<PAGE> 1
As filed with the Securities and Exchange Commission on December 9, 1998.
Registration No.: 333-22705
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 ON
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THOUSAND TRAILS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 709 75-2138671
(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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.
================================================================================
<PAGE> 2
PROSPECTUS
THOUSAND TRAILS, INC.
416,179 SHARES OF COMMON STOCK
<TABLE>
<S> <C> <C>
The common stock began THE OFFERINGS o We are offering 10,045 shares of common stock to holders of
trading on the American common stock purchase warrants issued in 1994.
Stock Exchange on
December 4, 1998, under o Certain of our security holders listed on page 19 may offer
the symbol "TRV." The from time to time 406,134 shares of common stock, which they
common stock previously may acquire by exercising common stock purchase warrants
traded on the NASD OTC issued in 1991 and 1992.
Bulletin Board System
under the symbol "TRLS."
On December 4, 1998, the THE PRICE o The holders of the 1994 warrants must pay us the exercise
last reported sale price price of $1.625 per share to acquire the shares of common
of the common stock on stock we are offering by this prospectus.
the American Stock
Exchange was $5 1/8. o The selling security holders will negotiate with their
respective buyers to determine the price of the shares they
may offer by this prospectus. This price may not reflect a
"market" price. In addition, the parties will also negotiate
the allocation of any expenses of such sale.
o The selling security holders must pay us the exercise price
of $4.24 per share to acquire the shares of common stock
they may offer by this prospectus.
PROCEEDS TO THE o We will receive all of the proceeds from payment of the
COMPANY exercise price of all the warrants, if the warrant holders
elect to exercise their warrants. If all of the warrants are
exercised, we will receive $1,738,331.
o We will not receive any of the proceeds from the sale of the
common stock by the selling security holders.
</TABLE>
YOU SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION DISCUSSED IN "RISK
FACTORS," BEGINNING AT PAGE 6.
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.
------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 9, 1998.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Prospectus Summary........................................................................................... 3
Risk Factors................................................................................................. 6
Incorporation of Certain Information
by Reference............................................................................................. 11
Additional Information....................................................................................... 11
Available Information........................................................................................ 11
Use of Proceeds.............................................................................................. 12
Determination of Offering Price.............................................................................. 12
Market for Common Stock and
Related Stockholder Matters.............................................................................. 13
Capitalization............................................................................................... 14
The Company.................................................................................................. 14
Business..................................................................................................... 15
Selling Security Holders..................................................................................... 19
Plan of Distribution......................................................................................... 20
Description of Common Stock.................................................................................. 20
Certain Federal Income Tax Considerations.................................................................... 25
Experts...................................................................................................... 26
Legal Matters................................................................................................ 26
</TABLE>
2
<PAGE> 4
PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY OF THE OFFERINGS. TO FULLY
UNDERSTAND THE INVESTMENT YOU ARE CONTEMPLATING, YOU MUST
CONSIDER THIS ENTIRE PROSPECTUS AND THE DETAILED INFORMATION
INCORPORATED INTO THIS PROSPECTUS BY REFERENCE, INCLUDING THE
FINANCIAL STATEMENTS AND THEIR ACCOMPANYING NOTES.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "THE
COMPANY" REFERS TO THOUSAND TRAILS, INC., A DELAWARE
CORPORATION, AND ITS PREDECESSORS AND SUBSIDIARIES. IN
ADDITION, CERTAIN CAPITALIZED TERMS USED IN THE SUMMARY HAVE
THE MEANINGS DESCRIBED ELSEWHERE IN THIS PROSPECTUS.
IN THIS PROSPECTUS, THE COMPANY MAKES, OR
INCORPORATES BY REFERENCE, CERTAIN STATEMENTS AS TO ITS
EXPECTED FINANCIAL CONDITION, RESULTS OF OPERATIONS, CASH
FLOWS, AND BUSINESS STRATEGIES, PLANS AND CONDITIONS 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 OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS
ARE NOT HISTORICAL AND INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL FINANCIAL CONDITION, RESULTS OF OPERATIONS,
CASH FLOWS, AND BUSINESS STRATEGIES, PLANS AND CONDITIONS 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.
3
<PAGE> 5
THE COMPANY
The Company and its subsidiaries own and operate a system of 53
membership-based campgrounds located in 17 states and British Columbia, Canada,
serving 111,000 members as of June 30, 1998. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 325
recreational facilities and manages 130 public campgrounds for the US Forest
Service.
Corporate History
The Company, then known as USTrails Inc., entered the membership
campground business on June 30, 1991, by acquiring the capital stock of two
companies. The Company acquired 100% of the capital stock of National American
Corporation, which, along with its subsidiaries, is commonly called "NACO," and
69% of the capital stock of its predecessor in name, Thousand Trails, Inc., a
Washington corporation (to avoid confusion, the predecessor company is referred
to in this prospectus as "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, which was still known as USTrails.
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 reincorporated in the State of Delaware and changed its name to Thousand
Trails, Inc.
Contacting the Company
The mailing address of the Company's principal executive offices is
2711 LBJ Freeway, Suite 200, Dallas, Texas 75234. Its telephone number is (972)
243-2228. Its Internet address is www.1000trails.com.
THE SELLING SECURITY HOLDERS
The selling security holders, who are listed on page 19 of this
prospectus, received their warrants in two transactions: one in 1991 as part of
the Company's reorganization and the other in 1992 as part of the retirement of
debt of Trails. In each transaction, recipients of these warrants became
entitled to the benefits of registration rights agreements, which included
"piggyback" registration rights. This means that certain selling security
holders may require the Company to register the shares of common stock they are
entitled to purchase under their warrants when the Company registers other
shares of common stock. Because the Company is registering the shares of common
stock offered under the 1994 warrants, the Company is also registering the
common stock issuable to the selling security holders upon exercise of their
warrants.
4
<PAGE> 6
THE OFFERINGS
<TABLE>
<S> <C>
Offering by the Company................. The Company is offering to holders of the 1994 warrants 10,045 shares
of common stock, subject to certain antidilution provisions, issuable
upon the exercise of their 1994 warrants. The current exercise price
of the 1994 warrants is $1.625 per share.
Offering by
Selling Security Holders................ From time to time, the selling security holders may offer up to
406,134 shares of common stock, subject to certain antidilution
provisions, that are issuable upon the exercise of their 1991 or 1992
warrants. The current exercise price of their 1991 or 1992 warrants
is $4.24 per share and the current expiration date of their warrants
is June 30, 1999. The selling security holders are not offering the
1991 or 1992 warrants by this prospectus.
Use of Proceeds......................... The Company will receive the proceeds of the issuance of shares of
common stock upon the exercise of the 1994 warrants to the extent of
their exercise price. The Company will not receive any of the
proceeds from any sales of common stock by the selling security
holders; however, it will receive proceeds from the issuance of
shares of common stock upon the exercise of their warrants to the
extent of their exercise price.
<CAPTION>
SUMMARY OF TERMS OF THE COMMON STOCK OFFERED UNDER 1994 WARRANTS
<S> <C>
Exercise Price of 1994 Warrants......... $1.625 per share of common stock, subject to certain antidilution
provisions.
Number of Shares Issuable............... 10,045 shares of common stock, subject to certain antidilution
provisions.
Expiration Date......................... 5:00 p.m., Eastern time, on March 31, 1999. In order for a holder to
exercise a 1994 warrant, a registration statement must be in effect
under the Securities Act with respect to the issuance of the common
stock subject to such warrant. The Company cannot give any
assurances that it can maintain the effectiveness of such
registration statement as required to permit the exercise of these
warrants.
Common Stock............................ The common stock (including the common stock of USTrails for which
the common stock was exchanged in USTrails' reincorporation merger
into the Company) has traded in the over-the-counter market since
1992 and began trading on the American Stock Exchange on December 4,
1998. Trading in the common stock is light, and an established
public trading market may not exist. It is unclear whether the
market for the common stock is adversely affected by transfer
restrictions applicable to the common stock that are intended to help
reduce the risk of an "ownership change" (within the meaning of
Section 382 of the current Internal Revenue Code). These transfer
restrictions could materially limit the availability of the Company's
substantial net operating loss carryforwards. For more information
on these transfer restrictions, see the section entitled "Risk
Factors," which follows this summary.
</TABLE>
5
<PAGE> 7
RISK FACTORS
Prospective purchasers should review the risk factors discussed below
when considering whether to purchase shares of common stock. These risk factors,
however, may not be the only risks involved in connection with a purchase of
these securities.
BUSINESS STRATEGY UNCERTAINTY
Current Business Strategy
The Company's current business strategy is two-fold:
o improve campground operations
o stabilize the campground membership base.
The Company intends to attempt to stabilize the campground membership
base by increasing sales and marketing efforts and, possibly, by acquiring new
members through the purchase of other membership campground operations.
The Company believes there is a viable market for campground
memberships. It also 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. The Company believes that it may be possible to acquire members
through the purchase of other membership campground operations, many of which
are experiencing financial difficulties.
Declining Membership Base and Resulting Downsizing of the Business
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.
Possible Continued Campground Closures and Campground or Assets Sales
if Membership Continues to Decline
The Company intends to keep the size of its campground system in an
appropriate relation to the size of its membership base. If the membership
continues to decline, the Company may 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. As mentioned above, the Company also intends to
explore the possible acquisition of members through the purchase of other
membership campground organizations. 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.
Recent Lack of Success in Preventing Membership Base Decline
The Company's selling and marketing efforts during the past three
fiscal years have not produced the level of sales needed to stop the continuing
decline in the Company's membership base. If the Company is not able to
significantly increase its campground membership sales over current levels, the
membership base will continue to decline, which will further decrease the
Company's revenues. Further decreases in revenues that are not offset by
sufficient expense reductions could have a material adverse impact on the
Company's business and results of operations. Consequently, the Company can give
no assurance that it will be successful in stopping its membership decline.
Effect of Increased Sales and Marketing Expenses on Future Operating
Results
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 reported as an expense in the current period. However,
the related sales revenue cannot all be reported in the same period. Under the
applicable accounting principles, this related sales revenue must be deferred
and recognized on a straight-line basis over the expected life of the membership
sold. As a consequence, the Company's selling and marketing expenses exceed its
membership campground sales revenues. This disparity will likely increase to the
6
<PAGE> 8
extent the Company is able to grow campground membership sales.
For more information, see the sections entitled "Business," "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company Reports, which are incorporated into
this prospectus by reference.
NET OPERATING LOSS CARRYFORWARDS
Brief Explanation of NOLs
For federal income tax purposes, the Company has net operating loss
carryforwards, which are known as "NOLs," available for its use. These NOLs
equaled $26.9 million as of June 30, 1998. 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.
Effect of "Ownership Change" on the Use of NOLs
Section 382 of the Internal Revenue Code provides that when a
corporation undergoes an "ownership change," the corporation's use of its NOLs
is limited each year. In such a case, a corporation can only use NOLs to offset
taxable income in an amount determined by multiplying the fair market value of
the corporation's stock immediately before the "ownership change" by the
"long-term tax exempt rate" (5.02% for changes in November 1998).
Recent Restructuring Puts the Company Very Close to Having an
"Ownership Change"
In July 1996, the Company restructured its capital structure by
retiring certain senior notes and issuing pay-in-kind notes and shares of common
stock. This restructuring was structured to avoid an "ownership change" under
Section 382 of the Internal Revenue Code. However, the issuance of shares of
common stock in this restructuring resulted in a substantial change in ownership
for purposes of Section 382. A 50% change is required to cause an "ownership
change." As a result of this restructuring and transactions since that time, as
of November 16, 1998, the Company was at a change of as much as 31.6%.
Effect of Loss of NOLs on Reported After-Tax Earnings and Ability to
Service Debt
If the Company were to experience an "ownership change," the Company
estimates that it would not be entitled to use a substantial amount of its
available NOLs to reduce its taxable income. Such a limitation on the use of the
Company's NOLs would materially reduce the Company's after-tax earnings as well
as its ability to service its indebtedness.
Transfer Restrictions Intended to Reduce the Risk of an "Ownership
Change"
In order to reduce the risk of an "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. These
transfer restrictions are discussed in more detail in the section entitled
"Description of Common Stock" contained in this prospectus.
Risks that Transfer Restrictions May Not Prevent an "Ownership Change"
or Permit the Company to Continue to Use the NOLs to Offset Taxable
Income
Notwithstanding these transfer restrictions, the Company could be
unable to use the NOLs to offset taxable income in future periods. These risks
include the following:
o The Company may be unable to, or may elect not to, prevent every
transaction that could cause an "ownership change."
o These transfer restrictions do not apply to the exercise of
outstanding warrants or certain options to purchase common stock,
including the warrants issued in 1991, 1992, and 1994.
o Although the Company believes that these transfer restrictions
are enforceable as to all of the common stock, a court might
disagree.
o The Internal Revenue Service may take the position that, for tax
purposes, these transfer restrictions do not prohibit the
possibility of a transfer that would result in an "ownership
change."
7
<PAGE> 9
o A court may not enforce every remedial provision set forth in
these transfer restrictions if a stockholder were to challenge the
binding nature of these provisions.
o Congress may change the law regarding the use of NOLs before the
Company is able to use the NOLs to offset taxable income. Although
the Company cannot give any assurances, it is not aware of any
proposed legislation for changes in the tax laws that could impact
the ability of the Company to use the NOLs to offset taxable
income.
Therefore, even with these transfer restrictions in place, it is
possible that transactions or other events could occur that would limit the
Company's ability to use the NOLs to offset taxable income in the future.
The NOLs May Not be Useful if the Company Fails to Earn Otherwise
Taxable Income Before the NOLs Expire
The extent of the actual future use of the NOLs is subject to inherent
uncertainty. Their use in future years depends on the amount of otherwise
taxable income the Company may earn. The Company cannot give any assurance that
it will have sufficient taxable income in future years to actually use the NOLs
before they would otherwise expire.
For more information about the NOLs and the transfer restrictions, see
the sections entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company Reports, which incorporated
into this prospectus by reference, and the section entitled "Description of
Common Stock Transfer Restrictions" contained in this prospectus.
SIGNIFICANT LEVERAGE
Amount of Leverage or Debt
The Company remains significantly leveraged. As of September 30, 1998,
the Company had outstanding indebtedness of approximately $34.9 million. In
addition, as a result of their pay-in-kind feature, interest on the Company's
Senior Subordinated Pay-In-Kind ("PIK") Notes is payable in the form of
additional PIK notes until after July 15, 2000, unless all borrowings under the
Company's loan agreement with Foothill Capital Corporation are paid in full on
or before such date.
If all borrowings under the Foothill loan agreement are paid in full on
or before July 15, 2000, the Company has the option to issue additional PIK
notes in lieu of cash interest through July 15, 2000. After July 15, 2000, the
Company must pay the interest on the PIK notes in cash. So long as the Company
pays interest in the form of additional PIK notes, the outstanding principal
amount will increase at the rate of 12% per year, compounded semi-annually.
Although this payment-in-kind feature will decrease the Company's cash interest
costs, it will also decrease the rate at which the Company is able to retire the
debt.
On November 10, 1998, the Company called all of its outstanding PIK
notes for redemption on December 15, 1998. The Company expects to fund this
redemption by borrowing under the Foothill loan agreement. If the Company
successfully completes this redemption, the Company's debt will be lowered.
However, the borrowings under the Foothill loan agreement will require interest
to be paid monthly on a cash basis, which will increase the Company's cash
interest costs. In addition, subject to the restrictions of the Foothill loan
agreement and the indenture for the PIK notes, the Company may incur additional
indebtedness from time to time.
Effect of Significant Leverage
This leverage increases the risk inherent in the Company's business
strategy because it must expend cash on servicing the debt -- cash that could
otherwise be spent on implementing the business strategy. Thus, the amount of
leverage may limit the Company's ability to respond to variances from the
results sought, as well as changing business and economic conditions.
8
<PAGE> 10
Risk that the Company May Not Be Able to Generate Sufficient Cash to
Service its Debt
Required payments of principal and interest are expected to be financed
from operating cash flow, collections of contracts receivable and proceeds from
the disposition of non-core assets. The Company's ability to generate sufficient
cash is subject to many factors, including stabilizing the Company's membership
base and the amount of asset sales to be completed or made as the Company
downsizes.
For more information about the Company's leverage, see the sections
entitled "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company Reports, which are
incorporated into this prospectus by reference, and the section entitled
"Capitalization" contained in this prospectus.
MEMBERS RIGHTS
Certain State Laws May Inhibit the Company's Ability to Sell Under-Used
Campgrounds
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, have nondisturbance
statutes that limit the ability of an owner to sell or close, or a lienholder to
foreclose a lien on, a campground. These three states contain 29 of the
Company's 53 campgrounds. In certain states, these statutes permit the sale,
closure or foreclosure of campgrounds if the campground's members receive access
to a comparable campground. Certain of these limitations purport even to survive
any rejection of member contracts in bankruptcy, and the bankruptcy laws 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. In addition, foreclosure of the campground
liens in significant numbers will also likely be limited.
Contracts and Certain Laws May Inhibit the Company's Ability to Use the
Campgrounds Differently
Membership agreements or understandings, or related governmental
interpretations, may limit the Company's ability to expand or modify the type of
business activities conducted at the campgrounds. As a consequence, the Company
may be prevented from using the existing campgrounds differently, even if such
use may increase the Company's income from the campgrounds.
For more information about the effect of members' rights and certain
state laws on the Company's ability to implement its business strategy, see the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business - Government Regulation" and "Properties"
in the Company Reports, which are incorporated into this prospectus by
reference.
MARKET CONDITIONS
Current Market Conditions Mean that the Price Paid for the Common Stock
May Not Reflect Its True Market Value
Trading in the common stock is light, and an established market in the
common stock may not exist. Moreover, it is unclear whether the market for the
common stock is adversely affected by the transfer restrictions provided in the
Company's certificate of incorporation. As a consequence, you may not be able to
sell your common stock for an adequate price for an indefinite period. For more
information about the current market for the common stock, see the sections
entitled "Market for Common Stock and Related Stockholder Matters" and
"Description of Common Stock."
CONCENTRATION OF OWNERSHIP
As of October 27, 1998, Mr. Andrew Boas, a director of the Company,
beneficially owned an aggregate of 48.1% of the outstanding common stock and
$13.9 million in principal amount of the outstanding PIK notes (representing
approximately 39.8% in principal amount of the PIK notes). As a result, Mr. Boas
may be in a position to influence significantly the outcome of certain actions
by the Company's stockholders. As a holder of the PIK notes, the interests of
Mr. Boas may not be wholly aligned with your interests or the interests of other
holders of common stock. For more information about Mr. Boas's stock and debt
ownership, see the sections entitled "Security Ownership of Certain Beneficial
Owners and Management" in the Company Reports, which are incorporated by
reference, and the section of this prospectus entitled "Selling Security
Holders."
9
<PAGE> 11
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK AND TRANSFER RESTRICTION
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
Blank Check Preferred Stock.
The Company is authorized to issue up to 1,500,000 shares of preferred
stock in one or more series. The Company's Board of Directors may determine the
terms of the preferred stock at the time of issuance. The issuance of the
preferred stock may be accomplished without any further action by the Company's
stockholders and the terms may include voting rights, preferences as to
dividends and liquidation, conversion rights, redemptive rights, and sinking
fund provisions.
Although the Company currently has no plans to issue any shares of
preferred stock, if the Company later decides to issue the preferred stock, the
common stockholders could lose some very important rights. In particular, the
Board of Directors may grant specific rights to the future holders of preferred
stock that could be used to restrict the Company's ability to merge with or sell
its assets to a third party, or otherwise delay, discourage, or present a change
in control of the Company. For information about the Company's preferred stock,
see the section entitled "Description of Common Stock" contained in this
prospectus.
Transfer Restrictions.
In addition to the potential anti-takeover effect of the preferred
stock, the transfer restrictions, previously mentioned in the risk factor
entitled "Net Operating Loss Carryforwards," could also have the effect of
delaying, discouraging, or otherwise preventing a change in control of the
Company without the consent of the Board of Directors. These transfer
restrictions are discussed in more detail in the section entitled "Description
of Common Stock" contained in this prospectus.
10
<PAGE> 12
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, 1998, as amended on Form 10-K/A, its
Proxy Statement for the 1998 Annual Meeting of the Company filed on October 27,
1998, and its Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998 (collectively, the "Company Reports"), which are incorporated
into this prospectus by reference.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-2 with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
This prospectus, filed as part of the registration statement, does not contain
all of the information set forth in the registration statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. See
the registration statement for more information. Statements made in this
prospectus as to the contents of any indenture, contract, agreement or other
document referred to are merely summaries and are not necessarily complete. With
respect to each such indenture, contract, agreement or other document filed as
an exhibit to the registration statement, see the exhibit to read the actual
documents. The registration statement and its exhibits and schedules may be
inspected and copied (at prescribed rates) at the public reference facilities
maintained by the SEC and without charge electronically at the SEC's World Wide
Web site. See "Available Information" for the office and World Wide Web site
addresses of the SEC.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. Accordingly, the Company files
reports, proxy and information statements, and other information with the SEC.
The public may inspect and copy (at prescribed rates) the registration statement
and the other information that the Company has filed with the SEC at the SEC's
public reference facilities listed below.
SEC Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
SEC Regional Public Reference Facilities
Northwest Atrium Center, Room 3190
500 West Madison Street
Chicago, Illinois 60661
7 World Trade Center
13th Floor
New York, New York 10048
In addition, the public may obtain information on the operation of the
SEC's public reference room by calling the SEC at the number listed below.
SEC Public Reference Room Telephone Number
1-800-SEC-0330
The Company files many of its reports, proxy and information
statements, and other information electronically with the SEC. The public can
access these documents by computer at the SEC's World Wide Web address.
SEC World Wide Web Address
http://www.sec.gov.
11
<PAGE> 13
USE OF PROCEEDS
The Company will receive the proceeds of the issuance of shares of its
common stock, upon the exercise of the common stock purchase warrants expiring
March 31, 1999 (the "1994 Warrants"), to the extent of their exercise price. The
1994 Warrants were issued in 1994 to holders of the 12% Secured Notes due 1998
(the "Secured Notes") of USTrails in connection with a consent solicitation that
resulted in indenture amendments affecting such notes.
The Company will not receive any of the proceeds from any sales of
common stock by the selling security holders listed on page 19 (the "Selling
Security Holders"); however, it will receive proceeds from the issuance of
shares of common stock upon the exercise of the Common Stock Purchase Warrants
expiring June 30, 1999 (collectively, the "1991/1992 Warrants"), to the extent
of their exercise price. The 1991 Warrants were issued in 1991 in connection
with the consummation of the Plan of Reorganization of USTrails. The 1992
Warrants were issued in 1992 in connection with the retirement of debt of
Trails.
Any proceeds received by the Company, net of the expenses of the
offerings borne by the Company, will be added to the Company's working capital.
See "Plan of Distribution."
DETERMINATION OF OFFERING PRICE
The exercise price of the 1994 Warrants offered, which is $1.625, was
established by agreement between the Company and a committee of former holders
of Secured Notes.
The Company has no knowledge of whether or when a sale of any of the
shares of common stock offered by the Selling Security Holders will occur or
what price, terms or conditions may be offered by the Selling Security Holders.
See "Plan of Distribution."
12
<PAGE> 14
MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET AND TRADING
The common stock (including the common stock of USTrails for which the
common stock was exchanged in the Company's reincorporation merger) has been
publicly traded in the over-the-counter market under the symbol USTQ from 1992
through November 20, 1996, and under the symbol TRLS thereafter until December
4, 1998. On December 4, 1998, the common stock began trading on the American
Stock Exchange under the symbol TRV. Historically, the common stock has not
traded every day and the trading volume has often been small, such that the
common stock may not be deemed to be traded in an established public trading
market. The following table sets forth for the fiscal periods indicated, the
high and low bid quotations as quoted through the NASD OTC Bulletin Board
System. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1999:
Second Quarter
(through December 3) 4 3 5/8
First Quarter 5 1/2 3 5/8
1998:
Fourth Quarter 3 1/8 2 1/8
Third Quarter 5 3/8 3 1/8
Second Quarter 4 1/2 3 1/4
First Quarter 4 1/4 3 1/2
1997:
Fourth Quarter 2 7/16 1 3/4
Third Quarter 1 31/32 1 5/16
Second Quarter 1 7/16 15/16
First Quarter 1 1/8 1/2
</TABLE>
On December 4, 1998, the last reported sale price of the common stock
on the American Stock Exchange was $5 1/8. As of December 4, 1998, the common
stock was held by 94 holders of record. Moreover, security position listings
available to the Company listed approximately 400 beneficial holders of common
stock.
ABSENCE OF DIVIDENDS
Since inception, the Company has not paid any dividends. The Company's
Loan and Security Agreement, dated as of July 10, 1996, as amended (the "Loan
Agreement"), with Foothill Capital Corporation ("Foothill"), prohibits the
payment of any cash dividends on the common stock, without the consent of
Foothill, until the Loan Agreement is terminated. In addition, the Indenture
prohibits the payment of any cash dividends on the Common Stock until the
Company's Senior Subordinated Pay-In-Kind Notes due 2003 (the "PIK Notes") are
repaid.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company as of September 30, 1998 (in thousands). Investors
should read this table in conjunction with the Company's consolidated financial
statements and their notes, which are incorporated by reference.
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
PIK Notes, including deferred gain of $.2 million 34,935 (1)
TOTAL DEBT $34,935 (2)
=======
Preferred stock, $.01 par value, 1,500,000 shares authorized, none
issued and outstanding ---
Common Stock, $.01 par value, 15,000,000 shares authorized,
7,503,208 shares issued and outstanding $ 75
Additional paid-in capital 20,595
Accumulated deficit subsequent to December 31, 1991,
date of emergence from bankruptcy (16,272)
Cumulative currency translation adjustment (140)
-------
TOTAL STOCKHOLDERS' EQUITY $ 4,258
=======
TOTAL CAPITALIZATION $39,193
=======
</TABLE>
- ---------------
(1) The restructuring in which the PIK Notes were issued 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, the $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.
(2) On November 10, 1998, the Company called all of its outstanding PIK
Notes for redemption on December 15, 1998. In order to fund this
redemption, the Company expects to borrow approximately $27 million
under the Loan Agreement with Foothill. After giving effect to the
redemption, the Total Debt is expected to be approximately $27 million.
THE COMPANY
The Company and its subsidiaries own and operate a system of 53
membership-based campgrounds located in 17 states and British Columbia, Canada,
serving 111,000 members as of June 30, 1998. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 325
recreational facilities and manages 130 public campgrounds for the US Forest
Service.
Corporate History. 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, in July,
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.
Restructuring. On July 17, 1996, the Company consummated a
restructuring of its capital structure. This restructuring, in which the Secured
Notes were retired and the PIK Notes issued, 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 Note 6 to
the Company's financial statements contained in the Company Reports incorporated
herein by reference.
14
<PAGE> 16
BUSINESS
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 or the possible acquisition of members through the
purchase of other membership campground operations. 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 it may be possible
to acquire members through the purchase of other membership campground
operations, many of which are experiencing financial difficulties.
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 keep the size of its
campground system in an appropriate relation to the size of its membership base.
In this regard, the Company may 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 also intends to explore the possible acquisition of members
through the purchase of other membership campground organizations. 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.
CAMPGROUND OPERATIONS
Campgrounds. The Company and its subsidiaries own and operate a network
of 53 membership-based campgrounds located in 17 states and British Columbia,
Canada. The Company owns and operates a network of 32 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 53 campgrounds contain a total of
approximately 9,700 acres and 17,700 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, 1998, there were
approximately 73,000 campground members in the Thousand Trails system and 38,000
campground members in the NACO system. However, approximately 38% of the NACO
campground members and approximately 54% 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, 1998, the Company had 111,000
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
15
<PAGE> 17
presently declining at the rate of approximately 6% per year (excluding 1800
members lost in connection with the sale of two campgrounds in fiscal 1998). 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 $1,595 to $2,995. In addition,
the membership products offer a choice of annual dues levels ranging from $199
for 14 nights of use to $1,200 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 1998 and 1997, the Company sold approximately 2,900 and
3,400 new memberships, respectively. The average sales price was $1,164 in
fiscal 1998 and $707 in fiscal 1997, and the average annual dues level was $377
in fiscal 1998 and $332 in fiscal 1997. During the past two fiscal years, the
Company offered financing for certain of its higher priced sales. The Company
required a down payment of at least 25% of the sales price and would finance the
balance 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 66,000 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 fourth largest
participant sport/activity in the United States in 1997 with approximately 20%
of all 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 have been
relatively flat, 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.
Dues. Campground members currently pay annual dues ranging generally
from $100 to $600. 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.
16
<PAGE> 18
The average annual dues paid by the Company's campground members were
$351 for the year ended June 30, 1998, $344 for the year ended June 30, 1997,
and $335 for the year ended June 30, 1996. 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 makes annual capital and
maintenance expenditures to maintain and improve the campgrounds. During fiscal
1998, the Company spent $5.2 million on major maintenance, repairs, and
improvements at the campgrounds and anticipates that it will spend an additional
$4.7 million on similar costs in fiscal 1999. The Company may be required to
spend greater amounts on such items in future years as the facilities age.
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 325 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, 1998, there were approximately 96,000 RPI
members, of which approximately 80,000 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,
1998, Wilderness Management had entered into management contracts covering 130
campgrounds containing a total of approximately 3,300 campsites. Pursuant to its
management contracts with the US Forest Service, the 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 five year terms.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns
at eight resorts located in seven states. NACO's interest in the resorts
presently consists of approximately 100 residential lots and other miscellaneous
real estate that NACO intends to sell over the next several years.
ASSET SALES
During fiscal 1998, 1997 and 1996, the Company sold certain of its real
estate assets and received proceeds of $8.6 million, $4.7 million, and $7.2
million, respectively. During this three year period, the Company sold the
timeshare operations at the resorts, the country club and golf operations at one
resort, and various other properties at the resorts. In addition, the Company
sold or otherwise disposed of various campgrounds and sold unused buildings and
trailers, and excess acreage associated with certain campgrounds. 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 several 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.
17
<PAGE> 19
When there are outstanding borrowings under the Loan Agreement, all
proceeds from asset sales must be paid to Foothill and applied to reduce such
borrowings.
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, 1998. Monthly installment payments range from $34 to $223
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, 1998, approximately 97% of the campground members and 99% of
the 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 19 months.
As of June 30, 1998, the Company owned contracts receivable with an
aggregate principal balance of $6.8 million, consisting of $6.4 million of
contracts receivable associated with the campgrounds, and $401,000 of contracts
receivable associated with the resorts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company
Reports incorporated herein by reference.
When there are outstanding borrowings under the Loan Agreement, all
collections on the contracts receivable, including principal, interest, and
fees, must be paid to Foothill and applied to reduce such borrowings.
18
<PAGE> 20
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the
Selling Security Holders' beneficial ownership of the common stock, including
common stock issuable upon exercise of the 1991 or 1992 Warrants, as of October
27, 1998. Each of the Selling Security Holders had registered and, assuming
exercise of its 1991 or 1992 Warrants, may sell up to the number of shares of
common stock that such Selling Security Holder may receive as a result of such
exercise, as set forth opposite each Selling Security Holder's name below. The
Selling Security Holders may also sell additional shares of common stock that
may be issuable upon exercise of the 1991 or 1992 Warrants as a result of
certain antidilution provisions. It is not currently possible to predict the
number of shares of common stock, if any, which will be sold or the price, terms
or conditions of their sale. See "Plan of Distribution."
<TABLE>
<CAPTION>
COMMON STOCK
ISSUABLE UPON
COMMON STOCK EXERCISE OF
BENEFICIALLY 1991/1992 COMMON STOCK
OWNED WARRANTS THAT MAY BENEFICIALLY OWNED
SELLING SECURITY HOLDERS BE OFFERED(1) AFTER OFFERING **
- ----------------------------------------------------- ------------ ----------------- --------------------
PERCENT
NUMBER OF CLASS
--------- --------
<S> <C> <C> <C> <C>
American Investors Life Insurance Company, Inc. 0 7,121 0 0
Bankers Life & Casualty Company 0 16,540 0 0
Carl Marks Strategic Investments L.P.(2) 2,474,244 194,521 2,474,244 34.6%
Fidelity & Guaranty Life Insurance Company 0 49,622 0 0
Fulton Bank, Custodian for Stanley Steiner, 0 175 0 0
Rollover IRA
Alan Kanis 706 189 706 *
OP Limited Partnership 0 13,232 0 0
Pacholder Associates, Inc. 0 551 0 0
Trussal & Co. 0 616 0 0
United States Fidelity & Guaranty Company 0 88,825 0 0
USF&G Pacholder Fund 0 33,081 0 0
Larry K. West 0 1,521 0 0
Robert and Suzanne Yudelson 0 140 0 0
--------- ------- ---------
TOTAL 2,479,950 406,134 2,479,950
========= ======= =========
</TABLE>
- ----------
* Less than 1%
** Assumes that all shares of common stock that may be offered by Selling
Security Holders are sold.
