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As filed with the Securities and Exchange Commission on April 5, 1999.
Registration No.: 333-22705
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5 ON
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THOUSAND TRAILS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 709 75-2138671
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
(972) 243-2228
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
WALTER B. JACCARD, ESQ.
Vice President, General Counsel and Secretary
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
(972) 243-2228
(Name, address including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
IRWIN F. SENTILLES, III, ESQ.
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
(214) 698-3100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act check
the following box: [X]
If the Registrant elects to deliver its annual report to security holders, or a
complete and legal facsimile thereof, pursuant to Item 11(a)(1) of this Form,
check the following box:
[ ] If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering:
[ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering:
[ ] If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
THOUSAND TRAILS, INC.
416,179 SHARES OF COMMON STOCK
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The common stock began THE OFFERINGS o We are offering 10,045 shares of common stock to
trading on the American holders of common stock purchase warrants issued in
Stock Exchange on 1994.
December 4, 1998, under
the symbol "TRV." The o The security holders listed on page 16 may offer from
common stock previously time to time up to 406,134 shares of common stock,
traded on the NASD OTC which they may acquire by exercising common stock
Bulletin Board System purchase warrants issued in 1991 and 1992.
under the symbol "TRLS."
On April 1, 1999, the THE PRICE o The holders of the 1994 warrants must pay us the
last reported sale price exercise price of $1.625 per share to acquire the
of the common stock on shares of common stock we are offering by this
the American Stock prospectus.
Exchange was $4 1/2.
o The selling security holders will negotiate with
their respective buyers to determine the price of the
shares they may offer by this prospectus. This price
may not reflect a "market" price. In addition, the
parties will also negotiate the allocation of any
expenses of such sale.
o The selling security holders must pay us the exercise
price of $4.24 per share to acquire the shares of
common stock they may offer by this prospectus.
PROCEEDS TO THE o We will receive all of the proceeds from payment of
COMPANY the exercise price of all the warrants, if the
warrant holders elect to exercise their warrants. If
all of the warrants are exercised, we will receive
$1,738,331.
o We will not receive any of the proceeds from the sale
of the common stock by the selling security holders.
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YOU SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION DISCUSSED IN "RISK
FACTORS," BEGINNING AT PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 5, 1999.
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TABLE OF CONTENTS
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Prospectus Summary...........................................................................................3
Risk Factors.................................................................................................5
Our business strategy may not prevent a decline in our membership base, which may reduce our future
operating results........................................................................................5
Possible continued campground closures could increase our membership decline.............................5
Members rights may inhibit our ability to implement our business strategy................................5
Increased sales and marketing expenses may reduce future operating results...............................5
Our operating results benefit from tax savings due to our net operating loss carryforwards,
whose continued availability is not assured..............................................................6
Our cash debt service could slow the implementation of our business strategy.............................6
The high concentration of ownership by a single stockholder may significantly affect the ability
of other stockholders to influence company policy........................................................6
Potential anti-takeover effects of preferred stock and transfer restriction provisions exist in our
certificate of incorporation.............................................................................6
The market for our common stock is not active............................................................7
Forward Looking Statements...............................................................................7
Incorporation of Information
by Reference.............................................................................................8
Additional Information.......................................................................................8
Available Information........................................................................................8
Use of Proceeds..............................................................................................9
Determination of Offering Price..............................................................................9
Market for Common Stock and
Related Stockholder Matters..................................................................................10
Capitalization...............................................................................................11
The Company..................................................................................................11
Business.....................................................................................................12
Current Business Strategy...............................................................................12
Campground Operations...................................................................................12
Resort Interests........................................................................................14
Asset Sales.............................................................................................14
Contracts Receivable....................................................................................15
Selling Security Holders.....................................................................................16
Plan of Distribution.........................................................................................17
Description of Common Stock..................................................................................17
General.................................................................................................17
Transfer Restrictions...................................................................................18
Federal Income Tax Considerations............................................................................22
Dividends...............................................................................................22
Sale or Exchange........................................................................................22
Backup Withholding......................................................................................23
Experts......................................................................................................23
Legal Matters................................................................................................23
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PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY OF THE OFFERINGS. TO FULLY UNDERSTAND
THE INVESTMENT YOU ARE CONTEMPLATING, YOU MUST CONSIDER THIS ENTIRE
PROSPECTUS AND THE DETAILED INFORMATION INCORPORATED INTO THIS
PROSPECTUS BY REFERENCE, INCLUDING THE FINANCIAL STATEMENTS AND THEIR
ACCOMPANYING NOTES.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "THOUSAND
TRAILS" REFERS TO THOUSAND TRAILS, INC., A DELAWARE CORPORATION, AND
ITS PREDECESSORS AND SUBSIDIARIES.
THE COMPANY
We and our subsidiaries own and operate a system of 53 membership-based
campgrounds located in 17 states and British Columbia, Canada, serving 111,000
members as of June 30, 1998. Through our subsidiaries, we also provide a
reciprocal use program for members of approximately 325 recreational facilities
and manage 130 public campgrounds for the US Forest Service.
We entered the membership campground business on June 30, 1991, by
acquiring the capital stock of two companies. We acquired 100% of the capital
stock of National American Corporation, which, along with its subsidiaries, is
commonly called "NACO," and 69% of the capital stock of our predecessor in name,
Thousand Trails, Inc., a Washington corporation. We subsequently increased our
ownership in our predecessor to 80% through a tender offer and acquired the
remaining 20% of the stock of our predecessor in a merger. In July 1996, our
predecessor merged into us, when we were still known as USTrails, Inc. Before
the acquisitions of NACO and our predecessor, we purchased the contracts
receivable that were generated principally by NACO and our predecessor from the
sale of campground memberships and resort interests on an installment basis. In
November 1996, we reincorporated in the State of Delaware and changed our name
to Thousand Trails, Inc.
