pursuant to which the Company
provides a $40,000,000 revolving credit facility to
NACO (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1995, File No. 0-19743).
10.5 Amended and Restated Promissory Note, dated as of
November 10, 1994, pursuant to which the Company
provided a $10,765,000 term loan to NACO (incorporated
by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.6 Guaranty, dated as of December 31, 1991, pursuant to
which the subsidiaries of NACO guaranteed certain
amounts that NACO owes the Company (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement No. 33-73284 on Form S-2, originally filed
with the SEC on December 22, 1993, File No. 0-19743).
10.7 Release From Guaranty, dated as of May 31, 1993, among
certain subsidiaries of the Company, the Company, and
Shawmut Bank Connecticut, National Association, as
Trustee (incorporated by reference to Exhibit 10.56 to
the Company's Registration Statement No. 33-571261 on
Form S-2, originally filed with the SEC on January 15,
1993, File No. 0-19743).
10.8 Release under Credit Agreement and Security Agreement,
dated as of May 31, 1993, among certain subsidiaries of
the Company, the Company, and Shawmut Bank Connecticut,
National Association, as Trustee (incorporated by
reference to Exhibit 10.57 to the Company's
Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File
No. 0-19743).
10.9 Security Agreement, dated as of December 31, 1991,
pursuant to which NACO granted to the Company a
security interest in substantially all of its personal
and real property including the pledge of NACO's stock
in its subsidiaries as required by the credit agreement
between the Company and NACO (incorporated by reference
to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-
19743).
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<PAGE>
10.10 First Supplement and Amendment to Security Agreement,
dated as of May 20, 1993, among NACO and certain of its
subsidiaries, RPI, the Company, and Shawmut Bank
Connecticut, National Association, as Trustee
(incorporated by reference to Exhibit 10.53 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
10.11 Form of Mortgage from NACO and its subsidiaries to the
Company pursuant to the credit agreement between the
Company and NACO (incorporated by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-19743), and
schedule of documents substantially identical to the
Form of Mortgage (incorporated by reference to Exhibit
10.55 to the Company's Registration Statement No. 33-
571261 on Form S-2, originally filed with the SEC on
January 15, 1993, File No. 0-19743).
10.12 Form of First Amendment to Mortgage from NACO and its
subsidiaries to the Company amending certain terms of a
Mortgage that previously granted a beneficial security
interest in certain property to the Company pursuant to
the credit agreement between the Company and NACO, and
schedule of documents substantially identical to the
Form of First Amendment to Mortgage (incorporated by
reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.13 Loan and Security Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.14 First Amendment to Loan and Security Agreement, dated
as of May 16, 1997, between the Company and Foothill
Capital Corporation (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-
K filed with the SEC on July 8, 1997, File No. 0-
19743).
10.15 Secured Promissory Note (Account Note), dated July 10,
1996, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.16 Secured Promissory Note (Term Note), dated July 10,
1996, between the Company and Foothill Capital
Corporation(incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.17 Form of Pledge and Security Agreement, dated as of July
10, 1996, between the Company and Foothill Capital
Corporation, and schedule of documents substantially
identical to the form of Pledge and Security Agreement
(incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
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<PAGE>
10.18 Form of Mortgage, dated as of July 10, 1996, to grant
liens to Foothill Capital Corporation to secure the
Company's obligations under the Credit Agreement with
Foothill, and schedule of documents substantially
identical to the form of Mortgage (incorporated by
reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996,
File No. 0-19743).
10.19 Form of Assignment of Indebtedness and Mortgage, dated
as of July 10, 1996, transferring the liens securing
certain indebtedness that NACO owes to the Company to
Foothill Capital Corporation under the Credit Agreement
with Foothill, and schedule of documents substantially
identical to the form of Assignment of Indebtedness and
Mortgage (incorporated by reference to Exhibit 10.24 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
10.20 Form of Subordination Agreement, dated as of July 10,
1996, between the Company and Foothill Capital
Corporation, subordinating the security interests under
the credit agreement between the Company and NACO to
the security interests under the Credit Agreement with
Foothill, and schedule of documents substantially
identical to the form of Subordination Agreement
(incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.21 The Company's 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.22 Amendment No. 1 to the Company's 1991 Employee Stock
Incentive Plan (incorporated by reference to Exhibit
10.8 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, File No. 0-
19743).
10.23 The Company's 1993 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit
10.22 to the Company's Registration Statement No. 33-
73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.24 Amendment No. 1 to the Company's 1993 Stock Option and
Restricted Stock Purchase Plan (incorporated by
reference to Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-19743).
10.25 The Company's 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement No. 33-73284 on Form
S-2, originally filed with the SEC on December 22,
1993, File No. 0-19743).
10.26 Amendment No. 1 to the Company's 1993 Director Stock
Option Plan (incorporated by reference to Exhibit 10.10
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, File No. 0-19743).
Page 83
<PAGE>
10.27 Stock Option Agreement, dated as of August 1, 1996,
between the Company and William J. Shaw (incorporated
by reference to Exhibit 10.26 to the Form 8-B filed by
the Company with the SEC on November 27, 1996, File No.
0-19743).
10.28 Assumption of Obligations, dated as of November 20,
1996, by the Company assuming the obligations of
USTrails under the USTrails Inc. 1991 Employee Stock
Incentive Plan, as amended; the USTrails Inc. 1993
Stock Option and Restricted Stock Purchase Plan, as
amended; the USTrails Inc. 1993 Director Stock Option
Plan, as amended; Warrant Certificates originally
issued on December 31, 1991, June 12, 1992, and March
2, 1994 to May 16, 1995; and the Stock Option
Agreement, dated as of August 1, 1996, between USTrails
and William J. Shaw (incorporated by reference to
Exhibit 10.27 to the Form 8-B filed by the Company with
the SEC on November 27, 1996, File No. 0-19743).
10.29 Employment Agreement, dated as of May 11, 1995, between
the Company and William J. Shaw, and related Standby
Letter of Credit, dated September 22, 1995, issued by
The Bank of California, N.A., for the benefit of Mr.
Shaw, and Letter, dated September 20, 1995, from The
Wyatt Company, regarding Mr. Shaw's Employment
Agreement (incorporated by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No. 0-19743).
10.30 Letter dated June 29, 1996, from William J. Shaw to the
Company, regarding Mr. Shaw's election to receive the
Enterprise Bonus payable under his Employment
Agreement, and Letter, dated July 8, 1996, from
Deloitte & Touche LLP, regarding the computation of the
amount of the Enterprise Bonus payable to Mr. Shaw
under his Employment Agreement (incorporated by
reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996,
File No. 0-19743).
10.31 Amended and Restated Employment Agreement, dated as of
September 10, 1992, among NACO, Trails, RPI, and
William F. Dawson (incorporated by reference to Exhibit
10.49 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1993, File No. 0-19743), and
Letter, dated December 1, 1995, from RPI to William F.
Dawson, regarding certain compensation arrangements
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly on From 10-Q for the quarter ended
December 31, 1995, File No. 0-19743).
10.32 Amended and Restated Employment Agreement, dated as of
December 2, 1992, among the Company, NACO, Trails, and
Walter B. Jaccard (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1992, File No. 0-19743),
and amendment dated November 15, 1994 (incorporated by
reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743), and amendment dated December 7, 1995
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995, File No. 0-19743).
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<PAGE>
10.33 Amended and Restated Employment Agreement, dated as of
October 21, 1993, between the Company and Harry J.
White, Jr. (incorporated by reference to Exhibit 99.3
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 0-19743),
and amendment dated December 7, 1996 (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995, File No. 0-19743).
10.34 Employment Agreement, dated as of August 31, 1995,
between the Company and R. Gerald Gelinas (incorporated
by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.35 Indemnification Agreement, dated as of February 18,
1992, between the Company and Andrew Boas (incorporated
by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992,
File No. 0-19743), and schedule of substantially
identical Indemnification Agreements (incorporated by
reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.36 Indemnification Agreement, dated as of September 1,
1995, between Trails and William J. Shaw, and schedule
of substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.37 Indemnification Agreement, dated as of September 1,
1995, between NACO and William J. Shaw, and schedule of
substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.38 Indemnification Agreement, dated as of May 8, 1991,
between the Company and Donald W. Hair, and schedule of
substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.39 Indemnification Agreement, dated as of November 20,
1996, between the Company and William J. Shaw and
schedule of substantially identical Indemnification
Agreements (incorporated by reference to Exhibit 10.39
to the Company's Registration Statement No. 333-19357
on Form S-1, originally filed with the SEC on January
7, 1997, File No. 0-19743).
10.40 Lease, dated February 24, 1994, as amended, between
Carter-Crowley Properties, Inc. as lessor, and the
Company as lessee, relating to the Company's offices in
Dallas, Texas (incorporated by reference to Exhibit
10.35 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.41 Lease, dated October 7, 1987, as amended, between Hardy
Court Shopping Center, Inc. as lessor, and NACO as
lessee, relating to NACO's offices in Gautier,
Mississippi (incorporated by reference to Exhibit 10.36
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, File No. 0-19743).
Page 85
<PAGE>
10.42 Grantor Trust Agreement, dated as of September 30,
1991, between Union Bank of California, N.A. (formerly
known as The Bank of California, N.A., and referred to
herein as "Union Bank"), and Trails (incorporated by
reference from Trails' Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-9246).
10.43 Supplement to Grantor Trust Agreement, dated as of
November 20, 1996, by the Company in favor of Union
Bank (incorporated by reference to Exhibit 10.44 to the
Company's Registration Statement No. 333-19357 on Form
S-1, originally filed with the SEC on January 7, 1997,
File No. 0-19743).
10.44 Grantor Trust Agreement, dated as of September 30,
1991, between The Bank of California, N.A. and NACO
(incorporated by reference to Exhibit 10.43 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.45 Grantor Trust Agreement, dated May 8, 1991, between the
Company and Texas Commerce Bank, N.A. ("Texas Bank")
(incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.46 Supplement and Succession Agreement to Grantor Trust
Agreement, dated as of October 13, 1992, among Union
Bank, Texas Bank, the Company, and certain
beneficiaries under the Grantor Trust Agreement
(incorporated by reference to Exhibit 10.51 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
10.47 Supplement No. 2 to Grantor Trust Agreement, dated as
of November 20, 1996, by the Company in favor of Union
Bank (incorporated by reference to Exhibit 10.43 to the
Form 8-B filed by the Company with the SEC on November
27, 1996, File No. 0-19743).