(1) The Selling Security Holders may also sell additional shares of common
stock that may be issuable from time to time pursuant to the antidilution
provisions applicable to the 1991 or 1992 Warrants.
(2) Andrew M. Boas, a director of the Company, is a general partner of Carl
Marks Management Co., L.P., which is the general partner of Carl Marks
Strategic Investments, L.P. See "Security Ownership of Certain Beneficial
Owners and Management" in the Company Reports incorporated herein by
reference.
19
<PAGE> 21
PLAN OF DISTRIBUTION
The Company is offering 10,045 shares of common stock by reason of the
outstanding 1994 Warrants.
The Selling Security Holders may offer and sell the 406,134 shares of
common stock, if and when issued upon the exercise of the 1991 or 1992 Warrants,
from time to time acting as principals for their own accounts, through agents or
otherwise, in negotiated or market transactions. The prices, terms and
conditions of any sale will be determined at the time of sale by the seller or
as a result of negotiations between or on behalf of the buyer and the seller.
The sales of such shares may be effected during such time as the registration
statement is effective. The sales may occur in one or more transactions at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at other
negotiated prices. Moreover, the Selling Security Holders may make negotiated
sales at any time if such sales are exempt from the registration requirements of
the Securities Act pursuant to Rule 144 thereunder. Although the Company has
agreed to pay all costs of the registration of these securities, any other
expenses of any sale will be borne by the parties to the sale as they may agree,
including any distributors' or brokers' commissions.
Currently, no underwritten public offering is contemplated.
The Company has called to the Selling Security Holders' attention
certain restrictions under the federal securities laws applicable to sales
registered under the registration statement, including the requirements of
Regulation M under the Securities Exchange Act. In such connection, the Selling
Security Holders have entered into agreements with the Company requiring that
they will not violate any federal or state securities laws in connection with
the distribution or transfer of the Company's securities. The Selling Security
Holders have each agreed to indemnify the Company for certain information
supplied in connection with the registration statement. The Company similarly
agreed to indemnify the Selling Security Holders for certain other information
contained in the registration statement.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company is 15,000,000 shares of
common stock, par value $.01 per share, and 1,500,000 shares of preferred stock,
par value $.01 per share. As of October 27, 1998, the Company had 7,511,708
shares of common stock issued and outstanding. In addition, as of such date the
Company had outstanding warrants (consisting of the 1991 or 1992 Warrants and
the 1994 Warrants) to purchase 416,179 shares of common stock and options under
the Company's 1991 Employee Stock Incentive Plan, the Company's 1993 Stock
Option and Restricted Stock Purchase Plan, the Company's 1993 Director Stock
Option Plan and the stock option agreement, dated as of August 1, 1996, with the
Company's Chief Executive Officer and President to purchase 1,111,995 shares of
common stock. The warrants, options and stock option agreement are each subject
to certain antidilution provisions.
Preferred Stock. The Company's certificate of incorporation authorizes
the Board of Directors to establish the designations, powers, preferences and
rights of the preferred stock without further stockholder approval. In the
exercise of this authority, the Board of Directors could establish preferences
and rights for the preferred stock prior and superior to the rights of the
common stock, and it is possible that dividend preferences for the preferred
stock could substantially reduce the amount of any future surplus available for
payments on the common stock. In addition, if the preferred stock were made
convertible into common stock, dilution of the interests of holders of the
common stock may result.
Voting Rights. Holders of common stock are entitled to one vote for
each share held of record on any matter submitted to a vote at a meeting of the
stockholders. Directors are elected by a majority of the votes cast at the
election. Generally, any matter submitted for the approval of the stockholders
must receive the affirmative vote of the holders of a majority of all the shares
represented at a meeting at which a quorum is present. Approval of any amendment
to the Company's certificate of incorporation or any merger or consolidation
(with certain limited exceptions) or dissolution of the Company, or any sale,
lease, or exchange of all or substantially all of the assets of the Company,
however, requires the affirmative vote of holders of
20
<PAGE> 22
shares representing a majority of the votes entitled to be cast.
Stockholder Proposals. The Company's Bylaws contain a provision
establishing an advance notice procedure for stockholders to bring business
before the annual meeting of stockholders. Generally, notice of business
proposed to be brought before the meeting must be given in writing in the form
provided in the Company's Bylaws to the Secretary of the Company not less than
60 or more than 90 days prior to the date of the annual meeting of stockholders,
but if less than 60 days notice of the date of the annual meeting is given to
the stockholders, notice of proposed business must be given not later than the
tenth day following the day on which the notice of the date of the annual
meeting is mailed. At a special meeting of stockholders, only such business as
is specified in the notice of such special meeting given by or at the direction
of the person or persons calling such meeting is permitted to come before the
meeting. The limitations on procedures to bring business before the annual
meeting of stockholders do not restrict a stockholder's right to include
proposals in proxy material pursuant to rules promulgated under the Securities
Exchange Act. The purpose of requiring advance notice is to afford the Board of
Directors an opportunity to consider the merits of the business proposed to be
brought before the meeting and, to the extent deemed necessary or desirable by
the Board of Directors, to inform stockholders about those matters.
Election of Directors. The Company's Certificate of Incorporation does
not contain a provision permitting cumulative voting for the election of
directors. The holders of more than 50% of the common stock voting upon the
election of directors, therefore, may be able to elect all of the directors to
be elected at a meeting of the stockholders of the Company. The directors of the
Company are elected annually and serve until their successors are elected and
qualified.
Dividends. Holders of shares of common stock are entitled to receive
dividends when, as, and if the Board of Directors declares such dividends from
funds legally available for that purpose. Since inception, the Company has not
paid any dividends. Moreover, under the terms of the PIK Note indenture and the
Loan Agreement, the Company may not pay any dividends (other than stock
dividends) on the common stock, nor purchase, redeem or otherwise acquire or
retire for value any common stock, until the obligations thereunder are repaid.
Other Rights. Upon liquidation, the holders of common stock are
entitled to share on a pro rata basis in the net assets of the Company after
payment of any and all amounts due to creditors and holders of any preferred
stock. The holders of common stock have no preemptive, redemption or conversion
rights.
Change in Control Provisions. The Company is not currently subject to
the provisions of Section 203 of the Delaware GCL because the common stock is
not listed on a national securities exchange, authorized for quotation on the
NASDAQ Stock Market or held of record by more than 2,000 stockholders. However,
Section 203 will become applicable to the Company once the common stock is
listed on the American Stock Exchange. In general, Section 203 provides that a
Delaware corporation may not, for a period of three years after a person becomes
an "interested stockholder" (defined generally as a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
a corporation's outstanding voting stock), engage in any of a broad range of
business combinations (which may include stock issuances) with a person or
affiliate or associate of such person who is such "interested stockholder"
unless certain board or shareholder approvals are obtained. Stockholders that
beneficially received 15% or more of the common stock in the Company's
reincorporation merger in November 1996, however, will not be subject to the
provisions of Section 203 should they become applicable to the Company, and as a
consequence business combinations with such stockholders will not be limited by
Section 203. Certain of such stockholders also hold a substantial amount of the
Company's outstanding PIK Notes. See "Security Ownership of Certain Beneficial
Owners and Management" and "Certain Relationships and Related Transactions" in
the Company Reports, which are incorporated by reference.
TRANSFER RESTRICTIONS
The Company's certificate of incorporation contains restrictions on the
transfer of shares of common stock (the "Transfer Restrictions") that are
designed to restrict direct and indirect transfers that could result in the
imposition of limitations on the use by the Company, for federal income tax
purposes, of its NOLs and other tax attributes. Section 382 of the Internal
Revenue Code limits the use of losses and other tax benefits by a company that
has undergone an "ownership change" (as defined in the Internal Revenue Code).
Generally, an ownership change occurs if one or more stockholders, each of whom
owns 5% or more in value of a company's capital
21
<PAGE> 23
stock, increase their aggregate percentage ownership by more than 50 percentage
points over the lowest percentage of stock owned by such stockholders over the
preceding three-year period. For this purpose, all holders who each own less
than 5% of a company's capital stock are generally treated together as one or
more 5% stockholders. In addition, certain constructive ownership rules, which
generally attribute ownership of stock to the ultimate beneficial owner thereof
without regard to ownership by nominees, trusts, corporations, partnerships or
other entities, or to related individuals, are applied in determining the level
of stock ownership of a particular stockholder. Special rules can also result in
the treatment of options (including warrants) as exercised in certain
circumstances. All percentage determinations are based on the fair market value
of a company's capital stock.
If an ownership change were to occur, the amount of taxable income in
any year (or portion of a year) subsequent to the ownership change that could be
offset by NOLs or other carryovers existing (or "built-in") prior to such
ownership change could not exceed the product obtained by multiplying (i) the
aggregate value of the outstanding common stock immediately prior to the
ownership change (with certain adjustments) by (ii) the federal long-term tax
exempt rate (5.02% for ownership changes occurring during November 1998).
Because the value of the outstanding common stock, as well as the federal
long-term tax-exempt rate, fluctuate, it is impossible to predict with any
accuracy the annual limitation upon the amount of taxable income of the Company
that could be offset by such NOLs or other items if an ownership change were to
occur. The Company would incur a corporate-level tax (current maximum federal
rate of 35%) on any taxable income during a given year in excess of the
Company's NOL limitation. While the NOLs not used as a result of this limitation
remain available to offset taxable income for up to 15 years from the year when
the NOLs were generated, an ownership change, under certain circumstances, would
significantly defer the utilization of the NOLs, accelerate the payment of
federal income tax, cause a portion of the NOLs to expire prior to their use and
reduce stockholders' equity (or increase stockholders' deficit).
The Transfer Restrictions generally restrict until 2011 (or earlier in
certain events) any direct or indirect transfer of common stock that would (i)
except as provided below, increase to more than 4.75% the percentage ownership
of common stock of any person who at any time during the preceding three-year
period did not own more than 4.75% of the common stock, (ii) except as provided
below, increase the percentage of common stock owned by any person that during
the preceding three-year period owned more than 4.75% of the common stock, or by
any group of persons treated as a "5% shareholder" (as defined in the Internal
Revenue Code, but substituting "4.75%" for "5 percent") (hereafter referred to
as a "4.75% Shareholder") or (iii) cause an ownership change of the Company
within the meaning of Section 382.
Generally, the Transfer Restrictions contain several exceptions. For
example, the restrictions will not prevent a transfer if, in the determination
of the Board of Directors, the transfer will not result in an aggregate increase
in the ownership of its capital stock by 4.75% Shareholders over a three-year
period for purposes of Section 382. As an illustration, this exception will
permit a stockholder who owns less than 4.75% of the common stock to transfer
shares of common stock to any other stockholder who (after giving effect to the
transfer) owns 4.75% or less of the common stock. Similarly, the Transfer
Restrictions will not apply to any transfer if, as a result of the transfer and
in the determination of the Board of Directors, the aggregate increase in the
ownership of the Company's capital stock by 4.75% Shareholders over a three-year
period does not exceed 35%. Also, the restrictions will not prevent a transfer
if the purported transferee obtains the approval of the Board of Directors,
which approval may be granted or withheld in the sole and absolute discretion of
the Board of Directors, after considering all facts and circumstances including
but not limited to future events deemed by the Board of Directors to be
relevant. Finally, transfers will be prohibited only with respect to the amount
of the common stock purportedly transferred in excess of the threshold
established in the Transfer Restrictions.
The Transfer Restrictions will apply differently over time. The Company
believes that the aggregate percentage increase in the ownership of its capital
stock by 5 percent shareholders (within the meaning of Section 382) over the
three-year period ending on September 30, 1998, was as much as 35.6%. Therefore,
all transactions (other than the exercise of the outstanding warrants and
certain options) that would increase the aggregate percentage increase owned by
4.75% Shareholders are currently subject to the Transfer Restrictions.
The application of the Transfer Restrictions to any particular
stockholder will depend on the stockholder's ownership of Company capital stock,
determined after applying numerous attribution rules,
22
<PAGE> 24
and will also depend on the history of trading of the Company's capital stock.
As a result, stockholders are urged to consult their tax advisors prior to any
purchase or sale of common stock.
Transfers included under the Transfer Restrictions include sales to
persons who would exceed the thresholds discussed above, or to persons whose
ownership of shares would by attribution cause another person to exceed such
thresholds. Numerous rules of attribution, aggregation and calculation
prescribed under the Internal Revenue Code (and related regulations) will be
applied in determining whether the 4.75% threshold has been met and whether a
group of less than 4.75% Shareholders will be treated as a "public group" that
is a 4.75% Shareholder. As a result of these attribution rules, a change in the
relationship between two or more persons or entities, or a transfer of an
interest other than the common stock, such as an interest in an entity that,
directly or indirectly, owns the common stock may result in the common stock
owned by a stockholder being subject to the remedial provisions, as described
below. The Transfer Restrictions (or in some cases contractual provisions
incorporating the Transfer Restrictions) may also apply to proscribe the
creation or transfer of certain "options" (which are broadly defined) in respect
of the common stock to the extent, generally, that exercise of the option would
result in a proscribed level of ownership.
The Board of Directors has issued instructions to or made arrangements
with the transfer agent of the Company to implement the Transfer Restrictions.
The Transfer Restrictions provide that the transfer agent shall not record any
transfer of the common stock purportedly transferred in excess of the threshold
established in the Transfer Restrictions. The transfer agent also has the right,
prior to and as a condition to registering any transfers of the common stock on
the stock transfer records, to request an affidavit from the purported
transferee of the common stock regarding such purported transferee's actual and
constructive ownership of the common stock. If, after requesting such an
affidavit, the transfer agent does not receive an affidavit or the affidavit
evidences that the transfer would violate the Transfer Restrictions, the
transfer agent is required to notify the Company and not enter the transfer in
the stock transfer records. These provisions may result in the delay or refusal
of certain requested transfers of the common stock.
It is the intention of the Transfer Restrictions that any direct or
indirect transfer of common stock attempted in violation of the restrictions
would be void ab initio as to the purported transferee, and the purported
transferee would not be recognized as the owner of the shares owned in violation
of the restrictions for any purpose, including for purposes of voting and
receiving dividends or other distributions in respect of such common stock, or
in the case of options subject to the Transfer Restrictions, receiving common
stock in respect of their exercise. common stock purportedly acquired in
violation of the Transfer Restrictions is referred to as "Excess Common Stock."
Excess Common Stock is automatically transferred to a trustee effective
as of the close of business on the business day prior to the date of the
violative transfer. As soon as practicable following the receipt of notice from
the Company that Excess Common Stock was transferred to the trustee, the trustee
is required to sell such Excess Common Stock in an arms-length transaction that
would not constitute a violation under the Transfer Restrictions. The net
proceeds of the sale, after deduction, of all costs incurred by the Company, the
transfer agent, and the trustee, will be distributed first to the purported
transferee in an amount equal to the lesser of such proceeds or the cost
incurred by the stockholder to acquire such Excess Common Stock, and the balance
of the proceeds, if any, will be distributed to a charitable beneficiary
together with any other distributions with respect to such Excess Common Stock
received by the trustee. If the Excess Common Stock is sold by the purported
transferee, such person will be treated as having sold the Excess Common Stock
as an agent for the trustee, and shall be required to remit all proceeds to the
trustee (less, in certain cases, an amount equal to the amount such person
otherwise would have been entitled to retain had the trustee sold such shares).
Pending such sale, any dividends or other distributions paid prior to discovery
by the Company that the Excess Common Stock has been transferred to the trustee
are treated as held by the purported transferee as agent for the trustee and
must be paid to the trustee upon demand, and any dividends or other
distributions declared but unpaid after such time shall be paid to the trustee.
Votes cast by a purported transferee with respect to Excess Common Stock prior
to the discovery by the Company that the Excess Common Stock was transferred to
the trustee will be rescinded as void and recast in accordance with the desire
of the trustee acting for the benefit of the charitable beneficiary. The trustee
shall have all rights of ownership of the Excess Common Stock.
Special provisions apply where the violative transfer involves a
transfer by a 4.75% Shareholder, which are designed to continue to treat such
4.75%
23
<PAGE> 25
Shareholders as owning the shares transferred. In such case, the Company
must attempt to locate the person or public group that purchased the Excess
Common Stock, and if such person or public group can be located, the Excess
Common Stock will be required to be returned (together with any distributions
received thereon) to the transferor, and the transferor will be required to
return the purchase price, together with all other losses, damages, costs and
expenses incurred by that purchaser, to the purchaser. If the Company is unable
to locate the purchaser within 90 days, the Company is required (to the extent
permitted under its debt instruments) to purchase common stock in a manner that
would reduce the ownership of the person or public group whose ownership
increased as a result of the prohibited transfer and to hold such common stock
on behalf of the 4.75% Shareholder that transferred the Excess Common Stock in
violation of the Transfer Restrictions. In such case, the 4.75% Shareholder will
be treated as the owner of the Excess Common Stock for all purposes, and amounts
incurred by the Company to finance the purchase of such Excess Common Stock will
be treated as a loan to such stockholder, with interest at the "applicable
federal rate" under Section 1274(d) of the Internal Revenue Code.
If the violative transaction results from indirect ownership of common
stock, the Transfer Restrictions provide a mechanism that is intended to
invalidate the ownership of the common stock actually owned by the violating
stockholder and any persons within such stockholder's control group. Only if
such provisions will not be effective to prevent a violation of the Transfer
Restrictions will ownership of common stock by other persons be invalidated
under the Transfer Restrictions.
Notwithstanding the Transfer Restrictions, there remains a risk that
certain transfers of common stock not restricted by the Transfer Restrictions
(or, although otherwise restricted, permitted by the Board of Directors) and/or
certain changes in relationships among stockholders or other events could cause
an ownership change. Changes in the relationships of holders of common stock
could cause changes in ownership of common stock through the application of the
attribution rules discussed above, and therefore could also trigger an ownership
change causing a loss of NOLs. There also can be no assurance, in the event
transfers in violation of the Transfer Restrictions are attempted, that the
Internal Revenue Service will not assert that such transfers have federal income
tax significance notwithstanding the Transfer Restrictions. In addition, the
Transfer Restrictions will not apply to the exercise of outstanding warrants and
options to purchase common stock (including the 1991 or 1992 Warrants and the
1994 Warrants) and may not apply to certain exercises of a portion of the
options under the stock option agreement with the Company's Chief Executive
Officer that occur at the end of its term.
The Board of Directors has the discretion to approve a transfer of
stock that would otherwise violate the Transfer Restrictions upon the prior
written request of a stockholder to the Board of Directors. In addition, the
Board of Directors has the power to waive any of the Transfer Restrictions in
any instance where it determines that a waiver would be in the best interests of
the Company notwithstanding the effect of such waiver on the NOLs or other tax
attributes. If the Board of Directors permits a transfer that would otherwise
violate the Transfer Restrictions, that transfer or later transfers may result
in an ownership change that would limit the use of the tax attributes of the
Company. The Board of Directors intends to consider any such attempted transfer
individually and determine at the time whether it is in the best interests of
the Company, after consideration of any factors that the Board deems relevant
(including possible future events), to permit such transfer notwithstanding that
an ownership change may occur.
The Board of Directors also has the power to accelerate or extend the
expiration date of the Transfer Restrictions, modify the definitions of any
terms set forth therein or conform certain provisions to make them consistent
with any future changes in federal tax law, in the event of a change in law or
regulation or if it otherwise believes such action is in the best interests of
the Company, provided the Board of Directors determines in writing that such
action is necessary or desirable to preserve the NOLs or other tax attributes or
that continuation of the Transfer Restrictions is no longer reasonably necessary
for the preservation of the NOLs or other tax attributes. In addition, the Board
of Directors has the power to adopt Bylaws, regulations and procedures, not
inconsistent with the Transfer Restrictions, for purposes of determining whether
any acquisition of common stock would jeopardize the ability of the Company to
preserve and use the NOLs or other tax attributes and for the orderly
application, administration and implementation of the Transfer Restrictions. The
Board of Directors will also have the exclusive power and authority to
administer, interpret and make calculations under the Transfer Restrictions,
which actions shall be final and binding on all parties if made in good faith.
24
<PAGE> 26
As a result of the foregoing, the Transfer Restrictions serve to
reduce, but do not eliminate, the risk that Section 382 will cause the
limitations described above on the use of NOLs or other tax attributes of the
Company. The Transfer Restrictions (i) may have the effect of impeding the
attempt of a person or entity to acquire a significant or controlling interest
in the Company, (ii) may render it more difficult to effect a merger or similar
transaction even if such transaction is favored by a majority of the independent
stockholders and (iii) may serve to make a change in management more difficult.
Management does not presently intend to adopt any anti-takeover measures, and
the Company believes that the tax benefits of the Transfer Restrictions outweigh
the negative aspects of any anti-takeover effects they may have.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated federal
income tax consequences with respect to the ownership and disposition of the
common stock. This discussion is general in nature, and does not discuss all
aspects of federal income taxation that may be relevant to a particular investor
in light of the investor's particular circumstances, or to certain types of
investors subject to special treatment under federal income tax laws (such as
individual retirement accounts, insurance companies, tax-exempt organizations,
financial institutions, brokers, dealers, foreign entities, and taxpayers that
are neither citizens nor residents of the United States). In addition, the
discussion does not consider the effect of any foreign, state, local, or other
tax laws, or any United States tax consequences other than income tax (e.g.,
estate or gift tax) consequences, that may be applicable to particular
investors. The summary is based upon the Internal Revenue Code and applicable
Treasury Regulations (including proposed regulations), rulings, administrative
pronouncements and decisions as of the date hereof, all of which are subject to
change or differing interpretations at any time and in some circumstances with
retroactive effect.
THE COMPANY URGES EACH PURCHASER OF COMMON STOCK TO CONSULT ITS OWN TAX
ADVISOR TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES TO IT OF THE OWNERSHIP AND DISPOSITION OF THE COMMON STOCK.
DIVIDENDS
Dividend distributions with respect to the shares of common stock
should constitute dividends for federal income tax purposes to the extent of the
Company's current and accumulated earnings and profits (as computed for federal
income tax purposes). Accordingly, distributions should qualify to that extent
for the dividends received deduction for corporations as set forth in Section
243 of the Internal Revenue Code. Distributions in excess of current and
accumulated earnings and profits will be treated as a tax-free return of capital
(reducing the holder's tax basis in the shares of common stock) to the extent of
the holder's basis in such shares, and as long-term or short-term capital gain,
as the case may be (assuming such shares are held as capital assets),
thereafter. Holders receiving distributions on the shares of common stock also
may be affected by the taxable income limitations set forth in Section 246(b),
the holding period requirements of Section 246(c), the debt-financed portfolio
stock limitations of Section 246A, and the "extraordinary dividend" rules of
Section 1059 of the Internal Revenue Code. Holders should consult their tax
advisors in order to determine the application of these provisions. The PIK Note
indenture and the Loan Agreement prohibit dividend payments on the common stock.
SALE OR EXCHANGE
Upon a sale or exchange of common stock, the holder generally
recognizes income or loss equal to the amount of cash plus the fair market value
of any property received over the holder's adjusted tax basis in the common
stock sold or exchanged. Assuming the holder held the common stock as a capital
asset, the income or loss will generally be capital gain or loss, and will be
long-term capital gain or loss if the holder's holding period for the common
stock exceeds one year at the time of sale. Any sale proceeds attributable to
dividends will be taxed in accordance with the rules discussed in the preceding
paragraph.
BACKUP WITHHOLDING
Under the Internal Revenue Code, a holder of common stock may be
subject, under certain circumstances, to "backup withholding" at a rate of 31%
with respect to payments in respect of dividends on the common stock. This
withholding generally applies only if the holder (i) fails to furnish his or its
social security or other taxpayer identification number ("TIN"), (ii) furnishes
an incorrect TIN, (iii) is notified by the Internal Revenue Service that
25
<PAGE> 27
he or it has failed to report properly payments of interest and dividends and
the Internal Revenue Service has notified the Company that he or it is subject
to backup withholding, or (iv) fails, under certain circumstances, to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
his or its correct number and that he or it is not subject to backup
withholding. Any amount withheld from a payment to a holder under the backup
withholding rules does not constitute additional tax, and is allowable as a
credit against such holder's federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service. Holders of
common stock should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
EXPERTS
The consolidated financial statements incorporated by reference in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon
for the Company by Gibson, Dunn & Crutcher LLP, Dallas, Texas.
26
<PAGE> 28
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THOUSAND TRAILS, INC.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THOUSAND TRAILS, INC. SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------
THOUSAND TRAILS, INC.
416,179
SHARES OF
COMMON STOCK
PROSPECTUS
DATED DECEMBER 9, 1998
<PAGE> 29
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses (other than registration fees) are estimated;
however, they include amounts expended in connection with pre-effective filings.
None of them is to be paid by the Selling Security Holders. The Registrant
anticipates that it will incur additional expenses in connection with any
post-effective amendments to the Registration Statement and any supplements to
the Prospectus included therein:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...... $532
Blue Sky fees and expenses............................... 20,000
Printing ................................................ 12,000
Accountants' fees and expenses........................... 9,000
Legal fees and expenses.................................. 35,000
Miscellaneous............................................ 1,968
Total........................................... $78,500
=======
</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's contributions to the
Indemnification Trusts, net amounts returned to the Registrant, total $804,000
as of June 30, 1998. Pursuant to the trust agreements, interest on the
Indemnification Trusts corpus becomes part of the trust estate.
The Indemnification Trusts will terminate on the earlier of: (i) the
execution by a majority of the beneficiaries of a written instrument terminating
the trusts, (ii) the exhaustion of the entire trust estate, or (iii) the
expiration of ten years from the establishment of the trusts. The
Indemnification Trusts may not terminate, however, if there is pending or
threatened litigation with respect to a claim by a beneficiary against the
Indemnification Trust, until: (i) a final judgment in such proceeding, (ii) the
execution and delivery of a statement by such beneficiary that assertion of a
threatened claim is unlikely, or (iii) the expiration of all applicable statutes
of limitations. The Registrant possesses a residuary interest in the trust
estates upon termination of the Indemnification Trusts.
Section 145 of the Delaware Corporate Law provides that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement 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
II-1
<PAGE> 30
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, has indemnification obligations to its directors
and officers.
ITEM 16. EXHIBITS
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 USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
2.2 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).
2.3 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 filed with the SEC for the year ended June 30,
1996, File No. 0-19743).
2.4 Private Placement Memorandum by the Company 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 the Company's Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
2.5 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 filed with the SEC for the
year ended June 30, 1996, File No. 0-19743).
II-2
<PAGE> 31
2.6 Supplement to the Private Placement Memorandum, dated July 15,
1996 (incorporated by reference to the Company's Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996,
File No. 0-19743).
2.7 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")).
2.8 Offer to Purchase for Cash the Company's 12% Senior Subordinated
Pay-In-Kind Notes Due 2003, dated as of May 20, 1997 (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed with the SEC on July 8, 1997, File No. 0-19743).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the proxy statement/prospectus filed
with the SEC on October 3, 1996 as part of the S-4 Registration
Statement).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Form 8-B filed by the Registrant
with the SEC on November 27, 1996, File No. 0-19743).
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 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).
4.6 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).
5.1** Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant,
as to the validity of the securities being registered.
10.1 Credit Agreement, dated as of December 31, 1991, between 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).
II-3
<PAGE> 32
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 Fourth Amendment to Credit Agreement, dated as of June 10, 1998,
between the Company and NACO (incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 0-19743).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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. 33-57l261 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 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).
10.13 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).
II-4
<PAGE> 33
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997, File No.
0-19743).
10.20 Third Amendment to Loan and Security Agreement dated as of January
5, 1998, between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, File No. 0-19743).
10.21 Fourth Amendment to Loan and Security Agreement, dated as of June
10, 1998, between the Company and Foothill (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
10.22 Fifth Amendment to Loan and Security Agreement, dated as of
September 15, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-19743).
10.23 Sixth Amendment to Loan and Security Agreement, dated as of
October 21, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-19743).
10.24 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).
10.25 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).
10.26 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).
10.27 Consent and First Amendment to Pledge and Security Agreement,
dated as of October 31, 1997, between certain subsidiaries of the
Company and Foothill Capital Corporation (incorporated by
II-5
<PAGE> 34
reference to exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, File No. 0-19743).
10.28 Form of Mortgage, dated as of July 10, 1996, to grant liens to
Foothill Capital Corporation to secure the Company's obligations
under the Loan 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).
10.29 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 Loan 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).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
10.35 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).
10.36 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).
10.37 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).
10.38 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).
II-6
<PAGE> 35
10.39 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).
10.40 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).
10.41 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 RPL 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).
10.42 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 l0-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).
10.43 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).
10.44 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).
10.45 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).
10.46 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).
10.47 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).
10.48 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).
II-7
<PAGE> 36
10.49 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).
10.50 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).
10.51 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).
10.52 Supplement No. 1 to Grantor Trust Agreement, dated as of July 16,
1996, by USTrails in favor of Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.) supplementing the
Old Trails Trust Agreement (incorporated by reference to Exhibit
10.44 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-19357, originally filed with the SEC on
January 7, 1997).
10.53 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 10.44 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).
10.54 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).
10.55 Supplement to Grantor Trust Agreement, dated as of January 22,
1998, between NACO and a majority of the persons presently named
as beneficiaries under the Grantor Trust Agreement, dated as of
September 30, 1991, between NACO and Union Bank of California,
N.A., as Trustee (incorporated by reference to exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.56 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).
10.57 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).
10.58 Supplement to Grantor Trust Agreement, dated as of November 20,
1996, by the Company in favor of Union Bank (incorporated by
reference to Exhibit 10.43 to the Form 8-B filed by the Company
with the SEC on November 27, 1996, File No. 0-19743).
10.59 Supplement No. 2 to Grantor Trust Agreement, dated as of January
22, 1998, between the Company and a majority of the persons
presently named as beneficiaries under the Grantor Trust
Agreement, dated as of May 8, 1991, as supplemented, between the
Company and Union Bank of California, N.A., as Trustee
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form l0-Q for the quarter ended March 31,
1998, File No. 0-19743).
10.60 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).
II-8
<PAGE> 37
10.61 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).
10.62 Agreement for the Thousand Trails, Inc. Non-Qualified Deferred
Compensation Plan, effective April 23, 1998 (incorporated by
reference to Exhibit 10.56 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
10.63 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).
10.64 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).
10.65 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).
10.66 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).
10.67 Sample form of current Membership Contract (incorporated by
reference to Exhibit 10.61 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, 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, 1998, File No.
0-19743).
13.1* The Company's Annual Report on Form 10-K for the year ended June
30, 1998 (without exhibits).
13.2* The Company's Annual Report on Form 10-K/A for the year ended June
30, 1998 (without exhibits).
13.3* The Company's Proxy Statement for the 1998 Annual Meeting of the
Company filed on October 27, 1998 (without exhibits).
13.4* The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (without exhibits).
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, 1998, File No. 0-19743).
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see signature page of this Registration
Statement, as filed on March 3, 1997).
99.1** Form of Compliance Agreement between the Registrant and Selling
Security Holders.
99.2** Supplement to Compliance Agreement between the Registrant and
Selling Security Holders.
99.3** Additional Supplement to Compliance Agreement between the
Registrant and Selling Security Holders.
* Filed herewith.
** Previously Filed.
II-9
<PAGE> 38
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> 39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, Thousand Trails, Inc., a Delaware corporation, has duly caused
this Post-Effective Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on December 8, 1998.
THOUSAND TRAILS, INC.,
A DELAWARE CORPORATION
By: /s/ William J. Shaw
--------------------------------------
Name: William J. Shaw
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to Registration Statement has been signed by the
following persons in the capacities indicated on December 8, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William J. Shaw Director, Chairman of the Board, President and Chief
------------------------------- Executive Officer (principal executive officer and
William J. Shaw acting chief financial officer)
/s/ Bryan Reed Chief Accounting Officer (principal accounting officer)
-------------------------------
Bryan Reed
/s/ Andrew M. Boas* Director
-------------------------------
Andrew M. Boas
/s/ William P. Kovacs* Director
-------------------------------
William P. Kovacs
/s/ Donald R. Leopold* Director
-------------------------------
Donald R. Leopold
/s/ H. Sean Mathis* Director
-------------------------------
H. Sean Mathis
/s/ Douglas K. Nelson* Director
-------------------------------
Douglas K. Nelson
*By: /s/ William J. Shaw
--------------------------
William J. Shaw
Attorney-in-Fact
</TABLE>
II-11
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
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 USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992, File No. 0-19743).
2.2 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).
2.3 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 filed with the SEC for the year ended June 30, 1996, File
No. 0-19743).
2.4 Private Placement Memorandum by the Company 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 the Company's
Annual Report on Form 10-K filed with the SEC for the year ended June 30, 1996, File No. 0-19743).
2.5 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 filed with the SEC for the year ended June
30, 1996, File No. 0-19743).
2.6 Supplement to the Private Placement Memorandum, dated July 15, 1996 (incorporated by reference to the
Company's Annual Report on Form 10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
2.7 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")).
