<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period of to
-------- --------
Commission File Number 1-14645
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 11, 1999 was 7,978,228.
<PAGE> 2
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
and June 30, 1999..............................................................3
Consolidated Statements of Operations for the three months ended
September 30, 1999 and September 30, 1998......................................4
Consolidated Statement of Stockholders' Equity for the three months
ended September 30, 1999.......................................................5
Consolidated Statements of Cash Flows for the three months ended
September 30, 1999 and September 30, 1998......................................6
Notes to Consolidated Financial Statements.......................................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................22
</TABLE>
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,
1999 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,302 $ 2,197
Current portion of receivables, net of allowances and discount of
$.6 million and $.7 million, respectively 1,287 1,402
Current portion of deferred membership selling expenses 753 693
Current portion of net deferred tax assets 2,336 2,061
Other current assets 2,274 2,048
-------------- --------------
Total Current Assets 7,952 8,401
Restricted cash 998 1,240
Receivables, net of allowances and discount of $.5 million and $.5
million, respectively 878 782
Campground land 13,200 13,200
Buildings and equipment, net of accumulated depreciation of
$17.5 million and $18.1 million, respectively 20,402 20,829
Land held for sale 2,987 2,987
Deferred membership selling expenses 1,564 1,372
Net deferred tax assets 4,658 5,635
Other assets 1,104 2,358
-------------- --------------
Total Assets $ 53,743 $ 56,804
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,894 $ 1,666
Accrued interest 97 110
Other accrued liabilities 5,634 6,148
Current portion of long term debt 1,932 2,100
Accrued construction costs 1,888 1,888
Current portion of deferred revenue 14,147 19,098
-------------- --------------
Total Current Liabilities 25,592 31,010
Long term debt 9,623 8,787
Deferred revenue 6,482 5,627
Other liabilities 1,664 1,732
-------------- --------------
Total Liabilities 43,361 47,156
-------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' 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, 7,972,228 and
8,096,128 shares issued and outstanding, respectively, after deducting
132,100 and 3,200 shares held in Treasury, respectively 80 81
Additional paid-in capital 21,310 21,869
Accumulated deficit subsequent to December 31, 1991, date of emergence
from bankruptcy (10,869) (12,163)
Accumulated other comprehensive loss (139) (139)
-------------- --------------
Total Shareholders' Equity 10,382 9,648
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 53,743 $ 56,804
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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,
----------------------------------------
1999 1998
---------------- ------------------
<S> <C> <C>
REVENUES
Membership dues $ 9,047 $ 9,340
Other campground revenue 7,866 7,567
Membership and lot sales 1,071 978
RPI membership fees 835 969
Interest income 295 623
Gain on asset sales 4 88
Other income 715 896
--------------- ---------------
Total Revenues 19,833 20,461
--------------- ---------------
EXPENSES
Campground operating expenses 12,730 12,554
Selling expenses 904 988
Marketing expenses 846 582
RPI membership expenses 517 532
Corporate member services 369 381
Interest expense and amortization 296 1,078
General and administrative expenses 2,034 2,138
--------------- ---------------
Total Expenses 17,696 18,253
--------------- ---------------
INCOME BEFORE INCOME TAXES 2,137 2,208
INCOME TAXES --
Income tax provision - current (141) (261)
Income tax provision - deferred (702) (485)
--------------- ---------------
(843) (746)
NET INCOME $ 1,294 $ 1,462
=============== ===============
NET INCOME PER SHARE -- BASIC $ .16 $ .20
=============== ===============
NET INCOME PER SHARE -- DILUTED $ .15 $ .17
=============== ===============
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,983 7,459
=============== ===============
Diluted 8,622 8,413
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Accumulated Comprehensive
Stock Capital Deficit Loss Total
------ ---------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1999 $ 81 $ 21,869 $(12,163) $ (139) $ 9,648
Issuance of common stock -- 4 -- -- 4
Purchase of treasury stock (1) (563) -- -- (564)
Net income for the three months
ended September 30, 1999 -- -- 1,294 -- 1,294
-------- -------- -------- -------- --------
Balance, September 30, 1999 $ 80 $ 21,310 $(10,869) $ (139) $ 10,382
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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,
----------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 779 $ 1,235
Interest received 265 577
Interest paid (296) (51)
General and administrative and corporate member
services costs (2,450) (2,473)
Cash collected from operations, including deferred
revenue 14,200 13,688
Cash from sales of memberships and
lots at the point of sale 1,467 1,190
Expenditures for property operations (11,599) (11,254)
Expenditures for sales and marketing (1,998) (1,682)
Expenditures for insurance premiums (901) (720)
Payment of income taxes (15) (273)
Other, net (242) 54
----------------- -----------------
Net cash provided by (used in) operating activities (790) 291
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (218) (1,078)
Proceeds from asset sales 4 77
----------------- -----------------
Net cash used in investing activities (214) (1,001)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under Credit Agreement 669 --
Purchase of Treasury Stock (564) --
Issuance of Common Stock 4 45
----------------- -----------------
Net cash provided by financing activities 109 45
----------------- -----------------
DECREASE IN CASH AND CASH EQUIVALENTS (895) (665)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,197 13,631
----------------- -----------------
End of period $ 1,302 $ 12,966
================= =================
</TABLE>
-- continued --
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,
----------------------------------------
1999 1998
---------------- ------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Net income $ 1,294 $ 1,462
---------------- ------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES --
Depreciation 645 644
Amortization of interest yield, collection costs and
valuation allowance (57) (106)
Net deferral of sales revenue 1,106 652
Net deferral of selling expenses (252) (179)
Gain on asset sales (4) (88)
Deferred income tax provision 702 485
Decrease in restricted cash 242 54
Decrease in receivables 34 796
Decrease in other assets 1,053 716
Increase in accounts payable 228 334
Increase (decrease) in accrued interest (13) 1,034
Decrease in other liabilities (5,785) (5,664)
Other, net 17 151
---------------- ------------------
Total adjustments (2,084) (1,171)
---------------- ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (790) $ 291
================ ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 1 -- NATURE OF OPERATIONS
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 300
recreational facilities and manages 169 public campgrounds for the US Forest
Service. 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
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., National American Corporation and its subsidiaries
("NACO"), Resort Parks International, Inc. ("RPI"), Thousand Trails (Canada),
Inc. and UST Wilderness Management Corporation ("Wilderness Management").
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.
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, 1999, filed
with the Securities and Exchange Commission (the "SEC") on September 24, 1999.
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, 1999 and 1998, and in the consolidated balance sheet
as of June 30, 1999.
NOTE 2 -- COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("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
8
<PAGE> 9
statement. Currently, the Company's only item of other comprehensive income is
its foreign currency translation adjustment. The following table provides
statements of comprehensive income for the three months ended September 30, 1999
and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
For the three months ended
September 30,
-------------------------
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Net Income $ 1,294 $ 1,462
Foreign Currency Translation Adjustment -- (3)
---------- ----------
Comprehensive Income $ 1,294 $ 1,459
========== ==========
</TABLE>
NOTE 3 -- SEGMENT REPORTING
SFAS No. 131 requires the Company to report information on its operating
segments, which are: campgrounds, RPI, and Wilderness Management. The campground
segment generates a majority of the Company's operating revenues. These three
segments offer different products and services.
The campgrounds segment operates a network of 53 membership-based campgrounds in
17 states and British Columbia, Canada. Operations within the campground segment
include (i) the sale of memberships entitling the member to use campground
facilities, (ii) the sale of undivided interests related to fee simple sales of
interests in campground facilities, and (iii) net revenues earned from
operations at the campgrounds. Separate information regarding Canadian
campground operations is not presented as revenues and identifiable assets
related to the Canadian operations are less than 10% of the related consolidated
amounts for the periods presented.