The mailing address of our principal executive offices is 2711 LBJ
Freeway, Suite 200, Dallas, Texas 75234. Our telephone number is (972) 243-2228.
Our Internet address is www.1000trails.com.
THE SELLING SECURITY HOLDERS
The selling security holders, who are listed on page 16 of this
prospectus, received their warrants in two transactions: one in 1991 as part of
our reorganization and the other in 1992 as part of the retirement of debt of a
predecessor. In each transaction, recipients of these warrants became entitled
to the benefits of registration rights agreements, which included "piggyback"
registration rights. This means that some selling security holders may require
us to register the shares of common stock they are entitled to purchase under
their warrants when we register other shares of common stock. Because we are
registering the shares of common stock offered under the 1994 warrants, we are
also registering the common stock issuable to the selling security holders upon
exercise of their warrants.
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THE OFFERING BY THOUSAND TRAILS
We are offering to holders of the 1994 warrants 10,045 shares of common
stock issuable upon the exercise of their 1994 warrants. The number of
shares of common stock issuable upon exercise of the 1994 warrants is
subject to the antidilution provisions of the 1994 warrants. The
current exercise price of the 1994 warrants is $1.625 per share. The
current expiration date of the 1994 warrants is 5:00 p.m. Eastern time,
on March 31, 1999, however, we will waive the expiration date for any
exercises prior to 5:00 p.m. Eastern time, on April 15, 1999.
THE OFFERING BY SELLING SECURITY HOLDERS
From time to time, the selling security holders may offer up to 406,134
shares of common stock that are issuable upon the exercise of their
1991 or 1992 warrants. The number of shares of common stock issuable
upon exercise of the 1991 or 1992 warrants is subject to the
antidilution provisions of the 1991 or 1992 warrants. The current
exercise price of their 1991 or 1992 warrants is $4.24 per share and
the current expiration date of their warrants is June 30, 1999. The
selling security holders are not offering the 1991 or 1992 warrants by
this prospectus.
USE OF PROCEEDS
Any proceeds we receive, net of our expenses in the offerings, will be
added to our working capital.
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RISK FACTORS
You should review the risk factors discussed below when considering
whether to purchase shares of our common stock.
OUR BUSINESS STRATEGY MAY NOT PREVENT A DECLINE IN OUR MEMBERSHIP BASE, WHICH
MAY REDUCE OUR FUTURE OPERATING RESULTS.
Our membership base has declined over the past five fiscal years. This
has reduced our revenues. In response to the decline, we have downsized our
business by closing and disposing of campgrounds and decreasing campground
operating costs and general administrative expenses. We have also expanded our
sales and marketing efforts, but these have not produced the level of sales
needed to stop the continuing decline in our membership base. Further decreases
in revenues that are not offset by sufficient expense reductions could have a
material adverse impact on our business and results of operations.
POSSIBLE CONTINUED CAMPGROUND CLOSURES COULD INCREASE OUR MEMBERSHIP DECLINE.
We intend to keep the size of our campground system in an appropriate
relation to the size of our membership base. If the membership continues to
decline, we may close and dispose of additional campgrounds and we will seek to
decrease other expenses. Further reductions in our campground system could
result in an additional decline in our membership.
MEMBERS RIGHTS MAY INHIBIT OUR ABILITY TO IMPLEMENT OUR BUSINESS STRATEGY.
State laws may inhibit our ability to sell under-used campgrounds.
We believe that the success of our business strategy will necessarily
be tied to continued operation of a downsized campground system. California,
Oregon, Nevada, Arizona, Virginia, and Washington have nondisturbance statutes
that limit the ability of an owner to sell or close a campground. These states
contain 32 of our 53 campgrounds, this is approximately 60% of our campgrounds.
In these states, these statutes permit the sale or closure of campgrounds only
if the campgrounds' members receive access to a comparable campground. As a
consequence, although we may be able to sell or close some of our campgrounds as
we have done in the past, a sale or closure of significant numbers of
campgrounds in addition to those currently contemplated will likely be limited
by state law in addition to the membership contracts themselves. In addition,
some members received deeded undivided interests in six of our campgrounds. Due
to the members' property rights in these campgrounds, we cannot effectively
close these campgrounds even if closing the campgrounds were in our best
interests.
Membership contracts and state authorities may inhibit our ability to
use the campgrounds differently.
Membership agreements or understandings, or related governmental
interpretations, may limit our ability to expand or modify the type of business
activities conducted at the campgrounds. As a consequence, we may be prevented
from using the existing campgrounds differently, even if such use would increase
our income from the campgrounds.
Our membership agreements permit senior citizens and disabled members
to fix their dues levels indefinitely.
Our membership agreements generally permit senior citizens and disabled
members to fix the level of their dues indefinitely. This means that, with
respect to these members, we are unable to increase annual dues to meet future
increases in the cost of operating the campgrounds. At the present time,
approximately 35% of our members have requested their dues be fixed and
approximately 50% of our members are eligible to request that their dues be
fixed.
INCREASED SALES AND MARKETING EXPENSES MAY REDUCE FUTURE OPERATING RESULTS
Even if we are successful in increasing campground membership sales
significantly, the increase could reduce future operating results. Our selling
and marketing efforts require significant expenditures, the majority of which
must be reported as an expense in the current period. However, the related sales
revenue cannot all be reported in the same period. Under the applicable
accounting principles, this related sales revenue must be deferred and
recognized on a straight-line basis over the expected life of the membership
sold. As a consequence, our selling and marketing expenses exceed our membership
campground sales revenues. This disparity will likely increase to the extent we
are able to increase campground membership sales.