10.48 Trust Agreement, dated as of July 22, 1992,
establishing the Company's Flexible Benefits Plan Trust
Fund (incorporated by reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.49 Thousand Trails, Inc. Employee Savings Trust, dated as
of July 1, 1994, between the Company and its
subsidiaries and The Bank of California, N.A., as
trustee (incorporated by reference to Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, File No. 0-19743).
10.50 Tax Allocation Agreement, dated as of September 10,
1992, between the Company and RPI (incorporated by
reference to Exhibit 99.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993, File No. 0-19743).
10.51 Tax Allocation Agreement, dated as of July 1, 1991,
between the Company and NACO (incorporated by reference
to Exhibit 10.44 to the Company's Annual Report on Form
10-K for the year ended June 30, 1994, File No. 0-
19743).
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<PAGE>
10.52 Tax Allocation Agreement, dated as of October 29, 1993,
between the Company and Wilderness Management
(incorporated by reference to Exhibit 10.46 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1994, File No. 0-19743).
10.53 Exchange Agent Agreement, dated as of March 29, 1994,
among the Company, Trails, and American Stock Transfer
& Trust Company (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed
with the SEC on April 11, 1994, File No. 0-19743).
10.54 Sample form of current Membership Contract.
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
Page 87
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THOUSAND TRAILS, INC.
(Registrant)
Date: September 29, 1997 By: s/William J. Shaw
-------------------------------------
William J. Shaw
Chairman of the Board, President
and Chief Executive Officer
Date: September 29, 1997 By: s/Harry J. White, Jr.
-------------------------------------
Harry J. White, Jr.
Vice President, Chief Accounting Officer,
Chief Financial Officer, and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
s/Andrew M. Boas Director September 29, 1997
- ----------------------
Andrew M. Boas
s/William P. Kovacs Director September 29, 1997
- ----------------------
William P. Kovacs
s/Donald R. Leopold Director September 29, 1997
- ----------------------
Donald R. Leopold
s/H. Sean Mathis Director September 29, 1997
- ----------------------
H. Sean Mathis
s/Douglas K. Nelson Director September 29, 1997
- ----------------------
Douglas K. Nelson
s/William J. Shaw Chairman of September 29, 1997
- ---------------------- the Board
William J. Shaw
Page 88
<PAGE>
Exhibit 13.2
THOUSAND TRAILS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF THOUSAND TRAILS, INC.
TO BE HELD NOVEMBER 20, 1997
INTRODUCTION
The enclosed proxy is solicited by the Board of Directors (the "Board of
Directors") of Thousand Trails, Inc., a Delaware corporation (the "Company"),
for use at the Annual Meeting of the Stockholders of the Company to be held at
10:00 a.m. on November 20, 1997, or any adjournment thereof (the "Annual
Meeting"). The Annual Meeting will be held at the principal executive offices of
the Company at 2711 LBJ Freeway, Suite 200, Dallas, Texas. The telephone number
of the Company's principal executive offices is (972) 243-2228. The Company
mailed this Proxy Statement and the accompanying proxy on or about October 13,
1997.
PURPOSES OF THE ANNUAL MEETING
At the Annual Meeting, the stockholders of the Company (the "Stockholders")
will vote upon the following matters:
(1) The election of the directors of the Company, who will serve until the
election and qualification of their successors.
(2) The ratification of Arthur Andersen LLP ("Arthur Andersen") as the
Company's independent certified public accountants for the fiscal year
ending June 30, 1998.
(3) The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors recommends that you vote to:
(1) Elect as directors the nominees named in this proxy statement and the
accompanying proxy.
(2) Ratify Arthur Andersen as the Company's independent certified public
accountants.
RECORD DATE AND VOTING
The Board of Directors established the close of business on October 9,
1997, as the record date for the determination of Stockholders entitled to
notice of the Annual Meeting and to vote thereat and at any adjournment thereof.
On that date, the Company had issued and outstanding 7,386,776 shares of common
stock, par value $.01 per share (the "Common Stock"). The Company did not have
any other shares of capital stock outstanding.
Each Stockholder will be entitled to one vote per share of Common Stock in
connection with the election of each of the six directors, the ratification of
the independent certified public accountants, and each other matter that may be
properly brought before the Annual Meeting. The Stockholders do not possess
cumulative voting rights.
<PAGE>
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock issued and outstanding will constitute a quorum at the
meeting. Shares represented at the meeting in person or by proxy but not voted
will nevertheless be counted for purposes of determining the presence of a
quorum. Assuming that a quorum is present or represented at the meeting, the
election of each of the six directors, and the ratification of Arthur Andersen
as the Company's independent certified public accountants, require the
affirmative vote of the holders of a majority of the shares of Common Stock
present or represented at the meeting. With respect to the election of
directors, votes may be cast for a nominee or withheld. Instructions on the
accompanying proxy to withhold authority to vote for one or more of the nominees
will result in such nominee(s) receiving fewer votes. However, the number of
votes otherwise received by such nominee(s) will not be reduced by such action.
Under the rules of the New York and American Stock Exchanges, if a broker
forwards the Proxy Statement and the accompanying material to its customers
before the Annual Meeting, the broker may vote the customers' shares on the
proposals to elect directors and ratify the Company's independent public
accountants if the broker does not receive voting instructions from the
customers prior to the Annual Meeting. With respect to these proposals, an
abstention with respect to shares present or represented at the meeting will
have the same effect as withholding authority with respect to the election of
directors or voting against the matter.
Proxyholders will vote the shares of Common Stock represented by valid
proxies at the meeting in accordance with the directions given. If a Stockholder
signs and returns a proxy card without giving any directions, the proxyholders
will vote the shares for the election of the six nominees for director named in
this Proxy Statement and the accompanying proxy and for the ratification of
Arthur Andersen as the Company's independent certified public accountants. The
Board of Directors does not intend to present, and has no information that
others will present, any other business at the Annual Meeting. However, in their
discretion, the proxy holders are authorized to (a) vote upon such other matters
presented at the meeting that the Board of Directors did not know would be
presented a reasonable time before this solicitation, (b) vote to approve the
minutes of the last annual meeting of Stockholders (which approval will not
amount to ratification of the action taken at that meeting), (c) vote for the
election of such substitute nominees for director as the Board of Directors may
propose if any nominee set forth herein is unavailable to stand for election as
a result of unforeseen circumstances, and (d) vote upon matters incident to the
conduct of the meeting.
A Stockholder has the unconditional right to revoke such Stockholder's
proxy at any time prior to the voting thereof by (i) submitting a later dated
proxy to the Secretary of the Company or someone else who attends the Annual
Meeting, (ii) attending the Annual Meeting and delivering a written notice of
revocation of the proxy to the Secretary of the Company present thereat, or
(iii) delivering a written notice of revocation of the proxy to the principal
executive offices of the Company, which the Company receives on or before
November 19, 1997.
The Company will bear the cost of soliciting the accompanying proxies. The
directors, officers, and other employees of the Company may solicit proxies by
mail, personal interview, telephone, or facsimile transmission. They will
receive no additional compensation therefor. The Company will reimburse banks,
brokerage firms, and other custodians, nominees, and fiduciaries for the
reasonable expenses that they incur when forwarding this Proxy Statement and the
accompany proxy to the beneficial owners of shares of Common Stock.
<PAGE>
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the persons and groups who beneficially own
more than 5% of the Common Stock as of October 1, 1997. The Company compiled
this information from its stock records, the Schedules 13D filed with the
Company, and other information available to the Company. Unless otherwise
indicated, these persons possess sole voting and investment power with respect
to the shares that they beneficially own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ------------------------------------------------- --------------------- -----------------------
<S> <C> <C>
Andrew M. Boas................................... 3,530,833/1/ 46.5%/1/
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Carl Marks Management Co., L.P................... 3,179,691/1/ 41.9%/1/
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments, L.P............ 2,668,765/1/ 35.2%/1/
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments II, L.P......... 510,926/1/ 6.9%/1/
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Peter M. Collery................................. 1,308,498/2/ 17.7%/2/
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, NY 10019
Robert C. Ruocco................................. 3,496,676/1/ 46.1%/1/
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
SC Fundamental Inc............................... 946,508/2/ 12.8%/2/
712 Fifth Avenue
New York, NY 10019
SC Fundamental Value BVI, Inc.................... 361,990/2/ 4.9%/2/
712 Fifth Avenue
New York, NY 10019
William J. Shaw.................................. 881,490/3/ 11.0%/3/
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, TX 75234
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ------------------------------------------------- --------------------- -----------------------
<S> <C> <C>
Gary N. Siegler.................................. 1,308,498/2/ 17.7%/2/
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, NY 10019
The SC Fundamental Value Fund, L.P...............
712 Fifth Avenue 946,508/2/ 12.8%/2/
New York, NY 10019
</TABLE>
- -------------------
/1/ The ownership of these shares of Common Stock includes multiple beneficial
ownership of the same shares. Carl Marks Strategic Investments, L.P. ("CM
Strategic") owns 2,474,244 shares and is deemed to own an additional
194,521 shares because it owns warrants to acquire 194,521 shares at a
price of $4.24 per share. Carl Marks Management Co., L.P. ("CM
Management") is the general partner of CM Strategic. CM Management,
therefore, beneficially owns all of the shares of Common Stock that CM
Strategic beneficially owns. Carl Marks Strategic Investments II, L.P.
("CM Strategic II") owns 510,926 shares of Common Stock. CM Management is
the general partner of CM Strategic II and, therefore, beneficially owns
all of the shares of Common Stock that CM Strategic II beneficially owns.
Messrs. Boas and Ruocco are each a general partner of CM Management.
Messrs. Boas and Ruocco, therefore, beneficially own all of the shares of
Common Stock that CM Management beneficially owns. In addition, Carl Marks
Offshore Management, Inc., an investment management company, exercises
investment discretion over an advisory account that owns 316,985 shares of
Common Stock. Messrs. Boas and Ruocco are executive officers of such
investment management company and therefore beneficially own such shares.