RPI sells memberships that allow members to use any of the recreational
facilities participating in RPI's reciprocal use system, subject to certain
limitations. Operating revenue consists of the annual membership fees paid by
members.
Wilderness Management manages 169 public campgrounds for the US Forest Service.
Operating revenue consists of the campsite usage fees paid by people staying at
the public campgrounds.
The Company evaluates performance based upon the income before taxes for each
business segment.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
-----------------------------------------
Wilderness Corporate
Campgrounds RPI Management and Other Consolidated
----------- --- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 15,114 $ 835 $ 1,764 $ 35 $ 17,748
Sales 1,044 -- -- 27 1,071
Income (loss) before
income taxes 3,113 318 365 (1,659) 2,137
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
-----------------------------------------
Wilderness Corporate
Campgrounds RPI Management and Other Consolidated
----------- --- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 15,235 $ 969 $ 1,654 $ 18 $ 17,876
Sales 940 -- -- 38 978
Income (loss) before
income taxes 3,341 437 436 (2,006) 2,208
</TABLE>
NOTE 4 -- NET INCOME PER SHARE
SFAS No. 128 requires the Company to report basic and diluted net income per
share. The tables below set forth the information necessary to compute basic and
diluted net income per share for the three months ended September 30, 1999, and
1998, 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,
--------------------------
1999 1998
---------- -----------
<S> <C> <C>
Net Income $ 1,294 $ 1,462
========== ===========
Weighted Average Number of Shares - Basic 7,983 7,459
Dilutive Options 639 948
Dilutive Warrants -- 6
---------- -----------
Weighted Average Number of Shares - Diluted 8,622 8,413
========== ===========
Net Income Per Share - Basic $ .16 $ .20
========== ===========
Net Income Per Share - Diluted $ .15 $ .17
========== ===========
</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, until the Credit Agreement is terminated.
NOTE 5 -- LONG TERM DEBT
CREDIT AGREEMENT WITH FOOTHILL
In January 1998, the Company repaid all outstanding borrowing under the Credit
Agreement, and it had no outstanding borrowings under the Credit Agreement as of
September 30, 1998. In October 1998, the Company entered into an amendment to
the Credit Agreement that gave the Company the flexibility to borrow up to $5.0
million for working capital purposes and additional amounts to use to redeem the
Company's 12% Senior Subordinate Pay-In-Kind Notes ("PIK Notes") and for the
possible acquisition of members through the purchase of other membership
10
<PAGE> 11
campground operations. Under the amended Credit Agreement, the first $15.0
million of borrowings bear interest at prime plus .25% per annum, borrowings
over $15.0 million and up to $25.0 million bear interest at prime plus .50% per
annum, and borrowings over $25.0 million bear interest at prime plus 1.5% per
annum, subject to a minimum interest rate of 9% per annum (reduced to 7% per
annum in June 1999).
In December 1998, the Company borrowed $24.0 million under the amended Credit
Agreement to partially fund the redemption of the PIK Notes as discussed below.
As a result of subsequent repayments, on September 30, 1999, the Company had
$11.6 million of outstanding borrowings under the amended Credit Agreement, and
it had the ability to borrow an additional $3.3 million for working capital
purposes. The Company's ability to borrow up to an additional $10.0 million to
fund its possible acquisition of members through the purchase of other
membership campground operations will expire on December 31, 1999. All
borrowings under the amended Credit Agreement will mature on January 17, 2003.
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.
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. In January 1997, the Company issued an
additional $2.4 million principal amount of PIK Notes in lieu of cash interest.
In June 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. In July 1997,
January 1998, and July 1998, the Company issued an additional $1.7 million, $1.9
million, and $2.0 million principal amount of PIK Notes, respectively, in lieu
of cash interest. In December 1998, the Company redeemed all $34.8 million
principal amount of PIK Notes outstanding and paid $1.7 million of accrued
interest. The Company funded this redemption with $12.5 million of its existing
cash and $24.0 million of new borrowings under the Credit Agreement with
Foothill.
NOTE 6 -- 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
11
<PAGE> 12
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. As of September 30, 1999 and June 30, 1999, the Company's
recorded liability for estimated losses related to uninsured general liability
claims totaled $874,000 and $1.1 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 1999). 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 5% per
year. The Company attributes this continuing attrition principally to its aging
membership base, of whom approximately 50% are senior citizens. 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 through the
purchase of other membership campground organizations.
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
Foxwood Property Owners Association, Inc. vs. Foxwood Corporation, filed on
February 18, 1999, in the Court of Common Pleas of Oconee County, South
Carolina, under Case No. 99-37-CP-88. In this action, the plaintiff brought suit
against a subsidiary of the Company alleging that the defendant owes the
plaintiff in excess of $2.5 million for past due maintenance fees on subdivided
lots owned by the defendant. The defendant denies the claim and is vigorously
defending the lawsuit. Although discovery in this lawsuit has not been
completed, management does not believe that it will have a material adverse
effect upon the Company's operations or financial position.
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 7 -- 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, 1999 and 1998
(dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1999 1998
---------- --------
<S> <C> <C>
Non-cash payment of PIK Note interest (see Note 5)
PIK Notes issued in lieu of cash interest payment -- $ 1,969
</TABLE>
12
<PAGE> 13
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,
1999, filed with the SEC on September 24, 1999.
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, 1999. 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 will
depend principally upon the degree to which the Company can successfully
implement this strategy.
13
<PAGE> 14
CASH. On September 30, 1999, the Company had $1.3 million of cash and cash
equivalents, a decrease of $895,000 from June 30, 1999. During the three months
ended September 30, 1999, the Company's operating activities used $790,000 of
cash, its investing activities used $214,000 of cash, and its financing
activities produced $109,000 of cash. The Company's investing activities
consisted of capital expenditures at the campgrounds. The Company's financing
activities consisted primarily of borrowing and repayments under the Credit
Agreement with Foothill and the purchase of 128,900 shares of the Company's
common stock for a total of $564,000.
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.
With respect to the Company's operating activities, for the three months ended
September 30, 1999, the principal sources of operating cash were $14.2 million
from operations, $1.0 million in principal and interest collections on contracts
receivable, $1.5 million from sales of campground memberships and lots, and
$834,000 from the termination of a grantor trust established to reimburse
directors and officers for any indemnifiable damages and expenses they might
incur. Principal uses of operating cash for the three months ended September 30,
1999, were $11.6 million in operating expenses, $2.5 million in administrative
expenses (including general and administrative expenses and corporate member
services costs), $2.0 million in sales and marketing expenditures, and $900,000
in insurance premiums.
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 30, 1998. In October 1998, the Company entered into an
amendment to the Credit Agreement that gave the Company the flexibility to
borrow up to $5.0 million for working capital purposes and additional amounts to
use to redeem the PIK Notes 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 bear interest at prime plus
.25% per annum, borrowings over $15.0 million and up to $25.0 million bear
interest at prime plus .50% per annum, and borrowings over $25.0 million bear
interest at prime plus 1.5% per annum, subject to a minimum interest rate of 9%
per annum (reduced to 7% per annum in June 1999).
In December 1998, the Company borrowed $24.0 million under the amended Credit
Agreement to partially fund the redemption of the PIK Notes (see Note 5 to the
consolidated financial statements included it Item 1). As a result of subsequent
repayments, on September 30, 1999, the Company had $11.6 million of outstanding
borrowings under the amended Credit Agreement, and it had the ability to borrow
an additional $3.3 million for working capital purposes. The Company's ability
to borrow up to an additional $10.0 million to fund its possible acquisition of
members through the purchase of other membership campground operations will
expire on December 31, 1999. All borrowings under the amended Credit Agreement
will mature on January 17, 2003.