OUR OPERATING RESULTS BENEFIT FROM TAX SAVINGS DUE TO OUR NET OPERATING LOSS
CARRYFORWARDS, WHOSE CONTINUED AVAILABILITY IS NOT ASSURED.
Our net operating loss carryforwards, which are known as "NOLs," may
not be available if an "ownership change" in our capital stock occurs or if we
fail to earn otherwise taxable income before they expire. If we cannot use these
NOLs, then our reported after-tax earnings would be materially reduced.
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Our NOLs equaled $25.5 million as of June 30, 1998, and they can
generally be used to offset our taxable income and thus reduce our income tax
liability in subsequent years within a 15-year carryover period. Section 382 of
the Internal Revenue Code provides that when a corporation undergoes an
"ownership change," the corporation's use of its NOLs is limited each year. If
an ownership change had occurred on February 12, 1999, we would only be able to
use up to $1.76 million per year of NOLs to offset taxable income.
The issuance of shares of common stock in our 1996 capital
restructuring resulted in a substantial change in ownership for purposes of
Section 382. As a result of this restructuring and transactions since that time,
as of December 31, 1998, we were at a change of as much as 31.6%. A 50% change
is required to cause an ownership change.
We placed transfer restrictions on our common stock in an attempt to
avoid an ownership change. However, these restrictions are subject to the
following uncertainties:
o The transfer restrictions do not apply to the exercise of
outstanding warrants or some options to purchase common stock,
including the warrants issued in 1991, 1992, and 1994,
although the transfer restrictions will thereafter apply to
the common stock received upon exercise thereof.
o A court might disagree with our view that the transfer
restrictions are enforceable as to all of the common stock.
o The Internal Revenue Service may take the position that, for
tax purposes, the remedial provisions of the transfer
restrictions are insufficient to prevent an ownership change.
o A court may not enforce every remedial provision set forth in
the transfer restrictions if a stockholder were to challenge
the binding nature of these provisions.
OUR CASH DEBT SERVICE COULD SLOW THE IMPLEMENTATION OF OUR BUSINESS STRATEGY.
As of December 31, 1998, we had approximately $19 million in debt.
Because we must pay interest monthly in cash, our cash outlays may be higher
than in previous periods. The use of cash for debt service could reduce the
funds available for other purposes and our flexibility in responding to changes
in our business or in economic conditions.
THE HIGH CONCENTRATION OF OWNERSHIP BY A SINGLE STOCKHOLDER MAY SIGNIFICANTLY
AFFECT THE ABILITY OF OTHER STOCKHOLDERS TO INFLUENCE COMPANY POLICY.
As of October 27, 1998, Mr. Andrew Boas, one of our directors,
beneficially owned an aggregate of 48.1% of the outstanding common stock. As a
result, Mr. Boas may be in a position to influence significantly the outcome of
actions by our stockholders.
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK AND TRANSFER RESTRICTION
PROVISIONS EXIST IN OUR CERTIFICATE OF INCORPORATION.
Blank check preferred stock could adversely affect the rights of common
stockholders.
We are authorized to issue up to 1,500,000 shares of preferred stock in
one or more series. Our Board of Directors may authorize the issuance of such
shares without any further action by our stockholders.
If the Board decides to issue the preferred stock, the common
stockholders could lose important rights. In particular, the Board of Directors
may grant specific rights to the future holders of preferred stock that could be
used to restrict our ability to merge with or sell our assets to a third party,
or otherwise delay, discourage, or present a change in control. In addition, the
terms may include voting rights, preferences as to dividends and liquidation,
conversion rights, redemptive rights, and sinking fund provisions that would
have priority over the rights of common stockholders.
Transfer Restrictions could discourage a change of control without the
consent of the Board of Directors.
In addition to the potential anti-takeover effect of any preferred
stock, the transfer restrictions applicable to our common stock could also have
the effect of delaying, discouraging, or otherwise preventing a change in
control without the consent of the Board of Directors.
THE MARKET FOR OUR COMMON STOCK IS NOT ACTIVE.
Trading in the common stock is light, and an established market in the
common stock may not exist. Moreover, it is unclear whether the market for
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the common stock is adversely affected by the transfer restrictions provided in
our certificate of incorporation. As a consequence, you may not be able to sell
your common stock in desired amounts at desired prices.
FORWARD LOOKING STATEMENTS
IN THIS PROSPECTUS, WE MAKE, OR INCORPORATE BY REFERENCE, STATEMENTS AS
TO OUR EXPECTED FINANCIAL CONDITION, RESULTS OF OPERATIONS, CASH FLOWS, AND
BUSINESS STRATEGIES, PLANS AND CONDITIONS FOR FUTURE PERIODS. ALL OF THESE
STATEMENTS ARE FORWARD-LOOKING STATEMENTS BASED ON THE BELIEFS AND ASSUMPTIONS
OF OUR MANAGEMENT AND ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS ARE NOT HISTORICAL AND
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL FINANCIAL CONDITION, RESULTS OF
OPERATIONS, CASH FLOWS, AND BUSINESS STRATEGIES, PLANS AND CONDITIONS FOR FUTURE
PERIODS MAY DIFFER MATERIALLY DUE TO THE RISKS, UNCERTAINTIES AND ASSUMPTIONS
SET FORTH UNDER "RISK FACTORS" AND DESCRIBED ELSEWHERE IN THIS PROSPECTUS OR
INCORPORATED IN THIS PROSPECTUS BY REFERENCE.
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INCORPORATION OF INFORMATION BY REFERENCE
We have enclosed with this prospectus our Annual Report on Form 10-K
for the fiscal year ended June 30, 1998, as amended on Form 10-K/A, our Proxy
Statement for the 1998 Annual Meeting of the Company filed on October 27, 1998,
and our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,
1998, which we refer to as the "Company Reports", which are incorporated into
this prospectus by reference.