2.8 Offer to Purchase for Cash the Company's 12% Senior Subordinated Pay-In-Kind Notes Due 2003, dated as
of May 20, 1997 (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form
8-K filed with the SEC on July 8, 1997, File No. 0-19743).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to the proxy
statement/prospectus filed with the SEC on October 3, 1996 as part of the S-4 Registration
Statement).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Form
8-B filed by the Registrant with the SEC on November 27, 1996, File No. 0-19743).
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).
</TABLE>
1
<PAGE> 41
<TABLE>
<S> <C>
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 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).
4.6 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).
5.1** Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant, as to the validity of the
securities being registered.
10.1 Credit Agreement, dated as of December 31, 1991, between 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 Fourth Amendment to Credit Agreement, dated as of June 10, 1998, between the Company and NACO
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 0-19743).
10.5 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).
10.6 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).
10.7 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
</TABLE>
2
<PAGE> 42
<TABLE>
<S> <C>
Company's Registration Statement No. 33-73284 on Form S-2, originally filed with the SEC on December
22, 1993, File No. 0-19743).
10.8 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).
10.9 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).
10.10 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).
10.11 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.
33-57l261 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 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
</TABLE>
3
<PAGE> 43
<TABLE>
<S> <C>
10.17 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).
10.18 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).
10.19 Second Amendment to Loan and Security Agreement dated as of December 23, 1997, between the Company
and Foothill (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997, File No. 0-19743).
10.20 Third Amendment to Loan and Security Agreement dated as of January 5, 1998, between the Company and
Foothill Capital Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, File No. 0-19743).
10.21 Fourth Amendment to Loan and Security Agreement, dated as of June 10, 1998, between the Company and
Foothill (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1998, File No. 0-19743).
10.22 Fifth Amendment to Loan and Security Agreement, dated as of September 15, 1998, between the Company
and Foothill Capital Corporation (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-19743).
10.23 Sixth Amendment to Loan and Security Agreement, dated as of October 21, 1998, between the Company and
Foothill Capital Corporation (incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-19743).
10.24 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).
10.25 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).
10.26 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).
10.27 Consent and First Amendment to Pledge and Security Agreement, dated as of October 31, 1997, between
certain subsidiaries of the Company and Foothill Capital Corporation (incorporated by reference to
exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
File No. 0-19743).
10.28 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill Capital Corporation to secure
the Company's obligations under the Loan 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).
10.29 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
Loan Agreement with Foothill, and schedule of documents substantially identical to the form of
</TABLE>
4
<PAGE> 44
<TABLE>
<S> <C>
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).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
10.35 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).
10.36 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).
10.37 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).
10.38 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).
10.39 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).
10.40 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
</TABLE>
5
<PAGE> 45
<TABLE>
<S> <C>
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).
10.41 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 RPL 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).
10.42 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 l0-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).
10.43 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).
10.44 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).
10.45 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).
10.46 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).
10.47 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).
10.48 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).
10.49 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).
</TABLE>
6
<PAGE> 46
<TABLE>
<S> <C>
10.50 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).
10.51 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).
10.52 Supplement No. 1 to Grantor Trust Agreement, dated as of July 16, 1996, by USTrails in favor of Union
Bank of California, N.A. (formerly known as The Bank of California, N.A.) supplementing the Old
Trails Trust Agreement (incorporated by reference to Exhibit 10.44 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-19357, originally filed with the SEC on January 7, 1997).
10.53 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 10.44 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).
10.54 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).
10.55 Supplement to Grantor Trust Agreement, dated as of January 22, 1998, between NACO and a majority of
the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as of September
30, 1991, between NACO and Union Bank of California, N.A., as Trustee (incorporated by reference to
exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
File No. 0-19743).
10.56 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).
10.57 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).
10.58 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by the Company in favor of
Union Bank (incorporated by reference to Exhibit 10.43 to the Form 8-B filed by the Company with the
SEC on November 27, 1996, File No. 0-19743).
10.59 Supplement No. 2 to Grantor Trust Agreement, dated as of January 22, 1998, between the Company and a
majority of the persons presently named as beneficiaries under the Grantor Trust Agreement, dated as
of May 8, 1991, as supplemented, between the Company and Union Bank of California, N.A., as Trustee
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form l0-Q for the
quarter ended March 31, 1998, File No. 0-19743).
10.60 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).
</TABLE>
7
<PAGE> 47
<TABLE>
<S> <C>
10.61 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).
10.62 Agreement for the Thousand Trails, Inc. Non-Qualified Deferred Compensation Plan, effective April 23,
1998 (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1998, File No. 0-19743).
10.63 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).
10.64 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).
10.65 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).
10.66 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).
10.67 Sample form of current Membership Contract (incorporated by reference to Exhibit 10.61 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1998, 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, 1998, File No.
0-19743).
13.1* The Company's Annual Report on Form 10-K for the year ended June 30, 1998 (without exhibits).
13.2* The Company's Annual Report on Form 10-K/A for the year ended June 30, 1998 (without exhibits).
13.3* The Company's Proxy Statement for the 1998 Annual Meeting of the Company filed on October 27, 1998
(without exhibits).
13.4* The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (without exhibits).
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, 1998, File No. 0-19743).
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see signature page of this Registration Statement, as filed on March 3, 1997).
99.1** Form of Compliance Agreement between the Registrant and Selling Security Holders.
99.2** Supplement to Compliance Agreement between the Registrant and Selling Security Holders.
</TABLE>
8
<PAGE> 48
<TABLE>
<S> <C>
99.3** Additional Supplement to Compliance Agreement between the Registrant and Selling Security Holders.
</TABLE>
- --------------
* Filed herewith.
** Previously filed.
9
<PAGE> 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, 1998
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
-------------- ---------------
<PAGE> 2
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 ]
At September 15, 1998, the latest practicable date, the aggregate market value
of voting common stock of the Registrant held by nonaffiliates was $16.1
million.
At September 15, 1998, there were 7,503,208 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 1998
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission (the "SEC") pursuant to Regulation 14A.
Page 2
<PAGE> 3
INDEX TO
ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Business.............................................................................4
Item 2. Properties..........................................................................13
Item 3. Legal Proceedings...................................................................19
Item 4. Submission of Matters to a Vote of Security-Holders.................................19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...............20
Item 6. Selected Financial Data.............................................................23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........................43
Item 8. Financial Statements and Supplementary Data.........................................44
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................................86
PART III
Item 10. Directors and Executive Officers of the Registrant..................................87
Item 11. Executive Compensation..............................................................87
Item 12. Security Ownership of Certain Beneficial Owners and Management......................87
Item 13. Certain Relationships and Related Transactions......................................87
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................88
Signature Page.......................................................................................100
</TABLE>
Page 3
<PAGE> 4
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
53 membership-based campgrounds located in 17 states and British Columbia,
Canada, serving 111,000 members as of June 30, 1998. Through its subsidiaries,
the Company also provides a reciprocal use program for members of approximately
325 recreational facilities and manages 130 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 LBJ
Freeway, Suite 200, Dallas, Texas 75234, its telephone number is (972) 243-2228,
and its home page on the Internet is www.1000trails.com.
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.
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 or the possible acquisition of members
through the purchase of other membership campground operations. 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 it
may be possible to acquire members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
The Company's membership base has been declining. In response to this decline,
the Company has downsized its business by closing and disposing of campgrounds
and decreasing campground operating costs and general and administrative
expenses. The Company intends to continue to keep the size of its campground
system in an appropriate relation to the size of its membership base. In this
regard, if the membership continues to
Page 4
<PAGE> 5
decline, the Company may 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 also intends to explore the possible acquisition of members through
the purchase of other membership campground organizations. 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 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 53
membership-based campgrounds located in 17 states and British Columbia, Canada.
The Company owns and operates a network of 32 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 53 campgrounds contain a total of
approximately 9,700 acres and 17,700 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, 1998, there were
approximately 73,000 campground members in the Thousand Trails system and 38,000
campground members in the NACO system. However, approximately 38% of the NACO
campground members and approximately 54% 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
Page 5
<PAGE> 6
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, 1998, the Company had 111,000 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 (excluding 1,800 members lost in connection
with the sale of two campgrounds in fiscal 1998). 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 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 $1,595 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $199 for
14 nights of use to $1,200 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 1998 and 1997, the Company sold approximately 2,900 and 3,400 new
memberships, respectively. The average sales price was $1,164 in fiscal 1998 and
$707 in fiscal 1997, and the average annual dues level was $377 in fiscal 1998
and $332 in fiscal 1997. During the past two fiscal years, the Company offered
financing for certain of its higher priced sales. The Company required a down
payment of at least 25% of the sales price and would finance the balance 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.
Page 6
<PAGE> 7
The Company has the capacity to sell approximately 66,000 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 fourth largest
participant sport/activity in the United States in 1997 with approximately 20%
of all households camping at least once a year. Sales of camping equipment
totaled $1.6 billion in 1997, up slightly from $1.5 billion annually in 1996 and
1995. In addition, although RV sales have been relatively flat over the last
several years, 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
generally from $100 to $600. 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 was $351 for
the year ended June 30, 1998, $344 for the year ended June 30, 1997, and $335
for the year ended June 30, 1996. 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
Page 7
<PAGE> 8
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 makes annual capital and maintenance
expenditures to maintain and improve the campgrounds. During fiscal 1998, the
Company spent $5.2 million on major maintenance, repairs, and capital
improvements at the campgrounds and anticipates that it will spend an additional
$4.7 million on such items in fiscal 1999. The Company may be required to spend
greater amounts on such items in future years as the facilities age.
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 325 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, 1998, there were approximately 96,000 RPI
members, of which approximately 80,000 were members of campgrounds that are not
affiliated with the Company.
CAMPGROUND MANAGEMENT. UST Wilderness Management Corporation ("Wilderness
Management"), a wholly owned subsidiary of the Company, manages 130 public
campgrounds for the US Forest Service containing a total of 3,300 campsites.
Pursuant to its management contracts with the US Forest Service, 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 five year terms.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns at eight
resorts located in seven states. NACO's interest in the resorts presently
consists of approximately 100 residential lots and other miscellaneous real
estate that NACO intends to sell over the next several years.
SEGMENT FINANCIAL INFORMATION
Segment financial information for the campground and resort operations is set
forth in Note 14 to the consolidated financial statements included in Item 8.
ASSET SALES
During fiscal 1998, 1997, and 1996, the Company sold certain of its real estate
assets and received proceeds of $8.6 million, $4.7 million, and $7.2 million,
respectively. During this three-year period, the Company sold the timeshare
operations at the resorts, the country club and golf operations at one resort,
and various other properties at the resorts.
Page 8
<PAGE> 9
In addition, the Company sold or otherwise disposed of various campgrounds and
sold unused buildings and trailers, and excess acreage associated with certain
campgrounds. 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 several 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.
When there are outstanding borrowings 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 such borrowings.
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 generally
from 9.5% to 16%, with a weighted average stated interest rate of 13% as of June
30, 1998. Monthly installment payments range generally from $34 to $223 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, 1998, 97% of the campground members and 99% of the 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 19
months.
As of June 30, 1998, the Company owned contracts receivable with an aggregate
principal balance of $6.8 million, consisting of $6.4 million of contracts
receivable associated with the campgrounds and $401,000 of contracts receivable
associated with the resorts (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Contracts Receivable " in Item
7).
When there are outstanding borrowings 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
such borrowings.
Page 9
<PAGE> 10
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 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
Page 10
<PAGE> 11
implementation of, and the benefits or recoveries that may be available from,
additional downsizing of the Company's business.
The government authorities regulating the Company's activities have broad
discretionary power to enforce and interpret the statutes and regulations that
they administer, including the power to enjoin or suspend sales activities,
require or restrict construction of additional facilities, and revoke licenses
and permits relating to business activities. The Company monitors its sales
presentations and debt collection activities to control practices that might
violate consumer protection laws and regulations or give rise to consumer
complaints. The Company believes that it has conducted its sales programs and
debt collection activities in substantial compliance with all applicable federal
and state laws and regulations.
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction
may affect the Company's portfolio of contracts receivable. Examples of such
laws include state and federal consumer credit and truth-in-lending laws
requiring the disclosure of finance charges, and usury and retail installment
sales laws regulating permissible finance charges. The Company believes that it
has complied in all material respects with these laws.
In certain states, as a result of government regulations and provisions in
certain of the membership agreements, the Company is prohibited from selling
more than 10 memberships per campsite. At the present time, these restrictions
do not preclude the Company from selling memberships in any state. However,
these restrictions may limit the Company's ability to downsize by closing
campgrounds and reassigning members to other campgrounds. In addition,
membership agreements or understandings, or governmental interpretations
thereof, may limit the Company's ability to expand or modify the type of
business activities conducted at the 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 15,000 privately owned 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 111,000 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.
Page 11
<PAGE> 12
and Thousand Adventures, Inc.) sells memberships to its system of 37
campgrounds, and Leisure Time Resorts, Inc. sells memberships to its system of
ten 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 higher level of service than is typically
available at public campgrounds or competing private campgrounds (see
"Marketing").
Wilderness Management competes directly with approximately four other companies
in bidding for contracts to manage public campgrounds for the US Forest Service.
Wilderness Management currently has contracts to manage 130 of the approximately
3,000 campgrounds operated for the US Forest Service by private companies.
Coast to Coast Resorts, RPI's primary competitor and the largest reciprocal use
system, has approximately 370 affiliated campgrounds and more than 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, 1998, the Company had 1,355 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.
Page 12
<PAGE> 13
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 53 campgrounds in 17 states and
British Columbia, Canada. The locations of these campgrounds are shown on the
map on page 15. The amenities presently available at each campground are listed
on the chart on page 16. The Company owns 52 of these campgrounds and leases the
LaConner campground and portions of the Lake Tawakoni and Snowflower
campgrounds. The Company has sold undivided interests to members at six of the
campgrounds. Of the 53 campgrounds, 25 operate all year, 21 operate year-round
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. The Company repaid all outstanding borrowings under the Credit
Agreement in January 1998, and it had no outstanding borrowings under the Credit
Agreement as of the date of this report. However, the Company has entered into
an amendment to the Credit Agreement that will provide the Company the
flexibility to borrow up to $35.0 million (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7). 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 approximately $28.0 million as of the date of this report. 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 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 and will remain unsecured until the amended Credit
Agreement terminates on July 17, 2002. However, if the Company has not repaid in
full or otherwise retired all of the PIK Notes by July 15, 2000, all borrowings
under the amended Credit Agreement in excess of $10.0 million will mature on
July 15, 2000, and up to $10.0 million of borrowings under the amended Credit
Agreement will be refinanced on such date and thereafter be available
Page 13
<PAGE> 14
to the Company for working capital purposes only. This $10.0 million working
capital facility will then become the Working Capital Replacement Facility
defined in the Indenture for the PIK Notes. Upon the termination of the amended
Credit Agreement, the PIK Notes will be secured by the same assets as then
secure the amended Credit Agreement other than cash and cash equivalents and
other assets required to secure a new Working Capital Replacement Facility,
which may provide borrowings for working capital purposes only up to $10.0
million in principal amount. Any new Working Capital Replacement Facility may be
secured by substantially all of the assets of the Company and its subsidiaries
other than certain excluded assets.
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 a foreclosure of liens on significant numbers of campgrounds
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 100 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 14
<PAGE> 15
THOUSAND TRAILS, INC.
CAMPGROUNDS
[A MAP OF THE UNITED STATES OF AMERICA WITH PLOT POINTS DEPICTING THOUSAND
TRAILS AND NACO CAMPGROUND LOCATIONS APPEARS HERE]
<TABLE>
<CAPTION>
* THOUSAND TRAILS CAMPGROUNDS * NACO CAMPGROUNDS
--------------------------- ----------------
<S> <C> <C> <C>
BRITISH COLUMBIA TEXAS WASHINGTON INDIANA
Cultus Lake Medina Lake Birch Bay Indian Lakes
Lake Conroe Little Diamond
WASHINGTON Colorado River Rainier VIRGINIA
LaConner Lake Whitney Long Beach Virginia Landing
Mount Vernon Lake Texoma
Chehalis Lake Tawakoni OREGON NEW JERSEY
Leavenworth South Jetty Chestnut Lakes
MICHIGAN
OREGON Saint Clair CALIFORNIA
Bend Lake Minden
Pacific City INDIANA Russian River
Horseshoe Lakes Snowflower
CALIFORNIA Turtle Beach
Lake of the Springs OHIO Yosemite
Morgan Hill Wilmington Windsor
San Benito Kenissee Lake Rancho Oso
Soledad Canyon Wilderness Lakes
Idyllwild PENNSYLVANIA
Pio Pico Hershey TEXAS
Oakzanita Springs Bay Landing
Palm Springs VIRGINIA
Lynchburg MISSISSIPPI
NEVADA Chesapeake Bay Indian Point
Las Vegas
NORTH CAROLINA SOUTH CAROLINA
ARIZONA Forest Lake Carolina Landing
Verde Valley
TENNESSEE
FLORIDA Natchez Trace
Orlando Cherokee Landing
</TABLE>
Page 15
<PAGE> 16
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAMPGROUND
FACILITIES AND
AMENITIES ACREAGE RV SITES TENT SITES ADULT LODGE FAMILY CENTER/PAVILION POOL TENNIS COURT ATHLETIC COURT VEHICLE STORAGE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THOUSAND TRAILS:
- ------------------------------------------------------------------------------------------------------------------------------------
BEND 93 300 10 1 1 2 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
CHEHALIS 306 278 1 1 2 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
CHESAPEAKE BAY 280 373 19 1 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
COLORADO RIVER 217 128 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
CULTUS LAKE 14 185 12 1 1 1 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
FOREST LAKE 205 294 12 1 1 2 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
HERSHEY 196 310 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
HORSESHOE LAKES 202 118 1 2 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
IDYLLWILD 181 287 38 1 1 1 3 1
- ------------------------------------------------------------------------------------------------------------------------------------
KENISEE LAKE 159 83 10 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LACONNER 106 313 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LAKE CONROE 130 285 1 1 1 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
LAKE OF THE SPRINGS 176 541 12 1 1 1 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
LAKE TAWAKONI 300 318 1 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LAKE TEXOMA 198 319 2 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LAKE WHITNEY 253 244 3 1 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LAS VEGAS 11 217 2 1 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
LEAVENWORTH 279 275 1 1 2 4 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
LYNCHBURG 150 223 1 1 1 2 6 1
- ------------------------------------------------------------------------------------------------------------------------------------
MEDINA LAKE 260 387 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
MORGAN HILL 62 317 28 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
MOUNT VERNON 185 248 3 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
OAKZANITA SPRINGS 118 121 30 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
ORLANDO 269 734 1 1 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
PACIFIC CITY 105 305 1 1 1 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
PALM SPRINGS 28 392 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
PIO PICO 182 453 12 1 1 2 5 3
- ------------------------------------------------------------------------------------------------------------------------------------
SAN BENITO 200 517 51 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
SOLEDAD CANYON 230 809 9 1 1 2 2 3 1
- ------------------------------------------------------------------------------------------------------------------------------------
SAINT CLAIR 110 110 8 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
VERDE VALLEY 300 333 6 2 1 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
WILMINGTON 109 125 1 1 1 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
NACO:
- ------------------------------------------------------------------------------------------------------------------------------------
BAY LANDING 305 257 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
BIRCH BAY 30 215 8 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
CAROLINA LANDING 119 193 1 2 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
CHEROKEE LANDING 55 341 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
CHESTNUT LAKE 31 179 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
INDIAN LAKES 545 1202 50 2 1 3 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
INDIAN POINT 11 157 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
LAKE MINDEN 97 162 161 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LITTLE DIAMOND 200 541 100 1 4 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LONG BEACH 17 120 20 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
NATCHEZ TRACE 623 561 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
RAINIER 107 609 300 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
RANCHO OSO 310 118 50 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
RUSSIAN RIVER 42 125 30 1
- ------------------------------------------------------------------------------------------------------------------------------------
SNOWFLOWER 720 248 10 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
SOUTH JETTY 60 162 10 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
TURTLE BEACH 39 72 120 1
- ------------------------------------------------------------------------------------------------------------------------------------
VIRGINIA LANDING 339 210 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
WILDERNESS LAKES 74 523 5 1 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
WINDSOR 17 95 25 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
YOSEMITE LAKES 387 379 131 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 16
<PAGE> 17
<TABLE>
<CAPTION>
TRAILERS
RESTROOMS/SHOWERS (Seasonal Availability) HORSESHOE PITS CHILDREN'S PLAY AREA TRADING POST MINIATURE GOLF
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THOUSAND TRAILS:
- ---------------------------------------------------------------------------------------------------------------------------------
BEND 6 17 4 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
CHEHALIS 8 9 7 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
CHESAPEAKE BAY 4 45 6 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
COLORADO RIVER 2 10 4 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
CULTUS LAKE 4 5 2 2 1
- ---------------------------------------------------------------------------------------------------------------------------------
FOREST LAKE 3 16 4 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
HERSHEY 3 38 4 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
HORSESHOE LAKES 2 11 4 10 1
- ---------------------------------------------------------------------------------------------------------------------------------
IDYLLWILD 6 35 4 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
KENISEE LAKE 2 2 2 1
- ---------------------------------------------------------------------------------------------------------------------------------
LACONNER 6 18 6 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LAKE CONROE 4 21 8 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LAKE OF THE SPRINGS 12 36 8 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LAKE TAWAKONI 5 22 8 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LAKE TEXOMA 6 17 6 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LAKE WHITNEY 5 22 8 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LAS VEGAS 3 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LEAVENWORTH 8 5 5 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LYNCHBURG 5 5 7 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
MEDINA LAKE 4 34 4 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
MORGAN HILL 7 24 4 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
MOUNT VERNON 6 5 4 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
OAKZANITA SPRINGS 2 13 4 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
ORLANDO 7 33 6 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
PACIFIC CITY 5 18 12 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
PALM SPRINGS 4 35 4 1
- ---------------------------------------------------------------------------------------------------------------------------------
PIO PICO 8 24 12 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
SAN BENITO 7 28 4 4 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
SOLEDAD CANYON 14 53 13 7 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
SAINT CLAIR 3 13 2 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
VERDE VALLEY 3 16 8 3 1
- ---------------------------------------------------------------------------------------------------------------------------------
WILMINGTON 2 13 2 2 1
- ---------------------------------------------------------------------------------------------------------------------------------
NACO:
- ---------------------------------------------------------------------------------------------------------------------------------
BAY LANDING 2 6 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
BIRCH BAY 3 13 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
CAROLINA LANDING 4 4 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
CHEROKEE LANDING 3 3 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
CHESTNUT LAKE 1 16 2 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
INDIAN LAKES 5 8 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
INDIAN POINT 2 3 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LAKE MINDEN 3 15 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
LITTLE DIAMOND 5 4 3 3 1
- ---------------------------------------------------------------------------------------------------------------------------------
LONG BEACH 2 6 2 2 1
- ---------------------------------------------------------------------------------------------------------------------------------
NATCHEZ TRACE 5 1 4 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
RAINIER 10 10 8 2 1
- ---------------------------------------------------------------------------------------------------------------------------------
RANCHO OSO 3 4 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
RUSSIAN RIVER 4 10 2
- ---------------------------------------------------------------------------------------------------------------------------------
SNOWFLOWER 11 7 3 1
- ---------------------------------------------------------------------------------------------------------------------------------
SOUTH JETTY 5 15 3 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
TURTLE BEACH 2 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
VIRGINIA LANDING 3 2 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
WILDERNESS LAKES 8 34 6 2 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
WINDSOR 1 7 3 1
- ---------------------------------------------------------------------------------------------------------------------------------
YOSEMITE LAKES 8 24 4 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 17
<PAGE> 18
<TABLE>
<CAPTION>
SHUFFLE BOARD SPA VOLLEYBALL BOAT LAUNCH/MARINA LAUNDRY FACILITY CABINS/LODGING
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THOUSAND TRAILS:
- -----------------------------------------------------------------------------------------------------------------
BEND 1 1 1 7
- -----------------------------------------------------------------------------------------------------------------
CHEHALIS 1 1 1 1 4
- -----------------------------------------------------------------------------------------------------------------
CHESAPEAKE BAY 2 1 1 1 1 18
- -----------------------------------------------------------------------------------------------------------------
COLORADO RIVER 1 1 2 1 1
- -----------------------------------------------------------------------------------------------------------------
CULTUS LAKE 2 1 1
- -----------------------------------------------------------------------------------------------------------------
FOREST LAKE 2 2 1 1 18
- -----------------------------------------------------------------------------------------------------------------
HERSHEY 1 1 1
- -----------------------------------------------------------------------------------------------------------------
HORSESHOE LAKES 2 1 1
- -----------------------------------------------------------------------------------------------------------------
IDYLLWILD 2 1 3 4
- -----------------------------------------------------------------------------------------------------------------
KENISEE LAKE 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------
LACONNER 3 1 1 1 1 17
- -----------------------------------------------------------------------------------------------------------------
LAKE CONROE 2 1 2 1 2
- -----------------------------------------------------------------------------------------------------------------
LAKE OF THE SPRINGS 1 1 1 1 3
- -----------------------------------------------------------------------------------------------------------------
LAKE TAWAKONI 8 2 2 1 1
- -----------------------------------------------------------------------------------------------------------------
LAKE TEXOMA 2 2 1 1 1 18
- -----------------------------------------------------------------------------------------------------------------
LAKE WHITNEY 2 1 2 1
- -----------------------------------------------------------------------------------------------------------------
LAS VEGAS 1 1 3
- -----------------------------------------------------------------------------------------------------------------
LEAVENWORTH 4 1 2 8
- -----------------------------------------------------------------------------------------------------------------
LYNCHBURG 2 1 2 1
- -----------------------------------------------------------------------------------------------------------------
MEDINA LAKE 4 1 2 1 1
- -----------------------------------------------------------------------------------------------------------------
MORGAN HILL 4 1 1
- -----------------------------------------------------------------------------------------------------------------
MOUNT VERNON 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------
OAKZANITA SPRINGS 2 1 1 1
- -----------------------------------------------------------------------------------------------------------------
ORLANDO 16 1 1 1 4
- -----------------------------------------------------------------------------------------------------------------
PACIFIC CITY 1 1 1 4
- -----------------------------------------------------------------------------------------------------------------
PALM SPRINGS 2 1 3
- -----------------------------------------------------------------------------------------------------------------
PIO PICO 8 2 2 2
- -----------------------------------------------------------------------------------------------------------------
SAN BENITO 6 2 2 1
- -----------------------------------------------------------------------------------------------------------------
SOLEDAD CANYON 8 1 4 1
- -----------------------------------------------------------------------------------------------------------------
SAINT CLAIR 1 1 1 2
- -----------------------------------------------------------------------------------------------------------------
VERDE VALLEY 2 1 1 1
- -----------------------------------------------------------------------------------------------------------------
WILMINGTON 2 1 1 1
- -----------------------------------------------------------------------------------------------------------------
NACO:
- -----------------------------------------------------------------------------------------------------------------
BAY LANDING 4 1 1 1 19
- -----------------------------------------------------------------------------------------------------------------
BIRCH BAY 1 1
- -----------------------------------------------------------------------------------------------------------------
CAROLINA LANDING 1 1 18
- -----------------------------------------------------------------------------------------------------------------
CHEROKEE LANDING 2 1 1 30
- -----------------------------------------------------------------------------------------------------------------
CHESTNUT LAKE 2 1 1
- -----------------------------------------------------------------------------------------------------------------
INDIAN LAKES 2 3 1 3 54
- -----------------------------------------------------------------------------------------------------------------
INDIAN POINT 1 1 1 16
- -----------------------------------------------------------------------------------------------------------------
LAKE MINDEN 1 1
- -----------------------------------------------------------------------------------------------------------------
LITTLE DIAMOND 2 2 1 1 1
- -----------------------------------------------------------------------------------------------------------------
LONG BEACH 1 1
- -----------------------------------------------------------------------------------------------------------------
NATCHEZ TRACE 1 1 1 58
- -----------------------------------------------------------------------------------------------------------------
RAINIER 1 1 1
- -----------------------------------------------------------------------------------------------------------------
RANCHO OSO 1 2 2
- -----------------------------------------------------------------------------------------------------------------
RUSSIAN RIVER 1 1
- -----------------------------------------------------------------------------------------------------------------
SNOWFLOWER 2 1 1 4
- -----------------------------------------------------------------------------------------------------------------
SOUTH JETTY 2 1 1
- -----------------------------------------------------------------------------------------------------------------
TURTLE BEACH 1 1 1
- -----------------------------------------------------------------------------------------------------------------
VIRGINIA LANDING 2 1 1 1 19
- -----------------------------------------------------------------------------------------------------------------
WILDERNESS LAKES 3 3 1 4
- -----------------------------------------------------------------------------------------------------------------
WINDSOR 1 1
- -----------------------------------------------------------------------------------------------------------------
YOSEMITE LAKES 1 1 2 32
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 18
<PAGE> 19
ITEM 3. LEGAL PROCEEDINGS
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
financial position, operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
Page 19
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET AND TRADING. On November 20, 1996, the Company, then known as USTrails,
reincorporated in the state of Delaware and changed its name to Thousand Trails,
Inc. From 1992 through November 20, 1996, the Company's common stock was
publicly traded in the over-the-counter market under the symbol USTQ. Since
November 20, 1996, the Company's common stock (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 for the Common Stock as quoted
through the NASD OTC Bulletin Board. 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 1998 AND 1997 APPEARS HERE]
<TABLE>
<CAPTION>
1998 1997
---------------------------------- -------------------------------
High Bid Low Bid High Bid Low Bid
------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
First Quarter 3 1/8 2 1/8 1 1/8 1/2
Second Quarter 5 3/8 3 1/8 1 5/16 15/16
Third Quarter 4 1/2 3 1/4 1 31/32 1 5/16
Fourth Quarter 4 1/4 3 1/2 2 7/16 1 3/4
</TABLE>
As of September 15, 1998, the Company's Common Stock was held by 97 holders of
record. Moreover, security position listings available to the Company listed
approximately 400 beneficial holders of Common Stock.
ABSENCE OF DIVIDENDS. Since inception, the Company has not paid any dividends.
The Credit Agreement prohibits the payment of any cash dividends on the Common
Stock without the consent of Foothill, until the Credit Agreement is terminated.
In addition, the
Page 20
<PAGE> 21
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 $26.9
million at June 30, 1998, 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.
Page 21
<PAGE> 22
The application of these transfer restrictions to any particular stockholder
will depend on the stockholder's ownership of Common Stock, determined after
applying numerous 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.
Page 22
<PAGE> 23
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 the
fiscal years indicated because for fiscal 1997 the Company 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,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- ---------- ----------
(Restated) (Restated) (Restated)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Total revenue $ 76,509 $ 78,413 $ 91,022 $ 91,392 $ 101,697
Campground membership dues 37,330 39,945 39,924 41,175 43,200
Other campground/resort revenues 16,475 17,906 22,288 23,506 23,524
Membership and resort interest sales 3,894 3,477 3,013 4,074 4,750
Interest income 2,635 3,726 6,756 9,935 12,202
Interest expense 4,599 9,084 17,693 20,960 21,446
Income (loss) from operations before taxes,
minority interest and extraordinary item 15,716 7,169 (240) (11,573) (5,338)
Extraordinary gain on debt repurchases -- -- 1,390 -- 671
Net income (loss) 24,879 6,799 1,109 (11,828) (5,417)
Dividends paid (1) -- -- -- -- --
Income (loss) per share data-basic (2):
Income (loss) before extraordinary item 3.36 .94 (.08) (3.19) (1.64)
Extraordinary item -- -- .38 -- .18
Net income (loss) 3.36 .94 .30 (3.19) (1.46)
Weighted average shares 7,407 7,223 3,703 3,703 3,703
Income (loss) per share data-diluted (2):
Income (loss) before extraordinary item 2.96 .88 (.08) (3.19) (1.64)
Extraordinary item -- -- .38 -- .18
Net income (loss) 2.96 .88 .30 (3.19) (1.46)
Weighted average shares 8,398 7,704 3,721 3,703 3,703
BALANCE SHEET DATA (AT END OF YEAR):
Cash and cash equivalents 13,631 1,343 37,403 50,596 50,596
Receivables, net 4,181 7,517 13,219 18,698 32,585
Campground properties 37,991 42,764 46,309 51,960 49,761
Resort properties 1,092 1,530 2,902 5,736 6,612
Total assets 74,262 63,302 111,631 137,517 149,546
PIK Notes, including deferred gain 32,973 29,393 -- -- --
Borrowings under Credit Agreement -- 14,097 -- -- --
Secured Notes, net of discount -- -- 94,350 115,490 110,854
Other notes payable -- 604 1,102 4,753 5,503
Stockholders' equity (deficit) 2,754 (22,168) (31,952) (33,054) (21,240)
STATISTICAL DATA (AT END OF YEAR):
Number of operating campgrounds 53 55 58 60 62
Number of campsites 17,700 18,400 19,300 19,400 20,000
Number of members 111,000 120,000 128,000 136,000 149,000
Average annual dues per member $ 351 $ 344 $ 335 $ 329 $ 315
Average cost per camper night $ 18.23 $ 18.13 $ 18.03 $ 19.69 $ 18.36
</TABLE>
(continued)
Page 23
<PAGE> 24
(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 by 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 49%
of the shares of Common Stock currently outstanding.