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
14
<PAGE> 15
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.
As of the date of this report, the Company had $13.1 million of outstanding
borrowings under the amended Credit Agreement, and it had the ability to borrow
an additional $1.8 million for working capital purposes. 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. 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.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $3.1 million during the three months ended September
30, 1999. Cash decreased by $895,000 as discussed above. Contracts receivable
decreased by $19,000 due primarily to $779,000 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
increased by $226,000 due primarily to an increase in prepaid insurance,
partially offset by a reduction in other accounts receivable. Buildings and
equipment decreased by $427,000 due primarily to depreciation, partially offset
by capital improvements made at certain campgrounds. Other assets decreased by
$1.1 million due primarily to the termination of the grantor trust agreement
discussed above, and the release of prior year worker's compensation deposits
that were applied to current year premiums.
Total liabilities decreased by $3.8 million during the three months ended
September 30, 1999. Deferred revenue decreased by $4.1 million due primarily to
the recognition of $5.2 million of dues revenue in excess of dues collected
during the period, partially offset by a $1.1 million net increase in deferred
sales revenue. Long term debt increased by $668,000 due to additional borrowings
under the Credit Agreement with Foothill. Other liabilities decreased by
$582,000 due primarily to payments of accrued bonuses and other reductions in
labor accruals, partially offset by an increase in accrued property taxes.
MARKET RISK AND INTEREST RATE SENSITIVITY. As noted above, as of September 30,
1999, the Company had $11.6 million of outstanding borrowings under the Credit
Agreement with Foothill and it had the ability to borrow an additional $3.3
million for working capital purposes and up to an additional $10.0 million to
use for the possible acquisition of members through the purchase of other
membership campground operations (see "Liquidity and Capital Resources - Cash").
The borrowings under the Credit Agreement accrue interest at rates that
fluctuate with changes in the prime rate and the Company, therefore, has
exposure to changing interest rates because increases in interest rates would
increase the Company's interest expense on these borrowings.
A hypothetical ten percent change in market interest rates over the next year
would not materially impact the Company's earnings or cash flow. At the level of
borrowings in place as of September 30, 1999, a hypothetical ten percent change
in market interest rates over the next year would increase the Company's
interest expense by approximately $100,000. A hypothetical ten percent change in
market interest rates would not have a material effect on the fair value of
15
<PAGE> 16
the Company's contracts receivable, its borrowings under the Credit Agreement
with Foothill, 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 three months ended September 30, 1999 and
1998. 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, 1999 AND 1998
NET INCOME. The Company reported net income of $1.3 million or $.15 per diluted
share on revenues of $19.8 million for the three months ended September 30,
1999. This compares with net income of $1.5 million or $.17 per diluted share on
revenues of $20.5 million for the same period last year. Although revenues
declined slightly in the current quarter, the Company was able to control
expenses and maintain approximately the same net income, despite a $380,000
increase in the current quarter in the unfavorable impact from the net deferral
of sales revenues and expenses. The Company's net interest costs were also lower
during the current quarter by more than $450,000.
The table on the following page shows separately the results of the campground
operations, Wilderness Management, and Resort Parks International, 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,
1999 and 1998.
16
<PAGE> 17
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,047 $ 9,340
Campground revenues 6,067 5,895
Cost of campground revenues (2,630) (2,399)
Operating expenses (8,681) (8,894)
---------- ----------
Contribution from campground operations 3,803 3,942
---------- ----------
SALES
Sales revenues 1,044 940
Selling expenses (888) (959)
Marketing expenses (846) (582)
---------- ----------
Loss on sales (690) (601)
---------- ----------
WILDERNESS MANAGEMENT
Revenues 1,764 1,654
Expenses (1,399) (1,218)
---------- ----------
Contributions from Wilderness Management 365 436
---------- ----------
RESORT PARKS INTERNATIONAL
Revenues 835 969
Expenses (517) (532)
---------- ----------
Contribution from RPI 318 437
---------- ----------
Other income 701 896
Corporate member services (369) (381)
General and administrative expenses (2,019) (2,138)
Other 25 (16)
---------- ----------
INCOME BEFORE INTEREST INCOME AND EXPENSE, GAIN ON
ASSET SALES, AND TAXES 2,134 2,575
---------- ----------
Interest income 295 623
Interest expense (296) (1,078)
Gain on asset sales 4 88
---------- ----------
INCOME BEFORE TAXES $ 2,137 $ 2,208
========== ==========
</TABLE>
17
<PAGE> 18
OPERATING INCOME. During the three months ended September 30, 1999, the
Company's contribution from operations was $2.1 million, approximately $441,000
less than the $2.6 million achieved in the same period last year. The decline
was due primarily to declines in the contributions of campground operations,
RPI, and Wilderness Management, and an increase in selling and marketing
expenses. For this purpose, the contribution from operations is defined as
income before interest income and expenses, gains 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 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 $9.0 million for the three months ended
September 30, 1999, compared with $9.3 million for the same period last year.
The decline in dues revenue was due primarily to the net loss of campground
members during the year, partially offset by the effect of the annual dues
increase.
Other campground revenues were $6.1 million for the three months ended September
30, 1999, compared with $5.9 million for the same period last year. The related
expenses were $2.6 million for the three months ended September 30, 1999,
compared with $2.4 million for the same period last year. The increase in
campground revenues and related expenses in the current period was due primarily
to a greater emphasis on ancillary revenue programs at the campgrounds.
Campground operating expenses were $8.7 million for the three months ended
September 30, 1999, compared with $8.9 million for the same period last year.
The decrease in the current period was due primarily to reductions in labor and
insurance 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,
1999 and 1998, the Company recognized campground membership sales revenues of
$1.0 million and $940,000, respectively. These amounts include revenues of
$781,000 and $701,000, respectively, that were deferred in prior periods.
Moreover, during these same periods, the Company deferred revenues of $1.9
million and $1.4 million, respectively, which will be recognized in future
periods. Sales revenues increased in the current period due to higher average
sales prices partially offset by a higher net deferral of sales revenues in the
current period.
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.
18
<PAGE> 19
All other selling and marketing costs are recognized as expenses in the period
incurred. For the three months ended September 30, 1999 and 1998, the Company
recognized selling expenses of $888,000 and $959,000, respectively. These
amounts include expenses of $190,000 and $164,000, respectively, that were
deferred in prior periods. Moreover, for these same periods, the Company
deferred expenses of $442,000 and $343,000, respectively, which will be
recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $690,000 and $601,000 for the three months
ended September 30, 1999 and 1998, respectively. These expenses exceeded sales
revenues because of the increased marketing activity, and the relatively 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 as the Company
grows 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 or acquire members through the purchase of other membership
campground operations, 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 169 public campgrounds for the US Forest Service. For the three
months ended September 30, 1999, these operations produced a net contribution of
$365,000 on revenues of $1.8 million, compared with a net contribution of
$437,000 on revenues of $1.7 million for the same period last year. The increase
in revenues between periods was due to new contracts entered into in the Spring
of 1999, which increased the number of campgrounds managed. The start-up costs
from these new contracts caused the decline in the net contribution between
periods. The revenues and expenses related to the Company's campground
management operations are included in other campground revenue and campground
operating expenses in the consolidated statement of operations.
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, 1999, RPI's operations produced a net contribution of $318,000 on revenues
of $835,000, compared with a contribution of $437,000 on revenues of $969,000
for the same period last year. Although RPI reduced its operating expenses in
the current period, revenues declined by a greater amount, which resulted in a
decrease in contribution between the two periods. RPI's revenues have declined
as a result of declining sales in the membership camping industry. RPI is
working to introduce new products to increase its revenues and maintain its
contribution margin; however, there is no assurance that these efforts will be
successful.