ADDITIONAL INFORMATION
We have filed a Registration Statement on Form S-2 with the Securities
and Exchange Commission under the Securities Act of 1933, as amended. This
prospectus, filed as part of the registration statement, does not contain all of
the information set forth in the registration statement, parts of which are
omitted in accordance with the rules and regulations of the SEC. See the
registration statement for more information. Statements made in this prospectus
as to the contents of any indenture, contract, agreement or other document
referred to are merely summaries and are not necessarily complete. With respect
to each such indenture, contract, agreement or other document filed as an
exhibit to the registration statement, see the exhibit to read the actual
documents. For a prescribed fee, you may inspect and copy the registration
statement and its exhibits and schedules at the public reference facilities
maintained by the SEC and without charge electronically at the SEC's World Wide
Web site. See "Available Information" for the office and World Wide Web site
addresses of the SEC.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. Accordingly, we file reports, proxy and
information statements, and other information with the SEC. For a prescribed
fee, you may inspect and copy the registration statement and the other
information that we have with the SEC at the SEC's public reference facilities
listed below.
SEC Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
SEC Regional Public Reference Facilities
Northwest Atrium Center, Room 3190
500 West Madison Street
Chicago, Illinois 60661
7 World Trade Center
13th Floor
New York, New York 10048
In addition, you may obtain information on the operation of the SEC's
public reference room by calling the SEC at the number listed below.
SEC Public Reference Room Telephone Number
1-800-SEC-0330
We file many of our reports, proxy and information statements, and
other information electronically with the SEC. You can access these documents by
computer at the SEC's World Wide Web address.
SEC World Wide Web Address
http://www.sec.gov.
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USE OF PROCEEDS
We will receive the proceeds of the issuance of shares of our common
stock upon the exercise of the warrants issued in 1994 to the extent of their
exercise price. The 1994 warrants were issued to holders of the 12% secured
notes due 1998 of USTrails in connection with a consent solicitation that
resulted in indenture amendments affecting such notes. These warrants expire
March 31, 1999.
We will not receive any of the proceeds from any sales of common stock
by the selling security holders; however, we will receive proceeds from the
issuance of shares of common stock upon the exercise of the warrants to purchase
such shares held by them to the extent of their exercise price. The 1991
warrants were issued in 1991 in connection with the consummation of the Plan of
Reorganization of USTrails. The 1992 warrants were issued in 1992 in connection
with the retirement of debt of a predecessor. The 1991 and 1992 warrants expire
June 30, 1999, however, we will waive the expiration date for any exercises
prior to 5:00 p.m. Eastern time, on April 15, 1999.
Any proceeds we receive, net of our expenses in the offerings, will be
added to our working capital. If all of the warrants are exercised, we will
receive $1,738,331.
DETERMINATION OF OFFERING PRICE
The exercise price of the 1994 warrants offered, which is $1.625, was
established by our agreement with a committee of former holders of the 12%
secured notes due 1998 previously issued by USTrails.
The exercise price of the 1991 and 1992 warrants, which is $4.24, was
established as a result of negotiations during our 1991 reorganization.
We do not know whether or when a sale of any of the shares of common
stock offered by the selling security holders will occur or what price, terms or
conditions they may offer. See "Plan of Distribution."
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MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET AND TRADING
Our common stock has been publicly traded in the over-the-counter
market under the symbol USTQ from 1992 through November 20, 1996, and under the
symbol TRLS thereafter until December 4, 1998. On December 4, 1998, the common
stock began trading on the American Stock Exchange under the symbol TRV.
Historically, the common stock has not traded every day and the trading volume
has often been small, such that the common stock may not be deemed to be traded
in an established public trading market. The following table sets forth for the
fiscal periods indicated, the high and low bid quotations as quoted through the
NASD OTC Bulletin Board System through December 3, 1998, and the high and low
sales prices as reported on the American Stock Exchange thereafter. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
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1999:
Fourth Quarter
(through April 1) 4 1/2 4 1/2
Third Quarter 5 1/4 4 3/16
Second Quarter 5 13/16 3 5/8
First Quarter 5 1/8 3 5/8
1998:
Fourth Quarter 4 3/4 3 1/2
Third Quarter 4 1/2 3 1/4
Second Quarter 5 3/8 3 3/8
First Quarter 3 1/8 2 1/4
1997:
Fourth Quarter 2 7/16 1 3/4
Third Quarter 1 31/32 1 5/16
Second Quarter 1 7/16 15/16
First Quarter 1 1/8 1/2
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On April 1, 1999, the last reported sale price of the common stock on
the American Stock Exchange was $4 1/2. As of April 1, 1999, the common stock
was held by 90 holders of record. Moreover, security position listings available
to us listed approximately 549 beneficial holders of common stock.
ABSENCE OF DIVIDENDS
Since inception, we have not paid any dividends. Our loan agreement
prohibits the payment of any cash dividends on the common stock, without the
consent of our lender, until the loan agreement is terminated.
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CAPITALIZATION
The following table sets forth our unaudited consolidated
capitalization as of December 31, 1998 (in thousands). You should read this
table in conjunction with our consolidated financial statements and their notes,
which are incorporated by reference.
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December 31, 1998
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Borrowings under loan agreement 18,988 (1)
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TOTAL DEBT $18,988
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Preferred stock, $.01 par value, 1,500,000 shares authorized, none
issued and outstanding --
Common Stock, $.01 par value, 15,000,000 shares authorized,
7,437,083 shares issued and outstanding $ 75
Additional paid-in capital 20,604
Accumulated deficit subsequent to December 31, 1991,
date of emergence from bankruptcy (14,219)
Cumulative currency translation adjustment (142)
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TOTAL STOCKHOLDERS' EQUITY $6,318
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TOTAL CAPITALIZATION $25,306
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(1) On December 15, 1998, we redeemed all of our outstanding pay-in-kind
notes. In order to fund this redemption, we borrowed approximately $24
million under our loan agreement with Foothill Capital Corporation.