In addition, Mr. Boas (i) owns 11,569 shares of Common Stock, (ii) is
deemed to own an additional 20,000 shares because he owns options to
acquire 5,000 shares at a price of $.79 per share, 5,000 shares at a price
of $.80 per share, and 10,000 shares at a price of $1.08 per share, and
(iii) beneficially owns 2,588 shares because he is a co-trustee of a trust
that owns these shares. CM Strategic, CM Strategic II, CM Management, and
Messrs. Boas and Ruocco disclaim the existence of a group. The reported
voting and investment power over these shares is as follows: (i) CM
Strategic - sole voting and investment power over 2,668,765 shares, (ii)
CM Strategic II - sole voting and investment power over 510,926 shares,
(iii) CM Management - sole voting and investment power over 3,179,691
shares, (iv) Mr. Boas - sole voting and investment power over 31,569
shares and shared voting and investment power over 3,499,264 shares, and
(v) Mr. Ruocco - shared voting and investment power over 3,496,676 shares.
(continued)
<PAGE>
The following table shows the beneficial ownership of the shares of Common Stock
described in this footnote:
<TABLE>
<CAPTION>
CM CM CM
STRATEGIC STRATEGIC II MANAGEMENT MR. BOAS MR. RUOCCO
--------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Shares owned by CM Strategic............ 2,474,244 2,474,244 2,474,244 2,474,244
Warrants owned by CM Strategic.......... 194,521 194,521 194,521 194,521
Shares owned by CM Strategic II......... 510,926 510,926 510,926 510,926
Shares over which an investment
management company affiliated with
Messrs. Boas and Ruocco possesses
investment discretion.................. 316,985 316,985
Shares owned by Mr. Boas................ 11,569
Options owned by Mr. Boas............... 20,000
Shares held in trust over which Mr.
Boas is a Co-Trustee................... 2,588
--------- ------- --------- --------- ---------
Total............................ 2,668,765 510,926 3,179,691 3,530,833 3,496,676
========= ======= ========= ========= =========
Percentage of outstanding shares........ 35.2% 6.9% 41.9% 46.5% 46.1%
</TABLE>
/2/ The ownership of these shares of Common Stock includes multiple beneficial
ownership of the same shares. SC Fundamental Value Fund, L.P., a Delaware
limited partnership (the "Fund") owns 946,508 shares. SC Fundamental Inc.,
a Delaware corporation ("SC Fundamental") is the general partner of the
Fund and, therefore, beneficially owns all of the shares of Common Stock
that the Fund owns. SC Fundamental Value BVI, Inc., a Delaware corporation
("BVI") owns 361,990 shares. Gary N. Siegler is a controlling stockholder
and the president and a director of SC Fundamental and BVI. Peter M.
Collery is also a controlling stockholder and a vice president and director
of SC Fundamental and BVI. Messrs. Siegler and Collery are in a position to
directly and indirectly determine the investment and voting decisions made
by SC Fundamental and BVI and, therefore, are deemed to beneficially own
all of the shares of Common Stock that the Fund and BVI own.
/3/ The shares of Common Stock owned by Mr. Shaw include (i) vested stock
options for 664,495 shares at a price of $0.69 per share, and (ii) 10,000
shares held by Mr. Shaw's children and grandchildren, as to which Mr. Shaw
possesses investment discretion.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned as of October 1, 1997, by each director and executive officer
of the Company, and all directors and executive officers of the Company as a
group. The Company obtained this information from its directors and executive
officers. Unless otherwise indicated, these individuals possess sole voting and
investment power with respect to the shares that they beneficially own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
- ---- ------------------ ------------------
<S> <C> <C>
Andrew M. Boas...................... 3,530,833/1,2/ 46.5%
William F. Dawson................... 36,667/2/ *
R. Gerald Gelinas................... 68,074/2,3/ *
Walter B. Jaccard................... 65,000/2/ *
William P. Kovacs................... 70,000/2/ *
Donald R. Leopold................... 10,000/2/ *
H. Sean Mathis...................... 20,000/2/ *
Douglas K. Nelson................... 20,000/2/ *
William J. Shaw..................... 881,490/2,4/ 11.0%
Harry J. White, Jr.................. 97,500/2/ 1.3%
All directors and executive
officers as a group (10
individuals)....................... 4,799,564/2/ 56.2%
</TABLE>
- -------------------
/1/ See footnote number 1 to the preceding table for a description of Mr. Boas'
beneficial ownership of Common Stock.
/2/ The shares of Common Stock beneficially owned by the following individuals
include vested stock options for the number of shares following their name:
Mr. Boas, 20,000; Mr. Dawson, 36,667; Mr. Gelinas, 43,334; Mr. Jaccard,
55,000; Mr. Kovacs, 20,000; Mr. Leopold, 10,000; Mr. Mathis, 20,000; Mr.
Nelson, 20,000; Mr. Shaw, 664,495; Mr. White, 65,000; and all directors and
executive officers as a group, 954,496.
/3/ Includes 2,400 shares held by Mr. Gelinas' spouse.
/4/ Includes 10,000 shares held by Mr. Shaw's children and grandchildren, as to
which Mr. Shaw possesses investment discretion.
* Less than 1%.
<PAGE>
PROPOSAL I
THE ELECTION OF DIRECTORS
The Stockholders will vote for the election of all six directors of the
Company, who will serve until the election and qualification of their
successors. If any nominee is unavailable for election as a result of unforeseen
circumstances, the proxyholders will vote for the election of such substitute
nominee as the Board of Directors may propose.
Each of the nominees is a current director of the Company. Each nominee
has furnished to the Company the following information with respect to his
principal occupation or employment, principal business, and directorships of
public companies:
<TABLE>
<CAPTION>
OFFICES AND POSITIONS DIRECTOR BOARD COMMITTEE
NAME AGE WITH THE COMPANY SINCE MEMBERSHIPS
---- --- --------------------- -------- ---------------
<S> <C> <C> <C> <C>
Andrew M. Boas 42 None December Audit, Marketing, and
1991 Nominating
William P. Kovacs 51 None December Audit, Compensation, and
1991 Special
Donald R. Leopold 48 None Director Compensation and Marketing
1995
H. Sean Mathis 50 None December Audit, Compensation,
1991 Nominating, and Special
Douglas K. Nelson 54 None December Marketing, Nominating, and
1991 Special
William J. Shaw 54 Chairman of the Board, May None
Chief Executive Officer, 1995
and President
</TABLE>
Andrew M. Boas became a director of the Company in December 1991. Since
November 1986, Mr. Boas has been a general partner of CM Management, a
registered investment advisor that is the general partner of investment
partnerships specializing in investments in troubled companies. Since May 1994,
he has also been President of Carl Marks Offshore Management, Inc. Mr. Boas also
has been (i) a Managing Director of Carl Marks & Co., Inc., a broker-dealer
firm, since December 1977, (ii) a director of CMCO Inc., an investment banking
firm, since March 1988, (iii) a director of Sport and Health, LLC, an operator
of fitness centers, since October 1993, and (iv) a director of Vertientes
Camaguey Sugar Company, a holding company, since November 1994. Mr. Boas also
served as: a director of American Corp. LTD, an Australian company that invests
in the securities of companies located in the United States, from January 1988
to February 1992; a director of Smith Newcourt, Carl Marks, Inc., a broker-
dealer firm, from March 1988 to June 1990; a director of Herman's Sporting
Goods, Inc., from March 1993 to March 1996; and a director of Pratt & Lambert
United, Inc., a manufacturer of consumer and industrial coatings, from August
1994 to January 1996.
William P. Kovacs became a director of the Company in December 1991, and
served as a director until December 3, 1992. From December 3, 1992 to December
2, 1993, Mr. Kovacs served as an advisory director of the Company at the
pleasure of the Board of Directors. As an advisory director, Mr. Kovacs attended
and participated in meetings of the Board of Directors and committees thereof,
but did not vote on matters presented. Since December 2, 1993, Mr.
<PAGE>
Kovacs has served as a director of the Company. Since January 1997, Mr. Kovacs
has been an attorney with the law firm of Rudnick & Wolf LLP. From March 1996 to
December 1996, Mr. Kovacs was President of MDRC, Inc., a dispute resolution and
consulting firm. From October 1989 to August 1995, Mr. Kovacs was a Vice
President and Assistant Secretary of Kemper Financial Services, Inc., the
investment management subsidiary of Kemper Corp. From June 1981 to September
1989, Mr. Kovacs held various legal positions with the Principal Financial
Group, Des Moines, Iowa. Mr. Kovacs also was a director of United Gas Holding
Company from February 1991 to July 1993, and an officer of 625 Liberty Avenue
Holding Corporation from November 1993 to August 1995.
Donald R. Leopold became a director of the Company in December 1995.
Since September 1991, Mr. Leopold has been a senior partner of Sherbrooke
Associates, Inc., a marketing, strategic planning, and organization development
consulting firm. From May 1994 to September 1995, Sherbrooke Associates, Inc.
performed consulting services for the Company with respect to its sales and
marketing operations, and Mr. Leopold was primarily responsible for the
consulting work performed for the Company. From 1984 to September 1991, Mr.
Leopold was President of Game Plan, Inc., a management consulting firm. He is
also a director of Jullian's Entertainment Corporation.
H. Sean Mathis became a director of the Company in December 1991. Since
July 1996, Mr. Mathis has been Chairman and a director of Universal Gym
Equipment Inc. ("Universal"), a privately owned manufacturer of exercise
equipment. Universal filed for protection under the federal bankruptcy laws in
July 1997. Mr. Mathis is also Chairman of the Board of Allis Chalmers, Inc., an
industrial manufacturer, whose main asset is a net operating loss carryforward.