19
<PAGE> 20
INTEREST INCOME AND EXPENSE. Interest income declined to $295,000 for the three
months ended September 30, 1999, from $623,000 for the same period last year.
The decrease in the current period was due primarily to decreases in the
interest earned on the Company's diminishing portfolio of contracts receivable
and on invested cash. Most of the Company's invested cash was used to redeem the
PIK Notes in December 1998. Also included in the interest income is amortization
of the allowances for interest and valuation discounts related to the contracts
receivable of $57,000 and $61,000, respectively. The interest earned on the
Company's portfolio of contracts receivable will continue to decrease in the
future as the portfolio declines.
Interest expense decreased by $782,000 for the three months ended September 30,
1999, compared with the same period last year, due primarily to the redemption
of the PIK notes in December 1998. This decrease was partially offset by an
increase in interest expense incurred under the Credit Agreement. Interest
expense will continue to decline in the future if the Company is able to reduce
borrowing under the Credit Agreement, which totaled $11.6 million at September
30, 1999. However, the Company's ability to reduce such borrowings will be
limited if new members elect to finance their memberships, and borrowing would
likely increase if the Company successfully acquires new members through the
purchase of other membership campground operations.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of
$4,000 for the three months ended September 30, 1999, compared with $88,000 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 land it holds for sale, any campgrounds that are closed
if 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
made.
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections on written-off contracts and delinquent dues,
subscription fees received from members who subscribe to the Company's member
magazine, and fees charged to members for making more than five
operator-assisted reservations in a given year. Other income was $701,000 for
the three months ended September 30, 1999, compared with $896,000 for the same
period last year. The decrease between periods was directly related to lower
fees and other income received from the declining contracts receivable portfolio
and shrinking membership base.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.4 million for the three
months ended September 30, 1999, compared with $2.5 million for the same period
last year. The decrease in the current period was due primarily to lower
professional fees.
INCOME TAXES. The Company's current provision for income taxes was $141,000 for
the three months ended September 30, 1999, compared with $261,000 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.
20
<PAGE> 21
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 $27.4 million at
June 30, 1999.
The Company recorded a deferred tax provision of $702,000 for the three months
ended September 30, 1999, compared to $485,000 for the same period last year.
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.
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. The Company was required to modify certain software so that
its computer systems would function properly with respect to dates in the year
2000 and thereafter. With these modifications completed, the Company believes
that its computer systems will not experience material operational problems as a
result of the year 2000 issue. However, if such modifications do not produce the
desired result, 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.
The Company spent approximately $50,000 during the three months ended September
30, 1999 completing its year 2000 project.
The Company does not presently have a formal contingency plan because it
believes all necessary year 2000 modifications have been completed. However,
should it become evident that additional year 2000 modifications are required,
the Company will explore alternatives to employ until such time as the year 2000
modifications are completed.
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, 1999 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."
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
Exhibit
Number Description
------ -----------
10.1 Employment Agreement dated as of October 15, 1999, between the
Company and Bryan D. Reed.
10.2 Indemnification Agreement dated as of October 15, 1999 between the
Company and Bryan D. Reed.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the three months ended September 30,
1999.
REPORTS ON FORM 8-K
None.
22
<PAGE> 23
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 11, 1999 By: /s/ William J. Shaw
-------------------------------------
William J. Shaw
President and Chief Executive Officer
Date: November 11, 1999 By: /s/ Bryan Reed
-------------------------------------
Bryan Reed
Chief Financial Officer
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Employment Agreement dated as of October 15, 1999, between the
Company and Bryan D. Reed.
10.2 Indemnification Agreement dated as of October 15, 1999 between
the Company and Bryan D. Reed.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the three months ended September 30, 1999.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of the 11th day of October, 1999, is
between Thousand Trails, Inc., a Delaware Corporation (the "Corporation"), and
Bryan D. Reed, a resident of Dallas, Texas (the "Executive").
The Corporation desires to employ the Executive as Vice President and
Chief Financial and Accounting Officer of the Corporation and of its
subsidiaries, and the Executive desires to accept such employment, on the terms
and conditions set forth herein.
The Corporation, through its Board of Directors, has determined that in
view of the knowledge, expertise and experience of the Executive, the future
service of the Executive as an employee of the Corporation is expected to be of
great value to the Corporation and its subsidiaries.
Accordingly, in consideration of the mutual agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Corporation and the Executive
hereby agree as follows:
SECTION 1. EMPLOYMENT.
(a) Subject to the terms and conditions of this Employment Agreement, the
Corporation will employ the Executive, and the Executive will serve
the Corporation, in the Designated Offices (as hereinafter defined)
for the Term of Employment (as defined in paragraph (a) of Section 5
hereof).
(b) As used in this Employment Agreement, the term "Designated Offices"
shall mean the offices of Vice President and Chief Financial and
Accounting Officer of the Corporation and its subsidiaries or, with
the prior written consent of the Executive, a higher office (if any)
of the Corporation to which the Executive shall be duly elected.
SECTION 2. SCOPE OF EMPLOYMENT. During the Term of Employment, the
Executive will:
(a) Serve in the Designated Offices in accordance with the By-Laws of the
Corporation and its subsidiaries;
(b) Be a full-time employee of the Corporation, devote such amount of his
time, attention and energies to the business of the Corporation as is
usually required of a full-time employee who serves as an officer of
his employer, and diligently and to the best of his ability perform
all duties incident to his employment with the Corporation;
Employment Agreement Page 1
<PAGE> 2
(c) Use his best efforts to promote the interest and goodwill of the
Corporation; and
(d) Perform such other duties commensurate with the Designated Offices as
the Corporation may from time to time assign to him.
SECTION 3. BASE SALARY. As compensation for the Executive's services
under this Employment Agreement, the Corporation shall pay to the Executive a
base salary of not less than $120,000.00 per year (the "Base Salary") during the
Term of Employment. The Base Salary shall be payable to the Executive in
accordance with the normal payroll practices of the Corporation. The amount of
the Base Salary may be increased from time to time by the Corporation and, if so
increased, shall not thereafter be decreased. The term "Base Salary" does not
include any additional compensation or benefits payable pursuant to Section 4
hereof.
SECTION 4. ADDITIONAL COMPENSATION AND BENEFITS. As additional
compensation for the Executive's services under this Employment Agreement, the
Corporation shall provide the Executive with the following:
(a) During the Term of Employment, the Executive shall be entitled, upon
satisfaction of any eligibility requirements with respect thereto, to
participate in any and all existing or future employee benefit plans
or arrangements, including, without limitation, any medical, dental,
vision, accidental death and dismemberment, disability, and group
term life insurance plans, or retirement plans or arrangements, that
are generally made available to the employees of the Corporation
(collectively, the "Employee Benefit Plans").
(b) During the Term of Employment, the Executive shall be entitled to
annual vacations in accordance with the Corporation's vacation policy
during which time the Base Salary and the additional compensation
described in this Section 4 shall continue to be paid to the
Executive. Such vacation days shall be taken by the Executive at such
times as may be mutually agreed upon by the Executive and the
Corporation.
(c) During the Term of Employment, the Executive shall be authorized to
incur reasonable expenses for the purpose of promoting the
business of the Corporation, including without limitation,
expenses for entertainment, travel and similar items, provided
that such expenses are made in accordance with the Corporation's
policies. The Corporation shall reimburse the Executive for such
expenses upon the presentment by the Executive from time to time
of an itemized accounting of such expenses, including receipts
where required by federal income tax regulations, setting forth
in reasonable detail the individual items for which reimbursement
is sought. With respect to automobile travel on behalf of the
Corporation, during the Term of Employment, the Corporation shall
pay the Executive a reasonable allowance for the use and
maintenance of his own automobile in accordance with the
Corporation's policies in effect from time to time.