THE COMPANY
We and our subsidiaries own and operate a system of 53 membership-based
campgrounds located in 17 states and British Columbia, Canada, serving 111,000
members as of June 30, 1998. Through our subsidiaries, we also provide a
reciprocal use program for members of approximately 325 recreational facilities
and manage 130 public campgrounds for the US Forest Service.
Corporate History. We entered the membership campground business on
June 30, 1991, with the acquisition of 100% of the capital stock of NACO and 69%
of the capital stock of a predecessor. We subsequently increased our ownership
in a predecessor to 100% through a tender offer and merger and, in July, 1996,
our predecessor was merged into us. Prior to acquiring NACO and our predecessor,
we purchased contracts receivable generated principally by them from the sale of
campground memberships and resort interests on the installment basis. In
November 1996, then known as USTrails, we reincorporated in the State of
Delaware and changed our name to Thousand Trails, Inc.
Restructuring. On July 17, 1996, we consummated a restructuring of our
capital structure. In this restructuring, we retired our 12% secured notes and
issued pay-in-kind notes. This restructuring provided us with a new capital
structure and decreased our outstanding debt to a level we believe we can
support under our downsized operations. We redeemed all of the outstanding
pay-in-kind notes on December 15, 1998.
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BUSINESS
CURRENT BUSINESS STRATEGY
Our current business strategy is to improve our campground operations
and stabilize our campground membership base through increased sales and
marketing efforts or the possible acquisition of members through the purchase of
other membership campground operations. We believe there is a viable market for
campground memberships and that we have 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. We also believe that it may be possible to acquire members through
the purchase of other membership campground operations, many of which are
experiencing financial difficulties.
However, our membership base has declined over the past five fiscal
years and, accordingly, we have downsized our business by closing and disposing
of campgrounds and decreasing campground operating costs and general and
administrative expenses. We intend to keep the size of our campground system in
an appropriate relation to the size of our membership base. In this regard, we
may close and dispose of additional campgrounds and will seek to decrease other
expenses. At the same time, we intend to expand our sales and marketing efforts
with a view to stopping the membership decline. We also intend to explore the
possible acquisition of members through the purchase of other membership
campground organizations. We believe that the ultimate size of our campground
system and the amounts realized from future asset sales will depend principally
upon the degree to which we can successfully implement this strategy.
CAMPGROUND OPERATIONS
Campgrounds. We and our subsidiaries own and operate a network of 53
membership-based campgrounds located in 17 states and British Columbia, Canada.
We own and operate a network of 32 of these campgrounds under the Thousand
Trails logo, and NACO owns and operates a network of 21 of these campgrounds
under the NACO logo. The 53 campgrounds contain a total of approximately 9,700
acres and 17,700 campsites.
Members using the campgrounds may bring their own recreational
vehicles, tents or other sleeping equipment, or rent travel trailers or cabins
located at the campgrounds or visit for the day. As of June 30, 1998, there were
approximately 73,000 campground members in the Thousand Trails system and 38,000
campground members in the NACO system. However, approximately 38% of the NACO
campground members and approximately 54% of the Thousand Trails campground
members possess the right to use the campgrounds in both networks. Approximately
37% of our campground members reside in California, which contains the largest
percentage of our members. Large numbers of campground members also reside in
Florida, Oregon, Texas, and Washington.
Memberships provide the member's family access to our network of
campgrounds, but do not convey a deeded interest in campgrounds with the
exception of six campgrounds in which members have received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
In the six campgrounds in which members have received deeded undivided
interests, we retain the entire fee interest in the common amenities, such as
the lodge, recreational facilities, and other buildings, and an undivided
interest in the campsites to the extent the interest has not been sold to the
members.
Depending upon member usage, the campgrounds are open year-round or on
a seasonal basis. The campgrounds feature campsites with electrical, water, and
in some cases, sewer connections for recreational vehicles, restroom and shower
facilities, rental trailers or cabins, and other recreational amenities. At each
campground, a manager and staff provide security, maintenance, and recreational
programs that vary by location.
We derive other campground revenue from renting trailers, cabins, and
sports equipment to members, selling food and other items to members from
convenience stores located at the campgrounds, and providing the members access
to laundry facilities and game machines. We also charge members a fee for
storing recreational vehicles and providing food service.
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<PAGE> 14
Existing Membership. At June 30, 1998, we had 111,000 campground
members. The majority of these members have been members for over 10 years. Our
membership base has declined significantly over the past five fiscal years and,
net of new sales, the membership base is presently declining at the rate of
approximately 6% per year. This percentage excludes the 1800 members we lost in
connection with the sale of two campgrounds in fiscal 1998. We attribute this
continuing decline principally to our aging membership base, of whom
approximately 50% are senior citizens. In addition, we estimate 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. To
stop the continuing decline in our membership base, we must significantly
increase our campground membership sales over current levels.
Membership Sales. In April 1992, we suspended the sale of new
campground memberships because our sales program was operating at a loss and
with negative cash flow. In the fall of 1992, we began to assist campground
members desiring to sell their memberships in the secondary market. During
fiscal 1994, we determined that we should increase our sales and marketing
efforts in order to replenish our declining campground membership base, and we
began selling new campground memberships on a limited basis. In May 1995, we
introduced new membership products, which include an initial three year term,
and significantly increased our sales and marketing efforts. In recent years, we
have focused our membership sales efforts primarily on guests referred by
existing members and customers referred by recreational vehicle dealers and
recreational vehicle manufacturers, who management believes are more likely to
purchase memberships.