From July 1991 to August 1993, Mr. Mathis was President of RCL, the predecessor
firm of Allied Digital Technologies Corp., a manufacturing company, and from
August 1993 to the present, served as a director. From August 1993 to November
1995, Mr. Mathis was President and a director of RCL Capital Corporation, which
was merged into DISCGraphics, a manufacturer of packaging materials, in November
1995. From May 1988 to October 1993, Mr. Mathis was a director and the Chief
Operating Officer of Ameriscribe Management Services, Inc., a national provider
of reprographic and related facilities management services. From August 1992 to
May 1994, Mr. Mathis acted as the Federal Court Appointed Trustee for
International Wire News Service Liquidation Corporation, formerly United Press
International ("UPI"). From November 1991 to July 1992, Mr. Mathis was
Vice Chairman and a director of UPI, which was then a news syndication service.
In August 1991, UPI filed for protection under the federal bankruptcy laws.
Douglas K. Nelson became a director of the Company in December 1991. Since
April 1976, Mr. Nelson has been President of Strategic Directions, a management
consulting firm which focuses on businesses in the areas of leisure, sports, and
entertainment. From February 1970 through March 1976, Mr. Nelson was an
associate with McKinsey and Co., Inc., a management consulting firm.
William J. Shaw joined the Company in May 1995 as its President, Chief
Executive Officer, and a director. In July 1995, Mr. Shaw became Chairman of the
Board of Directors and President and Chief Executive Officer of the Company's
two principal operating subsidiaries, Thousand Trails, Inc. ("Trails") (until it
was merged into the Company in July 1996) and National American Corporation
("NACO"). From February 1989 to October 1993, Mr. Shaw was a director and the
President and Chief Executive Officer of Ameriscribe Management Services, Inc.,
a national provider of reprographic and related facilities management services.
Ameriscribe Management Services, Inc. was sold to Pitney Bowes in November 1993.
From 1983 to January 1989, Mr. Shaw was the President and Chief Executive
Officer of Grandy's, a Dallas based chain of fast service restaurants.
<PAGE>
BOARD OF DIRECTORS
MEETINGS. During the fiscal year ended June 30, 1997, the Board of
Directors held one regularly scheduled meeting and 11 special meetings. Each
director attended at least 75% or more of all meetings of: (i) the Board of
Directors held during the periods for which he was a director, and (ii) the
committees to which he was assigned during the periods that he served.
AUDIT COMMITTEE. The Board of Directors has an Audit Committee (the
"Audit Committee"), presently composed of Messrs. Boas, Kovacs, and Mathis.
Pursuant to its charter, the Audit Committee (i) reviews the Company's systems
of internal accounting controls and financial reporting, (ii) reviews the
Company's internal audit function, (iii) approves the selection of the Company's
independent certified public accountants, and (iv) reviews the reports that the
Company's independent certified public accountants render on the Company's
financial statements and other matters. The Audit Committee also performs such
other duties and functions as it or the Board of Directors deem appropriate.
During the fiscal year ended June 30, 1997, the Audit Committee held three
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Board
of Directors has a Compensation Committee (the "Compensation Committee"),
presently composed of Messrs. Kovacs, Leopold, and Mathis. The Compensation
Committee recommends to the Board of Directors (i) the base salaries and bonuses
of the officers of the Company and (ii) the awards that the Company should make
under its stock plans. During the fiscal year ended June 30, 1997, the
Compensation Committee held three meetings.
From June 30, 1996 to September 12, 1996, Mr. Boas, a director of the
Company, and Mr. Shaw, the President and Chief Executive Officer of the Company,
served as the members of the Compensation Committee. As described under
"Security Ownership," Mr. Boas is deemed to own beneficially 46.5% of the Common
Stock and Mr. Shaw is deemed to own beneficially 11.0% of the Common Stock. Mr.
Boas and certain of his affiliates participated in the private exchange offer
that was part of the restructuring of the Company in July 1996 (the
"Restructuring"). Mr. Boas and Mr. Ruocco are general partners of CM Management.
CM Management is the general partner of each of CM Strategic and CM Strategic
II. CM Strategic exchanged $12,979,000 in principal amount of the Company's
Secured Notes ("Secured Notes") and CM Strategic II exchanged $5,827,000 in
principal amount of Secured Notes. In addition, an investment management
company, of which Messrs. Boas and Ruocco are executive officers, (i) manages a
fund that exchanged $1,680,000 in principal amount of Secured Notes and (ii)
exercises investment discretion over advisory accounts that exchanged $1,373,000
in principal amount of Secured Notes. In addition, (i) Mr. Boas and certain
trusts of which he is a co-trustee exchanged $187,000 in principal amount of
Secured Notes; and (ii) Mr. Ruocco exchanged $10,000 in principal amount of
Secured Notes. In the aggregate, these persons exchanged $22,056,000 principal
amount of Secured Notes for $8,828,400 in cash, $10,847,000 principal amount of
the Company's Senior Subordinated Pay-In-Kind Notes ("PIK Notes"), and 992,070
shares of Common Stock, plus accrued interest. In connection with the
Restructuring, Mr. Shaw was granted options to purchase 664,495 shares of Common
Stock at $0.69 per share. The grant of these options was approved by the Special
Committee of independent directors and by the Stockholders. In connection with
the Restructuring, the Special Committee, composed of Messrs. Kovacs, Mathis,
and Nelson, performed some of the functions usually exercised by the
Compensation Committee.
Certain of Mr. Boas' affiliates also tendered PIK Notes in response to
the Company's Dutch auction tender offer that was completed in June 1997. In the
Dutch auction tender offer, the Company purchased $2,988,489 principal amount of
PIK Notes from CM Strategic and $2,750,300 principal amount of PIK Notes from CM
Strategic II. In the aggregate, the Company purchased $5,738,789 principal
amount of PIK Notes from these persons for $5,164,910, plus an amount for
accrued interest.
<PAGE>
MARKETING COMMITTEE. The Board of Directors has a Marketing Committee
(the "Marketing Committee"), presently composed of Messrs. Boas, Leopold, and
Nelson. The Marketing Committee reviews sales and marketing programs,
direction, and other issues with the Company's senior management. During the
fiscal year ended June 30, 1997, the Marketing Committee did not meet.
NOMINATING COMMITTEE. The Board of Directors has a Nominating Committee
(the "Nominating Committee"), presently composed of Messrs. Boas, Mathis, and
Nelson. The Nominating Committee recommends to the Board of Directors the
individuals to be nominated for director at the annual meeting of Stockholders.
The Nominating Committee will consider nominees for director recommended by any
Stockholder. To make such a recommendation with respect to directors to be
elected at the 1998 annual meeting, a Stockholder should contact the Company at
its principal executive offices on or before the deadline for submitting
Stockholder proposals set forth on the last page of this Proxy Statement. During
the fiscal year ended June 30, 1997, the Nominating Committee held one meeting.
SPECIAL COMMITTEE. The Board of Directors has a Special Committee (the
"Special Committee") of independent directors, presently composed of Messrs.
Kovacs, Mathis, and Nelson. The Special Committee is authorized to review and
make recommendations to the full Board of Directors regarding recapitalization,
reorganization, and financing alternatives for the Company. The Special
Committee approved the Restructuring of the Company that was completed in July
1996. In addition, in connection with the Restructuring, the Special Committee
authorized the grant to Mr. Shaw of an option to purchase Common Stock as
described under "Compensation Committee Interlocks and Insider Participation"
above. The Special Committee also approved the Dutch Auction tender offer for
PIK Notes that was completed in June 1997. During the fiscal year ended June 30,
1997, the Special Committee held seven meetings.
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the
Company. Although each of these executive officers has an employment agreement
with the Company, they each serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE Offices
------------------- --- ---------------------------------
<S> <C> <C>
William J. Shaw 54 Chairman of the Board, President,
and Chief Executive Officer
Harry J. White, Jr. 43 Vice President, Chief Financial
Officer, Chief Accounting Officer,
and Treasurer
R. Gerald Gelinas 51 Vice President of Sales and
Marketing
Walter B. Jaccard 44 Vice President, General Counsel,
and Secretary
</TABLE>
William J. Shaw is also a director of the Company and his business
experience is described above.
Harry J. White, Jr. joined the Company as Vice President, Chief Financial
Officer, and Chief Accounting Officer in June 1992. At that time, Mr. White also
became a Vice President and the Chief Financial Officer of NACO and Trails. In
September 1992, Mr. White became a director and the Chief Accounting Officer of
NACO and Trails. In June 1995, Mr. White became the Company's Treasurer. From
September 1988 through May 1992, Mr. White was the Chief Financial Officer of
Cosmo World Corporation and its subsidiaries. During this period, Cosmo World
Corporation was a holding company that owned Ben Hogan Company, a manufacturer
of golf equipment, Pebble Beach Company, the owner and operator of golf courses
and hotels in Pebble Beach, California, and other companies that owned
residential and golf course developments. Cosmo World of Nevada, Inc., a
subsidiary of Cosmo World Corporation, filed for protection under the federal
bankruptcy laws in December 1991. From June 1976 through August 1988, Mr. White
practiced public accounting with the firm of Deloitte Haskins & Sells, now known
as Deloitte & Touche. Mr. White is a Certified Public Accountant.
R. Gerald Gelinas joined the Company in September 1995 as Vice President of
Sales and Marketing for the Company, Trails, and NACO. From January 1988 through
June 1995, Mr. Gelinas served as Senior Vice President, Marketing, for Club
Corporation of America ("CCA"), an owner and manager of country clubs and golf
courses. While with CCA, Mr. Gelinas also served as Chairman for two CCA
subsidiaries, Associate Clubs International ("ACI") and Associate Club
Publications ("ACPI"), from January 1992 through June 1995. ACI operates a fee-
based network which provides members with various services including access to
other CCA and non-CCA clubs, hotels, and resorts. ACPI produces and distributes
a bi-monthly magazine to CCA members. From May 1984 through September 1988, Mr.
Gelinas served as Senior Vice President, Marketing, for Ramada, Inc., which owns
and manages hotel facilities.