Employment Agreement Page 2
<PAGE> 3
(d) For each fiscal year, commencing with the fiscal year ending June 30,
2000, the Executive may receive a cash bonus award based upon
improvement in the financial results of the Corporation. The amount
of the cash bonus award payable for each year shall be determined by
the Chief Executive Officer of the Corporation, in his sole
discretion. This cash bonus award, if any, shall be paid to the
Executive within 60 days after the end of each fiscal year.
SECTION 5. TERM OF EMPLOYMENT.
(a) The term "Term of Employment" as used in this Employment Agreement
shall mean the period commencing on October 11, 1999 (the date of
this Employment Agreement) and ending on the date the Executive's
employment with the Corporation is terminated as provided in
paragraph (b) below.
(b) The Corporation shall have the right to terminate the Executive's
employment, and to remove the Executive from the Designated
Offices, at any time and for any reason, upon written notice of
termination given by the Corporation to the Executive. Unless
otherwise provided in the notice, any notice of termination given
by the Corporation shall be effective immediately upon delivery
to the Executive. The Executive shall have the right to terminate
his employment with the Corporation, and to resign from the
Designated Offices, for any reason, upon written notice of
termination given to the Corporation by the Executive. Unless the
Corporation agrees otherwise, any notice of termination given by
the Executive shall be effective thirty (30) days after delivery
of such notice to the Corporation. Upon the termination of the
Executive's employment as provided herein, the rights and
obligations of the Executive and the Corporation shall be as set
forth in Section 6, 7 or 8 hereof, as the case may be.
SECTION 6. TERMINATION FOR CAUSE.
(a) If the Executive's employment is terminated by the Corporation for
cause (as defined in paragraph (b) below), the Executive shall have
no right to receive any compensation or other benefits, except
indemnification, for any period after the date of such termination
for cause.
(b) For purposes of this Section 6, termination for cause shall mean
termination of the Executive's employment by the Corporation
because of: (i) the Executive's conviction for or plea of nolo
contendere to any felony or crime involving moral turpitude, (ii)
the Executive's commission of an act of personal dishonesty or
breach of fiduciary duty involving personal profit in connection
with the Executive's employment by the Corporation, (iii) the
Executive's commission of an act involving intentional misconduct
on the part of the Executive in the conduct of his duties
hereunder, (iv) the Executive's willful failure to execute lawful
policies of the Corporation, (v) chronic alcoholism or any other
form of addiction to drugs on the part of the Executive, or (vi)
a material breach by the Executive of any material provision of
this Employment Agreement.
Employment Agreement Page 3
<PAGE> 4
SECTION 7. TERMINATION AS A RESULT OF DEATH, COMPLETE DISABILITY OR
VOLUNTARY TERMINATION BY THE EXECUTIVE. If the Executive's employment is
terminated as a result of the occurrence of one of the following events: (i) the
death of the Executive; (ii) the Complete Disability (as hereinafter defined) of
the Executive, or (ii) the expiration of thirty (30) days after the Executive
delivers his notice of voluntary termination to the Corporation for any reason
other than the occurrence of a Benefits Event, then:
(a) The Corporation shall no longer be obligated to pay to the Executive
any portion of the Base Salary, provide the Executive with the
additional compensation and benefits referred to in Section 4 hereof,
or make any other payment or provide any other benefit to the
Executive or his estate pursuant to this Employment Agreement, except
as provided in Section 8 hereof, where the reason for the termination
is the occurrence of a Benefits Event; and
(b) The Executive shall be under no further obligation to the Corporation
pursuant to this Employment Agreement;
provided, however, that in any such event, the Corporation shall pay to the
Executive, or to his estate, any portion of the Base Salary that shall have been
earned by the Executive prior to the date of termination but not yet paid, plus
twelve (12) months Base Salary in the event the termination is pursuant to
clause (i) or (ii) above, and any benefits that have vested in the Executive at
the time of such termination as a result of his participation in any of the
Employee Benefit Plans shall be paid the Executive, or to his estate or
designated beneficiary, in accordance with the provisions of such Employee
Benefit Plans; and the Corporation shall reimburse the Executive, or his estate,
for any expenses with respect to which the Executive is entitled to
reimbursement pursuant to paragraph (c) of Section 4 hereof; and the Executive
or his estate shall pay to the Corporation any amount then owed by the Executive
to the Corporation, and the Executive's right to indemnification, payment or
reimbursement pursuant to Section 9 hereof shall not be affected by such
termination and shall continue in full force and effect, both with respect to
"proceedings" (as that term is defined in Section 9 hereof) that are threatened,
pending or completed at the date of such termination and with respect to
"proceedings" that are threatened, pending or completed after that date. Under
no circumstances shall the Executive be required, whether by seeking other
employment or otherwise, to mitigate the amount of any payment required to be
made to the Executive pursuant to this Section 7.
For purposes of this Employment Agreement, the "Complete Disability" of
the Executive shall be deemed to have occurred if:
(a) As a result of the Executive's incapacity due to physical or mental
illness, the Executive shall have been continuously absent from his
duties under this Employment Agreement for at least six (6)
consecutive months, and
Employment Agreement Page 4
<PAGE> 5
(b) The Corporation shall have given the Executive written notice of the
termination of the Executive's employment on account of the
Executive's Complete Disability, and
(c) Thirty (30) days shall have elapsed after the giving of such notice,
and
(d) The Executive shall not have resumed his duties under this Employment
Agreement on a full time basis prior to the expiration of such thirty
(30) day period.
SECTION 8. TERMINATION AS A RESULT OF A BENEFITS EVENT.
8.1 If the Executive's employment is terminated as a result of the
occurrence of a Benefits Events (as defined in paragraph 8.3 hereof), then:
(a) The Corporation shall pay to the Executive severance compensation in
an amount equal to twelve (12) months of the greatest of (i) the Base
Salary in effect immediately prior to such termination or (ii) the
Base Salary in effect immediately prior to the occurrence of the
Benefits Event that resulted in such termination. The Corporations
shall pay such severance compensation to the Executive in a lump sum
no later than thirty (30) days after the date of such termination.
(b) The Executive shall continue to be entitled to participate for twelve
(12) months after the date of such termination in any and all
Employee Benefit Plans in which the Executive was entitled to
participate immediately prior to the occurrence of the Benefits
Event that resulted in such termination; provided, however, that
the Executive shall not be entitled to continue to participate in
the Corporation's disability benefit plans and shall not continue
to accrue vacation under the Corporation's vacation policy. In
the event that the Executive's participation in any of such
Employee Benefit Plans is prohibited by the terms of such
Employee Benefit Plans, then, as an alternative to compliance
with the first sentence of this paragraph, the Corporation shall
provide the Executive with benefits substantially similar to
those benefits to which he was entitled under such Employee
Benefit Plans immediately prior to the occurrence of such
Benefits Event and appropriate adjustment shall be made so the
after tax value of those benefits to the Executive is
substantially similar to the after tax value to him of the
benefits to which he would have been entitled under such
Employment Benefit Plans if his participation therein were not
prohibited.
(c) The Corporation shall reimburse the Executive, or his estate, for any
expenses with respect to which the Executive is entitled to
reimbursement pursuant to paragraph (c) of Section 4 hereof.
(d) The Executive shall be under no further obligation to the Corporation
pursuant to this Employment Agreement.