Our current membership products offer the consumer a choice of
membership options ranging from the use of campgrounds within a single region to
the use of our entire system of campgrounds with prices ranging from $1,995 to
$3,995. In addition, we charge the member annual dues of $349. During fiscal
1998 and 1997, we sold approximately 2,900 and 3,400 new memberships,
respectively. The average sales price was $1,164 in fiscal 1998 and $707 in
fiscal 1997, and the average annual dues level was $377 in fiscal 1998 and $332
in fiscal 1997. During the past two fiscal years, we offered financing for some
of our higher priced sales. We required a down payment of at least 25% of the
sales price and would finance the balance for periods of up to 36 months. We
estimate 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.
We have the capacity to sell approximately 66,000 additional new
campground memberships in the future, assuming the sale of ten memberships for
each existing campsite. Further downsizing of our business would reduce this
capacity. Most memberships are transferable with the payment of a transfer fee
to us. The membership contracts, however, prohibit the sale of a membership for
a profit.
Marketing. We believe that camping is a popular and growing activity in
the United States. We believe this is reflected in sales of recreational
vehicles and camping equipment as well as campground use. Moreover, we believe
that the aging of the baby boomers should have a positive effect on sales of
camping equipment and recreational vehicles, and lead to more family camping.
While most campers use national or state parks, we believe that we have
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. We believe that many campers are
"amenity" campers, whose needs match the benefits provided by our campgrounds,
such as pools, lodges, sport courts, and recreational activities. We believe the
needs of amenity campers are not being met by underfunded national and state
campgrounds. In addition, we believe that we can differentiate our campgrounds
and services from other campgrounds by emphasizing the quality of our facilities
and the benefits and services available at our campgrounds.
Dues. All campground members, including members who own a deeded
undivided interest in a campground, currently pay annual dues ranging generally
from $100 to $600. The annual dues collected from campground members constitute
general revenue. We use the dues to fund our operating expenses, including
corporate expenses and the maintenance and operation of the campgrounds.
However, the membership agreements do not require us to use the dues for any
specific purpose.
The average annual dues paid by our campground members were $351 for
the year ended June 30, 1998, $344 for the year ended June 30, 1997, and $335
for the year ended June 30, 1996. The increases resulted primarily from the
annual
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<PAGE> 15
increase in dues implemented in accordance with the terms of the membership
agreements. In addition, new members generally pay annual dues at a higher level
than the older members retiring from the system.
The membership agreements generally permit us to increase annually the
amount of each member's dues by either (i) the percentage increase in the
consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. We may not, however, increase the dues on existing
contracts of senior citizens and disabled members who notify us 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. We estimate that approximately 50% of the
campground members are senior citizens eligible to request that their dues be
frozen. We are unable to estimate when or if a significant number of these
members will request that their dues be frozen in the future.
Maintenance and Improvements. We make annual capital and maintenance
expenditures to maintain and improve the campgrounds. During fiscal 1998, we
spent $5.2 million on major maintenance, repairs, and improvements at the
campgrounds and anticipate that we will spend an additional $4.7 million on
similar costs in fiscal 1999. We may be required to spend greater amounts on
such items in future years as the facilities age.
Resort Parks International. Resort Parks International, Inc., one of
our wholly owned subsidiaries, operates a reciprocal use program for the benefit
of its members. The Resort Parks International program offers its members
reciprocal use of approximately 325 participating recreational facilities in 44
states and Canada. These recreational facilities consist primarily of
campgrounds that are not otherwise affiliated with us, but also include the 21
campgrounds in our NACO system. Resort Parks International members pay a fee
that entitles them to use any of the participating facilities, including the
NACO campgrounds, subject to the limitation that they cannot use a Resort Parks
International facility located within 125 miles of the home facility. Members of
the participating facilities can become members of Resort Parks International.
Thus, our members who are eligible to use a NACO campground may also join the
Resort Parks International program. As of June 30, 1998, there were
approximately 96,000 Resort Parks International members, of which approximately
16,000 were also NACO or dual-system members.
Campground Management. During fiscal 1994, UST Wilderness Management
Corporation, our wholly owned subsidiary, began to manage public campgrounds for
the US Forest Service. As of June 30, 1998, Wilderness Management had entered
into management contracts covering 130 campgrounds containing a total of
approximately 3,300 campsites. Pursuant to its management contracts with the US
Forest Service, Wilderness Management incurs the expenses of operating the
campgrounds and receives the related revenues, net of a fee paid to the US
Forest Service. These management contracts typically have five year terms.
RESORT INTERESTS
Our resort interests presently consist solely of residential lots and
other miscellaneous real estate that we hold for sale at three resorts. We no
longer manage any resort amenities, which we previously transferred to property
owners' associations. Prior to November 21, 1996, we also managed the timeshare
facilities and sold resort timeshare interests. On November 21, 1996, we sold
our timeshare operations and remaining timeshare inventory. Accordingly, we no
longer operate or sell timeshare facilities.
ASSET SALES
During fiscal 1998, 1997 and 1996, we sold some of our real estate
assets and received proceeds of $8.6 million, $4.7 million, and $7.2 million,
respectively. During this three year period, we sold the timeshare operations at
the resorts, the country club and golf operations at one resort, and various
other properties at the resorts. In addition, we sold or otherwise disposed of
various campgrounds and sold unused buildings and trailers, and excess acreage.
Over the next several years, we intend to dispose of our remaining assets at the
resorts, any campgrounds that are closed as we downsize, 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 our ability to realize recoveries from asset sales. In
addition, although we have successfully sold assets during the past several
years, no assurance exists that we will be able to locate a buyer for any of the
remaining assets or that sales on acceptable terms can be effected.