Page 24
<PAGE> 25
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, plans, and conditions for periods after June 30,
1998. 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, plans, and conditions for future periods
may differ materially due to several factors, including but not limited to the
Company's ability to control costs, campground market conditions and other
factors affecting the Company's 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
During the first quarter of fiscal 1998, the Staff of the Securities and
Exchange Commission (the "SEC") informed the Company that the SEC will now
require the Company, commencing with fiscal 1997, to recognize revenue from the
sale of campground memberships that do not convey a deeded interest in real
estate on a straight-line basis over the expected life of the memberships sold.
This new accounting method differs from the revenue recognition method
historically used by the Company for over 20 years. Accordingly, to show
comparable results for the periods presented, the consolidated statement of
operations for the year ended June 30, 1996, has been restated from that
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 has no impact on the Company's liquidity or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
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 or the possible acquisition of members
through the purchase of other membership campground operations. 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 it
may be possible to acquire members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
Page 25
<PAGE> 26
The Company's membership base has been declining. In response to this decline,
the Company has downsized its business by closing and disposing of campgrounds
and decreasing campground operating costs and general and administrative
expenses. The Company intends to continue to keep the size of its campground
system in an appropriate relation to the size of its membership base. In this
regard, if the membership base continues to decline, the Company may 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 also intends to
explore the possible acquisition of members through the purchase of other
membership campground organizations. 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 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. 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 (see "Borrowings").
CASH. On June 30, 1998, the Company had approximately $13.6 million of cash and
cash equivalents, an increase of $12.3 million during fiscal 1998. The Company's
primary sources of cash included $19.4 million provided by operations, $8.6 from
the sale of assets, and $1.1 million from the settlement of insurance claims.
Significant offsetting reductions to cash included $14.7 million of principal
repayments on the Company's outstanding debt and $2.1 million of capital
expenditures.
The Company's principal sources of operating cash for the year included $62.4
million of cash collected from operations, including dues collections, other
campground revenues, RPI membership fees, other operating revenues, and $1.3
million of insurance deposit refunds related to prior years. The Company also
received $5.8 million in principal collections on contracts receivable, $2.4
million in interest on contracts receivable and invested cash, and $3.7 million
from the sale of memberships and lots. The principal uses of operating cash for
fiscal 1998 were $37.9 million in operating expenses, $10.1 million in general
and administrative expenses (including corporate member services costs), and
$4.7 million in sales and marketing expenses. During fiscal 1998, the
Page 26
<PAGE> 27
Company also spent $2.1 million on capital improvements at the campgrounds, and
made principal payments on mortgages and other notes totaling $604,000.
The Company repaid all outstanding borrowings under the Credit Agreement in
January 1998, and it had no outstanding borrowings under the Credit Agreement as
of June 30, 1998, and as of the date of this report. However, the Company has
entered into an amendment to the Credit Agreement that will provide the Company
the flexibility to borrow up to $35.0 million (see "Borrowings - Credit
Agreement with Foothill").
Based upon its current business plan, the Company believes that future cash
flows provided from operations, asset sales, and borrowings available under the
amended Credit Agreement will be adequate for the Company's operating and other
cash requirements during the remaining term of the Credit Agreement.
CONTRACTS RECEIVABLE. As of June 30, 1998, the Company on a consolidated basis
owned $6.8 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 1998, 1997, and
1996, some members chose to prepay their accounts, and the Company received
principal payments of $1.1 million, $1.6 million, and $2.5 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, 1998, compared with 31% of gross contracts receivable at
June 30, 1997, and 30% at June 30, 1996. The overall cancellation rate as a
percentage of gross contracts receivable was 8% for fiscal 1998, compared with
7% for fiscal 1997 and 8% for fiscal 1996. In fiscal 1998, 1997, and 1996, the
Company reduced the allowance for doubtful accounts on the contracts receivable
by $1.0 million, $1.2 million, and $5.1 million, 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 to increase to 14.75% the weighted average yield
on the contracts receivable then owned by NACO and Trails. The allowance for
interest discount is being amortized using the effective interest method over
the respective terms of the contracts. Additionally, in connection with the
purchase of NACO and Trails and the Company's bankruptcy reorganization in 1991,
the Company recorded an allowance
Page 27
<PAGE> 28
for future collection costs, which is being amortized as a reduction of general
and administrative expenses based on cash collected on the related portfolio.
The Company also purchased contracts receivable from certain third parties and
recorded a valuation allowance to record the contracts receivable at the
purchase price. This valuation allowance is being amortized as an increase to
interest income over the respective terms of the contracts.
Change in Receivables
- ---------------------
The net balance of contracts receivable decreased by $3.3 million during fiscal
1998, due primarily to $5.8 million in cash collections on contracts receivable,
offset by new financed sales, a $1.0 million reduction in the allowance for
doubtful accounts, 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 $4.8 million in
fiscal 1998, primarily as a result of the sale of several campgrounds and
certain other real estate, and depreciation on property and equipment. The
decrease was partially offset by $2.1 million of capital expenditures.
The Company makes annual capital and maintenance expenditures to maintain and
improve the campgrounds. During fiscal 1998, the Company spent $5.2 million on
major maintenance, repairs, and improvements at the campgrounds. The Company
anticipates that it will spend an additional $4.7 million on such items in
fiscal 1999, which will be funded by existing cash or cash provided by
operations. The Company may be required to spend greater amounts on such items
in future years as the facilities age.
During the periods presented, the Company's resort properties consisted of lot
inventory, buildings and equipment used in operations, and land held for sale.
Resort properties decreased by $438,000 in fiscal 1998, due primarily to the
bulk sale of lots at one of the resorts, the sale of excess acreage and
buildings at certain resorts, and the sale of 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, 1998, 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, the Company plans to spend approximately $1.0 million
in fiscal 1999 in fulfilling these obligations, which will be funded by existing
cash or cash provided by operations. 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 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.
Page 28
<PAGE> 29
OTHER ASSETS. Other current assets decreased by $2.2 million during fiscal 1998.
The decrease was due partially to the repayment of a note receivable arising
from the sale of the resort timeshare operations (see Note 4 to the consolidated
financial statements included in Item 8). In addition, in fiscal 1999, the
Company will begin paying insurance premiums monthly rather than annually, which
resulted in a $1.6 million decrease in prepaid insurance between years.
Other assets decreased by $591,000 in fiscal 1998 due primarily to the partial
termination of the Company's Indemnification Trusts (see Note 15 to the
consolidated financial statements included in Item 8).
BORROWINGS. On June 30, 1998, the Company had outstanding $33.0 million of long
term debt, which consisted of $32.8 million principal amount of PIK Notes plus a
deferred gain of $150,000. The PIK Notes were issued in the Restructuring (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.
During fiscal 1998, the Company repaid all of the outstanding borrowings under
the Credit Agreement totaling $14.1 million and all of the outstanding mortgage
notes totaling $604,000.
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. The Credit
Agreement originally had a three year term expiring on July 16, 1999. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement, which totaled $32.0 million.
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 $12.8 million to repurchase PIK Notes and to pay the accrued interest on the
PIK Notes repurchased. The Company incurred debt issue costs of $3.1 million to
obtain the original Credit Agreement, which were capitalized and were being
amortized as additional interest expense over the life of the Credit Agreement.
However, 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 $1.3 million unamortized balance of the
original debt issue costs was charged to expense.
The Company repaid all outstanding borrowings under the Credit Agreement in
January 1998, and it had no outstanding borrowings under the Credit Agreement as
of June 30,
Page 29
<PAGE> 30
1998, and as of the date of this report. However, the Company has entered into
an amendment to the Credit Agreement that, when it becomes effective, will
provide the Company the flexibility to borrow up to $5.0 million for working
capital purposes and up to an additional $30.0 million to use for the possible
purchase of securities. Under the amended Credit Agreement, the first $15.0
million of borrowings will bear interest at prime plus .25% per annum,
borrowings over $15.0 million and up to $25.0 million will bear interest at
prime plus .50% per annum, and borrowings over $25.0 million will bear interest
at prime plus 1.5% per annum. All borrowings under the amended Credit Agreement
will mature on July 17, 2002. However, if the Company has not repaid in full or
otherwise retired all of the PIK Notes by July 15, 2000, all borrowings under
the amended Credit Agreement in excess of $10.0 million will mature on July 15,
2000, and up to $10.0 million of borrowings under the amended Credit Agreement
will be refinanced on such date and thereafter be available to the Company for
working capital purposes only. This $10.0 million working capital facility will
then become the Working Capital Replacement Facility defined in the Indenture
for the PIK Notes and will be secured by substantially all of the assets of the
Company as discussed below. The amendment of the Credit Agreement will become
effective upon the satisfaction of customary conditions.
The Company's ability to borrow under the amended Credit Agreement for working
capital and other purposes is subject to continued compliance by the Company
with the financial covenants and other requirements of the amended Credit
Agreement, including certain covenants respecting minimum earnings before
interest, taxes, depreciation and amortization, and minimum tangible net worth.
The amended 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 amended Credit Agreement. In addition, the Company's
subsidiaries other than an immaterial utility subsidiary have guaranteed the
Company's obligations under the amended Credit Agreement and, subject to certain
limitations, have granted liens on substantially all of their assets to secure
their guarantees.
The amended Credit Agreement limits the type of investments in which the Company
may invest its available cash, resulting in a relatively low yield. Investments
of cash had a weighted average yield of 6% at June 30, 1998.
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. 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. On July
15, 1997, January 15, 1998, and July 15,
Page 30
<PAGE> 31
1998, the Company issued an additional $1.7 million, $1.9 million, and $2.0
million, respectively, of principal amount of PIK Notes as interest.
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 Working Capital Replacement Facility, and equipment purchases.
Interest on the PIK Notes is payable in the form of additional PIK Notes until
after July 15, 2000, unless all borrowings under the amended Credit Agreement
are paid in full on or before such date. If all borrowings under the amended
Credit Agreement are paid in full on or before July 15, 2000, the Company has
the option to issue additional PIK Notes in lieu of cash interest through July
15, 2000. After July 15, 2000, interest on the PIK Notes must be paid in cash.
While the Company pays interest in the form of additional PIK Notes, the
principal amount of PIK Notes outstanding will increase at the rate of 12% per
year, compounded semi-annually. The payment-in-kind feature of the PIK Notes
will decrease the Company's cash interest costs during 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 $23.4 million and
$23.6 million at June 30, 1998 and 1997, respectively, include $14.8 million and
$15.6 million, respectively, of membership dues collections which relate to
future periods, $6.9 million and $6.3 million, respectively, of campground
membership sales revenues to be recognized in future periods, and other deferred
revenues related primarily to RPI's operations. Deferred membership selling
expenses of $1.6 million and $1.4 million at June 30, 1998 and 1997,
respectively, represent incremental direct selling costs to be recognized in
future periods.
GENERAL LIABILITY INSURANCE. Commencing July 1, 1998, the Company obtained
insurance covering general liability losses up to an annual limit of $27.0
million, with no self-insured deductible. Prior to this date, the Company's
insurance program covered general liability losses up to an annual limit of
$26.8 million, but required the Company to pay the first $250,000 per
occurrence, with an annual aggregate exposure of $2.0 million. The Company has
provided a liability for estimated known and unknown claims related to uninsured
general liability risks based on actuarial estimates. In fiscal 1998, the
Company reduced this liability by $858,000 because the estimated losses were
less than the recorded liability. This adjustment amount is included in
nonrecurring income. At
Page 31
<PAGE> 32
June 30, 1998 and 1997, the Company's recorded liability for estimated losses
related to uninsured general liability claims totaled $1.2 million and $2.0
million, respectively.
PROPERTY INSURANCE. In fiscal 1998, the Company received proceeds of $1.1
million from insurance settlements for flood and fire damage at certain
campgrounds, and recognized a gain of $588,000.
EMPLOYEE HEALTH INSURANCE. The Company provides medical and dental benefits for
its employees under employee benefit plans (collectively, the "Plans") that are
funded primarily through employer and employee contributions. The Company has
purchased stop loss insurance that protects the Plans against claims in excess
of set policy amounts. The Company has provided a liability for estimated
uninsured claims of $828,000 and $1.4 million at June 30, 1998 and 1997,
respectively. This liability is based on actuarial estimates of amounts needed
to fund expected uninsured claims, as well as premium payments and
administrative costs of the Plans.
WORKERS' COMPENSATION INSURANCE. Commencing July 1, 1998, the Company obtained
insurance covering workers' compensation claims with no self-insured deductible.
Prior to this date, the Company's insurance program required the Company to pay
up to $250,000 per occurrence and to deposit funds with the insurance company to
pay claims in excess of the estimated claims that were covered by the amounts
originally paid by the Company. These deposits were generally expensed in the
years the deposits were made because the Company anticipated that the deposits
would be used to cover claims. However, during fiscal 1997, the Company
determined that it was entitled to refunds of $865,000 in future periods for
certain deposits made in previous years. At June 30, 1997, the Company recorded
the refundable amount as an asset, resulting in nonrecurring income of $865,000.
In fiscal 1998, the Company received refunds totaling $1.3 million for certain
other deposits expensed in previous years, which were recorded as nonrecurring
income.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board (the "FASB")
recently issued several accounting pronouncements that are effective for the
Company in either fiscal 1998 or fiscal 1999. The Company adopted SFAS No. 128,
"Earnings Per Share" in the second quarter of fiscal 1998, which modified the
Company's net income per share calculation and required restatement of prior
period calculations. SFAS No. 130, "Reporting Comprehensive Income", is
effective for the Company in the first quarter of fiscal 1999, and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" and SFAS
No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits", are effective for the Company at the end of fiscal 1999. The Company
does not expect the adoption of these statements to have a material impact on
its consolidated financial statements.
MARKET RISK. In 1997, the Securities and Exchange Commission issued new rules
(Item 305 of Regulation S-K), which require disclosure of material risks, as
defined in Item 305, related to market risk sensitive financial instruments. As
defined, the Company currently has market risk sensitive instruments related to
interest rates.
Page 32
<PAGE> 33
The Company does not have significant exposure to changing interest rates on
invested cash, which was $12.0 million at June 30, 1998. The Company invests
available cash in certificates of deposit and investment grade commercial paper
that have maturities of three months or less. As a result, the interest rate
market risk implicit in these investments at June 30, 1998, is low, as the
investments mature within three months.
The Company had $6.8 million of contracts receivable at June 30, 1998, which
have a weighted average stated interest rate of 13% and an average remaining
term of 19 months. The Company does not have significant exposure to changing
interest rates related to the contracts receivable because the interest rates on
the contracts receivable are fixed.
The Company had $32.8 million of PIK Notes at June 30, 1998, which bear interest
at 12% per annum and mature in 2003. The Company does not have significant
exposure to changing interest rates related to the PIK Notes because the
interest rate on the PIK Notes is fixed.
The Company also has the amended Credit Agreement with Foothill that provides
the Company the flexibility to borrow up to $35.0 million at interest rates that
fluctuate with changes in the prime rate (see "Borrowings Credit Agreement with
Foothill"). Although the Company has exposure to changing interest rates related
to the Credit Agreement, the Company had no outstanding borrowings under the
Credit Agreement as of June 30, 1998, and as of the date of this report.
The Company has not undertaken any actions to cover interest rate market risk
and is not a party to any interest rate market risk management activities.
The Company also receives revenues from its Canadian subsidiary and exchanges
them into US Dollars at exchange rates that fluctuate with market conditions;
however, such revenues are not material to the Company's operations.
INTEREST RATE SENSITIVITY. A hypothetical ten percent change in market interest
rates over the next year would not materially impact the Company's earnings or
cash flow as the interest rates on the Company's long term debt are fixed and
its cash investments are short term. A hypothetical ten percent change in market
interest rates would not have a material effect on the fair value of the
Company's contracts receivable, PIK Notes, or its short term cash investments.
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, 1998, 1997, and 1996, as
restated (see "Change in Accounting Method"). The financial information set
forth below should be read in conjunction with the Company's consolidated
financial statements included in Item 8.
NET INCOME. For the year ended June 30, 1998, the Company reported net income of
$24.9 million or $3.36 per share on revenues of $76.5 million. This compares
with net income of $6.8 million or $.94 per share on revenues of $78.4 million
for the year ended
Page 33
<PAGE> 34
June 30, 1997, and net income of $1.1 million or $.30 per share on revenues of
$91.0 million for the year ended June 30, 1996.
Excluding extraordinary gains, nonrecurring income and expenses, and
restructuring costs, the Company would have had net income of $11.1 million for
fiscal 1998, compared with net income of $5.3 million for fiscal 1997, and a net
loss of $2.8 million for fiscal 1996. 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,
general and administrative expenses, and interest.
The results for fiscal 1998 include $3.8 million of nonrecurring income from a
$1.0 million reduction in the allowance for doubtful accounts, an $858,000
reduction in certain insurance reserves, a $1.3 million refund of insurance
deposits expensed in prior years, and a $588,000 gain on insurance settlements
for flood and fire damage at certain campgrounds. In addition, the results for
fiscal 1998 include a $10.0 million deferred income tax benefit resulting from a
reduction in the valuation allowance for the Company's net deferred tax assets.
This adjustment will have no effect on current or future income tax payments,
but will result in higher tax provisions in the future in the periods the
related deferred tax assets are realized, which will decrease net income.
The results for fiscal 1997 include $2.7 million of nonrecurring income from 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.
The results for fiscal 1996 include a $1.4 million extraordinary gain from 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 table on the next page shows separately the results of the campground
operations, RPI's operations, and the 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, 1998, 1997, and 1996, as
restated (see "Change in Accounting Method").
Page 34
<PAGE> 35
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(Restated)
CAMPGROUND OPERATIONS
<S> <C> <C> <C>
Membership dues $ 37,330 $ 39,945 $ 39,924
Campground revenues 15,955 15,302 15,313
Cost of campground revenues (7,718) (7,608) (7,726)
Operating expenses (30,794) (32,454) (35,211)
---------- ---------- ----------
Contribution from campground operations 14,773 15,185 12,300
---------- ---------- ----------
SALES
Sales revenues 3,227 2,892 1,656
Selling expenses (2,646) (2,654) (3,094)
Marketing expenses (1,700) (1,383) (1,294)
---------- ---------- ----------
Loss on sales (1,119) (1,145) (2,732)
---------- ---------- ----------
RESORT PARKS INTERNATIONAL
Revenues 4,035 4,086 4,579
Expenses (2,132) (1,978) (2,237)
---------- ---------- ----------
Contribution from RPI 1,903 2,108 2,342
---------- ---------- ----------
15,557 16,148 11,910
---------- ---------- ----------
RESORT OPERATIONS
Revenues 1,186 3,189 8,332
Expenses (1,091) (3,218) (8,297)
---------- ---------- ----------
Contribution (loss) from resort operations 95 (29) 35
---------- ---------- ----------
15,652 16,119 11,945
---------- ---------- ----------
Other income 3,083 3,673 4,479
Corporate member services (1,472) (1,532) (1,843)
General and administrative expenses (8,640) (10,100) (10,473)
---------- ---------- ----------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME AND EXPENSES, RESTRUCTURING COSTS,
TAXES AND EXTRAORDINARY ITEM 8,623 8,160 4,108
---------- ---------- ----------
Interest income 2,635 3,726 6,756
Interest expense (4,599) (9,084) (17,693)
Gain on asset sales 5,287 2,892 4,038
Nonrecurring income 3,770 2,708 5,945
Nonrecurring expenses (132) (2,270)
Restructuring costs (1,101) (1,124)
---------- ---------- ----------
OPERATING INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM $ 15,716 $ 7,169 $ (240)
========== ========== ==========
</TABLE>
Page 35
<PAGE> 36
OPERATING INCOME. During the year ended June 30, 1998, the Company achieved a
positive contribution from operations of $8.6 million, an improvement over the
$8.2 million and $4.1 million achieved in the years ended June 30, 1997 and
1996, respectively. For this purpose, the contribution from operations is
defined as operating income before interest income and expense, gain on asset
sales, restructuring costs, nonrecurring income and expenses, taxes, and
extraordinary item. See the table on page 35 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.
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 $37.3 million for the year ended June 30,
1998, compared with $39.9 million for the years ended June 30, 1997 and 1996.
Dues revenue declined in fiscal 1998 due primarily to the net loss of 9,000
campground members during the year which included the loss of 1,800 members in
connection with the sale of two campgrounds. This decline was partially offset
by the effect of the annual dues increase. In fiscal 1997, the effect of the
annual dues increase substantially offset the decline in dues revenue caused by
the net loss of members during the year.
Campground revenues were $16.0 million for the year ended June 30, 1998,
compared with $15.3 million for the years ended June 30, 1997 and 1996. The
related expenses were $7.7 million, $7.6 million, and $7.7 million for fiscal
1998, 1997, and 1996, respectively. The increase in campground revenues in
fiscal 1998 was due primarily to modest increases in rental and other service
fees at certain campgrounds and proceeds received from harvesting timber at
selected campgrounds.
Campground operating expenses were $30.8 million for the year ended June 30,
1998, compared with $32.5 million for the year ended June 30, 1997, and $35.2
million for the year ended June 30, 1996. 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 these periods. 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. In fiscal 1998, the Company sold several
additional campgrounds and closed one campground.
The Company intends to continue to keep the size of its campground system in an
appropriate relation to the size of its membership base. In this regard, if the
membership base continues to decline, the Company may close and dispose of
additional campgrounds and it will seek to decrease other expenses. Although the
Company believes that the anticipated changes should result in lower future
operating expenses, no assurance can be given that such changes will not reduce
revenues by an amount in excess of the expense reductions.
Page 36
<PAGE> 37
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, 1998, 1997, and 1996, the Company recognized campground
membership sales revenues of $3.2 million, $2.9 million, and $1.7 million,
respectively. These amounts include revenues of $2.5 million, $1.7 million, and
$1.1 million, respectively, that were deferred in prior periods. Moreover, for
fiscal 1998, 1997, and 1996, the Company deferred revenues of $3.1 million, $2.1
million, and $2.1 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. Although the Company's membership sales revenues have
increased, the level of sales in fiscal 1998 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. ("Fleetwood"), the largest
manufacturer of recreational vehicles ("RVs"). Under this marketing arrangement,
purchasers of Fleetwood RVs receive a temporary membership and are invited to
visit one of the Company's campgrounds. Purchasers of new Fleetwood RVs
accounted for approximately 10% of sales in fiscal 1998. In the fourth quarter
of fiscal 1998, the Company entered into a similar marketing arrangement with a
major RV financing company and it plans to seek other similar alliances. The
Company has also recently entered into reciprocal sales agreements with two
other companies in an effort to increase sales.
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,
1998, 1997, and 1996, the Company recognized selling expenses of $2.6 million,
$2.7 million, and $3.1 million, respectively. These amounts include expenses of
$560,000, $358,000, and $235,000, respectively, that were deferred in prior
periods. Moreover, for fiscal 1998, 1997, and 1996, the Company deferred
expenses of $794,000, $505,000, and $481,000, 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, $1.1 million, and $2.7 million
for the years ended June 30, 1998, 1997, and 1996, respectively. These expenses
exceeded sales revenue because of the increased marketing activity, and the low
volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales 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
Page 37
<PAGE> 38
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.
The Company's selling and marketing efforts during the past three fiscal years
have not produced the level of sales needed to stop the continuing decline in
the Company's membership base. If the Company is not able to significantly
increase its campground membership sales over current levels, the membership
base will continue to decline, which will further decrease the Company's
revenues. Further decreases in revenues that are not offset by sufficient
expense reductions could have a material adverse impact on the Company's
business and results of operations.
CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the
Company, manages 130 public campgrounds for the US Forest Service. For the year
ended June 30, 1998, these operations produced revenues of $1.3 million with
related expenses (excluding certain shared administrative costs) of $1.5
million. This compares with revenues for fiscal 1997 of $1.1 million and related
expenses (excluding certain shared administrative costs) of $1.0 million, and
revenues for fiscal 1996 of $853,000 and related expenses (excluding certain
shared administrative costs) of $831,000. The increase in revenues and expenses
between years was due primarily to new contracts entered into in these periods.
The loss in fiscal 1998 was due to start-up costs incurred in connection with
new management contracts entered into in the Spring of 1998, which significantly
increased the number of campgrounds managed.
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, 1998,
RPI's operations produced a net contribution of $1.9 million, compared with $2.1
million for the year ended June 30, 1997, and $2.3 million for the year ended
June 30, 1996. The decline in results in fiscal 1998 was due primarily to the
decrease in revenues between periods and costs incurred in fiscal 1998 to
provide directories to new members recently gained through a new program. RPI's
revenues have 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 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 1998, the sale of
resort assets produced cash proceeds totaling $1.2 million. This compares with
cash proceeds of $1.7 million plus notes receivable of $1.1 million in fiscal
1997, and cash proceeds of $5.0 million in fiscal 1996. The differences between
years were 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, 1998, the resort operations produced a positive
contribution of $95,000, compared with a negative contribution of $29,000 for
the year
Page 38
<PAGE> 39
ended June 30, 1997, and a positive contribution of $35,000 for the year ended
June 30, 1996. The Company expects a minimal 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 of approximately 100
residential lots and other miscellaneous real estate. 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.
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 $3.1 million for the year ended June 30, 1998, compared with
$3.7 million for the year ended June 30, 1997, and $4.5 million for the year
ended June 30, 1996. Other income was higher in fiscal 1996, compared with the
other years, because in fiscal 1996 the Company increased its use of outside
collection agencies to collect on written-off contracts, which resulted in a
one-time increase in such collections. The decrease between years is directly
related to lower fees and other income received from the declining contracts
receivables portfolio and shrinking membership base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$8.6 million for the year ended June 30, 1998, compared with $10.1 million for
the year ended June 30, 1997, and $10.5 million for the year ended June 30,
1996. General and administrative costs continued to decline as a result of the
Company's continued efforts to reduce administrative costs. The lower costs in
fiscal 1998 were due primarily to personnel reductions in various administrative
departments, lower legal fees, and reduced depreciation, as certain of the
Company's corporate assets have been fully depreciated. In fiscal 1997, the
Company's lower costs were partially offset by legal fees incurred in connection
with the Company's reincorporation merger and the registration of the PIK Notes.
General and administrative expenses include costs related to collecting the
contracts receivable and membership dues of $2.2 million, $2.4 million, and $3.0
million for the years ended June 30, 1998, 1997, and 1996, respectively. These
collection costs were reduced by $229,000, $314,000, and $513,000, 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 declines further.
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 years ended June 30, 1998 and 1997, compared with $1.8 million for the
year ended June 30, 1996. The decrease in costs between fiscal 1996 and fiscal
1997 reflects efficiencies implemented in producing the Company's member
magazine.
Page 39
<PAGE> 40
INTEREST INCOME AND EXPENSE. Interest income decreased by $1.1 million and $3.0
million for the years ended June 30, 1998 and 1997, respectively, from the
previous year. The decrease in fiscal 1998 was due primarily to a decrease in
interest earned on the Company's diminishing portfolio of contracts receivable,
partially offset by an increase in interest earned on higher cash balances. The
decrease in fiscal 1997 was due to a decrease in interest earned on the
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
$293,000 was amortized during fiscal 1998, $379,000 was amortized in fiscal
1997, and $607,000 was amortized in fiscal 1996 (see "Liquidity and Capital
Resources -- Contracts Receivable").
Interest expense decreased by $4.5 million for the year ended June 30, 1998,
from the previous year, due primarily to the repayment of $14.7 million of
outstanding debt during the year, which included the repayment of all
outstanding borrowings under the Credit Agreement with Foothill and all
outstanding mortgage notes. As of the date of this report, the Company's only
outstanding debt was $34.8 million principal amount of PIK Notes. While the
Company pays interest on the PIK Notes in the form of the issuance of additional
PIK Notes, a significant portion of the Company's interest expense will
represent non-cash interest. However, 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.
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, subsequent
repayments under the Credit Agreement, and scheduled repayments of mortgage
notes. In addition, the Company repurchased $7.4 million principal amount of
Secured Notes in January 1996, and reduced mortgage notes by $2.5 million in the
Fall of 1995 in connection with the abandonment of two operating campgrounds,
which also contributed to the reduction in outstanding debt and the decrease in
interest expense.
Interest expense for the year ended June 30, 1998, includes amortization of the
deferred gain related to the PIK Notes, which reduced interest expense by
$30,000. 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 includes
amortization of the discount on the Secured Notes, which increased interest
expense by $4.2 million. The discount on the Secured Notes was recorded to
reduce the 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.
Page 40
<PAGE> 41
GAINS ON ASSET SALES. During the years ended June 30, 1998, 1997, and 1996, the
Company sold certain of its real estate assets and recognized related gains of
$5.3 million, $2.9 million, and $4.0 million, respectively. The differences
between years were 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 one resort, and various other properties at the
resorts. In addition, the Company sold or otherwise disposed of several
campgrounds and sold unused buildings and trailers and excess acreage associated
with certain campgrounds. 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.
NONRECURRING INCOME. Nonrecurring income was $3.8 million, $2.7 million, and
$5.9 million for the years ended June 30, 1998, 1997, and 1996, respectively.
Nonrecurring income for fiscal 1998 consists of $1.0 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable,
$858,000 from a reduction in certain insurance reserves, $1.3 million from the
refund of insurance deposits made in prior years, and a $588,000 gain on
insurance settlements for flood and fire damage at certain campgrounds.
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 in certain insurance reserves. 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 EXPENSES. Nonrecurring expenses were $132,000 and $2.3 million for
the years ended June 30, 1997 and 1996, 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 in May 1997,
reduced by a $1.2 million gain resulting from repurchasing PIK Notes at a
discount (see "Liquidity and Capital Resources-Borrowings"). 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 that was
due under his employment agreement (see Note 8 to the accompanying consolidated
financial statements included in Item 8).
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 issue costs of $1.3 million was charged to
expense upon amendment of the Credit Agreement (see "Liquidity and Capital
Resources-Borrowings").
Page 41
<PAGE> 42
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.
INCOME TAXES. The Company's current provision for income taxes was $837,000,
$370,000, and $41,000 for the years ended June 30, 1998, 1997, and 1996,
respectively. The provisions for fiscal 1998 and 1997 include amounts for
federal alternative minimum taxes, as well as amounts for state income taxes
payable in the various states where the Company conducts its operations. The
provision for fiscal 1996 relates 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 $26.9 million at June 30,
1998, and expire in years 2009 through 2011.
The tax provision for the year ended June 30, 1998, also includes a $10.0
million deferred income tax benefit resulting from a reduction in the valuation
allowance for the Company's net deferred tax assets (see Note 7 to the
consolidated financial statements included in Item 8). The adjustment will have
no effect on current or future income tax payments, but will result in higher
future tax provisions in the periods the related deferred tax assets are
realized.
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").
IMPACT OF YEAR 2000. Based on recent assessments, the Company has determined
that it must modify certain software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company
presently believes that by modifying existing software, the Company's computer
systems will not experience material operational problems as a result of the
year 2000 issue. However, if such modifications are not made, or are not timely
completed, the year 2000 issue could have a material adverse impact on the
operations of the Company. The most significant disruption would impact member
billings and collections and campground reservations. In addition, although the
Company does not have any significant suppliers whose timely compliance would
impact the Company, the Company utilizes a number of financial institutions that
are highly dependent upon the proper function of their computer systems. The
Company's depository and treasury functions could be disrupted if these
financial institutions do not become year 2000 compliant within the required
timeframe.
Page 42
<PAGE> 43
The Company will primarily utilize internal resources to modify existing
software to address the year 2000 issue. The Company anticipates completing the
year 2000 project by December 31, 1998, which, if timely completed, will avoid
any material impact on its operating systems. The Company currently estimates
that it will cost approximately $100,000 to make the necessary modifications to
its software, which will not significantly impact the Company's financial
position, operations, or cash flows. The Company does not presently have a
formal contingency plan because it believes the necessary modifications will be
completed in the required timeframe. However, should it become evident that the
year 2000 modifications will not be completed on a timely basis, the Company
will explore alternatives to employ until such time as the year 2000
modifications are completed.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates
which were derived utilizing numerous assumptions of future events. However,
there can be no assurance that these estimates and timetable will be achieved,
and actual results could differ materially from those anticipated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts and other financial instruments with similar
characteristics. The Company currently does not have any derivative financial
instruments. However, the Company does have other financial instruments which
contain market risk. Management believes that the market risk associated with
the Company's financial instruments as of June 30, 1998, is not significant.
The information required by Item 305 of S-K is contained in Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the headings "Market Risk" and "Interest Rate Sensitivity."