Employment Agreement Page 5
<PAGE> 6
(e) The Executive's right to indemnification, payment or reimbursement
pursuant to Section 9 hereof shall not be affected by such
termination and shall continue in full force and effect, both with
respect to "proceedings" (as that term is defined in Section 9
hereof) that are threatened, pending or completed at the date of such
termination, and with respect to proceedings that are threatened,
pending or completed after that date.
8.2 Under no circumstances shall the Executive be required, whether by
seeking other employment or otherwise, to mitigate the amount of any payment
required to be made to the Executive pursuant to this Section 8.
8.3 For purposes of this Employment Agreement, the term "Benefits
Event" shall mean any one or more of the following events:
(a) Except for removal for cause, death or Complete Disability as
provided in Sections 6 and 7 hereof, any removal of the Executive
from, or any failure to elect or re-elect the Executive to, the
Designated Offices, except in connection with the Executive's
promotion, with his prior written consent, to a higher office (if
any) of the Corporation; or
(b) Except for termination for cause, death or Complete Disability as
provided in Sections 6 and 7 hereof, any termination of the
Executive's employment by the Corporation; or
(c) The assignment by the Corporation to the Executive of duties that are
inconsistent with the Designated Offices at the time of such
assignment, or the removal by the Corporation from the Executive of
those duties usually appertaining to the Designated Offices; or
(d) A material change by the Corporation, without the Executive's prior
written consent, in the Executive's responsibilities to the
Corporation as such responsibilities existed on the date of this
Employment Agreement (or as such responsibilities may thereafter
exist from time to time as a result of changes in such
responsibilities made with the Executive's prior written consent); or
(e) A reduction by the Corporation in the amount of the Base Salary as in
effect on the date of this Employment Agreement (or as subsequently
increased), or the failure of the Corporation to pay such Base Salary
to the Executive at the time and in the manner specified in Section 3
hereof; or
(f) Any change by the Corporation in any Employee Benefit Plan in which
the Executive is a participant unless such change occurs pursuant to
a program applicable to all employees generally and does not result
in a proportionately greater reduction in the right of or benefits to
the Executive as compared with other employees generally; or
Employment Agreement Page 6
<PAGE> 7
(g) For a period of more than sixty (60) consecutive calendar days the
Executive is required by the Corporation to perform a majority of his
duties outside the Executive's principal office as of the date of
this Employment Agreement; or
(h) The failure of the Corporation to provide the Executive annually with
a number of paid vacation days at least equal to the number of paid
vacation days to which the Executive is entitled annually under the
vacation policy in effect on the date of this Employment Agreement;
or
(i) The failure of the Corporation to obtain the assumption by any
successor to the Corporation of the obligations imposed upon the
Corporation under this Employment Agreement, as required by Section
11 hereof; or
(j) The failure of the Corporation to continue to provide the Executive
with office space, related facilities and support personnel
(including, without limitation, administrative and secretarial
assistance) that are both commensurate with the Executive's
responsibilities to and position with the Corporation; or
(k) The failure of the Corporation to reimburse the Executive for any
expenses with respect to which the Executive is entitled to
reimbursement pursuant to paragraph (c) of Section 4 hereof; or
(l) The Corporation notifies the Executive of its intention not to
observe or perform one or more of its obligations under this
Employment Agreement; or
(m) The failure by the Corporation to indemnify, pay or reimburse the
Executive at the time and under the circumstances required by Section
9 hereof.
SECTION 9. INDEMNIFICATION.
9.1 Definitions. For purposes of this Section 9:
(a) The term "proceeding" means (i) a civil, criminal, administrative,
arbitrative or investigation action, suit or proceeding, (ii) an
appeal in such an action, suit or proceeding, or (iii) an inquiry or
investigation that could lead to such an action, suit or proceeding,
in each case arising out of an action taken, or omitted to be taken,
before or after the date of this Employment Agreement.
(b) The phrase "principal of another enterprise" means (i) a director or
officer of a foreign or domestic corporation (other than the
Corporation ), (ii) a partner in a partnership, (iii) a venturer in a
joint venture, (iv) a member of the management or other similar
committee of a partnership or joint venture, (v) a committee member
of an employee benefit plan of the Corporation, or (vi) a trustee of
any trust created pursuant to an employee benefit plan of the
Corporation; and
(c) The term "expense" includes court costs, attorneys' fees and
expenses, expenses of investigation and travel expenses.
Employment Agreement Page 7
<PAGE> 8
9.2 Executive's Right to Indemnification and Right to Advanced Payment
or Reimbursement. In addition to any other right to indemnification, payment or
reimbursement which the Executive may have, if the Executive is or was, or is or
was threatened to be made, a named defendant or respondent in any threatened,
pending or completed proceeding because (i) the Executive is or was a director
of the Corporation, (ii) the Executive is or was an officer of the Corporation,
or (iii) the Executive, while a director or officer of the Corporation, is or
was serving at the request of the Corporation as a principal of another
enterprise, then the Corporation shall:
(a) Indemnify the Executive against all judgments, penalties
(including, without limitation, excise and similar taxes), fines,
settlements and reasonable expenses actually incurred by the
Executive in connection with that proceeding, and
(b) Pay or reimburse, in advance of the final disposition of that
proceeding, the reasonable expenses incurred by the Executive in
connection with that proceeding.
9.3 Expenses of the Executive as a Witness. If the Executive, while not
a named defendant or respondent therein, appeared as a witness, or otherwise
gave testimony, in connection with a pending or completed proceeding because the
Executive is or was a director of the Corporation, the Executive is or was an
officer of the Corporation, or the Executive, while a director or officer of the
Corporation, is or was serving at the request of the Corporation, is or was
serving at the request of the Corporation as a principal of another enterprise,
then the Corporation shall indemnify the Executive against the reasonable
expenses actually incurred by the Executive in connection with such appearance
or testimony.
9.4 Proceedings Brought by or on Behalf of the Corporation. The fact
that the proceeding in respect of which the Executive seeks indemnification,
payment or reimbursement pursuant to this Section 9 is or was brought by or on
behalf of the Corporation shall not diminish or otherwise adversely affect the
rights of the Executive under this Section 9. The Corporation hereby
acknowledges that this Section 9 may require the Corporation to indemnify, pay
or reimburse the Executive in respect of liabilities arising out of proceedings
in which the Executive may be adjudged to have acted negligently in any manner,
including but not limited to: solely or concurrently negligent, contributory or
comparatively negligent, or actively or passively negligent, or to have
otherwise breached his duty to the Corporation or its shareholders.
9.5 Request by the Executive for Indemnification, Payment or
Reimbursement. If the Executive wishes to request, or is entitled to claim,
indemnification, payment or reimbursement pursuant to this Section 9, the
Executive may give notice to the President of the Corporation of the fact of
such claim or request. If (i) the Executive gives that notice, (ii) the
Executive is entitled to indemnification, payment or reimbursement pursuant to
this Section 9, and (iii) the Corporation shall fail to promptly pay to the
Executive the full amount to which the Executive shall be entitled pursuant to
this Section 9, then the Executive may petition any court of competent
jurisdiction to order
Employment Agreement Page 8
<PAGE> 9
the Corporation to pay that amount to the Executive, and if the court issues
such an order, the Corporation shall promptly reimburse the Executive for the
expenses actually incurred by the Executive in obtaining that order.
9.6 Employee Benefit Plans. For purposes of this Section 9, the
Executive shall be deemed a "principal of another enterprise" with respect to an
employee benefit plan of the Corporation, and to have been requested by the
Corporation to serve as such, if the performance by the Executive of his duties
as a director or officer of the Corporation also imposes duties on or otherwise
involved services by him to such employee benefit plan or to its participants or
beneficiaries.