When there are outstanding borrowings under our loan agreement, all
proceeds from asset sales must be paid to Foothill and applied to reduce such
borrowings.
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<PAGE> 16
CONTRACTS RECEIVABLE
Prior to April 1992, we sold substantially all of our campground
memberships and resort residential lots and timeshare interests on the
installment basis, creating a portfolio of contracts receivable. This portfolio
has declined significantly over the past five fiscal years as we have collected
the outstanding contracts receivable. Since April 1992, we have sold only a
limited number of campground memberships and resort timeshare interests on an
installment basis and, as a result, the portfolio of contracts receivable will
continue to decline.
Interest accrues on the unpaid balance of the contracts receivable at
fixed rates, which vary depending upon the size of the down payment and the
length of the contract. The contracts receivable bear interest at rates ranging
from 9.5% to 16.0%, with an approximate weighted average stated interest rate of
13.0% as of June 30, 1998. Monthly installment payments range from $34 to $223
over the term of the contracts receivable, which can be up to ten years. The
terms of most newer contracts receivable, however, have averaged two years or
less. At June 30, 1998, approximately 97% of the campground members and 99% of
the purchasers of resort residential lots and timeshare interests had paid for
their membership or resort residential lots and timeshare interests in full, and
the remaining outstanding contracts receivable had an average remaining term of
19 months.
As of June 30, 1998, we owned contracts receivable with an aggregate
principal balance of $6.8 million, consisting of $6.4 million of contracts
receivable associated with the campgrounds, and $401,000 of contracts receivable
associated with the resorts. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company Reports
incorporated herein by reference.
When there are outstanding borrowings under our loan agreement, all
collections on the contracts receivable, including principal, interest, and
fees, must be paid to Foothill and applied to reduce such borrowings.
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<PAGE> 17
SELLING SECURITY HOLDERS
The following table sets forth information regarding the selling
security holders' beneficial ownership of the common stock, including common
stock issuable upon exercise of the 1991 or 1992 warrants, as of October 27,
1998. Each of the selling security holders had registered and, assuming exercise
of its 1991 or 1992 warrants, may sell up to the number of shares of common
stock that such selling security holder may receive as a result of such
exercise, as set forth opposite each selling security holder's name below. The
selling security holders may also sell additional shares of common stock that
may be issuable upon exercise of the 1991 or 1992 warrants as a result of their
antidilution provisions. It is not currently possible to predict the number of
shares of common stock, if any, which will be sold or the price, terms or
conditions of their sale. See "Plan of Distribution."
<TABLE>
<CAPTION>
COMMON STOCK
ISSUABLE UPON
EXERCISE OF
COMMON STOCK 1991/1992 COMMON STOCK
BENEFICIALLY WARRANTS THAT BENEFICIALLY OWNED
SELLING SECURITY HOLDERS OWNED MAY BE OFFERED(1) AFTER OFFERING **
------------------------ ------------ ----------------- ---------------------
PERCENT OF
NUMBER CLASS
------ -----
<S> <C> <C> <C> <C>
American Investors Life Insurance Company, Inc. 0 7,121 0 0
Bankers Life & Casualty Company 0 16,540 0 0
Carl Marks Strategic Investments L.P.(2) 2,474,244 194,521 2,474,244 34.6%
Fidelity & Guaranty Life Insurance Company 0 49,622 0 0
Fulton Bank, Custodian for Stanley Steiner, 0 175 0 0
Rollover IRA
Alan Kanis 706 189 706 *
OP Limited Partnership 0 13,232 0 0
Pacholder Associates, Inc. 0 551 0 0
Trussal & Co. 0 616 0 0
United States Fidelity & Guaranty Company 0 88,825 0 0
USF&G Pacholder Fund 0 33,081 0 0
Larry K. West 0 1,521 0 0
Robert and Suzanne Yudelson 0 140 0 0
--------- ------- ---------
TOTAL 2,479,950 406,134 2,479,950
========= ======= =========
</TABLE>
- ----------
* Less than 1%
** Assumes that all shares of common stock that may be offered by selling
security holders are sold.
(1) The selling security holders may also sell additional shares of common
stock that may be issuable from time to time pursuant to the antidilution
provisions applicable to the 1991 or 1992 warrants.
(2) Andrew M. Boas, a director of Thousand Trails, is a general partner of Carl
Marks Management Co., L.P., which is the general partner of Carl Marks
Strategic Investments, L.P. See "Security Ownership of Certain Beneficial
Owners and Management" in the Company Reports incorporated herein by
reference.
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<PAGE> 18
PLAN OF DISTRIBUTION
We are offering 10,045 shares of common stock by reason of the
outstanding 1994 warrants.
The selling security holders may offer and sell the 406,134 shares of
common stock, if and when issued upon the exercise of the 1991 or 1992 warrants,
from time to time acting as principals for their own accounts, through agents or
otherwise, in negotiated or market transactions. The prices, terms and
conditions of any sale will be determined at the time of sale by the seller or
as a result of negotiations between or on behalf of the buyer and the seller.
The sales of such shares may be effected during such time as the registration
statement is effective. The sales may occur in one or more transactions at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at other
negotiated prices. Moreover, the selling security holders may make negotiated
sales at any time if such sales are exempt from the registration requirements of
the Securities Act pursuant to Rule 144 thereunder. Although we have agreed to
pay all costs of the registration of these securities, any other expenses of any
sale will be borne by the parties to the sale as they may agree, including any
distributors' or brokers' commissions. Currently, no underwritten public
offering is contemplated.