Page 43
<PAGE> 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants..............................................................45
Consolidated Balance Sheets -- June 30, 1998 and 1997 ................................................46
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996.......................................................................47
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended June 30, 1998, 1997 and 1996...................................................48
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996.......................................................................49
Notes to Consolidated Financial Statements............................................................51
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.............................................85
</TABLE>
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 44
<PAGE> 45
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. and subsidiaries (the "Company") as of June 30, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended June
30, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The 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 financial statements. This schedule has
been subjected to the auditing procedures applied in our audits of the basic
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
financial statements taken as a whole.
s/ Arthur Andersen LLP
Dallas, Texas
September 4, 1998
Page 45
<PAGE> 46
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
-------------------------
ASSETS 1998 1997
---------- ----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 13,631 $ 1,343
Current portion of receivables, net of allowances and
discount of $1.1 million in 1998 and $1.7 million in 1997 2,440 3,134
Current portion of deferred membership selling expenses 538 478
Current portion of net deferred tax assets 2,954
Other current assets 1,890 4,078
---------- ----------
Total Current Assets 21,453 9,033
Restricted cash 1,171 1,407
Receivables, net of allowances and discount of $1.6 million
in 1998 and $3.3 million in 1997 1,741 4,383
Campground and resort land 13,338 13,701
Buildings and equipment, net of accumulated depreciation of
$15.0 million in 1998 and $12.8 million in 1997 21,879 23,211
Land held for sale 3,866 7,382
Deferred membership selling expenses 1,087 913
Net deferred tax assets 7,046
Other assets 2,681 3,272
---------- ----------
Total Assets $ 74,262 $ 63,302
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 2,037 $ 1,864
Accrued interest 1,805 1,693
Other accrued liabilities 6,410 7,485
Current portion of long term debt 5,864
Accrued construction costs 2,845 2,809
Current portion of deferred revenue 18,851 19,455
---------- ----------
Total Current Liabilities 31,948 39,170
Long term debt 32,973 38,230
Deferred revenue 4,588 4,158
Other liabilities 1,999 3,912
---------- ----------
Total Liabilities 71,508 85,470
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (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,
7,437,083 and 7,383,276 shares issued and outstanding in
1998 and 1997 74 74
Additional paid-in capital 20,551 20,502
Accumulated deficit subsequent to December 31, 1991, date
of emergence from bankruptcy (17,734) (42,613)
Cumulative foreign currency translation adjustment (137) (131)
---------- ----------
Total Stockholders' Equity (Deficit) 2,754 (22,168)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 74,262 $ 63,302
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 46
<PAGE> 47
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,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
REVENUES (Restated)
<S> <C> <C> <C>
Membership dues $ 37,330 $ 39,945 $ 39,924
Other campground/resort revenue 16,475 17,906 22,288
Membership and resort interest sales 3,894 3,477 3,013
RPI membership fees 4,035 4,086 4,579
Interest income 2,635 3,726 6,756
Gain on asset sales 5,287 2,892 4,038
Nonrecurring income 3,770 2,708 5,945
Other income 3,083 3,673 4,479
---------- ---------- ----------
Total Revenues 76,509 78,413 91,022
---------- ---------- ----------
EXPENSES
Campground/resort operating expenses 39,152 42,860 50,308
Selling expenses 3,098 3,074 4,020
Marketing expenses 1,700 1,383 1,294
RPI membership expenses 2,132 1,978 2,237
Corporate member services 1,472 1,532 1,843
Interest expense and amortization 4,599 9,084 17,693
General and administrative expenses 8,640 10,100 10,473
Nonrecurring expenses 132 2,270
Restructuring costs 1,101 1,124
---------- ---------- ----------
Total Expenses 60,793 71,244 91,262
---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM 15,716 7,169 (240)
INCOME TAXES
Income tax provision - current (837) (370) (41)
Income tax benefit - deferred 10,000
---------- ---------- ----------
9,163 (370) (41)
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 24,879 6,799 (281)
Extraordinary gain on debt repurchases 1,390
---------- ---------- ----------
NET INCOME $ 24,879 $ 6,799 $ 1,109
========== ========== ==========
BASIC NET INCOME (LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 3.36 $ .94 $ (.08)
EXTRAORDINARY ITEM .38
---------- ---------- ----------
NET INCOME PER SHARE - BASIC $ 3.36 $ .94 $ .30
========== ========== ==========
DILUTED NET INCOME PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 2.96 $ .88 $ (.08)
EXTRAORDINARY ITEM .38
---------- ---------- ----------
NET INCOME PER SHARE - DILUTED $ 2.96 $ .88 $ .30
========== ========== ==========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
BASIC 7,407 7,223 3,703
========== ========== ==========
DILUTED 8,398 7,704 3,721
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 47
<PAGE> 48
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Cumulative
------------------------ 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, 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)
Issuance of common shares
from exercises of options
and warrants 53,807 49 49
Foreign currency translation
adjustment (6) (6)
Net income 24,879 24,879
--------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1998 7,437,083 $ 74 $ 20,551 $ (17,734) $ (137) $ 2,754
========= ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 48
<PAGE> 49
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Collections of principal on receivables $ 5,760 $ 7,978 $ 12,251
Interest received 2,371 3,407 6,202
Interest paid (822) (8,107) (14,545)
General and administrative, corporate member
services and restructuring costs (10,123) (14,061) (13,827)
Cash collected from operations, including
deferred revenue 62,353 65,894 73,220
Cash from sales of memberships and resort
interests at the point of sale 3,703 3,705 3,789
Expenditures for property operations (37,908) (40,872) (49,627)
Expenditures for sales and marketing (4,742) (4,472) (5,370)
Expenditures for insurance premiums (772) (1,706) (5,176)
Payment of income taxes (700) (370) (41)
Reduction (establishment) of letter of credit 1,500 (1,500)
Other, net 236 (345) 221
---------- ---------- ----------
Net cash provided by operating activities 19,356 12,551 5,597
---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital and HUD-related expenditures (2,085) (1,046) (1,022)
Proceeds from asset sales 8,550 4,663 7,239
Proceeds from insurance settlements 1,119
Issuance of Common Stock 49
---------- ---------- ----------
Net cash provided by investing activities 7,633 3,617 6,217
---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net repayments under Credit Agreement (14,097) (30,543)
Repayments of notes and mortgages (604) (384) (1,133)
Borrowings under Credit Agreement 44,640
Retirement of Secured Notes (50,169)
Payment of debt issue costs (3,132)
Repurchase of long term debt (12,640) (5,275)
Mandatory redemption of Secured Notes (18,599)
---------- ---------- ----------
Net cash used in financing activities (14,701) (52,228) (25,007)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 12,288 (36,060) (13,193)
CASH AND CASH EQUIVALENTS:
Beginning of year 1,343 37,403 50,596
---------- ---------- ----------
End of year $ 13,631 $ 1,343 $ 37,403
========== ========== ==========
</TABLE>
(continued)
Page 49
<PAGE> 50
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(Restated)
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 24,879 $ 6,799 $ 1,109
---------- ---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES-
Depreciation 2,538 3,195 2,866
Amortization of interest yield, collection costs and
valuation allowance (523) (693) (1,120)
Amortization of PIK Note deferred gain (30) (39)
Amortization of debt issue costs, debt discount and
consent fees 1,809 4,565
Gain on asset sales (5,287) (2,892) (4,038)
Net deferral of sales revenues 640 465 974
Net deferral of selling expenses (234) (147) (246)
Reduction of bad debt allowances, net (1,000) (1,232) (4,146)
Reduction of insurance reserves (858) (611) (799)
Increase in insurance deposits (865)
Gain on insurance settlements (588)
Reduction of deferred tax valuation allowance (10,000)
Net loss (gain) on debt restructurings 132 (1,390)
CEO bonus accrual (payment) (1,270) 1,270
Decrease (increase) in restricted cash 236 1,505 (1,283)
Decrease in receivables 4,773 7,592 11,721
Decrease (increase) in other assets 2,843 767 (747)
Increase (decrease) in other liabilities 1,300 (2,077) (3,354)
Other, net 667 113 215
---------- ---------- ----------
Total adjustments (5,523) 5,752 4,488
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 19,356 $ 12,551 $ 5,597
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Page 50
<PAGE> 51
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").
Thousand Trails and its subsidiaries (the "Company") own and operate a system of
53 membership-based campgrounds located in 17 states and British Columbia,
Canada. In addition, the Company provides a reciprocal use program for members
of approximately 325 recreational facilities and manages 130 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 4). At
the present time, the Company's only activity at these resorts consists of the
retail sale of approximately 100 lots. The campground business provided 99% of
the Company's operating revenues in fiscal 1998, while the resort business
provided the remaining 1%. 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"), Coast Financial Services, Inc. ("Coast"),
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 and Coast commenced operations in March 1997.
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, 1998, 1997 and 1996.
Page 51
<PAGE> 52
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.
New Accounting Pronouncements
- -----------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which established new standards for computing and presenting earnings
per share. The standard was adopted by the Company in the second quarter of
fiscal 1998, in accordance with the statement provisions (see Note 2).
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 will require the Company to classify items of other comprehensive
income by their nature in its financial statements and to display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of its
consolidated balance sheet. Comprehensive income is meant to include all changes
in equity during a period except those resulting from investments by owners and
distributions to owners, and will include certain items that are now reported
directly through equity as well as net income reported on the income statement.
SFAS No. 130 is effective for the Company commencing with the first quarter of
fiscal 1999. The Company currently has minimal items of other comprehensive
income, and does not anticipate a material impact from the adoption of this
statement.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for the way
that public companies report information about operating segments and related
disclosures in annual and interim financial statements. This statement is
effective for the Company commencing at the end of fiscal 1999. The Company does
not anticipate a material impact from the adoption of this statement.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other postretirement benefit plans. This statement
is effective for the Company beginning in fiscal 1999. The Company does not
anticipate a material impact from the adoption of this statement.
Restatement
- -----------
In the first quarter of fiscal 1998, the Staff of the Securities and Exchange
Commission (the "SEC") informed the Company that the SEC will now require the
Company, commencing with fiscal 1997, 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.
Page 52
<PAGE> 53
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
statement of operations for the year ended June 30, 1996, has been restated from
that originally reported to reflect this change in accounting method. The
deferral of historical sales revenues and expenses resulting from this change in
accounting method had no impact on the Company's liquidity or cash flows.
The following table provides selected summarized information illustrating the
effect of the restatement on the Company's consolidated results of operations
for the year ended June 30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1996
-------------------------
As
As Originally
Restated Reported
---------- ----------
RESULTS OF OPERATIONS:
<S> <C> <C>
Membership and resort interest sales $ 3,013 $ 3,987
Total revenues 91,022 91,996
Income (loss) before extraordinary item (281) 447
Net income 1,109 1,837
Net income per share - basic .30 .50
</TABLE>
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform with the current
year presentation.
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 interest in the campgrounds. 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
Page 53
<PAGE> 54
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 4).
The Company has offered financing on certain campground memberships for a period
of up to 36 months with a down payment of at least 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 beyond a one year period.
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 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
Page 54
<PAGE> 55
Company recorded the contracts receivable at the Selling Company's carrying
value. In connection with the Company's acquisition of NACO and Trails and its
emergence from bankruptcy in 1991, the Company recorded the contracts receivable
at their fair value. As a result, the contracts then owned by NACO and Trails
were recorded net of an allowance for interest discount to increase the weighted
average yield on the contracts to 14.75%, the current market yield at the time
of the acquisition. The allowance for interest discount is being amortized using
the effective interest method over the respective terms of the contracts. In
addition, the Company recorded an allowance for future costs associated with the
collection of the contracts receivable portfolio. This allowance is being
amortized as a reduction of general and administrative expense based on cash
collected on the related portfolio. The Company has also recorded a valuation
allowance in connection with purchases of contracts receivable from third
parties, to record the contracts receivable at the purchase price. The valuation
allowance is being amortized over the respective terms of the contracts as an
increase to interest income.
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.
Campground Land and Lot Inventory
- ---------------------------------
Campground land and lot inventory are recorded at the lower of cost or estimated
net realizable value. 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.
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% Secured
Notes Due 1998 (the "Secured Notes"), the Company paid aggregate cash consent
fees which 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
Page 55
<PAGE> 56
eliminated when the Secured Notes were retired in a restructuring (the
"Restructuring") that was completed on July 17, 1996 (see Note 6).
Income Taxes
- ------------
The Company recognizes certain revenues and expenses in periods which differ for
tax and financial reporting purposes.
Net Income Per Share
- --------------------
SFAS No. 128 replaced the calculation of primary and fully diluted net income
per share with basic and diluted net income per share. Unlike primary net income
per share, basic net income per share excludes any dilutive effects of common
stock equivalents. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share and 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. Net income per share
amounts for all periods have been restated and presented to conform to the SFAS
No. 128 requirements.
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 -- RECEIVABLES
CONTRACTS RECEIVABLE
The components of contracts receivable as of June 30, 1998 and 1997, are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Contracts receivable --
Memberships/undivided interests $ 6,425 $ 11,293
Timeshares and lots 401 1,069
---------- ----------
6,826 12,362
Allowance for doubtful accounts (2,136) (3,855)
Allowance for interest discount (234) (455)
Allowance for collection costs (234) (464)
Valuation allowance (78) (150)
---------- ----------
4,144 7,438
Interest receivable 37 79
---------- ----------
$ 4,181 $ 7,517
========== ==========
</TABLE>
Contracts Receivable
- --------------------
Contracts receivable bear interest at rates which range generally from 9.5% to
16%, with a weighted average stated rate of 13% at June 30, 1998 and 1997. The
obligor's weighted average equity in the contracts receivable at June 30, 1998
and 1997, was 75% and 70%, respectively. As of June 30, 1998, 97% of the
campground members and 99% of the purchasers of resort interests had paid for
their membership or resort interest in full.
Page 56
<PAGE> 57
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.
Allowance for Doubtful Accounts
- -------------------------------
In fiscal 1998, 1997 and 1996, the Company reduced the allowance for doubtful
accounts on the contracts receivable by $1.0 million, $1.2 million and $5.1
million, 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 $234,000 and
$455,000 at June 30, 1998 and 1997, respectively. Amortization of the allowance
for interest discount totaled $221,000, $267,000 and $357,000 for the years
ended June 30, 1998, 1997 and 1996, respectively, which increased interest
income.
Allowance for Collection Costs
- ------------------------------
The allowance for collection costs had a remaining balance of $234,000 and
$464,000 at June 30, 1998 and 1997, respectively. Amortization of the allowance
for collection costs totaled $230,000, $314,000 and $513,000 for the years ended
June 30, 1998, 1997 and 1996, respectively, which decreased general and
administrative expense.
Valuation Allowance
- -------------------
The valuation allowance had a balance of $78,000 and $150,000 at June 30, 1998
and 1997, respectively. Amortization of the valuation allowance totaled $72,000,
$112,000 and $250,000 for the years ended June 30, 1998, 1997 and 1996,
respectively, which increased interest income.
Page 57
<PAGE> 58
At June 30, 1998, 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>
1999 $ 3,290 $ 220 $ 3,510
2000 2,101 113 2,214
2001 880 47 927
2002 119 18 137
2003 17 1 18
Thereafter 18 2 20
--------- ------- --------
Total $6,425 $ 401 $ 6,826
========= ======= ========
</TABLE>
The Company operates 53 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, 1998, the
Company's contracts receivable from members who purchased memberships in the
state of California totaled approximately $2.9 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 4 -- CAMPGROUND AND RESORT PROPERTIES
Campground properties consisted of the following as of June 30, 1998 and 1997
(dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Land held for sale $ 2,790 $ 6,211
Campground land at campgrounds where
right-to-use memberships are sold 11,257 11,288
Campground land at campgrounds where
undivided interests were sold 2,071 2,071
Property and equipment 36,507 35,826
Construction in progress 319 172
Accumulated depreciation (14,953) (12,804)
---------- ----------
$ 37,991 $ 42,764
========== ==========
</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.
Page 58
<PAGE> 59
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 consisted of the following as of June 30, 1998 and 1997
(dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Land held for sale $ 1,076 $ 1,171
Lot inventory 10 342
Property and equipment 7 23
Accumulated depreciation (1) (6)
---------- ----------
$ 1,092 $ 1,530
========== ==========
</TABLE>
The campground and resort properties are encumbered by certain borrowings as
described in Note 6.
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 inventory at the resorts. The sales price was $850,000,
of which $50,000 was paid in cash at closing with the balance represented by an
$800,000 promissory note which was completely repaid in June 1998. A deferred
gain of $471,000 was recorded in connection with the sale and was being
recognized on the installment method of accounting as payments on the note were
received. The deferred gain was netted against the principal amount of the note,
and the net amount was included in other current assets in the accompanying
consolidated balance sheet as of June 30, 1997.
In June 1998, the Company sold certain amenities it owned at the resorts for
$877,000 and was released of certain contingent liabilities associated with
these amenities totaling $372,000. As a result of this sale and the recognition
of the remaining deferred gain on the above-described note, the Company
recognized a gain of $1.5 million.
NOTE 5 -- DEFERRED REVENUE AND DEFERRED SELLING EXPENSES
Deferred revenue was comprised of the following as of June 30, 1998 and 1997
(dollars in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred Revenue --
Campground membership sales $ 6,943 $ 6,303
Campground membership dues 14,771 15,611
Other 1,725 1,699
---------- ----------
$ 23,439 $ 23,613
========== ==========
</TABLE>
Page 59
<PAGE> 60
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,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(Restated)
<S> <C> <C> <C>
Deferred Membership Selling Expenses, beginning of year $ 1,391 $ 1,244 $ 998
Deferred 794 505 481
Recognized (560) (358) (235)
---------- ---------- ----------
Net change 234 147 246
---------- ---------- ----------
Deferred Membership Selling Expenses,
end of year $ 1,625 $ 1,391 $ 1,244
========== ========== ==========
Deferred Membership Sales Revenue,
beginning of year $ 6,303 $ 5,838 $ 4,864
Deferred 3,100 2,131 2,116
Recognized (2,460) (1,666) (1,142)
---------- ---------- ----------
Net change 640 465 974
---------- ---------- ----------
Deferred Membership Sales Revenue,
end of year $ 6,943 $ 6,303 $ 5,838
========== ========== ==========
</TABLE>
NOTE 6 -- 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 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. During the year ended June 30, 1996, $4.2 million of this
discount was amortized as additional interest expense. The remaining unamortized
balance of this discount was eliminated when the Secured Notes were retired in
the Restructuring.
The Secured Notes bore interest at 12% per annum, payable semi-annually on
January 15th and July 15th 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
Page 60
<PAGE> 61
the extent that the Company's liabilities exceeded the value of its assets
immediately prior to the acquisition of the Secured Notes.
In fiscal 1996, the Company incurred $1.1 million of restructuring costs related
to its efforts to restructure 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.
The Company incurred $1.1 million of costs in fiscal 1997 in connection with the
consummation of the Restructuring.
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. The Credit
Agreement originally had a three-year term expiring on July 16, 1999. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement, which totaled $32.0 million.
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 $12.8 million to repurchase PIK Notes and to pay the accrued interest on PIK
Notes repurchased. The Company had incurred debt issue costs of $3.1 million
related to obtaining the original Credit Agreement, which were capitalized and
were being amortized as additional interest expense over the life of the loans.
However, because
Page 61
<PAGE> 62
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 $1.3 million unamortized balance of the original debt issue
costs was charged to expense.
The Company repaid all outstanding borrowings under the Credit Agreement in
January 1998, and it had no outstanding borrowings under the Credit Agreement as
of June 30, 1998, and as of the date of this report. However, the Company has
entered into an amendment to the Credit Agreement which, when it becomes
effective, will provide the Company the flexibility to borrow up to $5.0 million
for working capital purposes and up to an additional $30.0 million to use for
the possible purchase of securities. Under the amended Credit Agreement, the
first $15.0 million of borrowings will bear interest at prime plus .25% per
annum, borrowings over $15.0 million and up to $25.0 million will bear interest
at prime plus .50% per annum, and borrowings over $25.0 million will bear
interest at prime plus 1.5% per annum. All borrowings under the amended Credit
Agreement will mature on July 17, 2002. However, if the Company has not repaid
in full or otherwise retired all of the PIK Notes by July 15, 2000, all
borrowings under the amended Credit Agreement in excess of $10.0 million will
mature on July 15, 2000, and up to $10.0 million of borrowings under the amended
Credit Agreement will be refinanced on such date and thereafter be available to
the Company for working capital purposes only. This $10.0 million working
capital facility will then become the Working Capital Replacement Facility
defined in the Indenture for the PIK Notes and will be secured by substantially
all of the assets of the Company as discussed below. The amendment to the Credit
Agreement will become effective upon the satisfaction of customary conditions.
The Company's ability to borrow under the amended Credit Agreement for working
capital and other purposes is subject to continued compliance by the Company
with the financial covenants and other requirements of the amended Credit
Agreement, including certain covenants respecting minimum earnings before
interest, taxes, depreciation and amortization, and minimum tangible net worth.
The amended 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 amended Credit Agreement. In addition, the Company's
subsidiaries other than an immaterial utility subsidiary have guaranteed the
Company's obligations under the amended 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 15th and July 15th and is payable in the
form of additional PIK Notes until after July 15, 2000, unless all borrowings
under the amended Credit Agreement are paid in full on or before such date. If
all borrowings under the amended Credit Agreement are paid in full on or before
July 15, 2000, the Company has the
Page 62
<PAGE> 63
option to issue additional PIK Notes in lieu of cash 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 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 Working Capital Replacement 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
termination of the amended Credit Agreement, the PIK Notes will be secured by
the same assets as then secure the amended Credit Agreement other than cash and
cash equivalents and other assets required to secure any refinancing or
replacement of the borrowings provided by the amended 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 amended 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
During fiscal 1998, the Company repaid the remaining balances on its notes and
mortgages payable. At June 30, 1997, the outstanding mortgages totaled $381,000
with interest payable at fixed rates ranging from 7.0% to 12%, and the
outstanding note totaled $223,000 with interest payable at escalating rates
ranging from 8.9% to 10.4%.
Page 63
<PAGE> 64
BALANCE SHEET PRESENTATION
Balance sheet presentation of the current and long term components of the
Company's outstanding debt as of June 30, 1998 and 1997, is reflected below
(dollars in thousands):
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT:
Borrowings under Credit Agreement -- $ 5,799
Notes and mortgages payable -- 65
---------- ----------
-- $ 5,864
========== ==========
LONG TERM DEBT:
Borrowings under Credit Agreement -- $ 8,298
PIK Notes, including deferred gain of $.2 million $ 32,973 29,393
Notes and mortgages payable -- 539
---------- ----------
$ 32,973 $ 38,230
========== ==========
Total debt $ 32,973 $ 44,094
========== ==========
</TABLE>
NOTE 7 -- INCOME TAXES
The Company and its subsidiaries have entered into tax sharing agreements,
pursuant to which they file federal income tax returns on a consolidated basis
and allocate tax benefits and liabilities as provided in the agreements. The
agreements provide generally 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.
The differences, expressed as a percentage of pretax income, between statutory
and effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
(Restated)
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0%
Provision for state income taxes 2.7 3.5 3.6
Alternative minimum taxes 2.6 1.7 --
Deferred tax benefit (63.6) -- --
Unrecorded net operating loss (34.0) (34.0) (34.0)
---------- ---------- ----------
Effective tax rate (58.3)% 5.2% 3.6%
========== ========== ==========
</TABLE>
Page 64
<PAGE> 65
At June 30, 1998, the Company had estimated net operating tax loss carryforwards
("NOL's") of $26.9 million, expiring in years 2009 through 2011, as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ending Amount
June 30, Expiring
----------- ---------
<S> <C>
2009 $ 5,068
2010 16,147
2011 5,656
--------
$ 26,871
========
</TABLE>
The components of deferred income taxes as of June 30, 1998 and 1997 were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net Operating Loss Carryforwards (NOL's) $ 9,136 $ 17,022
Membership sales 1,818 1,670
Alternative Minimum Tax Credit Carryover 526 94
Deferred gain on Secured Note Restructuring 658 788
PIK Note interest 2,862 1,572
Unpaid expenses 2,257 3,454
Restructuring costs 1,508 1,675
Deferred revenue 487 553
Other 350 27
---------- ----------
19,602 26,855
---------- ----------
DEFERRED TAX LIABILITIES:
Property basis differences (2,814) (2,717)
Purchase discount amortization (195) (160)
Bad debt provision (201) (2,017)
---------- ----------
(3,210) (4,894)
---------- ----------
Net Deferred Tax Assets Before Valuation Allowance 16,392 21,961
Valuation Allowance (6,392) (21,961)
---------- ----------
Net Deferred Tax Assets After Valuation Allowance $ 10,000 $ 0
========== ==========
</TABLE>
SFAS No. 109, which provides guidance on reporting for income taxes, requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has historically provided a
valuation allowance for the amount by which deferred tax assets exceed deferred
tax liabilities. However, the Company periodically assesses the realizability of
its deferred tax assets and considers whether it is more likely than not that
the tax benefits will be realized. The ultimate realization of the deferred tax
assets is dependent upon the Company having future taxable income during the
periods in which the NOL's may be utilized and other deferred tax assets become
deductible. Based on management's current assessment, which considers scheduled
reversals of deferred tax assets and liabilities, projected future taxable
income, and the carryforward periods of the Company's NOL's, management believes
that it is more likely than not that the Company will realize the benefits of a
significant portion of the net deferred tax assets. As a result, the
Page 65
<PAGE> 66
Company reduced the valuation allowance by $10.0 million at June 30, 1998,
resulting in net deferred tax assets after valuation allowance of $10.0 million.
The ultimate realization of these income tax benefits will require aggregate
taxable income of approximately $29.4 million during the carryforward period.
Management believes that it is more likely than not that the Company will
generate taxable income sufficient to realize the net deferred tax assets after
valuation allowance based upon the current estimates of future taxable income.
If the Company is unable to generate sufficient taxable income in the future
through operating results, increases in the valuation allowance will be required
through a charge to expense. However, if the Company achieves sufficient
profitability to utilize a greater portion of the deferred tax benefit, the
valuation allowance will be further reduced through a credit to income.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Lease Commitments
- -----------------
The Company leases equipment and facilities under non-cancelable operating
leases with terms in excess of one year. At June 30, 1998, 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>
1999 $ 810
2000 329
2001 187
2002 123
2003 110
</TABLE>
Accrued Construction Costs
- --------------------------
At June 30, 1998 and 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
- -----------------
In June 1996, the Company's Chief Executive Officer ("CEO") exercised his right
under his employment agreement to receive a one-time bonus of $1.3 million,
which was paid in fiscal 1997. This bonus was accrued as of June 30, 1996, and
is reflected as a nonrecurring expense in the Company's accompanying
consolidated financial statement of operations. 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
subsequently released.
Page 66
<PAGE> 67
CONTINGENCIES
General Liability Insurance
- ---------------------------
Commencing July 1, 1998, the Company obtained insurance covering general
liability losses up to an annual limit of $27.0 million, with no self-insured
deductible. Prior to this date, the Company's insurance covered general
liability losses up to an annual limit of $26.8 million, but required the
Company to pay the first $250,000 per occurrence, with an annual aggregate
exposure of $2.0 million. The Company has provided a liability for estimated
known and unknown claims related to uninsured general liability risks based on
actuarial estimates. In fiscal 1998, the Company reduced this liability by
$858,000 because the estimated losses were less than the recorded liability.
This amount is included in nonrecurring income in the accompanying consolidated
statement of operations. At June 30, 1998 and 1997, the Company's recorded
liability for estimated losses related to uninsured general liability claims
totaled $1.2 million and $2.0 million, respectively, which is included in other
liabilities in the accompanying consolidated balance sheets.
Property Insurance
- ------------------
In fiscal 1998, the Company received proceeds of $1.1 million from insurance
settlements for flood and fire damage at certain campgrounds. The Company
recognized a gain of $588,000 from these settlements, which is included in
nonrecurring income in the accompanying consolidated statement of operations.
Employee Health Insurance
- -------------------------
The Company has employee benefit plans that are funded primarily through
employer and employee contributions (see Note 13).
Workers' Compensation Insurance
- -------------------------------
Commencing July 1, 1998, the Company obtained insurance covering workers'
compensation claims with no self-insured deductible. Prior to this date, the
Company's insurance program required the Company to pay up to $250,000 per
occurrence and to deposit funds with the insurance company to pay claims in
excess of the estimated claims that were covered by the amounts originally paid
by the Company. These deposits were generally expensed in the years the deposits
were made because the Company anticipated that the deposits would be used to
cover claims. However, during fiscal 1997, the Company determined that it was
entitled to refunds of $865,000 in future periods for certain deposits made in
previous years. 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 sheets. In
fiscal 1998, the Company received refunds totaling $1.3 million for certain
other deposits expensed in previous years, which were recorded as nonrecurring
income.
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 a 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.
Page 67
<PAGE> 68
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (92% in fiscal 1998). 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 (excluding 1,800 members lost in connection with the sale of two
campgrounds in fiscal 1998). 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 9 -- STOCKHOLDERS' EQUITY (DEFICIT)
The Company issued 3,702,726 shares of Common Stock in connection with its
emergence from bankruptcy on December 31, 1991. The Company issued an additional
3,680,550 shares of Common Stock in the Restructuring on July 17, 1996 (see Note
6). 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), 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
Page 68
<PAGE> 69
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.
The Company has issued warrants to acquire shares of Common Stock and has also
granted stock options to the Company's CEO and other key employees and
non-employee directors (see Note 12).
Since inception, the Company has not paid any dividends. The Credit Agreement
prohibits the payment of any cash dividends on the Common Stock without the
consent of Foothill until the Credit Agreement is terminated, and the Indenture
for the PIK Notes prohibits the payment of any cash dividends on the Common
Stock until the PIK Notes are repaid.
NOTE 10 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by SFAS No. 95 "Statement of Cash Flows" are presented below for the years ended
June 30, 1998, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Non-cash transactions related to the Restructuring (see Note 6)
--------------------------------------------------------------
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 4)
---------------------------------------------------------------
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 payments of PIK Note interest
--------------------------------------
PIK Notes issued in lieu of cash interest payment $ 3,610 $ 2,372
Disposition of campgrounds
--------------------------
Abandonment of two operating campgrounds and elimination of
related nonrecourse obligations $ 2,518
</TABLE>
Page 69
<PAGE> 70
NOTE 11 -- 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 as of June 30, 1998 and 1997, as
well as their carrying amounts as reported in the accompanying consolidated
balance sheets, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and Cash Equivalents $ 13,631 $ 13,631 $ 1,343 $ 1,343
Restricted Cash 1,171 1,171 1,407 1,407
Contracts Receivable 6,863 12,441
Less: allowances and discount (2,682) (4,924)
---------- ---------- ---------- ----------
4,181 4,300 7,517 7,500
FINANCIAL LIABILITIES:
Borrowings under Credit
Agreement -- -- 14,097 14,097
PIK Notes 32,973 30,690 29,393 26,204
Notes and Mortgages -- -- 604 604
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of the Company's financial instruments as of June 30, 1998 and 1997,
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.
PIK Notes
- ---------
The fair value of the PIK Notes as of June 30, 1998, was estimated based on
quotes from securities industry professionals; however, to the Company's
knowledge, the PIK Notes have
Page 70
<PAGE> 71
not traded recently and may not be deemed to be traded in an established trading
market. The fair value of the PIK Notes as of June 30, 1997, was 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 as of June 30, 1997, was estimated based
on the borrowing rates 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 12 -- 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 9).
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
Page 71
<PAGE> 72
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 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.
In November 1997, the Company granted the non-employee directors Non-Qualified
Options covering 20,000 shares with an exercise price of $3.71 per share. To
date, options for 202,500 shares are outstanding under the 1991 Employee Plan,
all of which are vested, and options for 54,999 shares have been exercised. The
options 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.
Page 72
<PAGE> 73
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, options for 208,500 shares are outstanding
under the 1993 Employee Plan, all of which are vested, and options for 61,500
shares have been exercised. The options 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 directors had voluntarily terminated options for 20,000 shares that
were granted in December 1994 with an exercise price of $2.75 per share. In
November 1997, the non-employee directors of the Company were granted
Non-Qualified Options covering 5,000 shares with an exercise price of $3.71 per
share. To date, options for 50,000 shares are outstanding under the Director
Plan, all of which are vested, and none have been exercised. The options 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
- --------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") effective for the Company beginning in fiscal 1997.
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. As allowed under SFAS 123, the Company follows the accounting
treatment prescribed by Accounting
Page 73
<PAGE> 74
Pronouncement Bulletin Opinion No. 25 ("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 net income per share for the years ended June 30, 1998, 1997 and
1996, would have been $24.8 million or $3.35 per share, $6.4 million or $.89 per
share and $1.0 million or $.28 per share, respectively.