9.7 Indemnity Not Exclusive. The Executive's right to request, or
entitlement to claim, indemnification, payment or reimbursement pursuant to any
of the foregoing provisions of this Section 9 shall not be deemed exclusive of
any other right to reimbursement pursuant to the By-Laws of the Corporation, any
contract of insurance, applicable law, any other provision of this Employment
Agreement or any other contract, arrangement or understanding.
SECTION 10. ASSIGNMENT. This Employment Agreement is a personal
employment contract and the rights and interest of the Executive hereunder may
not be sold, transferred, assigned, pledged or hypothecated.
SECTION 11. SUCCESSORS.
(a) This Employment Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns and
shall inure to the benefit of and shall be binding upon the
Executive and his legal representatives.
(b) The Corporation shall require any Person who is the successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets
of the Corporation to assume, by a written agreement in form and
substance satisfactory to the Executive, all of the obligations of
the Corporation under this Employment Agreement.
(c) For purposes of this Section 11, the term "Person" means any
individual, corporation, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
SECTION 12. ENTIRE AGREEMENT. This Employment Agreement, which contains
the entire contractual understanding between the parties with respect to the
subject matter hereof, may not be changed orally but only by a written
instrument signed by the Executive and the Corporation. This Employment
Agreement supercedes and replaces any prior agreement relating in any way to the
subject matter hereof.
SECTION 13. GOVERNING LAW. This Employment Agreement shall be governed
by and construed in accordance with the laws of the State of Texas.
Employment Agreement Page 9
<PAGE> 10
SECTION 14. ATTORNEYS' FEES. In the event that either the Corporation
or the Executive commences a legal action to declare the meaning of or enforce
any provision of this Employment Agreement, the prevailing party in such action
shall be entitled to an award of its reasonable attorneys' fees and costs.
SECTION 15. WAIVER. The waiver of any breach of any term or condition
of this Employment Agreement shall not be deemed to constitute the waiver of any
other breach of the same or any other term or condition of this Employment
Agreement.
SECTION 16. SEVERABILITY. In the event any provision of this Employment
Agreement is found to be unenforceable or invalid, such provision shall be
severable from this Employment Agreement and shall not affect the enforceability
or validity of any other provision of this Employment Agreement.
SECTION 17. NOTICES. Any notices or other communications required or
permitted under this Employment Agreement shall be sufficiently given if
personally delivered, sent by registered or certified U.S. mail, postage
prepaid, or sent by facsimile transmission, as follows:
(a) If to the Executive, addressed to:
Bryan D. Reed
2903 Champlin Court
Richardson, TX 75082
(b) If to the Corporation, addressed to:
William J. Shaw
President and Chief Executive Officer
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
FAX: (972) 488-5085
or, in each case, to such other address as the party to whom or to which such
notice or other communication is to be given shall have specified in writing to
the other party, and any such notice or communication shall be deemed to have
been given as of the date so delivered, mailed or transmitted.
Executed as of the date first written above.
THOUSAND TRAILS, INC.
By: /s/ WILLIAM J. SHAW
----------------------------
William J. Shaw
President and Chief Executive
Officer
EXECUTIVE
/s/ BRYAN D. REED
----------------------------
Bryan D. Reed
Employment Agreement Page 10
<PAGE> 1
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This Agreement is made as of October 11, 1999, between THOUSAND TRAILS,
INC., a Delaware corporation (the "Corporation"), and Bryan D. Reed
("Indemnitee").
RECITALS
A. Indemnitee is a director and/or officer of the Corporation and in such
capacity is performing valuable service to the Corporation.
B. The Corporation's Bylaws (the "Bylaws") provide various rights to
directors and officers of the Corporation with respect to indemnification and
advancement of expenses.
C. The Bylaws specifically provide that the rights provided therein shall
not be deemed exclusive of any other rights to those seeking indemnification or
the advancement of expenses under any agreement or vote of disinterested
directors.
D. Section 145 of the Delaware General Corporation Law, as amended
(hereinafter referred to, together with Section 145 of such law, as the
"Statute"), provides that the indemnification and advancement of expenses
authorized in the Statute do not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
E. In order to provide greater certainty with respect to the Indemnitee's
rights of indemnification and advancement of expenses and thereby induce
Indemnitee to serve or continue to serve the Corporation, the Corporation has
determined and agreed to enter into this agreement with Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's service and continued
service after the date hereof, the parties hereto agree as follows:
1. Basic Indemnification. The Corporation hereby indemnifies Indemnitee
and agrees to hold Indemnitee harmless to the full extent permitted under the
Statute or any other applicable law or any successor to or redesignation or
amendment of the Statute and as further provided herein. Indemnification under
this Agreement in respect of expenses shall include, without limitation,
expenses relating to travel from the Indemnitee's then current residence to
attend meetings, depositions, court hearings and other similar events.
2. Maintenance of Insurance and Self-Insurance.
(a) Subject only to the provisions of Section 2(b) hereof, so long as
Indemnitee shall continue to serve as a director or officer of the Corporation,
and thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, by
reason of the fact that Indemnitee is or was a director or officer of the
Corporation (or while such a director or officer, served as a director, officer,
employee or agent of the
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<PAGE> 2
Corporation or as a director, officer, trustee, partner, employee or agent of a
Subsidiary, as hereafter defined, or at the Corporation's request, served in any
such position with any other corporation, partnership, joint venture, trust or
other enterprise), the Corporation shall seek to purchase and maintain in effect
for the benefit of Indemnitee one or more valid, binding and enforceable
policies of directors' and officers' liability insurance ("D&O Insurance").
(b) The Corporation shall not be required to maintain said policy or
policies of D&O Insurance in effect if said insurance is not reasonably
available or if, in the reasonable business judgment of the Board of Directors
of the Corporation (the "Board"), either (i) the premium cost for such insurance
is substantially disproportionate to the amount of coverage, or (ii) such
insurance provides insufficient benefit by reason of the extent of applicable
exclusions, the limitation of the insurer's liability, the size of retentions,
or any other similar limitations under any such policy.
(c) In the event the Corporation does not purchase and maintain D&O
Insurance in effect, the Corporation agrees to use its best efforts to make,
establish and fund one or more independent financial arrangements, such as an
indemnification trust, letter of credit or security arrangement, that will, in
the best judgment of the Board, provide the greatest reasonable assurance that
Indemnitee is and will be held harmless and indemnified to the full extent
permitted by law.
(d) As used in this Agreement, "Subsidiary" shall mean any corporation,
joint venture, trust, partnership, unincorporated business association or other
enterprise of which more than 50% of the outstanding capital stock having voting
power to elect a majority of the board of directors or similar body of such
enterprise is owned by the Corporation (irrespective of whether or not, at the
time capital stock of any other class or series of such enterprise shall or
might have voting power upon the occurrence of any contingency) or which the
Corporation otherwise controls or a non-profit corporation which receives its
principal financial support form the Corporation or its Subsidiaries.
3. Additional Indemnity and Advancement of Expenses. Subject only to the
exclusions set forth in Section 4 hereof, and in addition to the indemnification
and other arrangement specified in Sections 1 and 2(c) hereof, the Corporation
hereby indemnifies and agrees to hold Indemnitee harmless against expenses
(including, but not limited to attorneys' fees and disbursements, court costs,
and expert witness fees, and against any judgments, fines, and amounts paid in
settlement) actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(including any action or suit by or in the right of the Corporation), by reason
of the fact that Indemnitee at any time (i) is or was a director or officer of
the Corporation, (ii) while such a director or officer is or was a director,
officer, trustee, employee, partner or agent of a Subsidiary, or (iii) while
such a director or officer is or was serving at the Corporation's request as a
director, officer, trustee, employee, partner or agent of any other organization
or enterprise. The Corporation shall promptly advance to Indemnitee or pay on
Indemnitee's behalf all such expenses or amounts actually incurred or payable by
Indemnitee; provided that the Indemnitee provides the Corporation with an
undertaking to repay such expenses or amounts if it shall ultimately be
determined by a final
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<PAGE> 3
adjudication that the Indemnitee is not entitled to be indemnified by the
Corporation as authorized by the Statute.