Walter B. Jaccard has been Vice President, General Counsel, and Secretary
of the Company since December 1992. Mr. Jaccard had previously been Vice
President and General Counsel of Trails since January 1987 and Secretary since
January 1988. He served as Associate General Counsel of Trails from 1983 to
1986. Mr. Jaccard has also been Vice President and Assistant Secretary of NACO
since August 1989, and a director of NACO since February 1992. He also
<PAGE>
served as a director of Trails from February 1992 until its merger into the
Company, and he served as a director of Trails and NACO from May 1991 to June
1991.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended June 30, 1997,
1996, and 1995, the cash compensation that the Company and its subsidiaries
paid, as well as other compensation paid for these years, to the Company's Chief
Executive Officer, to the three other executive officers of the Company on June
30, 1997, and to the most highly compensated officer of the Company's
subsidiaries, who is not considered an executive officer for reporting purposes.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- --------------
Other Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($) ($)/2/ Options (#)/1/ ($)/2/
- -------------------- ---- -------- ------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William F. Dawson, 1997 169,750 15,000 -0- 5,000 3,806
CEO of Resort 1996 169,750 40,000/3/ -0- 35,000 2,783
Parks International 1995 163,750 78,900 6,000/4/ -0- 4,316
R. Gerald Gelinas 1997 130,000 30,000 -0- 30,000 1,174
Vice President of 1996 107,600/5/ 30,000 -0- 20,000 -0-
Sales and 1995
Marketing
Walter B. Jaccard, 1997 140,000 10,000 -0- 30,000 2,796
Vice President, 1996 140,000 15,000 -0- 30,000 2,869
General Counsel, 1995 140,000 -0- -0- 1,290
and Secretary
William J. Shaw, 1997 250,000 -0- 664,495 321,143/6/
Chairman of the 1996 250,000 -0- -0- 952,927/6/
Board, President, 1995 29,800/7/ -0- -0- -0-
and CEO
Harry J. White, 1997 124,032 30,000 -0- 30,000 2,777
Jr., Vice 1996 124,032 30,000 -0- 40,000 3,127
President, CFO, 1995 124,032 15,000 -0- -0- 36,454/8/
CAO, and
Treasurer
</TABLE>
---------------------
/1/ Awards are grants of stock options pursuant to the Company's 1991
Employee Plan, 1993 Employee Plan, and a Stock Option Agreement, dated
as of August 1, 1996, between the Company and Mr. Shaw.
/2/ Amounts include matching contributions by the Company under its 401(k)
Plan for fiscal 1997, 1996, and 1995, as follows: Mr. Dawson, $3,806,
$2,783, and $4,316; Mr. Gelinas, $1,174; Mr. Jaccard, $2,796, $2,869,
and $1,290; Mr. Shaw, $3,481; and Mr. White, $2,777, $3,127, and
$2,654. The amounts do not include compensation payable to the named
executive officers under their employment agreements upon the
termination of their employment if their employment has not terminated
because no amounts have been paid or accrued therefor. See "Employment
Contracts" below.
/3/ An additional bonus of $20,000 earned during fiscal 1995 was paid to
Mr. Dawson in August 1995.
/4/ Mr. Dawson was paid a car allowance of $500 per month.
/5/ Mr. Gelinas became the Company's Vice President of Sales and Marketing
in September 1995.
<PAGE>
/6/ Amount includes a one-time bonus of $1,270,589 that was paid to Mr.
Shaw under the terms of his employment agreement with the Company. The
Company paid $952,927 of this bonus to Mr. Shaw in July 1996, and it
paid the balance of $317,662 to him in May 1997 when his right to the
additional payment vested. See "Employment Contracts" below.
/7/ Mr. Shaw became the Company's President and Chief Executive Officer in
May 1995.
/8/ During the year ended June 30, 1995, the Company reimbursed Mr. White
$33,800 for moving expenses he incurred during his relocation to
Dallas, Texas.
Employment Contracts.
On May 11, 1995, the Company entered into an employment agreement with
Mr. Shaw. Under this employment agreement, Mr. Shaw's salary is not less than
$250,000 per year. If the Company terminates Mr. Shaw's employment, other than
for cause, the Company must pay Mr. Shaw a severance payment equal to one year
of his base salary.
Mr. Shaw's employment agreement provided that he would receive a one-time
bonus equal to between 4% and 6% of the amount by which the enterprise value of
the Company (including the value of its debt and equity securities) exceeded $75
million at the time he elected to receive the bonus. Prior to consummation of
the Restructuring, Mr. Shaw exercised his right to receive this bonus, which
entitled him to a payment of $1,270,589. The Company paid $952,927 of this bonus
to Mr. Shaw in July 1996, and it paid the balance of $317,662 to him in May 1997
when his right to the additional payment vested. The Company originally obtained
an irrevocable standby letter of credit in the amount of $1.5 million on which
Mr. Shaw could draw all or part of this bonus if the Company failed to pay the
bonus after receiving a request from Mr. Shaw. This letter of credit and a
related cash deposit were released upon the Company's payment of the bonus.
On September 10, 1992, the Company entered into an employment agreement
with Mr. Dawson. Under this employment agreement, as amended, Mr. Dawson's base
salary is not less than $169,750 per year, and he may receive a bonus each year
at the discretion of the Company's Chief Executive Officer. If the Company
terminates Mr. Dawson's employment, other than for cause, it must pay Mr. Dawson
a severance payment equal to six months of his base salary.
On September 14, 1995, the Company entered into an employment agreement
with Mr. Gelinas. Under this employment agreement, Mr. Gelinas' base salary is
not less than $130,000 per year, and he may receive a bonus each year at the
discretion of the Company's Chief Executive Officer. If the Company terminates
Mr. Gelinas' employment, other than for cause, the Company must pay Mr. Gelinas
a severance payment equal to one year of his base salary.
On December 3, 1992, the Company entered into an employment agreement with
Mr. Jaccard. Under this employment agreement, as amended, Mr. Jaccard's base
salary is not less than $140,000 per year, and he may receive a bonus each year
at the discretion of the Company's Chief Executive Officer. If the Company
terminates Mr. Jaccard's employment, other than for cause, it must pay Mr.
Jaccard a severance payment equal to one year of his base salary.
On October 21, 1993, the Company entered into an employment agreement with
Mr. White. Under this employment agreement, as amended, Mr. White's base salary
is not less than $124,032 per year, and he may receive a discretionary bonus of
up to $30,000 per year. If the Company terminates Mr. White's employment, other
than for cause, the Company must pay Mr. White a severance payment equal to one
year of his base salary.
<PAGE>
STOCK OPTION AGREEMENT
At their annual meeting on November 19, 1996, the Stockholders approved the
grant to Mr. Shaw of options to purchase 664,495 shares of Common Stock at $0.69
per share. The options are evidenced by a stock option agreement, dated as of
August 1, 1996 (the "Stock Option Agreement") that was approved by the Special
Committee of independent directors on September 12, 1996. Options to purchase
144,927 shares of Common Stock are intended to be eligible for treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, and the remaining options are non-qualified options for such
purposes. The Company has filed a Registration Statement on Form S-8 with
respect to the shares issuable under the Stock Option Agreement.
The options granted to Mr. Shaw are exercisable immediately, in full or in
part, for a term of ten years, while Mr. Shaw is in the employ of the Company
and for a 90 day period thereafter, except in the event of the termination of
Mr. Shaw's employment due to death or permanent disability, in which case the
options are exercisable for one year thereafter, or for "cause," in which case
the options will terminate immediately. However, Mr. Shaw is not permitted to
exercise the options if, and to the extent that, such exercise would cause an
increase in the amount of "ownership change" for federal tax purposes. In the
event options would otherwise expire at a time Mr. Shaw is not permitted to
exercise all or a portion of the options because to do so would increase the
amount of ownership change (the "Exercise Restriction"), generally the term of
the options will be extended with respect to that portion of the options which
would cause an increase in order to ensure that Mr. Shaw will have at least a
90-day period after the Exercise Restriction ceases within which to exercise
such options. However, solely with respect to that portion of the options
intended to be incentive stock options, the Exercise Restriction will not apply
during the last 90 days of the ten year term, and, if unexercised at the end of
such ten year term, such options will expire. Neither the options, nor any
interest therein, may be assigned or transferred except by will or the laws of
descent and distribution.
The exercise price is payable in cash, except that with the prior approval
of the committees administering the Stock Option Agreement, the exercise price
may instead be paid in whole or in part by the delivery to the Company of a
certificate or certificates representing shares of Common Stock, provided that
the Company is not then prohibited by the terms of any contractual obligation or
legal restriction from purchasing or acquiring such shares of Common Stock.
In connection with the options granted under the Stock Option Agreement,
the Company must withhold federal taxes with respect to any ordinary income that
Mr. Shaw recognizes in connection with such options. The Company may also have
to withhold state and local taxes with respect thereto. Mr. Shaw must pay such
withholding liability to the Company. With the prior consent of the committees
administering the Stock Option Agreement, Mr. Shaw may be allowed to deliver to
the Company shares of Common Stock in the amount of such withholding liability.
STOCK OPTION PLANS
1991 Employee Plan. Effective December 31, 1991, the Company adopted the
1991 Employee Stock Incentive Plan (as amended, the "1991 Employee Plan") to
enable the Company and its subsidiaries to attract, retain, and motivate their
officers, employees, and directors. Awards under the 1991 Employee Plan may take
various forms, including (i) shares of Common Stock, (ii) options to acquire
shares of Common Stock ("Options"), (iii) securities convertible into shares of
Common Stock, (iv) stock appreciation rights, (v) phantom stock, or (vi)
performance units. Options granted under the 1991 Employee Plan may be (i)
incentive stock options ("ISOs"), which have certain tax benefits and
restrictions, or (ii) non-qualified stock options ("Non-qualified Options"),
which do not have any tax benefits and have few restrictions.
<PAGE>
The Compensation Committee or, in certain circumstances, the Board of
Directors may grant awards under the 1991 Employee Plan until December 30, 2001.
The recipient of an award duly granted on or prior to such date may thereafter
exercise or settle it in accordance with its terms, although the Company may not
issue any shares of Common Stock pursuant to any award after December 30, 2011.
The Board of Directors may amend or terminate the 1991 Employee Plan at any
time and in any manner, provided that (i) an amendment or termination may not
affect an award previously granted without the recipient's consent, and (ii) an
amendment will not be effective until the Stockholders approve it if any
national securities exchange or securities association that lists any of the
Company's securities requires stockholder approval or if Rule 16b-3 requires
stockholder approval.