Pro forma results under SFAS 123 in the years presented 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
during the years ended June 30, 1998, 1997 and 1996, and awards outstanding as
of the end of those years:
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- ------------------------
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 1,224,495 $ .71 295,000 $ .78 291,000 $ 2.40
Options granted 25,000 $ 3.71 949,495 $ .74 255,000 $ .63
Options canceled (7,501) $ .63 (20,000) $ 2.75 (251,000) $ 2.50
Options exercised (50,499) $ .70
---------- ---------- ----------
Options outstanding, end
of year 1,191,495 $ .78 1,224,495 $ .71 295,000 $ .78
========== ========== ==========
Options exercisable, end
of year 1,152,332 $ .79 1,131,171 $ .72 155,000 $ .92
========== ========== ==========
Shares available for
grant, end of year 50,200 n/a 67,699 n/a 332,699 n/a
========== ========== ==========
</TABLE>
The weighted-average fair value of stock options granted by the Company during
the years ended June 30, 1998, 1997 and 1996, was $.78, $.38 and $.37,
respectively. The value of each option grant was estimated as of the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: (1) a risk-free interest rate of 5.41% for fiscal
1998, 6.19% for fiscal 1997 and 6.66% for fiscal 1996, (2) an expected life of
three years for fiscal 1998 and 1997, and four years for fiscal 1996, (3)
expected volatility of 54.56% for fiscal 1998, 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.
Page 74
<PAGE> 75
The following table summarizes information about the Company's stock options
outstanding as of June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable Exercise
Prices 6/30/98 Life Price at 6/30/98 Price
- -------------- -------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
OPTION PLANS:
$.59 - $1.08 502,000 7.83 years $ .75 462,837 $ .78
$3.71 25,000 9.38 years $ 3.71 25,000 $ 3.71
CEO OPTIONS:
$.69 664,495 8.08 years $ .69 664,495(1) $ .69
------------ -----------
1,191,495 8.01 years $ .78 1,152,332 $ .79
============ ===========
</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, none of which have been exercised to date.
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, of which
3,308 have been exercised to date. 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, of which 125 have been exercised to date. These warrants
expire on March 31, 1999. To date, a total of 491,572 warrants are outstanding
and 3,433 have been exercised.
The following table summarizes information about the Company's warrants
outstanding as of June 30, 1998:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
------------------------------------------------------ -------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Outstanding at Contractual Exercise Exercisable Exercise
Prices 6/30/98 Life Price at 6/30/98 Price
- -------------- -------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 4.24 481,527 1 year $ 4.24 481,527 $ 4.24
$1.625 10,170 3/4 year $ 1.625 10,170 $ 1.625
</TABLE>
Page 75
<PAGE> 76
NOTE 13 -- 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 stop loss insurance which
protects the Plans against claims in excess of set policy amounts. The Company
has provided a liability for estimated future claims of $828,000 and $1.4
million at June 30, 1998 and 1997, 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 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 $131,000 for the year ended June 30, 1998, and has
committed to make matching contributions for the calendar year ended December
31, 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.
Page 76
<PAGE> 77
Non-Qualified Deferred Compensation Plan
- ----------------------------------------
Effective April 23, 1998, the Company established the Thousand Trails, Inc.
Non-Qualified Deferred Compensation Plan (the "Non-Qualified Plan") for the
purpose of establishing a deferred compensation plan for certain "highly
compensated" employees of the Company. 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 determined solely at the discretion of the Company. The Company
made insignificant matching contributions for the period from plan inception
through June 30, 1998, and has committed to make matching contributions for the
calendar year ended December 31, 1998, in an amount equal to 45% of the combined
voluntary contributions to the Non-Qualified Plan and 401(k) Plan made by each
participant, up to 4% of the participant's annual compensation (or a maximum of
1.8% of the participants annual compensation). Employer contributions are fully
vested at the time the contributions are made.
NOTE 14 -- INDUSTRY SEGMENT INFORMATION
The Company's operations have historically been 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 operated 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 solely of the sale of lots 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 years
ended June 30, 1998 and 1997, because revenues and identifiable assets related
to the resort operations during those years 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.
Page 77
<PAGE> 78
The following table shows sales, operating earnings (loss) and other financial
information by industry segment for the year ended June 30, 1996, 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>
NOTE 15 -- 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.
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. 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.
In 1991, the Company and Trails contributed $500,000 and $300,000, respectively,
to the Indemnification Trusts. In fiscal 1998, these trusts were partially
terminated, and a portion of the trust assets were distributed to the Company.
NACO also contributed $200,000 to a trust
Page 78
<PAGE> 79
that was established to reimburse NACO directors and certain officers for any
indemnifiable damages and expenses that they might incur and to advance defense
funds to them. This trust was terminated in fiscal 1998 and the trust assets
were distributed to the Company. The remaining assets in the Indemnification
Trusts totaled $804,000 at June 30, 1998, and are included in other assets in
the accompanying consolidated balance sheets.
NOTE 16 -- 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 6).
The following condensed consolidating balance sheets and statements of
operations present the financial position and results of operations of the
Company ("TTI"), NACO, RPI, Wilderness Management and Coast, 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 revenue 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 results of operations of Trails for the year ended
June 30, 1996, have been presented in a separate column. The assets and
operations of Wilderness Management and Coast 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 have
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 79
<PAGE> 80
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI,
WILDERNESS, CONSOLIDATING
TTI NACO AND COAST(e) ENTRIES TOTAL
---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS --
Cash and cash equivalents $ 12,933 $ 480 $ 218 $ 13,631
Current portion of receivables, net 2,074 366 2,440
Current portion of net deferred tax 528 43 2,383 d 2,954
assets
Due (to) from affiliates (9,092) 8,003 1,625 (536)a
Other current assets 1,467 673 288 2,428
---------- ---------- ---------- ---------- ----------
Total current assets 7,910 9,522 2,174 1,847 21,453
Receivables, net 1,500 241 1,741
Note receivable from subsidiary 28,161 (28,161)b
Real estate and property, net 18,056 20,814 213 39,083
Investment in subsidiaries (9,939) 9,939 c
Net deferred tax assets 3,608 100 3,338 d 7,046
Other assets 3,307 1,270 362 4,939
---------- ---------- ---------- ---------- ----------
Total assets $ 52,603 $ 31,847 $ 2,849 $ (13,037) $ 74,262
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES --
Accounts payable and accrued
liabilities $ 6,963 $ 2,889 $ 936 $ (536)a $ 10,252
Accrued construction costs 2,845 2,845
Current portion of deferred revenue 11,627 5,987 1,237 18,851
---------- ---------- ---------- ---------- ----------
Total current liabilities 18,590 11,721 2,173 (536) 31,948
Note payable to parent 28,161 (28,161)b
Long term debt 32,973 32,973
Other liabilities 4,007 2,567 13 6,587
---------- ---------- ---------- ---------- ----------
Total liabilities 55,570 42,449 2,186 (28,697) 71,508
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT) (2,967) (10,602) 663 15,660 2,754
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 52,603 $ 31,847 $ 2,849 $ (13,037) $ 74,262
========== ========== ========== ========== ==========
</TABLE>
a Entry to eliminate other intercompany accounts.
b Entry to eliminate intercompany debt.
c Entry to record subsidiaries' results on a consolidated basis.
d Entry to record net deferred tax assets in consolidation that
are not realizable by the subsidiary on a stand-alone basis.
e Includes Wilderness Management assets of $481,000 and Coast
assets of $270,000.
Page 80
<PAGE> 81
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI,
WILDERNESS, CONSOLIDATING
TTI NACO AND COAST(e) ENTRIES TOTAL
----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS--
Cash and cash equivalents $ 767 $ 484 $ 92 $ 1,343
Current portion of receivables, net 2,768 438 $ (72)a 3,134
Other current assets 2,308 2,980 6,356 (7,088)b 4,556
----------- ----------- ----------- ----------- -----------
Total current assets 5,843 3,902 6,448 (7,160) 9,033
Receivables, net 3,812 699 (128)a 4,383
Note receivable from subsidiary 28,154 (28,154)c
Real estate and property, net 20,943 23,254 97 44,294
Investment in subsidiaries (10,638) 10,638 d
Other Assets 3,571 1,782 239 5,592
----------- ----------- ----------- ----------- -----------
Total Assets $ 51,685 $ 29,637 $ 6,784 $ (24,804) $ 63,302
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES--
Accounts payable and accrued liabilities $ 13,896 $ 3,575 $ 859 $ (7,288)a,b $ 11,042
Current portion of long term debt 5,844 20 5,864
Accrued construction costs 2,809 2,809
Current portion of deferred revenue 11,913 6,324 1,218 19,455
----------- ----------- ----------- ----------- -----------
Total current liabilities 31,653 12,728 2,077 (7,288) 39,170
Note 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 73,853 44,972 2,087 (35,442) 85,470
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT) (22,168) (15,335) 4,697 10,638 (22,168)
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 51,685 $ 29,637 $ 6,784 $ (24,804) $ 63,302
========== =========== =========== =========== ===========
</TABLE>
a Entry to eliminate intercompany dealer holdback.
b Entry to eliminate 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 and Coast
assets of $48,000.
Page 81
<PAGE> 82
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI,
WILDERNESS, CONSOLIDATING
TTI NACO AND COAST(e) ENTRIES TOTAL
----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $ 34,157 $ 18,326 $ 1,322 $ 53,805
Membership and resort interest sales 2,341 1,553 3,894
Interest income 4,382 1,215 59 (3,021)a 2,635
Income from subsidiaries 5,794 (5,794)b
Other income 5,320 7,637 4,160 (942)c 16,175
----------- ----------- ----------- ----------- -----------
Total Revenue 51,994 28,731 5,541 (9,757) 76,509
----------- ----------- ----------- ----------- -----------
EXPENSES
Campground/resort operating
expenses 23,201 14,444 1,507 39,152
Selling and marketing 3,074 1,724 4,798
Interest expense 5,087 2,533 (3,021)a 4,599
General and administrative 4,716 4,687 179 (942)c 8,640
Other expenses 1,181 291 2,132 3,604
----------- ----------- ----------- ----------- -----------
Total Expenses 37,259 23,679 3,818 (3,963) 60,793
----------- ----------- ----------- ----------- -----------
Operating income 14,735 5,052 1,723 (5,794) 15,716
Income tax (provision) benefit 4,423 (319) (662) 5,721 d 9,163
----------- ----------- ----------- ----------- -----------
Net Income $ 19,158 $ 4,733 $ 1,061 $ (73) $ 24,879
=========== =========== =========== =========== ===========
</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 Entry to record a deferred tax benefit in consolidation that
is not realizable by the subsidiary on a stand-alone basis.
e Includes Wilderness Management revenues and expenses of $1.3
million and $1.5 million, respectively, and Coast revenues and
expenses of $1,000 and $179,000, respectively.
Page 82
<PAGE> 83
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI,
WILDERNESS, CONSOLIDATING
TTI NACO AND COAST(d) ENTRIES 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 3,280 (3,280)b
Other income 4,959 5,349 4,086 (1,035)c 13,359
----------- ----------- ----------- ----------- -----------
Total Revenue 50,890 29,343 5,180 (7,000) 78,413
----------- ----------- ----------- ----------- -----------
EXPENSES
Campground/resort operating
expenses 24,431 17,408 1,021 42,860
Selling and marketing 2,898 1,559 4,457
Interest expense 9,130 2,639 (2,685)a 9,084
General and administrative 5,880 5,135 120 (1,035)c 10,100
Restructuring costs 1,101 1,101
Other expenses 1,258 406 1,978 3,642
----------- ----------- ----------- ----------- -----------
Total Expenses 44,698 27,147 3,119 (3,720) 71,244
----------- ----------- ----------- ----------- -----------
Operating income 6,192 2,196 2,061 (3,280) 7,169
Income tax (provision) benefit 607 (44) (933) (370)
----------- ----------- ----------- ----------- -----------
Net Income $ 6,799 $ 2,152 $ 1,128 $ (3,280) $ 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, and Coast expenses of
$120,000.
Page 83
<PAGE> 84
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND CONSOLIDATING
TTI TRAILS NACO WILDERNESS(d) ENTRIES TOTAL
----------- ----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $ 34,911 $ 26,481 $ 820 $ 62,212
Membership and resort
interest sales 1,444 1,569 3,013
Interest income $ 6,445 3,446 1,219 267 $ (4,621)a 6,756
Income from subsidiaries 8,526 (8,526)b
Other income 66 4,669 10,977 4,585 (1,256)c 19,041
-------- -------- -------- -------- ----------- --------
Total Revenue 15,037 44,470 40,246 5,672 (14,403) 91,022
-------- -------- -------- -------- ----------- --------
EXPENSES
Campground/resort operating
expenses 25,647 23,865 796 50,308
Selling and marketing 3,504 1,810 5,314
Interest expense 17,346 146 4,822 (4,621)a 17,693
General and administrative 1,604 3,813 6,312 (1,256)c 10,473
Restructuring costs 1,124 1,124
Other expenses 3,721 392 2,237 6,350
-------- -------- -------- -------- ----------- --------
Total Expenses 20,074 36,831 37,201 3,033 (5,877) 91,262
-------- -------- -------- -------- ----------- --------
Operating income (loss) (5,037) 7,639 3,045 2,639 (8,526) (240)
Income tax (provision) benefit 4,756 (3,471) (77) (1,249) (41)
Extraordinary gain 1,390 1,390
-------- -------- -------- -------- ----------- --------
Net Income $ 1,109 $ 4,168 $ 2,968 $ 1,390 $ (8,526) $ 1,109
======== ======== ======== ======== =========== ========
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate
receivable portfolios.
d Includes Wilderness Management revenues and expenses of
$826,000 and $796,000, respectively.
Page 84
<PAGE> 85
SCHEDULE II
THOUSAND TRAILS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Valuation and qualifying Balance at the Balance at
accounts deducted from assets beginning of the end of
Year ended the year Additions Deductions the year
- -------------------------------- -------------- --------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful 6/30/98 $ 3,855 $ 86 $ 1,805 a $ 2,136
accounts 6/30/97 6,290 35 2,470 a 3,855
6/30/96 13,806 24 7,540 a 6,290
Allowance for uncollectible 6/30/98 $ 3,568 $ 2,626 $ 2,765 $ 3,429
dues receivable 6/30/97 4,666 3,215 4,313 3,568
6/30/96 4,008 4,754 b 4,096 4,666
Allowance for interest discount, 6/30/98 $ 1,069 $ 0 $ 523 $ 546
collection costs and valuation 6/30/97 1,762 0 693 1,069
discount 6/30/96 2,882 0 1,120 1,762
Deferred tax valuation 6/30/98 $ 21,961 $ 0 $ 15,569 c $ 6,392
allowance (as restated) 6/30/97 25,220 0 3,259 21,961
6/30/96 19,441 $ 5,779 0 25,220
</TABLE>
a Includes a reduction in the allowance for doubtful accounts of
$1,000, $1,232, and $5,146 in fiscal 1998, 1997 and 1996,
respectively.
b Includes an increase in the allowance for uncollectible dues
receivable of $1,000.
c Includes a reduction in the deferred tax valuation allowance
of $10,000.
Page 85
<PAGE> 86
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 86
<PAGE> 87
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 1998 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 1998 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 1998 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 1998 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
Page 87
<PAGE> 88
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, 1998,
1997 and 1996.
Consolidated Balance Sheets as of June 30, 1998 and 1997.
Consolidated Statements of Operations for the years ended June 30, 1998,
1997 and 1996.
Consolidated Statements of Stockholders' Deficit for the years ended June
30, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended June 30, 1998,
1997 and 1996.
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, 1998.
(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).
Page 88
<PAGE> 89
2.2 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).
2.3 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).
2.4 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).
2.5 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).
2.6 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).
2.7 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").
2.8 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).
Page 89
<PAGE> 90
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 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).
4.6 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).
4.7 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).
90
<PAGE> 91
4.8 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).
4.9 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).
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).
Page 91
<PAGE> 92
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).
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).
Page 92
<PAGE> 93
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 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1997, File No. 0-19743).
10.16 Third Amendment to Loan and Security Agreement dated as of
January 5, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.17 Fourth Amendment to Loan and Security Agreement, dated as of
June 10, 1998, between the Company and Foothill.
10.18 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).
10.19 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).
10.20 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).
10.21 Consent and First Amendment to Pledge and Security Agreement,
dated as of October 31, 1997, between certain subsidiaries of
the Company and Foothill Capital Corporation (incorporated by
reference to exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, File No.
0-19743).
Page 93
<PAGE> 94
10.22 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).
10.23 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).
10.24 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).
10.25 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).
10.26 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).
10.27 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).
10.28 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).
10.29 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).
Page 94
<PAGE> 95
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
10.35 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).
Page 95
<PAGE> 96
10.36 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).
10.37 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).
10.38 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).
10.39 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).
10.40 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).
10.41 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).
Page 96
<PAGE> 97
10.42 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).
10.43 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).
10.44 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).
10.45 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).
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 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).
10.47 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).
10.48 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).
10.49 Supplement to Grantor Trust Agreement, dated as of January
22, 1998, between NACO and a majority of the persons
presently named as beneficiaries under the Grantor Trust
Agreement, dated as of September 30, 1991, between NACO and
Union Bank of California, N.A., as Trustee (incorporated by
reference to exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, File No.
0-19743).
Page 97
<PAGE> 98
10.50 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).
10.51 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).
10.52 Supplement to Grantor Trust Agreement, dated as of
November 20, 1996, by the Company in favor of Union Bank
(incorporated by reference to Exhibit 10.43 to the Form 8-B
filed by the Company with the SEC on November 27, 1996, File
No. 0-19743).
10.53 Supplement No. 2 to Grantor Trust Agreement, dated as of
January 22, 1998, between the Company and a majority of the
persons presently named as beneficiaries under the Grantor
Trust Agreement, dated as of May 8, 1991, as supplemented,
between the Company and Union Bank of California, N.A., as
Trustee (incorporated by reference to exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.54 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).
10.55 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).
10.56 Agreement for the Thousand Trails, Inc. Non-Qualified
Deferred Compensation Plan, effective April 23, 1998.
10.57 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).
Page 98
<PAGE> 99
10.58 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).
10.59 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).
10.60 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).
10.61 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 as of and for the year ended June 30,
1998.
27.2 Restated Financial Data Schedule as of and for the year ended
June 30, 1997.
Page 99
<PAGE> 100
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 24, 1998 By: /s/William J. Shaw
------------------------------------
William J. Shaw
Chairman of the Board, President,
Chief Executive Officer, and acting
Chief Financial Officer
Date: September 24, 1998 By: /s/Bryan Reed
------------------------------------
Bryan Reed
Chief Accounting Officer
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 24, 1998
- ---------------------------
Andrew M. Boas
/s/William P. Kovacs Director September 24, 1998
- ---------------------------
William P. Kovacs
/s/Donald R. Leopold Director September 24, 1998
- ---------------------------
Donald R. Leopold
/s/H. Sean Mathis Director September 24, 1998
- ---------------------------
H. Sean Mathis
/s/Douglas K. Nelson Director September 24, 1998
- ---------------------------
Douglas K. Nelson
/s/William J. Shaw Chairman of September 24, 1998
- --------------------------- the Board
William J. Shaw
Page 100
<PAGE> 101
EXHIBIT INDEX
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 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).
2.3 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).
2.4 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).
2.5 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).
2.6 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).
2.7 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").
2.8 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).
<PAGE> 102
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 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).
4.6 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).
4.7 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).
<PAGE> 103
4.8 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).
4.9 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).
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).
<PAGE> 104
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).
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).
<PAGE> 105
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 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1997, File No. 0-19743).
10.16 Third Amendment to Loan and Security Agreement dated as of
January 5, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.17 Fourth Amendment to Loan and Security Agreement, dated as of
June 10, 1998, between the Company and Foothill.
10.18 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).
10.19 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).
10.20 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).
10.21 Consent and First Amendment to Pledge and Security Agreement,
dated as of October 31, 1997, between certain subsidiaries of
the Company and Foothill Capital Corporation (incorporated by
reference to exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, File No.
0-19743).
<PAGE> 106
10.22 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).
10.23 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).
10.24 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).
10.25 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).
10.26 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).
10.27 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).
10.28 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).
10.29 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).
<PAGE> 107
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
10.35 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).
<PAGE> 108
10.36 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).
10.37 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).
10.38 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).
10.39 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).
10.40 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).
10.41 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).
<PAGE> 109
10.42 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).
10.43 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).
10.44 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).
10.45 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).
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 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).
10.47 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).
10.48 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).
10.49 Supplement to Grantor Trust Agreement, dated as of January
22, 1998, between NACO and a majority of the persons
presently named as beneficiaries under the Grantor Trust
Agreement, dated as of September 30, 1991, between NACO and
Union Bank of California, N.A., as Trustee (incorporated by
reference to exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998, File No.
0-19743).
<PAGE> 110
10.50 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).
10.51 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).
10.52 Supplement to Grantor Trust Agreement, dated as of
November 20, 1996, by the Company in favor of Union Bank
(incorporated by reference to Exhibit 10.43 to the Form 8-B
filed by the Company with the SEC on November 27, 1996, File
No. 0-19743).
10.53 Supplement No. 2 to Grantor Trust Agreement, dated as of
January 22, 1998, between the Company and a majority of the
persons presently named as beneficiaries under the Grantor
Trust Agreement, dated as of May 8, 1991, as supplemented,
between the Company and Union Bank of California, N.A., as
Trustee (incorporated by reference to exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.54 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).
10.55 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).
10.56 Agreement for the Thousand Trails, Inc. Non-Qualified
Deferred Compensation Plan, effective April 23, 1998.
10.57 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).
<PAGE> 111
10.58 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).
10.59 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).
10.60 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).
10.61 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 as of and for the year ended June 30,
1998.
27.2 Restated Financial Data Schedule as of and for the year ended
June 30, 1997.
<PAGE> 1
EXHIBIT 13.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
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
----- -----
<PAGE> 2
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]
At September 15, 1998, the latest practicable date, the aggregate market value
of voting common stock of the Registrant held by nonaffiliates was $16.1
million.
At September 15, 1998, there were 7,503,208 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 1998
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission (the "SEC") pursuant to Regulation 14A.
<PAGE> 3
eliminated when the Secured Notes were retired in a restructuring (the
"Restructuring") that was completed on July 17, 1996 (see Note 6).
Income Taxes
- ------------
The Company recognizes certain revenues and expenses in periods which differ for
tax and financial reporting purposes.
Net Income Per Share
- --------------------
SFAS No. 128 replaced the calculation of primary and fully diluted net income
per share with basic and diluted net income per share. Unlike primary net income
per share, basic net income per share excludes any dilutive effects of common
stock equivalents. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share and 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. Net income per share
amounts for all periods have been restated and presented to conform to the SFAS
No. 128 requirements.
The tables below set forth the information necessary to compute basic and
diluted net income per share for the years ended June 30, 1998, 1997 and 1996,
including a summary of the components of the numerators and denominators of the
basic and diluted net income per share computations for the periods presented
(dollars and shares in thousands, except per share amounts):
<TABLE>
<CAPTION>
Net Income Per Share for the years ended June 30,
-------------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net Income $24,879 $ 6,799 $ 1,109
======= ======= =======
Weighted Average Number of Shares - Basic 7,407 7,223 3,703
Dilutive Options 975 480 18
Dilutive Warrants 16 1
------- ------- -------
Weighted Average Number of Shares - Diluted 8,398 7,704 3,721
======= ======= =======
Net Income Per Share - Basic $ 3.36 $ .94 $ .30
======= ======= =======
Net Income Per Share - Diluted $ 2.96 $ .88 $ .30
======= ======= =======
</TABLE>
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 -- RECEIVABLES
CONTRACTS RECEIVABLE
The components of contracts receivable as of June 30, 1998 and 1997, are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Contracts receivable --
Memberships/undivided interests $ 6,425 $ 11,293
Timeshares and lots 401 1,069
-------- --------
6,826 12,362
Allowance for doubtful accounts (2,136) (3,855)
Allowance for interest discount (234) (455)
Allowance for collection costs (234) (464)
Valuation allowance (78) (150)
-------- --------
4,144 7,438
Interest receivable 37 79
-------- --------
$ 4,181 $ 7,517
======== ========
</TABLE>
Contracts Receivable
- --------------------
Contracts receivable bear interest at rates which range generally from 9.5% to
16%, with a weighted average stated rate of 13% at June 30, 1998 and 1997. The
obligor's weighted average equity in the contracts receivable at June 30, 1998
and 1997, was 75% and 70%, respectively. As of June 30, 1998, 97% of the
campground members and 99% of the purchasers of resort interests had paid for
their membership or resort interest in full.
56
<PAGE> 4
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: October 7, 1998 By: /s/William J. Shaw
------------------------------------
William J. Shaw
Chairman of the Board, President,
Chief Executive Officer, and acting
Chief Financial Officer
Date: October 7, 1998 By: /s/Bryan Reed
------------------------------------
Bryan Reed
Chief Accounting Officer
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 October 7, 1998
- ---------------------------
Andrew M. Boas
/s/William P. Kovacs Director October 7, 1998
- ---------------------------
William P. Kovacs
/s/Donald R. Leopold Director October 7, 1998
- ---------------------------
Donald R. Leopold
/s/H. Sean Mathis Director October 7, 1998
- ---------------------------
H. Sean Mathis
/s/Douglas K. Nelson Director October 7, 1998
- ---------------------------
Douglas K. Nelson
/s/William J. Shaw Chairman of October 7, 1998
- --------------------------- the Board
William J. Shaw
<PAGE> 1
EXHIBIT 13.3
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
the Commission Only (as
[X] Definitive Proxy Statement permitted by Rule 14a-6
(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THOUSAND TRAILS, INC.
---------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Not Applicable
---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)Title of each class of securities to which transaction applies: N/A
(2)Aggregate number of securities to which transaction applies: N/A
(3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
(4)Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing:
(1)Amount Previously Paid: N/A
(2)Form, Schedule or Registration Statement No.: N/A
(3)Filing party: N/A
(4)Date filed: N/A
<PAGE> 2
THOUSAND TRAILS, INC.
2711 LBJ FREEWAY, SUITE 200
DALLAS, TEXAS 75234
NOTICE OF ANNUAL MEETING OF THE STOCKHOLDERS
TO BE HELD DECEMBER 10, 1998
To the Stockholders of Thousand Trails, Inc.:
You are invited to attend the Annual Meeting of the Stockholders of
Thousand Trails, Inc., a Delaware corporation (the "Company"), which will be
held at the offices of the Company, 2711 LBJ Freeway, Suite 200, Dallas, Texas,
on December 10, 1998, at 10:00 a.m., for the following purposes:
(1) To elect the directors of the Company, who will serve until the
election and qualification of their successors.
(2) To consider and act upon the ratification of Arthur Andersen LLP as
the Company's independent certified public accountants for the fiscal
year ending June 30, 1999.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The board of directors of the Company has established the close of
business on October 26, 1998, as the record date for the determination of
stockholders entitled to notice of this meeting and to vote thereat and at any
adjournment thereof.
By Order of the Board of Directors
/s/ WALTER B. JACCARD
WALTER B. JACCARD
Vice President, General Counsel, and Secretary
Dallas, Texas
October 28, 1998
If you cannot be present at the annual meeting, PLEASE SIGN, DATE, AND
RETURN THE ACCOMPANYING PROXY CARD in the enclosed stamped and addressed
envelope so that proxyholders may vote your shares at the meeting. If you
attend the meeting in person, you may revoke your proxy and vote your shares in
person.
<PAGE> 3
THOUSAND TRAILS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF THOUSAND TRAILS, INC.
TO BE HELD DECEMBER 10, 1998
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 December 10, 1998, 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 28, 1998.
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, 1999.
(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
26, 1998, 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 7,511,708 shares
of common stock, par value $.01 per share (the "Common Stock"). The Company did
not have any other shares of capital stock outstanding.
<PAGE> 4
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.
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 proxyholders are authorized to (a) vote upon
such other matters presented at the meeting that the Board of Directors did not
know would be presented a reasonable time before this solicitation, (b) vote to
approve the minutes of the last annual meeting of Stockholders (which approval
will not amount to ratification of the action taken at that meeting), (c) vote
for the election of such substitute nominees for director as the Board of
Directors may propose if any nominee set forth herein is unavailable to stand
for election as a result of unforeseen circumstances, and (d) vote upon matters
incident to the conduct of the meeting.
A Stockholder has the unconditional right to revoke such Stockholder's
proxy at any time prior to the voting thereof by (i) submitting a later dated
proxy to the Secretary of the Company or someone else who attends the Annual
Meeting, (ii) attending the Annual Meeting and delivering a written notice of
revocation of the proxy to the Secretary of the Company, 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 the close of business on
December 9, 1998.
Page 2
<PAGE> 5
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 3
<PAGE> 6
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 20, 1998. 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................................................ 3,715,388(1) 48.1%(1)
c/o Carl Marks Management Co., LP
135 East 57th Street
New York, New York 10022
Carl Marks Management Co., LP................................. 3,359,246(1) 43.6%(1)
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments, LP.......................... 2,668,765(1) 34.6%(1)
c/o Carl Marks Management Co., LP
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments II, LP....................... 690,481(1) 9.2%(1)
c/o Carl Marks Management Co., LP
135 East 57th Street
New York, New York 10022
Peter M. Collery.............................................. 1,308,498(2) 17.4%(2)
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, NY 10019
Robert C. Ruocco.............................................. 3,676,231(1) 47.7%(1)
c/o Carl Marks Management Co., LP
135 East 57th Street
New York, New York 10022
SC Fundamental Inc............................................ 946,508(2) 12.6%(2)
712 Fifth Avenue
New York, NY 10019
</TABLE>
(continued)
Page 4
<PAGE> 7
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
------------------------------------ ------------------ ------------------
<S> <C> <C>
SC Fundamental Value BVI, Inc................................. 361,990(2) 5.2%(2)
712 Fifth Avenue
New York, NY 10019
William J. Shaw............................................... 990,406(3) 12.1%(3)
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, TX 75234
Gary N. Siegler............................................... 1,308,498(2) 17.4%(2)
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, NY 10019
The SC Fundamental Value Fund, L.P.......................... 946,508(2) 12.6%(2)
712 Fifth Avenue
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, LP ("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.,
LP ("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, LP ("CM Strategic II") owns 690,481 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
25,000 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, 10,000
shares at a price of $1.08 per share, and 5,000 shares at a price of
$3.71 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 690,481 shares, (iii) CM Management - sole voting and investment
power over 3,359,246 shares, (iv) Mr. Boas - sole voting and investment
power over 36,569 shares and shared voting and investment power over
3,678,819 shares, and (v) Mr. Ruocco - shared voting and investment power
over 3,676,231 shares.
(continued)
Page 5
<PAGE> 8
The following table shows the beneficial ownership of the shares of Common
Stock described in this footnote:
<TABLE>
<CAPTION>
CM CM CM MR.
STRATEGIC STRATEGIC II MANAGEMENT MR. BOAS RUOCCO
--------- ------------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Shares owned by CM Strategic............ 2,474,244 2,474,244 2,474,244 2,474,244
Warrants owned by CM Strategic.......... 194,521 194,521 194,521 194,521
Shares owned by CM Strategic II........ 690,481 690,481 690,481 690,481
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............... 25,000
Shares held in trust over which Mr. Boas
is a Co-Trustee........................ 2,588
--------- ------- --------- --------- ---------
Total...................... 2,668,765 690,481 3,359,246 3,715,388 3,676,231
========= ======= ========= ========= =========
Percentage of outstanding shares........ 34.6% 9.2% 43.6% 48.1% 47.7%
</TABLE>
- --------------------
(2) The ownership of these shares of Common Stock includes multiple
beneficial ownership of the same shares. SC Fundamental Value Fund, LP, 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, (ii) 5,500
shares held by Mr. Shaw as custodian for his grandchildren, and (iii)
290,411 shares held by the William J. Shaw Family Partnership, LP
("FLP"), a limited partnership. Mr. Shaw controls the sole general
partner of FLP, and trusts for the benefit of Mr. Shaw and his children
and grandchildren are the limited partners. Mr. Shaw disclaims beneficial
ownership of the shares held by FLP except to the extent of his
partnership interests therein.
Page 6
<PAGE> 9
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned as of October 20, 1998, 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............................. 3,715,388(1)(2) 48.1%
William F. Dawson.......................... 40,000(2) *
R. Gerald Gelinas.......................... 74,740(2)(3) *
Walter B. Jaccard.......................... 60,000(2) *
William P. Kovacs.......................... 75,000(2) *
Donald R. Leopold.......................... 15,000(2) *
H. Sean Mathis............................. 25,000(2) *
Douglas K. Nelson.......................... 25,000(2) *
William J. Shaw............................ 990,406(2)(4) 12.1%
All directors and executive officers as a
group (9 individuals)................... 5,020,534(2) 58.1%
</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, 25,000; Mr. Dawson, 40,000; Mr. Gelinas,
50,000; Mr. Jaccard, 60,000; Mr. Kovacs, 25,000; Mr. Leopold, 15,000; Mr.
Mathis, 25,000; Mr. Nelson, 25,000; Mr. Shaw, 664,495; and all directors
and executive officers as a group, 929,495.
(3) Includes 2,400 shares held by Mr. Gelinas' spouse.
(4) See footnote number 3 to the preceding table for a description of Mr.
Shaws' beneficial ownership of Common Stock.