4. Limitations on Indemnification by the Corporation. No indemnification
shall be paid to or on behalf of Indemnitee if a final adjudication establishes
that his actions were not taken in good faith or in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation or,
with respect to any criminal action or proceeding, with no reasonable cause to
believe his conduct was unlawful. In addition, in respect of any action or suit
by or in the right of the Corporation, no indemnification shall be paid in
respect of any claim, issue or matter as to which the Indemnitee shall have been
finally adjudged to be liable to the Corporation, unless and only to the extent
the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnification for
expenses. The Corporation shall not be liable under this Agreement to make any
payment in connection with any claim made against the Indemnitee to the extent
that payment is actually made to the Indemnitee under a valid and collectible
policy of insurance or for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any state statutory or common law.
5. Contribution. In order to provide for just and equitable contribution
if the indemnification provided in Sections+1 and 3 hereof or insurance or other
financial arrangements under Section 2(c) hereof are unavailable in whole or in
part, the parties agree that, in such event, in respect of any threatened,
pending or completed action, suit or proceeding in which the Corporation is
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), the Corporation shall contribute to the payment of the Indemnitee's
losses in an amount that is just and equitable in the circumstances, taking into
account, among other things, contributions by other directors and officers or
the Corporation pursuant to indemnification agreements or otherwise. The
Corporation and the Indemnitee agree that, in the absence of personal
enrichment, bad faith, acts of intentional fraud or dishonesty, intention not to
act in the best interests of the Corporation or criminal conduct on the part of
the Indemnitee, it would not be just and equitable for the Indemnitee to
contribute to the payment of Losses arising out of any action, suit or
proceeding in an amount greater than: (i) in a case where the Indemnitee is a
director of the Corporation or any Subsidiary but is not an officer of the
Corporation or such Subsidiary, the amount of fees paid to the Indemnitee for
serving as a director during the 12 months preceding the commencement of such
action, suit, or proceeding, or (ii) in a case where the Indemnitee is a
director of the Corporation or any Subsidiary and is an officer of the
Corporation or any such Subsidiary, the amount set forth in clause (i) plus five
percent of the aggregate cash compensation paid to the Indemnitee for service in
such office(s) during the 12 months preceding the commencement of such action,
suit or proceeding; or (iii) in a case where the Indemnitee is only an officer
of the Corporation or any Subsidiary, five percent of the aggregate cash
compensation paid to the Indemnitee for service in such office(s) during the 12
months preceding the commencement of such action, suit or proceeding. The
Corporation shall contribute to the payment of losses covered hereby to the
extent not payable by the Indemnitee pursuant to the contribution provisions set
forth in the preceding sentence.
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<PAGE> 4
6. Continuation of Obligation. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is
serving in any capacity described in Section 3 hereof, and shall continue
thereafter for so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that Indemnitee
was a director or officer of the Corporation or any Subsidiary or, while such a
director or officer, served in any other capacity referred to in this Agreement.
7. Notification of Claim. Promptly after receipt by Indemnitee of notice
of the commencement of any action, suit, proceeding, Indemnitee will, if a claim
in respect thereof is to be made against the Corporation under this Agreement,
notify the Corporation of the commencement thereof, but the omission to so
notify the Corporation will not relieve it from any liability which it may have
to Indemnitee otherwise than under this Agreement. The Corporation shall not be
required to indemnify Indemnitee under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
shall not be unreasonably withheld.
8. Repayment of Expenses. Indemnitee agrees to reimburse the Corporation
for all reasonable expenses paid or advances made by the Corporation in
connection with the defense of any civil or criminal action, suit or proceeding
against Indemnitee in the event, and only to the extent, that it shall be
ultimately determined that Indemnitee is not entitled to be indemnified by the
Corporation for such expenses under the provisions of the Statute, the Bylaws,
this Agreement or otherwise.
9. Enforcement.
(a) The Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve or continue to serve the Corporation in his official
capacity, and acknowledges that Indemnitee is relying on this Agreement in
continuing so to serve.
(b) In the event Indemnitee is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, the Corporation shall reimburse Indemnitee for all of Indemnitee's
reasonable fees and expenses (including reasonable attorneys' fees) in bringing
and pursuing such action.
10. Benefit Plans. For purposes of this Agreement, Indemnitee's capacity
as a director or officer of the Corporation shall include any service by
Indemnitee as director, officer, employee, trustee or agent for, on behalf or at
the request of the Corporation which imposes duties on, or involves services by,
Indemnitee with respect to any employee benefit plan, its participants, or
beneficiaries; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner not opposed to the best interests of the Corporation for
purposes of the Statute and this Agreement.
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<PAGE> 5
11. Separability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever (i)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not by themselves invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby, and (ii) to the fullest
extent possible, the provisions of this Agreement (including without limitation,
all portions of any paragraph of this Agreement containing any such provision
held to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed to give effect to the intent of the
parties that the Corporation provide protection to Indemnitee to the fullest
enforceable extent.
12. Governing Law; Successor; Amendment and Termination; etc.
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Delaware, but without reference to the conflicts of
laws principles of that jurisdiction.
(b) This Agreement shall be binding upon the Corporation, its successors
and assigns (including, without limitation, any transferee of all or
substantially all of its assets and any successor by merger or operation of
law), and shall inure to the benefit of Indemnitee, his heirs, personal
representatives and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
(d) This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one document.
(e) Nothing herein shall be deemed to diminish or otherwise restrict the
Indemnitee's right to indemnification or advancement of expenses under any
provision of the Bylaws or under Delaware law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INDEMNITEE: THOUSAND TRAILS, INC.
BRYAN D. REED By: /s/ WILLIAM J. SHAW
- ------------------------------- --------------------------------------
Bryan D. Reed William J. Shaw
President and Chief Executive Officer
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<PAGE> 1
Exhibit 11.1
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Dollars and common shares in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended September Ended September
30, 1999 30, 1999
--------------- ---------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,983 7,459
=============== ===============
Net income allocable to common shareholders $ 1,294 $ 1,462
=============== ===============
Net income per common share -- basic $ 0.16 $ 0.20
=============== ===============
DILUTED:
Weighted average number of common shares outstanding 7,983 7,459
Weighted average common stock equivalents -
Dilutive options 639 948
Dilutive warrants -- 6
--------------- ---------------
Weighted average number of common shares outstanding 8,622 8,413
=============== ===============
Net income allocable to common shareholders $ 1,294 $ 1,462
=============== ===============
Net income per common share -- diluted $ 0.15 $ 0.17
=============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,302
<SECURITIES> 0
<RECEIVABLES> 2,165
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,952
<PP&E> 20,402
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,743
<CURRENT-LIABILITIES> 25,592
<BONDS> 11,555
0
0
<COMMON> 80
<OTHER-SE> 10,302
<TOTAL-LIABILITY-AND-EQUITY> 53,743
<SALES> 1,071
<TOTAL-REVENUES> 19,833
<CGS> 0
<TOTAL-COSTS> 17,696
<OTHER-EXPENSES> 17,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 2,137
<INCOME-TAX> (843)
<INCOME-CONTINUING> 1,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,294
<EPS-BASIC> .16
<EPS-DILUTED> .15
</TABLE>