The Company reserved 291,780 shares of Common Stock for issuance under the
1991 Employee Plan. In September 1995, the Company granted key employees ISOs
covering 140,000 shares with an exercise price of $0.625 per share, and in
January 1996, the Company granted certain non-employee directors Non-qualified
Options to purchase 20,000 shares with an exercise price of $0.81 per share. In
September 1996, the Company granted key employees ISOs covering 60,000 shares
and one non-employee director Non-qualified Options covering 5,000 shares, each
with an exercise price of $0.80 per share. In November 1996, the Company granted
certain non-employee directors Non-qualified Options covering 20,000 shares,
each with an exercise price of $1.08 per share. As of October 1, 1997, 245,000
Options were outstanding under the 1991 Employee Plan and none had been
exercised. 105,000 of these Options are fully vested, and 140,000 of these
options are 66 2/3% vested.
1993 Employee Plan. On December 2, 1993, the Company adopted the 1993
Stock Option and Restricted Stock Purchase Plan (as amended, the "1993 Employee
Plan") in order to enable the Company and its subsidiaries to attract, retain,
and motivate their officers and employees. Awards under the 1993 Employee Plan
are restricted to (i) awards of the right to purchase shares of Common Stock
("Stock Awards"), or (ii) awards of Options, which may be either ISOs or Non-
qualified Options. The purchase price for any Stock Awards and the exercise
price for any Non-qualified Options may be less than the fair market value of
the Common Stock on the date of grant. The exercise price of any ISOs may not be
less than the fair market value of the Common Stock on the date of grant.
The Compensation Committee or, in certain circumstances, the Board of
Directors may grant awards under the 1993 Employee Plan until October 20, 2003.
The termination of the 1993 Employee Plan, however, will not alter or impair any
rights or obligations under any award previously granted under the plan.
The Board of Directors may amend or terminate the 1993 Employee Plan at any
time and in any manner, provided that (i) an amendment or termination may not
affect an award previously granted without the recipient's consent, (ii) an
amendment will not be effective until the Stockholders approve it if any
national securities exchange or securities association that lists any of the
Company's securities requires stockholder approval or if Rule 16b-3 requires
stockholder approval, and (iii) the Stockholders must approve any amendment
decreasing the minimum exercise price specified in the plan for any ISO granted
thereunder.
The Company reserved 285,919 shares of Common Stock for issuance under the
1993 Employee Plan. The 1993 Employee Plan, however, limits the number of shares
of Common Stock with respect to which awards can be made in any calendar year to
any one participant to 200,000 shares. In May 1996, the Company granted 95,000
ISOs under the 1993 Employee Plan at an exercise price of $0.59 per share. In
<PAGE>
September 1996, the Company granted key employees ISOs covering 175,000 shares
with an exercise price of $.080 per share. As of October 1, 1997, 266,500
Options were outstanding under the 1993 Employee Plan and 3,500 Options had been
exercised. All of the outstanding Options are fully vested.
Director Plan. On December 2, 1993, the Company adopted the 1993 Director
Stock Option Plan (as amended, the "Director Plan"), which provides for the
grant of Options to non-employee directors of the Company. The Company reserved
50,000 shares of Common Stock for issuance under the Director Plan. In January
1995, the non-employee directors of the Company were granted Non-qualified
Options covering 20,000 shares with an exercise price of $0.79 per share. In
November 1996, the non-employee directors of the Company were granted Non-
qualified Options covering 25,000 shares with an exercise price of $1.08 per
share. Prior to this grant, after approval by the Board of Directors, four of
the non-employee directors had voluntarily terminated Options for 20,000 shares
that were granted in December 1994 with an exercise price of $2.75 per share. As
of October 1, 1997, 45,000 Options were outstanding under the Director Plan and
none had been exercised. All of these Options are fully vested.
The Director Plan is designed to be a "formula plan," pursuant to which
each non-employee director will automatically receive a grant of Non-qualified
Options to purchase 5,000 shares of Common Stock on the day immediately after
each annual meeting of the stockholders at which directors are elected,
beginning with the annual meeting held in December 1993. If on any such day,
the number of shares of Common Stock remaining available for issuance under the
Director Plan is insufficient for the grant of the total number of Non-qualified
Options to which all participants would otherwise be entitled, each participant
will receive Non-qualified Options to purchase a proportionate number of the
available number of remaining shares. The exercise price of each Non-qualified
Option is required to equal the fair market value of such Option on the date of
grant as determined under the Director Plan. Generally, the Director Plan
specifies that such fair market value will be the average trading price of the
Common Stock during the period beginning 45 days before the date of grant and
ending 15 days before the date of grant.
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding Options to
purchase Common Stock granted in fiscal 1997 to the five individuals named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------
Percentage
Number of of Total POTENTIAL REALIZABLE VALUE
Securities Options/ AT ASSUMED ANNUAL RATES OF
underlying SARs STOCK PRICE APPRECIATION
Option/ Granted to Exercise FOR OPTION TERM
SARs Employees Price --------------------------
Granted in Fiscal ($ per Expiration 5% 10%
Name (#)1 Year Share) Date ($) ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William F. Dawson 5,000 0.6 0.80 9/11/06 6,516 10,375
R. Gerald Gelinas 30,000 3.3 0.80 9/11/06 39,093 62,250
Walter B. Jaccard 30,000 3.3 0.80 9/11/06 39,093 62,250
William J. Shaw 664,495 73.9 0.69 7/31/06 746,851 1,189,235
Harry J. White, Jr. 30,000 3.3 0.80 9/11/06 39,093 62,250
</TABLE>
- --------------------
/1/ As of October 1, 1997, all of these Options were 100% vested and none of
them had been exercised.
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning Options to
purchase Common Stock held by the five individuals named in the Summary
Compensation Table. No Options were exercised by the named individuals in the
fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME FISCAL YEAR-END (#) FISCAL YEAR-END ($)
- ----------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William F. Dawson 33,333 6,667 55,167 11,033
R. Gerald Gelinas 36,667 13,333 55,433 22,067
Walter B. Jaccard 50,000 10,000 78,025 16,550
William J. Shaw 664,495 -0- 1,056,547 -0-
Harry J. White, Jr. 60,000 10,000 94,925 16,550
</TABLE>
<PAGE>
LONG TERM INCENTIVE PLANS
As of June 30, 1997, the Company's only long term incentive plan was its
Employees Savings Trust (the "401(k) Plan"), which is a contributory employee
savings plan exempt under Section 401(k) of the Internal Revenue Code. An
eligible employee participating in the 401(k) Plan may contribute up to 10% of
his or her annual salary, subject to certain limitations. In addition, the
Company may make discretionary matching contributions as determined annually by
the Company. The Company made matching contributions totaling $154,000 for the
year ended June 30, 1997, and has committed to make matching contributions for
the year ended June 30, 1998, in an amount equal to 45% of the voluntary
contribution made by each participant, up to 4% of the participant's annual
compensation (a maximum of 1.8% of the participant's annual compensation).
Employer contributions are subject to a seven-year vesting schedule.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a retainer of
$24,000 per year and $500 for each day that they attend a meeting of the Board
of Directors or committee thereof. The Company also reimburses such directors
for their travel and lodging expenses when attending meetings. The following
table summarizes amounts paid to each director during the fiscal year ended June
30, 1997, excluding reimbursements of travel and lodging expenses.
<TABLE>
<CAPTION>
AMOUNT PAID FOR STOCK OPTIONS
NAME ANNUAL RETAINER MEETINGS GRANTED
- ------------------- --------------- --------------- -------------
<S> <C> <C> <C>
Andrew M. Boas $24,000 $2,500 15,000/1/
William P. Kovacs 24,000 2,500 10,000/1/
Donald R. Leopold 24,000 2,500 5,000
H. Sean Mathis 24,000 2,500 10,000/1/
Douglas K. Nelson 24,000 2,500 10,000/1/
William J. Shaw/2/ -0- -0- -0-
</TABLE>
- --------------------
/1/ In November 1996, after approval by the Board of Directors, each of
these non-employee directors voluntarily terminated options for 5,000
shares that were granted in December 1994 with an exercise price of
$2.75 per share and received new options for 5,000 shares with an
exercise price of $1.08 per share.
/2/ Mr. Shaw did not receive additional compensation for serving as a
director of the Company.
<PAGE>
Report of the Compensation Committee
The Company's executive compensation program is administered by the
Compensation Committee. The role of the Compensation Committee is to review and
approve salaries and other compensation of the principal officers of the
Company, including those individuals listed in the compensation tables in this
Proxy Statement. In connection with the Restructuring, the Special Committee
also performed part of the role of the Compensation Committee.
Overall Policy. The Compensation Committee's compensation policies are
intended to (i) provide incentives for certain executive officer performance
that results in continuing improvements in the Company's financial results and
(ii) align the interests of the Company's executives and the holders of its
securities by providing for payment of compensation based on increases in the
value of such securities.
Executive Officers. The annual compensation of the Company's executive
officers and the principal officers of the Company's operating subsidiaries
consists of a fixed base salary and a discretionary bonus. The Compensation
Committee has delegated to the Company's Chief Executive Officer the authority
to determine the salary and bonus of executive officers (other than himself) if
the aggregate annual compensation of such officer is less than $175,000.
Pursuant to such delegated authority, the base salaries of Mr. Jaccard and Mr.
White were continued at the same level as originally approved by the
Compensation Committee when Mr. Jaccard became the Company's General Counsel and
Mr. White joined the Company as Chief Financial Officer, both in 1992; the base
salary of Mr. Gelinas was continued at the same level as originally approved by
the Compensation Committee when Mr. Gelinas joined the Company in 1995; and the
base salary of Mr. Dawson was continued at the same level as in fiscal 1996.
Mr. Jaccard and Mr. White receive discretionary annual bonuses based upon
achievement of the Company's overall objectives for the year. Mr. Gelinas
receives a discretionary annual bonus based upon achievement of the Company's
overall marketing objectives for the year. These individuals received bonuses in
fiscal 1997 based upon the successful achievement of their respective goals.
Mr. Dawson receives a discretionary annual bonus based upon the operating
results of Resort Parks International, Inc. Because Resort Parks International,
Inc. was not successful in meeting its growth objectives in fiscal 1997, Mr.
Dawson's bonus declined as compared with fiscal 1996.