* Less than 1%.
Page 7
<PAGE> 10
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 43 None December 1991 Audit, Marketing, and Nominating
William P. Kovacs 52 None December 1991 Audit, Compensation, and Special
Donald R. Leopold 49 None Director 1995 Compensation and Marketing
H. Sean Mathis 51 None December 1991 Audit, Compensation, Nominating,
and Special
Douglas K. Nelson 55 None December 1991 Marketing, Nominating, and
Special
William J. Shaw 55 Chairman of the Board, May 1995 None
Chief Executive Officer,
President, and acting
Chief Financial Officer
</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, (iv) a director of Vertientes Camaguey
Sugar Company, a holding company, since November 1994, and (v) a director of
Seneca Foods, Inc., a processor of vegetables and juices, since September 1998.
Mr. Boas also served as a director of Herman's Sporting Goods, Inc., from March
1993 to March 1996; and a director of Pratt & Lambert
Page 8
<PAGE> 11
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.
Kovacs has served as a director of the Company. Since June 1998, Mr. Kovacs has
been an attorney with the law firm of Shefsky & Froelich Ltd. From January 1997
to May 1998, Mr. Kovacs was 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. Mr.
Mathis is a Managing Director of Des Voeux Financial, a private financial
advisory firm. 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 1996 to September 1997, Mr. Mathis was Chairman of the
Board of Universal Gym Equipment Inc. ("Universal"), a privately owned company.
In July 1997, Universal filed for protection under the federal bankruptcy laws.
From 1991 to 1993, Mr. Mathis was President of RCL Acquisition Corporation, the
predecessor firm of HMG. From 1993 to 1995, Mr. Mathis was President and a
director of RCL Capital Corporation, which was merged into DISC Graphics in
November 1995. From May 1988 to October 1993, Mr. Mathis was a director and the
Chief Operating Officer of Ameriscribe Corporation ("Ameriscribe"), 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 1992, as part of a restructuring program, 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
Page 9
<PAGE> 12
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. Since July 1995, Mr. Shaw has also been
Chairman of the Board and the 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"). Since July 1998, Mr. Shaw has also been acting
Chief Financial Officer of the Company. Mr. Shaw also has been a director of
Anchor Glass Container Corporation, a producer of glass containers, since May
1998. 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.
BOARD OF DIRECTORS
MEETINGS. During the fiscal year ended June 30, 1998, the Board of
Directors held one regularly scheduled meeting and four 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, 1998, 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, 1998,
the Compensation Committee held two meetings.
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, 1998, the Marketing Committee did not meet.
Page 10
<PAGE> 13
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 1999 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, 1998, 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 certain financing
alternatives and other transactions involving the capital structure of the
Company. During the fiscal year ended June 30, 1998, the Special Committee held
two meetings.
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 55 Chairman of the Board, President, Chief
Executive Officer, and acting Chief
Financial Officer
R. Gerald Gelinas 52 Vice President of Sales and Marketing
Walter B. Jaccard 45 Vice President, General Counsel,
and Secretary
</TABLE>
William J. Shaw is also a director of the Company and his business
experience is described above.
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
Page 11
<PAGE> 14
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
served as a director of Trails from February 1992 until its merger into the
Company.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended June 30,
1998, 1997, and 1996, 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 during these years, and to the most highly compensated officer of a
subsidiary of the Company, who is not considered an executive officer for
reporting purposes.
Page 12
<PAGE> 15
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 ($) ($) ($) OPTIONS (#)(1) ($)(2)
- ------------------ ---- ------- ------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William F. Dawson, CEO 1998 169,750 30,000 -0- -0- 3,339
of Resort Parks 1997 169,750 15,000 -0- 5,000 3,806
International, Inc. 1996 169,750 40,000(3) -0- 35,000 2,783
R. Gerald Gelinas 1998 133,500 30,000 -0- -0- 1,654
Vice President of 1997 130,000 30,000 -0- 30,000 1,174
Sales and Marketing 1996 107,600(4) 30,000 -0- 20,000 -0-
Walter B. Jaccard, 1998 143,500 25,000 -0- -0- 2,690
Vice President, 1997 140,000 10,000 -0- 30,000 2,796
General Counsel, and 1996 140,000 15,000 -0- 30,000 2,869
Secretary
William J. Shaw, 1998 256,250 178,425 -0- -0- 1,374
Chairman of the Board, 1997 250,000 -0- -0- 664,495 321,143(5)
President, and CEO 1996 250,000 -0- -0- -0- 952,927(5)
Harry J. White, Jr.(6) 1998 126,770 15,000 -0- -0- 2,569
former VP, CFO, CAO, 1997 124,032 30,000 -0- 30,000 2,777
and Treasurer 1996 124,032 30,000 -0- 40,000 3,127
</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 and Non-Qualified Plan for fiscal 1998, 1997, and 1996, as follows:
Mr. Dawson, $3,339, $3,806, and $2,783; Mr. Gelinas, $1,654, $1,174, and
0, Mr. Jaccard, $2,690, $2,796, and $2,869; Mr. Shaw, $1,374, $3,481,
and $0, and Mr. White, $2,569 , $2,777, and $3,127. 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 and Other Arrangements"
below.
(3) An additional bonus earned in fiscal 1995 was paid to Mr. Dawson in
August 1995.
(4) Mr. Gelinas became the Company's Vice President of Sales and Marketing
in September 1995.
(5) Amounts include a portion of 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 and
Other Arrangements" below.
(6) Mr. White resigned from the Company on June 29, 1998.
Page 13
<PAGE> 16
EMPLOYMENT CONTRACTS AND OTHER ARRANGEMENTS.
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. In June 1996,
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 also has an ongoing arrangement with Mr. Shaw under which
the Company pays all of the expenses Mr. Shaw incurs in operating and
maintaining a private airplane that he uses for business travel on behalf of
the Company. During the three months that this arrangement was in effect in
fiscal 1998, the Company paid $31,778 of such expenses.
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 was not less than $124,032 per year, and he could receive a
discretionary bonus of up to $30,000 per year. Mr. White resigned from the
Company effective June 29, 1998.
Page 14
<PAGE> 17
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 violate the restrictions in Article IX of the Company's Restated
Certificate of Incorporation, which are designed to prevent an "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 violate these restrictions, generally the term of the
options will be extended with respect to that portion of the options which
would violate the restrictions in order to ensure that Mr. Shaw will have at
least a 90-day period after the restrictions cease within which to exercise
such options. However, solely with respect to that portion of the options
intended to be incentive stock options, the restrictions on exercise 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
Page 15
<PAGE> 18
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 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. In November 1997, the
Company granted the non-employee directors Non-Qualified Options covering
20,000 shares with an exercise price of $3.71 per share. To date, options for
202,500 shares are outstanding under the 1991 Employee Plan, all of which are
vested, and options for 54,999 shares have been exercised. The options 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 (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
Page 16
<PAGE> 19
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
key employees ISOs covering 95,000 shares at an exercise price of $0.59 per
share. In September 1996, the Company granted key employees ISOs covering
175,000 shares with an exercise price of $0.80 per share. To date, options for
208,500 shares are outstanding under the 1993 Employee Plan, all of which are
vested, and options for 61,500 shares have been exercised. The options 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 (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. In November 1997, the non-employee directors of the Company
were granted Non-Qualified Options covering 5,000 shares with an exercise price
of $3.71 per share. To date, options for 50,000 shares are outstanding under
the Director Plan, all of which are vested, and none have been exercised. The
options have a term of 10 years from the date of grant.
The Director Plan was designed to be a "formula plan," pursuant to
which each non-employee director would automatically receive a grant of
Non-qualified Options to purchase 5,000 shares of Common Stock on the day
immediately after each annual meeting of the stockholders at which directors
are elected, beginning with the annual meeting held in December 1993. If on any
such day, the number of shares of Common Stock remaining available for issuance
under the Director Plan was insufficient for the grant of the total number of
Non-qualified Options to which all participants would otherwise be entitled,
each participant would receive Non-qualified Options to purchase a
proportionate number of the available number of remaining shares. The exercise
price of each Non-qualified Option is required to equal the fair market value
of such Option on the date of grant as determined under the Director Plan.
Generally, the Director Plan specifies that such fair market value will be the
average trading price
Page 17
<PAGE> 20
of the Common Stock during the period beginning 45 days before the date of
grant and ending 15 days before the date of grant.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning Options
to purchase Common Stock held by the five individuals named in the Summary
Compensation Table. No Options were exercised by the named individuals in the
fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME FISCAL YEAR-END (#) FISCAL YEAR-END ($)
- -----------------------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William F. Dawson 36,667 3,333 140,728 12,792
R. Gerald Gelinas 43,333 6,667 166,312 25,588
Walter B. Jaccard 55,000 5,000 211,090 19,190
William J. Shaw(1) 664,495 -0- 2,550,332 -0-
Harry J. White, Jr.(2) 65,000 5,000 249,470 19,190
</TABLE>
- ---------------------------
(1) Mr. Shaw is generally not permitted to exercise the options to the
extent such exercise would violate the restrictions in Article IX of the
Company's Restated Certificate of Incorporation, which are designed to
prevent an "ownership change" for federal tax purposes (see "Stock
Option Agreement" above).
(2) Mr. White exercised all of his vested options after he resigned from the
Company on June 29, 1998.
LONG TERM INCENTIVE PLANS
As of June 30, 1998, the Company had two long-term incentive plans.
The first of these, the Employees Savings Trust (the "401(k) Plan"), 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 $131,000 for the year ended June 30, 1998, and has
committed to make matching contributions for the calendar year ended December
31, 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.
Page 18
<PAGE> 21
Effective April 23, 1998, the Company established the Non-Qualified
Deferred Compensation Plan (the "Non-Qualified Plan") for the purpose of
establishing a deferred compensation plan for certain "highly compensated"
employees of the Company. 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
insignificant matching contributions for the period from plan inception through
June 30, 1998, and has committed to make matching contributions for the
calendar year ended December 31, 1998, in an amount equal to 45% of the
combined voluntary contributions made by each participant to the Non-Qualified
Plan and 401(k) Plan, up to 4% of the participant's annual compensation (or a
maximum of 1.8% of the participants annual compensation). Employer
contributions are fully vested at the time the contributions are made.
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, 1998, 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 $2,000 5,000
William P. Kovacs 24,000 1,500 5,000
Donald R. Leopold 24,000 1,500 5,000
H. Sean Mathis 24,000 2,000 5,000
Douglas K. Nelson 24,000 1,500 5,000
William J. Shaw(1) -0- -0- -0-
</TABLE>
- -------------------
(1) Mr. Shaw did not receive additional compensation for serving as a
director of the Company.
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.
Overall Policy. The Compensation Committee's compensation policies are
intended to (i) provide incentives for certain executive officer performance
that results in continuing
Page 19
<PAGE> 22
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 (other than Mr. Shaw) 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 such
executive officers if the aggregate annual compensation of the officer is less
than $175,000. Pursuant to such delegated authority, the base salaries of
Messrs. Gelinas, Jaccard, and White were increased by 5 percent over the fiscal
1997 level, effective January 1, 1998; and the base salary of Mr. Dawson was
continued at the same level as in fiscal 1997.
Mr. Jaccard receives a discretionary annual bonus 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
marketing objectives for the year. Mr. Dawson receives a discretionary annual
bonus based upon achievement of the Company's objectives for Resort Parks
International, Inc. for the year. Prior to his resignation at the end of fiscal
1998, Mr. White received a discretionary annual bonus based upon achievement of
the Company's overall objectives for the year. These individuals received
bonuses in fiscal 1998 based upon the successful achievement of their
respective goals.
The Compensation Committee may increase the annual base salaries of
the executive officers of the Company and the principal officers of its
operating subsidiaries during fiscal 1999. In addition, such persons may
receive a discretionary bonus in fiscal 1999 based upon the achievement of
objectives related to the performance of the Company.
Compensation of Chief Executive Officer. The annual compensation of
the Company's Chief Executive Officer consists of a fixed base salary and a
performance-based annual bonus. In fiscal 1998, the Compensation Committee
increased Mr. Shaw's base salary to $262,500, effective January 1, 1998, which
was an increase of 5 percent over the fiscal 1997 level.
In fiscal 1998, the Compensation Committee and full Board of Directors
approved a performance-based annual bonus for Mr. Shaw. The amount of this
annual bonus is determined as follows: if the actual net income of the Company,
as adjusted, for a fiscal year equals or exceeds the net income projected in
the Company's budget, as adjusted, for such fiscal year, Mr. Shaw will receive
an annual bonus equal to 25% of his annual base salary at the end of such
fiscal year, plus 7.5% of the amount by which the actual net income of the
Company, as adjusted, for such fiscal year exceeds the net income projected in
the Company's budget, as adjusted, for such fiscal year; provided, however,
that the amount of the annual bonus cannot exceed 100% of Mr. Shaw's annual
base salary at the end of such fiscal year. For purposes of computing this
bonus, the actual and budgeted net income of the Company is adjusted to
eliminate the effect of gains on asset sales, restructuring expenses,
nonrecurring income and expenses, gain on debt repurchases, the net deferral of
sales revenue and expense, and income taxes. In addition, the bonus is computed
before accrual of the bonus on the financial records of the Company. For fiscal
1998, Mr. Shaw earned an annual bonus of $178,425 under this formula.
Page 20
<PAGE> 23
The Compensation Committee may increase Mr. Shaw's annual base salary
during fiscal 1999. In addition, Mr. Shaw may earn an annual bonus for fiscal
1999 based on the performance of the Company, which will be computed using the
formula described in the preceding paragraph.
Respectfully submitted,
William P. Kovacs
Donald R. Leopold
H. Sean Mathis
Douglas K. Nelson
Page 21
<PAGE> 24
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative
total Stockholder return on the Common Stock for the period from June 30, 1993
to June 30, 1998 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, AND BROAD MARKET
<TABLE>
<CAPTION>
Fiscal year ending June 30,
---------------------------------------------------------------------
Company 1993 1994 1995 1996 1997 1998
- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Thousand Trails, Inc. 100.00 87.50 25.00 28.13 106.25 184.38
Industry Index 100.00 89.14 121.31 143.66 162.20 202.74
Broad Market Index 100.00 109.66 128.61 161.89 195.02 258.52
</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 Coin
Merchandising, American Skiing Co., American Wagering, Inc., Anchor Gaming,
Inc., Argosy Gaming Company, Aztar Corporation, Bally Total Fitness Holding
Corporation, Boyd Gaming Corporation, Cedar Fair, LP, Century Casinos, Inc.,
Circus Circus Enterprises, Inc., Crown Group, Inc., Divot Golf Corporation,
Dover Downs Entertainment, Inc., Family Golf Centers, Inc., Gametech
International, Inc., Golden Bear Golf, Inc., Grand Casinos, Inc., Imax
Corporation, Inland Entertainment Corporation, Interactive Entertainment, Inc.,
Interlott Tech., Inc., Isle of Capris Casinos, Jackpot Enterprises, Inc., Lady
Luck Gaming Corporation, Malibu Entertainment Worldwide, Inc., MGM Grand, Inc.,
Millennium Sports Management, Mirage Resorts, Inc., Multimedia Games, Inc.,
N-Vision, Inc., Netlive Communication, Inc., Players International, Inc.,
Premier Parks, Inc., President Casinos, Inc., Quintel Communications, Inc.,
Renaissance Entertainment Corporation, Rio Hotel and Casino, Inc., Sands
Regent, Inc., Santa Fe Gaming Corporation, Senior Tour Players Development,
Inc., Skyline Multimedia Entertainment, Inc., Sports Club Company, Inc., Vail
Resorts, Inc., Visual Edge Systems, Inc., and Walt Disney Holding Company.
During the year ended June 30, 1998, the following companies were added to the
Peer Group: American Coin
Page 22
<PAGE> 25
Merchandising, American Skiing Co., Crown Group, Inc., Divot Golf Corporation,
Gametech International, Inc., Inland Entertainment Corporation, Isle of Capris
Casinos, MGM Grand, Inc., Millennium Sports Management, Premier Parks, Inc.,
and Quintel Communications, Inc. During the year ended June 30, 1998, the
following companies were deleted from the Peer Group: Brassie Golf Corporation,
Casino America, Inc., Chartwell Leisure, Inc., Cinema Ride, Inc., Crown Casino
Corporation, Global Outdoors, Inc., Great Bay Casino, Inc., Jillian's
Entertainment Corporation, Master Glazier's Karate, Inc., Quintel
Entertainment, Inc., Showboat, Inc., Skylands Park Management, Inc.,
Ticketmaster Group, Inc., and UC Television Network, Inc. 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. 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.
In 1991, the Company and Trails contributed $500,000 and $300,000,
respectively, to the Indemnification Trusts. In fiscal 1998, these trusts were
partially terminated, and a portion of the trust assets was distributed to the
Company. NACO also contributed $200,000 to a trust that was established to
reimburse NACO directors and certain officers for any indemnifiable damages and
expenses that they might incur and to advance defense funds to them. This trust
was terminated in fiscal 1998 and the trust assets were distributed to the
Company.
Page 23
<PAGE> 26
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, 1999, subject to the Stockholders ratifying such
selection at the Annual Meeting. Arthur Andersen has audited the accounts of
the Company each year since the fiscal period ended June 30, 1992.
Representatives of Arthur Andersen will be present at the Annual Meeting and
may make a statement 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 1998 included the
examination of the consolidated financial statements of the Company and its
subsidiaries and services related to filings with the Securities and Exchange
Commission (the "SEC"). The Audit Committee meets with Arthur Andersen on an
annual basis at which time the Audit Committee reviews both audit and nonaudit
services performed by Arthur Andersen for the preceding year as well as the
fees charged by Arthur Andersen for such services. Nonaudit services are
approved by the Audit Committee, which considers, among other things, the
possible effect of the performance of such services on the auditor's
independence.
Page 24
<PAGE> 27
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 fiscal year
ended June 30, 1998, the Company believes that all Section 16(a) filing
requirements applicable to its directors, executive officers, and greater than
10% shareholders were complied with, except for one report covering a grant of
options to Mr. Boas during such fiscal year which was filed late.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
The Company's 1999 annual meeting of Stockholders is scheduled to be
held on November 18, 1999. 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 June 15, 1999. Notice of
business proposed to be brought before the annual meeting must be given to the
Secretary of the Company in writing in the form provided in the Company's
Bylaws not less than 60 or more than 90 days prior to the date of such annual
meeting, but if less than 60 days notice of the date of such annual meeting is
given to the Stockholders, notice of proposed business must be given not later
than the tenth day following the day on which the notice of the date of the
annual meeting is mailed.
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.
Page 25
<PAGE> 28
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, 1998, which the Company has
filed with the SEC. UPON REQUEST TO WALTER B. JACCARD, THE SECRETARY OF THE
COMPANY, AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES, THE COMPANY WILL SEND
WITHOUT CHARGE TO ANY STOCKHOLDER AN ADDITIONAL COPY OF THE ANNUAL REPORT ON
FORM 10-K, WHICH INCLUDES THE COMPANY'S FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES. Exhibits to the Form 10-K will be provided, if requested,
upon payment of the reasonable costs of copying.
By Order of the Board of Directors
/s/WALTER B. JACCARD
WALTER B. JACCARD
Vice President, General Counsel, and Secretary
Dallas, Texas
October 28, 1998
Page 26
<PAGE> 29
APPENDIX
PROXY
THOUSAND TRAILS, INC.
2711 LBJ FREEWAY, SUITE 200
DALLAS, TEXAS 75234
TELEPHONE NO. (972) 243-2228
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William J. Shaw and Walter B. Jaccard, as
Proxyholders, each with the power to appoint his substitute, and hereby
authorizes either of them to represent and vote, as designated below, all the
shares of the common stock of Thousand Trails, Inc. (the "Company"), held of
record by the undersigned on October 26, 1998, at the annual meeting of
stockholders to be held on December 10, 1998, and any adjournment thereof.
The board of directors of the Company (the "Board of Directors")
recommends a vote "FOR" the following proposals.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below (except [ ] WITHHOLD AUTHORITY to
as marked to the contrary below) vote for all nominees
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Nominees:
ANDREW M. BOAS o WILLIAM P. KOVACS o DONALD R. LEOPOLD o H. SEAN MATHIS o
DOUGLAS K. NELSON o WILLIAM J. SHAW
2. RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<S> <C> <C>
[ ] FOR ratification of the [ ] AGAINST ratification of the [ ] ABSTAIN from voting for
nominee listed below nominee listed below ratification of the
nominee listed below
</TABLE>
Nominee:
ARTHUR ANDERSEN LLP
3. In their discretion, the Proxyholders are authorized to (a) vote upon such
other matters presented at the meeting that the Board of Directors did not
know would be presented a reasonable time before this solicitation, (b)
vote to approve the minutes of the last annual meeting of stockholders
(which approval will not amount to ratification of the action taken at
that meeting), (c) vote for the election of such substitute nominees for
director as the Board of Directors may propose if any of the nominees
listed above are unavailable to stand for election as a result of
unforeseen circumstances, and (d) vote upon matters incident to the
conduct of the meeting.
THE PROXYHOLDERS WILL VOTE THE UNDERSIGNED'S SHARES OF COMMON STOCK IN THE
MANNER DIRECTED HEREIN. IF THE UNDERSIGNED DOES NOT GIVE ANY DIRECTIONS HEREIN,
THE PROXYHOLDERS WILL VOTE SUCH SHARES FOR PROPOSALS 1 AND 2.
Please sign and date below. When shares are held by joint tenants, both
joint tenants should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give your full title. If a corporation, an
authorized officer should sign in the name of the corporation. If a
partnership, a general partner should sign in the name of the partnership.
DATED: ______________________________, 1998
-------------------------------------------
Signature
-------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE, AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
Page 27
<PAGE> 1
EXHIBIT 13.4
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number 0-19743
THOUSAND TRAILS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2138671
- --------------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 243-2228
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, par value $.01, issued and outstanding as
of November 9, 1998 was 7,511,708.
<PAGE> 2
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1998
and June 30, 1998...........................................................................3
Consolidated Statements of Operations for the three months ended
September 30, 1998 and September 30, 1997...................................................4
Consolidated Statement of Stockholders' Equity for the three months
ended September 30, 1998....................................................................5
Consolidated Statements of Cash Flows for the three months ended
September 30, 1998 and September 30, 1997...................................................6
Notes to Consolidated Financial Statements....................................................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................23
PART II. OTHER INFORMATION
Item 5. Other Information............................................................................23
Item 6. Exhibits and Reports on Form 8-K.............................................................24
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, June 30,
------ 1998 1998
------------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,966 $ 13,631
Current portion of receivables, net of allowances and discount of
$1.3 million and $1.1 million 2,094 2,440
Current portion of deferred membership selling expenses 546 538
Current portion of net deferred tax assets 2,727 2,954
Other current assets 1,452 1,890
-------- --------
Total Current Assets 19,785 21,453
Restricted cash 1,117 1,171
Receivables, net of allowances and discount of $1.2 million and $1.6 million 1,390 1,741
Campground and resort land 13,328 13,338
Buildings and equipment, net of accumulated depreciation of
$15.6 million and $15.0 million 21,624 21,879
Land held for sale 3,866 3,866
Deferred membership selling expenses 1,258 1,087
Net deferred tax assets 6,788 7,046
Other assets 2,452 2,681
-------- --------
Total Assets $ 71,608 $ 74,262
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,371 $ 2,037
Accrued interest 870 1,805
Other accrued liabilities 6,060 6,410
Accrued construction costs 2,338 2,845
Current portion of deferred revenue 13,564 18,851
-------- --------
Total Current Liabilities 25,203 31,948
Long term debt 34,935 32,973
Deferred revenue 5,172 4,588
Other liabilities 2,040 1,999
-------- --------
Total Liabilities 67,350 71,508
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued or
outstanding
Common stock, $.01 par value, 15,000,000 shares authorized, 7,503,208 and
7,437,083 shares issued and outstanding 75 74
Additional paid-in capital 20,595 20,551
Accumulated deficit subsequent to December 31, 1991, date of emergence
from bankruptcy (16,272) (17,734)
Cumulative foreign currency translation adjustment (140) (137)
-------- --------
Total Stockholders' Equity 4,258 2,754
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,608 $ 74,262
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE> 4
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
-------- --------
<S> <C> <C>
REVENUES
Membership dues $ 9,340 $ 9,697
Other campground/resort revenue 7,567 6,440
Membership and resort interest sales 978 1,021
RPI membership fees 969 882
Interest income 623 647
Gain on asset sales 88 3,420
Other income 896 1,155
-------- --------
Total Revenues 20,461 23,262
-------- --------
EXPENSES
Campground/resort operating expenses 12,554 11,731
Selling expenses 988 864
Marketing expenses 582 278
RPI membership expenses 532 432
Corporate member services 381 384
Interest expense and amortization 1,078 1,365
General and administrative expenses 2,138 2,048
-------- --------
Total Expenses 18,253 17,102
-------- --------
INCOME BEFORE INCOME TAXES 2,208 6,160
INCOME TAXES --
Income tax provision - current (261) (174)
Income tax provision - deferred (485)
-------- --------
(746) (174)
NET INCOME $ 1,462 $ 5,986
======== ========
NET INCOME PER SHARE -- BASIC $ .20 $ .81
======== ========
NET INCOME PER SHARE -- DILUTED $ .17 $ .72
======== ========
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,459 7,386
======== ========
Diluted 8,413 8,330
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE> 5
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Paid-In Accumulated Translation
Stock Capital Deficit Adjustment Total
------ ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ 74 $ 20,551 ($ 17,734) ($ 137) $ 2,754
Issuance of common stock 1 44 45
Foreign currency translation
adjustment (3) (3)
Net income for the three months
ended September 30, 1998 1,462 1,462
---- -------- --------- ------ -------
Balance, September 30, 1998 $ 75 $ 20,595 ($ 16,272) ($ 140) $ 4,258
==== ======== ========= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE> 6
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 1,235 $ 1,549
Interest received 577 584
Interest paid (51) (437)
General and administrative and corporate member
services costs (2,473) (2,558)
Cash collected from operations, including deferred
dues revenue 13,688 12,807
Cash from sales of campground memberships and
lots at the point of sale 1,190 1,043
Expenditures for property operations (11,254) (11,555)
Expenditures for sales and marketing (1,682) (1,103)
Expenditures for insurance premiums (720) (533)
Payment of income taxes (273) (175)
Other, net 54 (456)
---------- ----------
Net cash provided by (used in) operating activities 291 (834)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (1,078) (338)
Proceeds from asset sales 77 5,649
Issuance of Common Stock 45 3
---------- ----------
Net cash provided by (used in) investing activities (956) 5,314
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under Credit Agreement -- (4,856)
Repayment of notes and mortgages -- (9)
---------- ----------
Net cash used in financing activities -- (4,865)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (665) (385)
CASH AND CASH EQUIVALENTS:
Beginning of period 13,631 1,343
---------- ----------
End of period $ 12,966 $ 958
========== ==========
</TABLE>
-- continued --
Page 6
<PAGE> 7
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Net income $ 1,462 $ 5,986
---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES --
Depreciation 644 647
Amortization of interest discount, collection costs and
valuation allowance (106) (125)
Net deferral of sales revenue 652 246
Net deferral of selling expenses (179) (84)
Gain on asset sales (88) (3,420)
Deferred income tax provision 485 --
(Increase) decrease in restricted cash 54 (454)
Decrease in receivables 796 1,332
Decrease in other assets 716 124
Increase (decrease) in accounts payable 334 (465)
Increase in accrued interest 1,034 957
Decrease in other liabilities (5,664) (5,720)
Other, net 151 142
---------- ----------
Total adjustments (1,171) (6,820)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 291 ($ 834)
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7
<PAGE> 8
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
GENERAL
Thousand Trails, Inc., a Delaware corporation, and its subsidiaries
(collectively, the "Company") own and operate a system of 53 membership-based
campgrounds located in 17 states and British Columbia, Canada. In addition, the
Company provides a reciprocal use program for members of approximately 325
recreational facilities and manages 130 public campgrounds for the US Forest
Service. The campground business represents the most significant portion of the
Company's business comprising 99% of the Company's operating revenues in fiscal
1998. Operating revenues consist primarily of membership dues received from
campground members, fee revenue from members of the reciprocal use program,
management fees from the campground management operations, and, guest fees and
other revenues received from the campground and other operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast
Financial Services, Inc. ("Coast"), National American Corporation and its
subsidiaries ("NACO"), Resort Parks International, Inc. ("RPI"), Thousand Trails
(Canada), Inc. and UST Wilderness Management Corporation ("Wilderness").
The accompanying consolidated financial statements of the Company have not been
examined by independent accountants, but in the opinion of management, the
unaudited interim financial statements furnished herein reflect all adjustments,
which are necessary for a fair presentation of the results for the interim
periods. All such adjustments are of a normal recurring nature, except for the
items described in the footnotes to the consolidated financial statements.
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1998, filed
with the Securities and Exchange Commission (the "SFC") on September 25, 1998,
as amended by a Form 10-K/A filed with the SEC on October 7, 1998.
NOTE 1 -- BASIS OF FINANCIAL STATEMENT PRESENTATION
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, the Company adopted fresh start reporting,
under which a new reporting entity was created and assets and liabilities were
restated to reflect their reorganization value which approximated fair value at
the date of reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the three month
periods ended September 30, 1998 and 1997, and in the consolidated balance sheet
as of June 30, 1998.
Page 8
<PAGE> 9
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires the Company to classify items of other comprehensive
income by their nature in its financial statements and to display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of its
consolidated balance sheet. Comprehensive income includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners, and includes certain items that were historically
reported directly through equity as well as net income reported on the income
statement. Currently, the Company's only item of other comprehensive income is
its foreign currency translation adjustment. The Company adopted SFAS No. 130 on
July 1, 1998. The following table provides statements of comprehensive income
for the three months ended September 30, 1998 and 1997, as if the statement had
been implemented in the three months ended September 30, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
Net Income $ 1,462 $ 5,986
Foreign Currency Translation Adjustment (3) (4)
---------- -----------
Comprehensive Income $ 1,459 $ 5,982
========== ===========
</TABLE>
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for the way
that public companies report information about operating segments and related
disclosures in annual and interim financial statements. In February 1998, the
FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits," which revises employers' disclosures about pension and
other postretirement benefit plans. These statements are effective for the
Company commencing at the end of fiscal 1999. The Company does not anticipate a
material impact from the adoption of these statements.
Net Income Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") during the second quarter of fiscal 1998. SFAS
128 replaced the calculation of primary and fully diluted net income per share
with basic and diluted net income per share. Unlike primary net income per
share, basic net income per share excludes any dilutive effects of common stock
equivalents. Diluted net income per share is similar to the previously reported
fully diluted net income per share and 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. Net income per share amounts for the
three months ended September 30, 1997, have been restated and presented to
conform to the SFAS 128 requirements.
Page 9
<PAGE> 10
The tables below set forth the information necessary to compute basic and
diluted net income per share for the three months ended September 30, 1998 and
1997, including a summary of the components of the numerators and denominators
of the basic and diluted net income per share computations for the periods
presented (dollars and shares in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1998 1997
---------- -----------
<S> <C> <C>
Net Income $ 1,462 $ 5,986
======== ========
Weighted Average Number of Shares - Basic 7,459 7,386
Dilutive Options 948 939
Dilutive Warrants 6 5
-------- --------
Weighted Average Number of Shares - Diluted 8,413 8,330
======== ========
Net Income Per Share - Basic $ .20 $ .81
======== ========
Net Income Per Share - Diluted $ .17 $ .72
======== ========
</TABLE>
Since inception, the Company has not paid any dividends. The Credit Agreement
("Credit Agreement") between the Company and Foothill Capital Corporation
("Foothill") prohibits the payment of any cash dividends without the consent of
Foothill during the term of the Credit Agreement. In addition, the Indenture for
the Company's 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK Notes")
prohibits the payment of any cash dividends until the PIK Notes are repaid.
Reclassifications
Certain reclassifications have been made to prior period information to conform
to the current period presentation.
NOTE 2 -- LONG TERM DEBT
PIK NOTES AND PIK NOTE REPURCHASES
The Company issued $40.2 million principal amount of PIK Notes in a
restructuring of its debt in July 1996. On January 15, 1997, the Company issued
an additional $2.4 million principal amount of PIK Notes in lieu of cash
interest. On June 25, 1997, the Company repurchased $13.4 million principal
amount of PIK Notes at a cost of $12.6 million, including accrued interest. On
July 15, 1997, January 15, 1998, and July 15, 1998, the Company issued an
additional $1.8 million, $1.9 million, and $2.0 million principal amount of PIK
Notes, respectively, in lieu of cash interest. As a result of these
transactions, the Company had $34.8 million principal amount of PIK Notes
outstanding as of September 30, 1998.