The Compensation Committee does not intend to increase the annual base
salaries of the executive officers of the Company and the principal officers of
its operating subsidiaries for fiscal 1998. However, such persons may receive a
discretionary bonus in fiscal 1998 based upon the achievement of certain
objectives.
1997 Stock Option Grants to Executive Officers. In order to provide an
incentive to the officers and employees of the Company and its operating
subsidiaries and align their interests with those of the Stockholders, stock
options were granted in fiscal 1997 to the executive officers of the Company,
the principal officers of its operating subsidiaries and other employees of the
Company and its subsidiaries. In September 1996, the Company granted options to
purchase an aggregate of 235,000 shares of Common Stock at an exercise price of
$0.80 per share under the 1991 Employee Plan and the 1993 Employee Plan. The
exercise price of these options equaled the market value of the Common Stock on
the date of grant and, therefore, provide value to the officers only with
appreciation in stock prices. These options are 100% vested and have not been
exercised.
Compensation of Chief Executive Officer. Mr. Shaw's employment agreement
with the Company provides that his annual base salary will not be less than
$250,000 per year. The employment agreement was negotiated between Mr. Boas and
Mr. Shaw, and approved by the Compensation Committee and full Board of
Directors. For fiscal 1997, Mr. Shaw's base salary
<PAGE>
remained at $250,000, the level set when the Company entered into the employment
agreement with Mr. Shaw in May 1995.
Mr. Shaw's employment agreement also provided that he would receive a one-
time bonus equal to between 4% and 6% of the amount by which the enterprise
value of the Company (including the value of its debt and equity securities)
exceeded $75 million at the time he elected to receive the bonus. This bonus
was designed to provide value to Mr. Shaw only with appreciation of the
Company's enterprise value. Before approving the agreement with Mr. Shaw, the
Compensation Committee obtained an opinion from an independent employment
compensation consultant that the bonus and the other compensation payable to Mr.
Shaw under the employment agreement was a reasonable compensatory arrangement
for Mr. Shaw given the Company's financial and operating condition and prospects
at the time the Company entered into the employment agreement with Mr. Shaw.
Prior to consummation of the Restructuring, the bonus had accrued to
$1,270,589 and was 75% vested. Consummation of the Restructuring would have
adversely affected the bonus arrangements with Mr. Shaw. In these
circumstances, in June 1996, Mr. Shaw elected to receive his bonus, which was
fixed at the accrued amount. The vested portion of Mr. Shaw's bonus, equaling
$952,927, was paid in July 1996, and the remaining balance of $317,662 was paid
when it vested in May 1997.
In order to retain Mr. Shaw's services and to provide an incentive to Mr.
Shaw, the Special Committee, at a meeting of the full Board of Directors in July
1996, authorized a grant, in the event the Restructuring was consummated and
subject to stockholder approval, of options to purchase shares of Common Stock
representing 9% of the outstanding Common Stock immediately after the
Restructuring at an exercise price equal to the average closing bid quotation
for the Common Stock as quoted through the NASD OTC Bulletin Board and National
Quotation Bureau's Pink Sheets for the ten business days immediately following
the date the Restructuring was consummated, but in any event no less than $0.50
per share or more than $1.00 per share. In furtherance of its grant of the
options, on September 12, 1996, the Special Committee approved the form of the
Stock Option Agreement pursuant to which Mr. Shaw was granted, subject to
Stockholder approval, options to purchase 664,695 shares of Common Stock at
$0.69 per share. Such exercise price is the average closing bid quotation for
the Common Stock as quoted through the NASD OTC Bulletin Board and National
Quotation Bureau's Pink Sheets for the ten business days immediately following
the date the Restructuring was consummated and, in the Special Committee's
judgment, reflects the fair market value of the Common Stock as of the date the
Restructuring was consummated in view of the fact that the Common stock is
lightly traded. The Stockholders approved the Stock Option Agreement at their
annual meeting on November 19, 1996.
Respectfully submitted,
William P. Kovacs
Donald R. Leopold
H. Sean Mathis
Douglas K. Nelson
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
Stockholder return on the Common Stock for the period from July 1, 1992 to June
30, 1997 with the cumulative total return of the NASDAQ market index, and a peer
group of companies selected by the Company for purposes of the comparison and
described more fully below (the "Peer Group"). Dividend reinvestment has been
assumed and, with respect to companies in the Peer Group, the returns of each
such company have been weighted to reflect relative stock market capitalization.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
<TABLE>
<CAPTION>
- ----------------------- FISCAL YEAR ENDING ---------------------------
COMPANY 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
THOUSAND TRAILS, INC. 100 160.00 140.00 40.00 45.00 170.00
INDUSTRY INDEX 100 137.06 122.17 166.27 196.89 222.32
BROAD MARKET 100 122.76 134.61 157.88 198.73 239.40
</TABLE>
Peer Group. The Peer Group selected by the Company for the above
Performance Graph is based on SIC Code 799 - Miscellaneous Amusement &
Recreation Services - that is presently comprised of the following companies:
Alliance Gaming Corporation, American Bingo & Gaming Corporation, American
Wagering, Inc., Anchor Gaming, Inc., Argosy Gaming Company, Aztar Corporation,
Bally Total Fitness Holding Corporation, Boyd Gaming Corporation, Brassie Golf
Corporation, Casino America, Inc., Cedar Fair, L.P., Century Casinos, Inc.,
Chartwell Leisure, Inc., Cinema Ride, Inc., Circus Circus Enterprises, Inc.,
Crown Casino Corporation, Dover Downs Entertainment, Inc., Family Golf Centers,
Inc., Global Outdoors, Inc., Golden Bear Golf, Inc., Grand Casinos, Inc., Great
Bay Casino, Inc., Imax Corporation, Interactive Entertainment, Inc., Interlott
Tech., Inc., Jackpot Enterprises, Inc., Jillian's Entertainment Corporation,
Lady Luck Gaming Corporation, Malibu Entertainment Worldwide, Inc., Master
Glazier's Karate, Inc., Mirage Resorts, Inc., Multimedia Games, Inc., N-Vision,
Inc., Netlive Communication, Inc., Players International, Inc., President
Casinos, Inc., Quintel Entertainment, Inc., Renaissance Entertainment
Corporation, Rio Hotel and Casino, Inc., Sands Regent, Inc., Santa Fe Gaming
Corporation, Senior Tour Players Development, Inc., Showboat, Inc., Skylands
Park Management, Inc., Skyline Multimedia Entertainment, Inc., Sports Club
Company, Inc., Ticketmaster Group, Inc., UC Television Network, Inc., Vail
Resorts, Inc., Visual Edge Systems, Inc., and Walt Disney Holding Company.
During the year ended June 30,
<PAGE>
1997, the following companies were added to the Peer Group: Dover Downs
Entertainment, Inc., Golden Bear Golf, Inc., Great Bay Casino, Inc., Interactive
Entertainment, Inc., Interlott Tech., Inc., Malibu Entertainment Worldwide,
Inc., Netlive Communication, Inc., Ticketmaster Group, Inc., Vail Resorts, Inc.,
and Visual Edge Systems, Inc. During the year ended June 30, 1997, the following
companies were deleted from the Peer Group: BoomTown, Inc., Childrobics, Inc.,
Elsinore Corporation, Encore Marketing International, Inc., Gaming Corporation
of America, Gaming World International, Inc., Golf Enterprises, Inc., Grand
Gaming Corporation, Great American Recreation, Inc., Griffin Gaming &
Entertainment, Inc., International Lottery, Inc., Lone Star Casino Corporation,
Moutasia Entertainment International, Inc., Pratt Hotel Corporation, S-K-I,
Ltd., Sky Games International Ltd, Southshore Corporation, and Stratosphere
Corporation. The companies in the Peer Group provide a broad range of amusement
and recreation services in several industries.
Indemnification
Under its Bylaws, the Company must indemnify its present and former
directors and officers for the damages and expenses that they incur in
connection with threatened or pending actions, suits, or proceedings arising
because of their status as directors and officers, provided that they acted in
good faith and in a manner that they reasonably believed to be in or not opposed
to the best interests of the Company (or with respect to any criminal action or
proceeding, provided that they had no reasonable cause to believe that their
conduct was unlawful). In connection with this indemnification obligation, the
Company has entered into indemnification agreements with its directors and
officers.
The Company must advance funds to these individuals to enable them to
defend any such threatened or pending action, suit, or proceeding. The Company
cannot release such funds, however, until it receives an undertaking by or on
behalf of the requesting individual to repay the amount if a court of competent
jurisdiction ultimately determines that such individual is not entitled to
indemnification. In connection with this obligation, the Company and Trails
established trusts (the "Indemnification Trusts") that will reimburse their
directors and officers for any indemnifiable damages and expenses that they
incur and that will advance to them defense funds. The Company and Trails
contributed $500,000 and $300,000, respectively, to the Indemnification Trusts.
Pursuant to the trust agreements, interest on the trust estates will become part
of the trust estates. The Indemnification Trusts will terminate on the earlier
of (i) the execution by a majority of the beneficiaries of a written instrument
terminating the trusts, (ii) the exhaustion of the entire trust estates, or
(iii) the expiration of ten years from the establishment of the trusts. The
Indemnification Trusts may not terminate, however, if there is pending or
threatened litigation with respect to a claim by a beneficiary against the
Indemnification Trusts, until (i) a final judgment in such proceeding, (ii) the
execution and delivery of a statement by such beneficiary that assertion of a
threatened claim is unlikely, or (iii) the expiration of all applicable statutes
of limitations. The Company possesses a residuary interest in the trust estates
upon termination of the Indemnification Trusts.
NACO also has indemnification obligations to its directors and
officers. In connection therewith, NACO contributed $200,000 to a trust. This
trust will reimburse NACO's directors and certain officers for any indemnifiable
damages and expenses that they incur and will advance defense funds to them.
<PAGE>
PROPOSAL II
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee and the Board of Directors have selected Arthur
Andersen as the Company's independent certified public accountants for the
fiscal year ending June 30, 1998, subject to the Stockholders ratifying such
selection at the Annual Meeting. Arthur Andersen previously audited the accounts
of the Company for fiscal 1997, 1996, 1995, 1994, and 1993, and for the twelve
months ended June 30, 1992. Representatives of Arthur Andersen will be present
at the Annual Meeting and may make a statement thereat if they desire. These
representatives will also be available to respond to appropriate questions from
the Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
Audit services of Arthur Andersen for fiscal 1997 included the examination
of the consolidated financial statements of the Company and its subsidiaries and
services related to filings with the Securities and Exchange Commission (the
"SEC"). The Audit Committee meets with Arthur Andersen on an annual basis at
which time the Audit Committee reviews both audit and nonaudit services
performed by Arthur Andersen for the preceding year as well as the fees charged
by Arthur Andersen for such services. Nonaudit services are approved by the
Audit Committee, which considers, among other things, the possible effect of the
performance of such services on the auditor's independence.
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SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and persons who
beneficially own more than 10% of the shares of Common Stock to file with the
SEC initial reports of Common Stock ownership and reports of changes in
ownership therein. Directors, executive officers, and greater than 10%
shareholders are required by SEC regulation to send the Company copies of all
Section 16(a) forms they file. To the Company's knowledge, based solely upon a
review of the copies of such reports sent to the Company and written
representations that no other reports were required during the year ended June
30, 1997, the Company believes that all Section 16(a) filing requirements
applicable to its directors, executive officers, and greater than 10%
shareholders were complied with.
CERTAIN TRANSACTIONS
RESTRUCTURING
Under the terms of the Restructuring, the Company offered certain holders
of its Secured Notes the opportunity to exchange the Secured Notes held by them
in a private exchange offer for, in each case per $1,000 in principal amount of
Secured Notes, $400 in cash, $492 in principal amount of newly issued PIK Notes,
and 45 shares of Common Stock, plus accrued interest. The Restructuring was
proposed by the Company after discussions with a committee of holders of Secured
Notes (the "Steering Committee"), CM Strategic, and the Company's financial
advisors. The Special Committee was advised by an investment banking firm that
the Restructuring was fair from a financial point of view to the holders of
Common Stock.
Certain significant stockholders of the Company participated in the
exchange offer. Mr. Boas, also a director of the Company, and Robert C. Ruocco
are general partners of CM Management. CM Management is the general partner of
each of CM Strategic and CM Strategic II. Messrs. Boas and Ruocco, CM
Management, CM Strategic, and CM Strategic II are each deemed to beneficially
own greater than 5% of the Common Stock. See "Security Ownership - Security
Ownership of Certain Beneficial Owners." CM Strategic exchanged $12,979,000 in
principal amount of Secured Notes and CM Strategic II exchanged $5,827,000 in
principal amount of Secured Notes. In addition, Messrs. Boas and Ruocco are
executive officers of an investment management company which (i) manages a fund
that exchanged $1,680,000 in principal amount of Secured Notes and (ii)
exercises investment discretion over advisory accounts that exchanged $1,373,000
in principal amount of Secured Notes. In addition, (i) Mr. Boas and certain
trusts of which he is a co-trustee exchanged $187,000 in principal amount of
Secured Notes; and (ii) Mr. Ruocco exchanged $10,000 in principal amount of
Secured Notes. In the aggregate, these persons exchanged $22,056,000 principal
amount of Secured Notes for $8,828,400 in cash, $10,847,000 principal amount of
PIK Notes, and 992,070 shares of Common Stock, plus accrued interest.
SC Fundamental was a member of the Steering Committee. Peter M. Collery and
Gary N. Siegler are controlling stockholders, directors, and executive officers
of SC Fundamental and BVI. SC Fundamental is the general partner of the Fund.
Messrs. Collery and Siegler, SC Fundamental, and the Fund are each deemed to
beneficially own greater than 5% of the Common Stock. See "Security Ownership -
Security Ownership of Certain Beneficial Owners." The Fund exchanged an
aggregate of $14,491,000 in principal amount of Secured Notes. In addition, SC
Fundamental Value Fund BVI Ltd. ("BVI Ltd."), a foreign company of
<PAGE>
which BVI is the managing partner of the investment manager and which is
principally engaged in the business of investing in securities, exchanged an
aggregate of $5,172,000 in principal amount of Secured Notes, and SC Fundamental
Value Fund LP BVI Ltd. ("LP BVI Ltd."), a foreign company of which BVI is the
managing partner of the investment manager and which is principally engaged in
the business of investing in securities, exchanged an aggregate of $1,270,000 in
principal amount of Secured Notes. In the aggregate, these persons exchanged
$20,933,000 principal amount of Secured Notes for $8,373,200 in cash,
$10,299,000 principal amount of PIK Notes, and 941,985 shares of Common Stock,
plus accrued interest.
At the time of the Restructuring, the Company agreed to file a shelf
registration statement with respect to the resale by exchanging Secured
Noteholders of the Common Stock and PIK Notes received by them in the
Restructuring. The Common Stock was registered in October 1996 in connection
with the Company's reincorporation merger, and the PIK Notes were registered in
February 1997.
DUTCH AUCTION TENDER OFFER
On June 25, 1997, the Company purchased $13,378,358 principal amount
of PIK Notes tendered to it in a Dutch auction tender offer (the "Offer"). The
average purchase price for the PIK Notes was $896 per $1,000 of principal
amount. A total of $32,451,928 principal amount of PIK Notes were tendered.
Pursuant to the Offer, a registered holder of PIK Notes could tender its PIK
Notes at from $800 per $1,000 of principal amount to $900 per $1,000 of
principal amount, in integral multiples of $5 of principal amount, plus a
percentage of accrued interest equal to the percentage of principal at which
such Notes were tendered. In the Offer, the Company offered to spend $12 million
to purchase the principal amount of PIK Notes, plus an amount for accrued
interest. The Company purchased all PIK Notes tendered at prices less than $900
per $1,000 of principal amount, and purchased PIK Notes tendered at $900 per
$1,000 of principal amount on a pro rata basis.
Certain significant stockholders of the Company tendered PIK Notes in
response to the Offer. As noted above, Mr. Boas, a director of the Company, CM
Strategic, CM Strategic II, and certain of their affiliates, are each deemed to
beneficially own greater than 5% of the Common Stock. In the Offer, the Company
purchased $2,988,489 principal amount of PIK Notes from CM Strategic and
$2,750,300 principal amount of PIK Notes from CM Strategic II. In the aggregate,
the Company purchased $5,738,789 principal amount of PIK Notes from these
persons for $5,164,910, plus an amount for accrued interest.
As noted above, the Fund and certain of its affiliates are also deemed to
beneficially own greater than 5% of the Common Stock. In the Offer, the Company
purchased $3,021,946 principal amount of PIK Notes from the Fund, $1,345,877
principal amount of PIK Notes from BVI Ltd., and $70,769 in principal amount of
PIK Notes from LP BVI Ltd. In the aggregate, the Company purchased $4,438,592
principal amount of PIK Notes from these persons for $3,994,733, plus an amount
for accrued interest.
The Indenture for the PIK Notes requires that (i) an Affiliate Transaction (as
defined in the Indenture) must be on terms at least as favorable to the Company
as those that could have been obtained in a comparable transaction with an
unaffiliated party; (ii) in the case of an Affiliate Transaction with a value in
excess of $1,000,000, a majority of the independent members of the Board of
Directors approve the transaction as meeting the foregoing standard; and (iii)
in the case of an Affiliate Transaction with a value in excess of $5,000,000,
the Company obtains a favorable opinion as to the fairness of such transaction
to the Company from a financial point of view from a national or regional
independent investment banking firm. The Offer was approved by the Special
Committee, which obtained the investment banking opinion required by the
Indenture. As a consequence, purchases from affiliates of the Company in the
Offer satisfied the provisions of the Indenture related to Affiliate
Transactions.
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STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
The Company's 1998 annual meeting of Stockholders is scheduled to be held
on November 19, 1998. To be considered for inclusion in the Company's proxy
statement for that meeting, Stockholder proposals must be received at the
Company's principal executive offices no later than May 15, 1998.
INCORPORATION BY REFERENCE
With respect to any past or future filings with the SEC into which this
Proxy Statement is incorporated by reference, the material under the headings
"Report of the Compensation Committee" and "Performance Graph" shall
nevertheless not be deemed as filed or so incorporated.
FORM 10-K
The Company is sending to each Stockholder a copy of its Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, which the Company has filed
with the SEC. Upon request, the Company will send to any Stockholder an
additional copy of the Annual Report on Form 10-K. In addition, the Company will
furnish to any Stockholder copies of any exhibits thereto if such Stockholder
reimburses the Company for its costs in furnishing such exhibits.
By Order of the Board of Directors
s/Walter B. Jaccard
WALTER B. JACCARD
Vice President, General Counsel, and Secretary
Dallas, Texas
October 13, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-2 of our report dated
September 11, 1997 included in Thousand Trails, Inc.'s Form 10-K for the year
ended June 30, 1997 and to all references to our Firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
Dallas, Texas
October 9, 1997
<PAGE>
Exhibit 99.3
April 14, 1997
To the Holders of Certain Senior
Subordinated Pay-In-Kind
Notes Due 2003
of Thousand Trails, Inc.
Re: Supplement to the Blue Sky Memorandum for Thousand Trails, Inc.'s
Senior Subordinated Pay-In-Kind Notes Due 2003 (the "PIK Notes")
Attached is a copy of the Supplemental Blue Sky Memorandum updating the
status of the Blue Sky qualification process for the PIK Notes. Qualification
has now been completed in California, Florida, Illinois, New York and Wisconsin.
In addition, please be advised that in view of the recent adoption of
Regulation M under the Securities Exchange Act of 1934 (the "Exchange Act"),
Thousand Trails, Inc. (the "Company") will no longer require advance
notification by Selling Security Holders, other than "affiliates" of the
Company, before the commencement of selling efforts. Selling Security Holders
are reminded, however, of their obligations under the Exchange Act, including
Regulation M, when engaging in a distribution of the PIK Notes.
Walter B. Jaccard, General Counsel and Secretary of the Company, can be
reached at 972-488-5007 or 206-881-1882 to address any questions concerning the
foregoing.
Very truly yours,
THOUSAND TRAILS, INC.
By: Walter B. Jaccard
General Counsel and Secretary