CREDIT AGREEMENT WITH FOOTHILL
In January 1998, the Company repaid all outstanding borrowings under the Credit
Agreement with Foothill, and it had no outstanding borrowings under the Credit
Agreement as of September
Page 10
<PAGE> 11
30, 1998 and as of the date of this report. However, the Company has entered
into an amendment to the Credit Agreement that provides the Company the
flexibility to borrow up to $5.0 million for working capital purposes and up to
an additional $30.0 million to use to redeem the PIK Notes (see Note 6) and for
the possible acquisition of members through the purchase of other membership
campground operations. Under the amended Credit Agreement, the first $15.0
million of borrowings will bear interest at prime plus .25% per annum,
borrowings over $15.0 million and up to $25.0 million will bear interest at
prime plus .50% per annum, and borrowings over $25.0 million will bear interest
at prime plus 1.5% per annum. All borrowings under the amended Credit Agreement
will mature on January 17, 2003. However, if the Company has not repaid in full
or otherwise retired all of the PIK Notes by July 15, 2000, all borrowings
under the amended Credit Agreement in excess of $10.0 million will mature on
July 15, 2000, and up to $10.0 million of borrowings under the amended Credit
Agreement will be refinanced on such date and thereafter be available to the
Company for working capital purposes only. This $10.0 million working capital
facility will then become the Working Capital Replacement Facility defined in
the Indenture for the PIK Notes and will be secured by substantially all of the
assets of the Company.
NOTE 3 -- CONTINGENCIES
General Liability Insurance
Commencing July 1, 1998, the Company obtained insurance covering general
liability losses up to an annual limit of $27.0 million, with no self-insured
deductible. Prior to this date, the Company's insurance covered general
liability losses up to an annual limit of $26.8 million, but required the
Company to pay the first $250,000 per occurrence, with an annual aggregate
exposure of $2.0 million. The Company has provided a liability for estimated
known and unknown claims related to uninsured general liability risks based on
actuarial estimates. At September 30, 1998 and June 30, 1998, the Company's
recorded liability for estimated losses related to uninsured general liability
claims totaled $1.3 million and $1.2 million, respectively, which is included in
other liabilities in the accompanying consolidated balance sheets.
Declining Membership Base
The Company derives a significant portion of its ongoing operating revenue from
its campground members (92% in fiscal 1998). The Company's membership base has
declined significantly over the past five fiscal years, and net of new sales,
the membership base is presently declining at the rate of approximately 6% per
year. The Company attributes this continuing attrition principally to its aging
membership base, of whom approximately 50% are senior citizens. In addition, in
fiscal 1998, the Company transferred 1,775 members at two campgrounds to the
entity that purchased the campgrounds from the Company. Moreover, 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 or acquire members in another manner, such
as through the purchase of other membership campground organizations. There is
no assurance that the Company will be successful in these efforts.
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.
Page 11
<PAGE> 12
Management has reviewed these issues and believes that they will not have a
material adverse impact on the Company's operations or financial position.
Litigation
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by Statement of Financial Accounting Standards No. 95 "Statement of Cash Flows"
are presented below for the three months ended September 30, 1998 and 1997
(dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Non-cash payment of PIK Note interest (see Note 2)
--------------------------------------------------
PIK Notes issued in lieu of cash interest payment $ 1,969 $ 1,752
</TABLE>
NOTE 5 -- SUMMARIZED FINANCIAL INFORMATION
All of the Company's wholly owned subsidiaries (other than an inconsequential
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the PIK Notes that were issued in July 1996, as well as
the PIK Notes issued in lieu of cash payment of interest (see Note 2).
Set forth on the next page is selected financial information for Thousand
Trails, Inc. ("TTI"), NACO, RPI, Wilderness, and Coast, and the eliminations
necessary to arrive at the information for the Company on a consolidated basis
as of and for the periods presented. The assets and operations of Wilderness and
Coast are not material and have, therefore, been combined with the balances of
RPI for purposes of this presentation. The Company has not presented separate
financial statements and other disclosures concerning the Subsidiary Guarantors
because management believes such information is not material to investors. This
summarized financial information is presented to provide additional analysis of,
and should be read in conjunction with, the consolidated financial statements of
the Company.
All of the Company's debt and equity interests in the Subsidiary Guarantors have
been pledged by the Company to secure its obligations under the Credit Agreement
with Foothill. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
Page 12
<PAGE> 13
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------------------------------------------------------
1998 1997
---------------------------------------- -----------------------------------------
Operating Net Operating Net
Revenues Income(1) Income Revenues Income(1) Income
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
TTI $ 12,662 $ 2,112 $ 1,462 $ 13,191 $ 4,887 $ 5,956
NACO 6,986 357 75 9,195 774 2,468
RPI, Wilderness & 2,582 804 623 1,732 656 421
Coast
Eliminations(2) (1,769) (698) (698) (856) (2,859) (2,859)
--------- -------- -------- --------- -------- --------
Total $ 20,461 $ 2,575 $ 1,462 $ 23,262 $ 3,458 $ 5,986
========= ======== ======== ========= ======== ========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of September 30, 1998 As of June 30, 1998
--------------------------------- ----------------------------------
Total Total Total Total
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
TTI $ 51,600 $ 53,063 $ 52,603 $ 55,570
NACO 30,215 40,742 31,847 42,449
RPI, Wilderness & 3,210 1,924 2,849 2,186
Coast
Eliminations(2) (13,417) (28,379) (13,037) (28,697)
--------- --------- --------- ---------
Total $ 71,608 $ 67,350 $ 74,262 $ 71,508
========= ========= ========= =========
</TABLE>
- -----------------------
(1) Defined as income before interest income and expense, gain on asset sales,
and taxes.
(2) Entries to record subsidiaries' results on a consolidated basis.
NOTE 6 -- SUBSEQUENT EVENT
On November 10, 1998, the Company called for redemption on December 15, 1998
(the "Redemption Date"), all $34.8 million principal amount of PIK Notes
outstanding at face value plus accrued interest. The Company will fund this
redemption with approximately $10 million of its existing cash and approximately
$27 million of new borrowings under the amended Credit Agreement. Pursuant to
the terms of the Indenture for the PIK Notes, the holders of the PIK Notes will
receive from the Company on the Redemption Date the sum of $1,000, plus accrued
interest from July 15, 1998 to the Redemption Date of $50.00 for each $1,000
principal amount of PIK Notes, for a total price of $1,050.00 for each $1,000
principal amount of PIK Notes (the "Redemption Price"). On the Redemption Date,
interest will cease to accrue and the holders will have no other rights as
holders other than the right to receive the Redemption Price, without further
interest, upon surrender of their certificates representing the PIK Notes.
Page 13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended June 30,
1998, filed with the SEC on September 25, 1998, as amended by a Form 10-K/A
filed with the SEC on October 7, 1998.
All capitalized terms used herein have the same meaning as those defined in Item
1 -- Financial Statements.
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies, plans, and conditions for periods after
September 30, 1998. 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, plans, and
conditions for future periods may differ materially due to several factors,
including but not limited to the Company's ability to control costs, campground
market conditions and other factors affecting the Company's 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.
LIQUIDITY AND CAPITAL RESOURCES
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 or the possible acquisition of members
through the purchase of other membership campground operations. 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 it may
be possible to acquire members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
The Company's membership base has been declining. In response to this decline,
the Company has downsized its business by closing and disposing of campgrounds
and decreasing campground operating costs and general and administrative
expenses. The Company intends to continue to keep the size of its campground
system in an appropriate relation to the size of its membership base. In this
regard, if the membership base continues to decline, the Company may 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 also intends to
explore the possible acquisition of members through the purchase of other
membership campground organizations. The Company believes that the ultimate size
of its campground system and the amounts realized from future asset sales
Page 14
<PAGE> 15
will depend principally upon the degree to which the Company can successfully
implement this strategy.
CASH. On September 30, 1998, the Company had $13.0 million of cash and cash
equivalents, a decrease of $665,000 from June 30, 1998. During the three months
ended September 30, 1998, the Company's primary source of cash was $291,000
provided by operating activities. The significant offsetting reduction to cash
was $1.1 million of capital and HUD-related expenditures. The Company
experiences lower cash flow from operating activities during the first quarter
of its fiscal year because of the seasonal nature of its operations. The Company
receives the majority of the dues revenue from its members during the winter,
while incurring a higher level of operating expenses during the summer. In
addition, a majority of the Company's sales and marketing efforts occur during
the summer.
The Company's principal sources of operating cash for the three months ended
September 30, 1998, were $13.7 million in dues collections and other campground
and resort revenues, $1.8 million in principal and interest collections on
contracts receivable, and $1.2 million in cash collected from sales of
campground memberships and lots at the point of sale. Principal uses of
operating cash for the three months ended September 30, 1998, were $11.3 million
in operating expenses, $2.5 million in administrative expenses (including
general and administrative expenses and corporate member services costs), and
$1.7 million in sales and marketing expenditures.
In January 1998, the Company repaid all outstanding borrowings under the Credit
Agreement, and it had no outstanding borrowings under the Credit Agreement as
of September 30, 1998 and as of the date of this report. However, the Company
has entered into an amendment to the Credit Agreement that provides the Company
the flexibility to borrow up to $5.0 million for working capital purposes and
up to an additional $30.0 million to use to redeem the PIK Notes and for the
possible acquisition of members through the purchase of other membership
campground operations. Under the terms of the amended Credit Agreement, the
first $15.0 million of borrowings will bear interest at prime plus .25% per
annum, borrowings over $15.0 million and up to $25.0 million will bear interest
at prime plus .50% per annum, and borrowings over $25.0 million will bear
interest at prime plus 1.5% per annum. All borrowings under the amended Credit
Agreement will mature on January 17, 2003. However, if the Company has not
repaid in full or otherwise retired all of the PIK Notes by July 15, 2000, all
borrowings under the amended Credit Agreement in excess of $10.0 million will
mature on July 15, 2000, and up to $10.0 million of borrowings under the
amended Credit Agreement will be refinanced on such date and thereafter be
available to the Company for working capital purposes only. This $10.0 million
working capital facility will then become the Working Capital Replacement
Facility defined in the Indenture for the PIK Notes and will be secured by
substantially all of the assets of the Company, as discussed below.
Under the terms of the amended 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.
On November 10, 1998, the Company called for redemption on December 15, 1998,
all $34.8 million principal amount of PIK Notes outstanding at face value plus
accrued interest.
Page 15
<PAGE> 16
The Company will fund this redemption with approximately $10 million of its
existing cash and approximately $27 million of new borrowings under the amended
Credit Agreement (see "Item 5. Other Information").
Based upon its current business plan, the Company believes that future cash
flows provided from operations, asset sales, and borrowings available under the
amended Credit Agreement will be adequate for the Company's operating and other
cash requirements during the remaining term of the amended Credit Agreement.
While any borrowings are outstanding under the amended Credit Agreement, all
cash held by the Company and its wholly owned subsidiaries will generally be
deposited in accounts that are controlled by and pledged to Foothill.
The Credit Agreement limits the type of investments in which the Company may
invest its available cash, resulting in a relatively low yield. Investments of
cash had a weighted average yield of 5.6% at September 30, 1998.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $2.7 million during the three months ended September
30, 1998. Cash decreased by $665,000 as discussed above. Contracts receivable
decreased by $697,000 due primarily to $1.2 million in cash collections
partially offset by new financed sales and amortization of the allowances for
interest discount, collection costs, and valuation discount. Other current
assets decreased by $438,000 due primarily to lower dues receivable and
inventory due to the seasonal nature of the business. Buildings and equipment
decreased by $255,000 due primarily to depreciation, partially offset by capital
improvements made at certain campgrounds. Other assets decreased by $229,000 due
primarily to the release of certain prior year insurance deposits that were
applied to current year insurance payments.
Total liabilities decreased by $4.2 million during the three months ended
September 30, 1998. Accrued interest declined by $935,000 due to the timing of
the semi-annual interest payments on the PIK Notes paid in the form of
additional PIK Notes. Accrued construction costs decreased by $507,000 as a
result of HUD-related improvements made at one of the resorts during the period.
Deferred revenue decreased by $4.7 million due primarily to the recognition of
$5.4 million of dues revenue in excess of dues collected during the period,
partially offset by a $652,000 net increase in deferred sales revenue.
Offsetting these decreases, the Company's outstanding debt increased by $2.0
million during the period due to the issuance of additional PIK Notes in lieu of
cash interest.
MARKET RISK AND INTEREST RATE SENSITIVITY. As noted above, the Company has
called for redemption on December 15, 1998 all $34.8 million principal amount of
PIK Notes outstanding at face value plus accrued interest. The Company will
fund this redemption with approximately $10 million of its existing cash and
approximately $27 million of new borrowings under the amended Credit Agreement
(see "Item 5. Other Information"). The Company will use substantially all of
its invested cash to fund the redemption, which will eliminate any interest
rate market risk with respect to cash balances. However, the borrowings under
the amended Credit Agreement will increase the Company's interest rate market
risk, as such borrowings will be subject to interest rates that fluctuate with
changes in the prime rate. In management's opinion, after giving effect to the
redemption of the PIK Notes, a hypothetical ten percent change in market
interest rates over the next year would not have a material effect on the fair
value of the Company's contracts receivable, long term debt, or cash balances.
Page 16
<PAGE> 17
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the three months ended September 30, 1998 and
1997. The financial information set forth below should be read in conjunction
with the Company's consolidated financial statements included in Item 1.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME. The Company reported net income of $1.5 million or $.20 per share on
revenues of $20.5 million for the three months ended September 30, 1998. This
compares with net income of $6.0 million or $.81 per share on revenues of $23.3
million for the same period last year. Excluding gains on asset sales, the
Company's revenues increased by $531,000 in the current period. Gains on asset
sales were $88,000 in the current period, compared with $3.4 million in the same
period last year. However, the Company also incurred higher expenses in the
current period, primarily sales and marketing expenses and taxes.
The table on the following page shows separately the results of the campground
operations, Resort Parks International, and resort operations, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the three months ended September 30,
1998 and 1997.
Page 17
<PAGE> 18
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,340 $ 9,697
Campground revenues 7,549 6,238
Cost of campground revenues (3,531) (2,748)
Operating expenses (8,980) (8,726)
---------- ----------
Contribution from campground operations 4,378 4,461
---------- ----------
SALES
Sales revenues 940 691
Selling expenses (959) (671)
Marketing expenses (582) (278)
---------- ----------
Loss on sales (601) (258)
---------- ----------
RESORT PARKS INTERNATIONAL
Revenues 969 882
Expenses (532) (432)
---------- ----------
Contribution from RPI 437 450
---------- ----------
4,214 4,653
---------- ----------
RESORT OPERATIONS
Revenues 56 532
Expenses (72) (450)
---------- ----------
Contribution (loss) from resort operations (16) 82
---------- ----------
4,198 4,735
---------- ----------
Other income 896 1,155
Corporate member services (381) (384)
General and administrative expenses (2,138) (2,048)
---------- ----------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, AND TAXES 2,575 3,458
---------- ----------
Interest income 623 647
Interest expense (1,078) (1,365)
Gain on asset sales 88 3,420
---------- ----------
OPERATING INCOME BEFORE TAXES $ 2,208 $ 6,160
========== ==========
</TABLE>
Page 18
<PAGE> 19
OPERATING INCOME. During the three months ended September 30, 1998, the
Company's contribution from operations was $2.6 million, $883,000 less than the
$3.5 million achieved in the same period last year. The decline was due
primarily to a higher loss from sales operations and a decrease in other income.
For this purpose, the contribution from operations is defined as operating
income before interest income and expense, gain on asset sales, and taxes. See
the table on the previous page for the elements of the contribution from
operations and the Company's operating income before taxes for the historical
periods presented.
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The Company
receives the majority of the dues revenue from its members during the winter,
which are recognized as income ratably during the year. However, the Company
incurs a higher level of operating expenses during the summer. In addition, a
majority of the Company's sales and marketing efforts occur during the summer.
Campground membership dues revenue was $9.3 million for the three months ended
September 30, 1998, compared with $9.7 million for the same period last year.
The decline in dues revenue was due primarily to the net loss of campground
members during the year, partially offset by the effect of the annual dues
increase.
Campground revenues were $7.5 million for the three months ended September 30,
1998, compared with $6.2 million for the same period last year. The related
expenses were $3.5 million for the three months ended September 30, 1998,
compared with $2.7 million for the same period last year. The increase in
campground revenues and related expenses in the current period was primarily a
result of increased revenues from the Company's campground management operations
and an increase in site fees and other ancillary revenues at the campgrounds.
The ancillary revenues increased as a result of higher usage at the campgrounds
during the summer of 1998 compared with the prior summer.
Campground operating expenses were $9.0 million for the three months ended
September 30, 1998, compared with $8.7 million for the same period last year.
The current period expenses were higher primarily due to timing differences for
certain costs.
The Company intends to continue to keep the size of its campground system in an
appropriate relation to the size of its membership base. In this regard, if the
membership base continues to decline, the Company may close and dispose of
additional campgrounds and it will seek to decrease other expenses. Although the
Company believes that the anticipated changes should result in lower future
operating expenses, no assurance can be given that such changes will not reduce
revenues by an amount in excess of the expense reductions.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold. For the three months ended September 30,
1998 and 1997, the Company recognized campground membership sales revenues of
$940,000 and $691,000, respectively. These amounts include revenues of $701,000
and $561,000, respectively, that were deferred in prior periods. Moreover,
during these same periods, the Company deferred revenues of $1.4 million and
$808,000, respectively, which will be recognized in future periods. Sales
revenues increased in the current period due to increases in new member sales at
higher average sales prices partially offset by a higher net deferral of sales
revenues in the current period.
Page 19
<PAGE> 20
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the three months ended
September 30, 1998 and 1997, the Company recognized selling expenses of $959,000
million and $671,000, respectively. These amounts include expenses of $164,000
and $126,000, respectively, that were deferred in prior periods. Moreover, for
these same periods, the Company deferred expenses of $343,000 and $210,000,
respectively, which will be recognized in future periods.
Selling and marketing expenses exceeded sales revenues by $601,000 and $258,000
for the three months ended September 30, 1998 and 1997, respectively. These
expenses exceeded sales revenues because of the increased marketing activity and
low volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales revenues than selling expenses during the periods presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are generally deferred and recognized on a straight-line basis
over the expected life of the memberships sold. As a consequence, the Company
expects that its selling and marketing expenses will continue to exceed its
campground membership sales revenue. This disparity will increase if the Company
is successful in growing campground membership sales.
The Company's selling and marketing efforts have not produced the level of sales
needed to stop the continuing decline in the Company's membership base. If the
Company is not able to significantly increase its campground membership sales
over current levels, the membership base will continue to decline, which will
further decrease the Company's revenues. Further decreases in revenues that are
not offset by sufficient expense reductions could have a material adverse impact
on the Company's business and results of operations.
CAMPGROUND MANAGEMENT. Wilderness, a wholly owned subsidiary of the Company,
manages 130 public campgrounds for the US Forest Service. For the three months
ended September 30, 1998, these operations produced revenues of $1.7 million
with related expenses (excluding certain shared administrative costs) of $1.2
million. This compares with revenues for the same period last year of $848,000
and related expenses (excluding certain shared administrative costs) of
$644,000. The increase in revenues and expenses between periods is due to new
contracts entered into in the spring of 1998, which significantly increased the
number of campgrounds managed. The revenues and expenses related to the
Company's campground management operations are included in other
campground/resort revenue and campground/resort operating expenses in the
consolidated statement of operations, and in campground revenues and cost of
campground revenues in the table on page 18.
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 three months ended September
30, 1998, RPI's operations produced a net contribution of $437,000 on revenues
of $969,000, compared with a contribution of $450,000 on revenues of $882,000
for the same period last year. RPI is working to introduce new products to
increase its revenues and maintain its contribution margin; however, there is no
assurance that it will be successful.
Page 20
<PAGE> 21
RESORT OPERATIONS. The Company's operations at the resorts presently consist of
the sale of residential lots. For the three months ended September 30, 1998, the
resort operations produced a loss of $16,000 on revenues of $56,000, compared
with a net contribution of $82,000 on revenues of $532,000 for the same period
last year. The prior year results included revenues and expenses related to
selling property and managing the amenities at one resort. The amenities
previously managed by the Company were transferred to the resort's property
owners' association during fiscal 1998. The Company does not expect a positive
contribution from the resort operations in the future as its continues its
efforts to sell the remaining assets it owns at the resorts. These assets
consist primarily of approximately 100 residential lots and other miscellaneous
real estate.
INTEREST INCOME AND EXPENSE. Interest income was $623,000 for the three months
ended September 30, 1998, compared with $647,000 for the same period last year.
During these periods, interest income included amortization of the allowances
for interest and valuation discounts related to the contracts receivable of
$61,000 and $66,000, respectively. During the current period, a decrease in
interest earned on the Company's diminishing portfolio of contracts receivable
was substantially offset by higher interest earned on invested cash, resulting
in only a slight decrease in interest income between periods. The interest
earned on the Company's portfolio of contracts receivable will continue to
decrease in the future as the portfolio declines. In addition, the interest
earned on invested cash will be significantly lower in future periods after the
Company uses substantially all of its existing cash to partially fund the
redemption of the PIK Notes (see "Item 5. Other Information").
Interest expense was $1.1 million for the three months ended September 30, 1998,
compared with $1.4 million for the same period last year. The $287,000 decrease
in interest expense between periods was due primarily to repayments of
borrowings under the Credit Agreement and mortgage notes during fiscal 1998.
The Company repaid all outstanding borrowings under the Credit Agreement and its
remaining mortgage notes in the third quarter of fiscal 1998. In addition, the
Company has called for redemption on December 15, 1998 all $34.8 million
principal amount of PIK Notes outstanding at face value plus accrued interest.
The Company will fund this redemption with approximately $10 million of its
existing cash and approximately $27 million of new borrowings under the amended
Credit Agreement. The Company anticipates that the redemption of the PIK Notes
will lower its outstanding debt and its interest expense in future periods.
However, interest on the borrowings under the amended Credit Agreement must be
paid in cash on a monthly basis.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of
$88,000 for the three months ended September 30, 1998, compared with $3.4
million for the same period last year. The decrease in the current period was
due to the timing of asset sales. Over the next several years, the Company
intends to dispose of the remaining assets that it owns at the resorts, any
campgrounds that are closed as the Company downsizes, and other excess acreage
associated with the campgrounds. The sale of campgrounds requires addressing the
rights of members associated with such campgrounds. The impact of these rights
is uncertain and could adversely affect the availability or timing of sale
opportunities or the ability of the Company to realize recoveries from asset
sales. In addition, although the Company has successfully sold assets during the
past several 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
made.
Page 21
<PAGE> 22
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, settlements received on defaulted contracts and delinquent
dues, and subscription fees received from members who subscribe to the Company's
member magazine. Other income was $896,000 for the three months ended September
30, 1998, compared with $1.2 million for the same period last year. The decrease
between periods was due primarily to lower recoveries on canceled contracts and
delinquent dues in the current period.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.5 million for the three
months ended September 30, 1998, compared with $2.4 million for the same period
last year. The slight increase in costs was due primarily to higher legal fees
in the current period.
INCOME TAXES. The Company's current provision for income taxes was $261,000 for
the three months ended September 30, 1998, compared with $174,000 for the same
period last year. The current provisions for these periods include amounts for
federal alternative minimum taxes and state income taxes payable in the various
states where the Company conducts its operations. With the exception of federal
alternative minimum taxes, the Company does not have federal income taxes
payable on a consolidated basis due to its net operating tax loss carryforwards,
which were estimated to total $26.9 million at June 30, 1998.
The Company recorded a deferred tax provision of $485,000 for the three months
ended September 30, 1998. At June 30, 1998, the Company reduced the valuation
allowance related to its net deferred tax assets by $10.0 million because
management determined it was more likely than not that the Company would realize
the benefits of a significant portion of the net deferred tax assets. The net
deferred tax assets had previously been fully reserved. The Company will
continue to record a deferred tax provision in future periods as the related
deferred tax assets are realized. The deferred tax provision will not affect
current or future income tax payments, but will result in higher tax provisions
in the future in the periods the related deferred tax assets are realized.
INFLATION. During the past several 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.
IMPACT OF YEAR 2000. Based on recent assessments, the Company has determined
that it must modify certain software and replace certain hardware so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has begun making the internal software modifications
and anticipates completing the year 2000 project by June 30, 1999. These
modifications, if timely completed, will avoid any material impact on its
operating systems. The Company currently estimates that it will cost
approximately $265,000 to make the necessary enhancements to its hardware and
software, which will not significantly impact the Company's financial position,
operations, or cash flows.
Page 22
<PAGE> 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently does not have any derivative financial instruments.
However, the Company does have other financial instruments that contain market
risk. Management believes that the market risk associated with the Company's
financial instruments as of September 30, 1998 is not significant. The
information required by Item 305 of S-K is contained in Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Market Risk and Interest Rate Sensitivity."
ITEM 5. OTHER INFORMATION
On November 10, 1998, the Company called for redemption on December 15, 1998
(the "Redemption Date"), all $34.8 million principal amount of PIK Notes
outstanding at face value plus accrued interest. The Company will fund this
redemption with approximately $10 million of its existing cash and approximately
$27 million of new borrowings under the amended Credit Agreement. Pursuant to
the terms of the Indenture for the PIK Notes, the holders of the PIK Notes will
receive from the Company on the Redemption Date the sum of $1,000, plus accrued
interest from July 15, 1998 to the Redemption Date of $50.00 for each $1,000
principal amount of PIK Notes, for a total price of $1,050.00 for each $1,000
principal amount of PIK Notes (the "Redemption Price"). On the Redemption Date,
interest will cease to accrue and the holders will have no other rights as
holders other than the right to receive the Redemption Price, without further
interest, upon surrender of their certificates representing the PIK Notes.
The Company anticipates that the redemption of the PIK Notes will lower it
outstanding debt and its interest expense in future periods. However, interest
on the borrowings under the amended Credit Agreement must be paid in cash on a
monthly basis.
Page 23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Fifth Amendment to Loan and Security Agreement dated as of
September 15, 1998, between the Company and Foothill.
10.2 Sixth Amendment to Loan and Security Agreement dated as of
October 21, 1998, between the Company and Foothill.
10.3 Fourth Amendment to Credit Agreement dated as of June 10, 1998,
between the Company and NACO.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the three months ended September
30, 1998.
27.2 Restated Financial Data Schedule for the three months ended
September 30, 1997.
</TABLE>
REPORTS ON FORM 8-K
None.
Page 24
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOUSAND TRAILS, INC.
Date: November 10, 1998 By: /s/ William J. Shaw
----------------------------------
William J. Shaw
President, Chief Executive Officer
and acting Chief Financial Officer
Date: November 10, 1998 By: /s/ Bryan Reed
----------------------------------
Bryan Reed
Chief Accounting Officer
Page 25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Fifth Amendment to Loan and Security Agreement dated as of
September 15, 1998, between the Company and Foothill.
10.2 Sixth Amendment to Loan and Security Agreement dated as of
October 21, 1998, between the Company and Foothill.
10.3 Fourth Amendment to Credit Agreement dated as of June 10, 1998,
between the Company and NACO.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the three months ended September 30, 1998.
27.2 Restated Financial Data Schedule for the three months ended
September 30, 1997.
</TABLE>
Page 26
<PAGE> 27
EXHIBIT 10.1
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fifth Amendment to Loan and Security Agreement
("Amendment") is entered into as of September 15, 1998, by and among FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill"), on the one hand, and
NATIONAL AMERICAN CORPORATION, a Nevada corporation ("NACO"), THOUSAND TRAILS,
INC., a Delaware corporation ("Trails"), and the other party borrowers signatory
hereto (each, together with NACO and Trails, individually a "Borrower" and
collectively, jointly and severally, "Borrowers"),on the other hand, in light of
the following:
R E C I T A L S
FACT ONE: Borrowers, or their predecessors in interest, and
Foothill have previously entered into that certain Loan and Security Agreement,
dated as of July 10, 1996 (as amended and modified, the "Loan Agreement").
FACT TWO: Borrowers and Foothill desire to amend the Loan
Agreement as provided for herein.
A G R E E M E N T
NOW, THEREFORE, Borrowers and Foothill hereby amend and
supplement the Loan Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in
this Amendment shall have the meanings given to them in the Loan Agreement
unless specifically defined herein.
2. AMENDMENT.
2.1 Foothill hereby agrees that it shall not charge
Borrowers the three (3) Business Day clearance charge provided for in Section
3.6 of the Agreement on any receipt of payments received from the period of
March 15, 1998 through November 15, 1998 except for receipts from the sales of
Real Property. After November 15, 1998, Foothill shall charge the three (3)
Business Day clearance charge on all receipts as provided for in Section 3.6 of
the Agreement.
2.2 Foothill hereby waives the requirement that
Borrower pay to Foothill the Unused Line Fee provided for in Section 3.8 (d) of
the Agreement from the period of June 10, 1998 through November 15, 1998. After
November 15, 1998, Borrower shall pay to Foothill the Unused Line Fee provided
for in Section 3.8 (d) of the Agreement.
1
<PAGE> 28
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms
to Foothill that all of Borrower's representations and warranties set forth in
the Loan Agreement are true, complete and accurate in all material respects as
of the date hereof (except to the extent that such representations and
warranties relate solely to an earlier date).
4. NO DEFAULTS. Borrower hereby affirms to Foothill that
no Event of Default has occurred and is continuing as of the date hereof.
5. LIMITED EFFECT. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms and provisions of this Amendment shall govern. In all other
respects, the Loan Agreement, as amended and supplemented hereby, shall remain
in full force and effect.
6. WAIVER. The waiver of certain provisions of the Loan
Agreement as provided in this Amendment shall constitute a one time waiver only
and Foothill shall have the right to require strict compliance with all of the
provisions of the Loan Agreement in the future.
7. BROKERS' FEES. Any brokerage commission or finder's
fees payable in connection with the financing arrangement contemplated hereby
will be payable by Borrowers and not by Foothill. Borrowers and Foothill each
represent and warrant to the other that they have not incurred any obligation
for a brokerage commission or a finder's fee. Borrowers hereby indemnify
Foothill and hold Foothill harmless from and against any claim of any broker or
finder arising out of the financing arrangement described above or any
commitment relating thereto.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original. All such counterparts, taken together, shall constitute but one and
the same Amendment. This Amendment shall become effective upon the execution of
a counterpart of this Amendment by each of the parties hereto.
2
<PAGE> 29
9. COMPLETE AGREEMENT; NO ORAL MODIFICATIONS. This
Amendment embodies the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior proposals, negotiations,
or agreements whether written or oral, relating to the subject matter hereof.
This Amendment may not be modified, amended, supplemented, or otherwise changed,
except by a document in writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first set forth above.
"FOOTHILL"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Katy J. Brooks
-----------------------------------
Title: Assistant Vice President
"BORROWERS"
NATIONAL AMERICAN CORPORATION,
a Nevada corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
THOUSAND TRAILS, INC.,
a Delaware corporation, f/k/a USTrails, Inc.,
a Nevada corporation, and New Thousand Trails,
Inc., a Delaware corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
3
<PAGE> 30
THOUSAND TRAILS (CANADA) INC.,
a British Columbian corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
TT OFFSHORE, LTD,
a Virginia corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
BEECH MOUNTAIN LAKES CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
CHEROKEE LANDING CORPORATION,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
CHIEF CREEK CORPORATION,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
4
<PAGE> 31
COAST FINANCIAL SERVICES, INC.,
a Delaware corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
DIXIE RESORT CORPORATION,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
FOXWOOD CORPORATION,
a South Carolina corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
GL LAND DEVELOPMENT CORPORATION,
an Oklahoma corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
LAKE ROYALE CORPORATION,
a North Carolina corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
5
<PAGE> 32
LAKE TANSI VILLAGE, INC.,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
LML RESORT CORPORATION,
an Alabama corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
NATCHEZ TRACE WILDERNESS PRESERVE
CORPORATION, a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
QUAIL HOLLOW PLANTATION
CORPORATION, a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
6
<PAGE> 33
QUAIL HOLLOW VILLAGE, INC.,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RECREATION LAND CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RECREATION PROPERTIES, INC.,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RESORT LAND CORPORATION,
an Arkansas corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
RESORT PARKS INTERNATIONAL, INC.,
a Georgia corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
7
<PAGE> 34
TANSI RESORT, INC.,
a Tennessee corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
THE KINSTON CORPORATION,
a South Carolina corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
THE VILLAS OF HICKORY HILLS, INC.,
a Mississippi corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
WESTERN FUN CORPORATION,
a Texas corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
WESTWIND MANOR CORPORATION,
a Texas corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
8
<PAGE> 35
WOLF RUN MANOR CORPORATION,
a Pennsylvania corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
UST WILDERNESS MANAGEMENT
CORPORATION, a Nevada corporation
By: /s/ Walter B. Jaccard
-----------------------------------
Name: Walter B. Jaccard
Title: Vice President
9
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated September 4, 1998, on the consolidated financial statements of Thousand
Trails, Inc. and Subsidiaries (and to all references to our Firm), incorporated
by reference in the Post Effective Amendment No 2 to the Registration Statement
on Form S-2.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas,
December 9, 1998