We have called to the selling security holders' attention the
restrictions under the federal securities laws applicable to sales registered
under the registration statement, including the requirements of Regulation M
under the Securities Exchange Act. In such connection, the selling security
holders have entered into agreements with us requiring that they will not
violate any federal or state securities laws in connection with the distribution
or transfer of our securities. The selling security holders have each agreed to
indemnify us for the information they supply in connection with the registration
statement. We similarly agreed to indemnify the selling security holders for
other information contained in the registration statement.
DESCRIPTION OF COMMON STOCK
GENERAL
Our authorized capital stock is 15,000,000 shares of common stock, par
value $.01 per share, and 1,500,000 shares of preferred stock, par value $.01
per share. As of October 27, 1998, we had 7,511,708 shares of common stock
issued and outstanding. Our outstanding common stock is fully paid and
non-assessable. In addition, as of such date we had outstanding warrants to
purchase 416,179 shares of common stock and options under our 1991 Employee
Stock Incentive Plan, our 1993 Stock Option and Restricted Stock Purchase Plan,
our 1993 Director Stock Option Plan and the stock option agreement, dated as of
August 1, 1996, with our Chief Executive Officer and President to purchase
1,111,995 shares of common stock. The warrants, options and stock option
agreement are each subject to antidilution provisions.
Preferred Stock. Our certificate of incorporation authorizes our Board
of Directors to establish the designations, powers, preferences and rights of
the preferred stock without further stockholder approval. In the exercise of
this authority, the Board of Directors could establish preferences and rights
for the preferred stock prior and superior to the rights of the common stock,
and it is possible that dividend preferences for the preferred stock could
substantially reduce the amount of any future surplus available for payments on
the common stock. In addition, if the preferred stock were made convertible into
common stock, dilution of the interests of holders of the common stock may
result.
Voting Rights. Holders of common stock are entitled to one vote for
each share held of record on any matter submitted to a vote at a meeting of the
stockholders. Directors are elected by a majority of the votes cast at the
election. Generally, any matter submitted for the approval of the stockholders
must receive the affirmative vote of the holders of a majority of all the shares
represented at a meeting at which a quorum is present. With limited exceptions,
approval of any amendment to our certificate of incorporation or any merger or
consolidation or dissolution, or any sale, lease, or exchange of all or
substantially all of our assets, however, requires the affirmative vote of
holders of shares representing a majority of the votes entitled to be cast.
Stockholder Proposals. Our Bylaws contain a provision establishing an
advance notice procedure for stockholders to bring business before the annual
meeting of stockholders. Generally, notice of business proposed to be brought
before the meeting must be given in writing in the form provided in our Bylaws
to our Secretary not less than 60 or more than 90 days prior to the date of the
annual meeting of stockholders, but if less than 60 days notice of the
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<PAGE> 19
date of the annual meeting is given to the stockholders, notice of proposed
business must be given not later than the tenth day following the day on which
the notice of the date of the annual meeting is mailed. At a special meeting of
stockholders, only such business as is specified in the notice of such special
meeting given by or at the direction of the person or persons calling such
meeting is permitted to come before the meeting. The limitations on procedures
to bring business before the annual meeting of stockholders do not restrict a
stockholder's right to include proposals in proxy material pursuant to rules
promulgated under the Securities Exchange Act. The purpose of requiring advance
notice is to afford our Board of Directors an opportunity to consider the merits
of the business proposed to be brought before the meeting and, to the extent
deemed necessary or desirable by our Board of Directors, to inform stockholders
about those matters.
Election of Directors. Our Certificate of Incorporation does not
contain a provision permitting cumulative voting for the election of directors.
The holders of more than 50% of the common stock voting upon the election of
directors, therefore, may be able to elect all of the directors to be elected at
a meeting of our stockholders. Our directors are elected annually and serve
until their successors are elected and qualified.
Dividends. Holders of shares of common stock are entitled to receive
dividends when, as, and if our Board of Directors declares such dividends from
funds legally available for that purpose. Since inception, we have not paid any
dividends. Moreover, under the terms of our loan agreement with Foothill, we may
not pay any dividends other than stock dividends on the common stock, nor
purchase, redeem or otherwise acquire or retire for value any common stock,
until the obligations thereunder are repaid.
Other Rights. Upon liquidation, the holders of common stock are
entitled to share on a pro rata basis in our net assets after payment of any and
all amounts due to creditors and holders of any preferred stock. The holders of
common stock have no preemptive, redemption or conversion rights.
Change in Control Provisions. We are subject to the provisions of
Section 203 of the Delaware GCL because our common stock is listed on the
American Stock Exchange. In general, Section 203 provides that a Delaware
corporation may not engage in any of a broad range of business combinations,
which may include stock issuances, with an "interested stockholder" or an
affiliate or associate of an interested stockholder unless specified board or
shareholder approvals are obtained. This prohibition applies for a period of
three years after a person becomes an interested stockholder. Generally, an
interested stockholder is a person who, together with affiliates and associates,
owns or within three years did own 15% or more of a corporation's outstanding
voting stock. Stockholders that beneficially received 15% or more of the common
stock in our reincorporation merger in November 1996, however, are not subject
to the provisions of Section 203 and as a consequence business combinations with
such stockholders will not be limited by Section 203. See "Security Ownership of
Certain Beneficial Owners and Management" and "Certain Relationships and Related
Transactions" in the Company Reports, which are incorporated by reference.
TRANSFER RESTRICTIONS
Our certificate of incorporation contains transfer restrictions on our
common stock that are designed to restrict direct and indirect transfers that
could result in the imposition of limitations on our use, for federal income tax
purposes, of its NOLs and other tax attributes. Section 382 of the Internal
Revenue Code limits the use of losses and other tax benefits by a company that
has undergone an "ownership change" as defined in the Internal Revenue Code.
Generally, an ownership change occurs if one or more stockholders, each of whom
owns 5% or more in value of a company's capital stock, increase their aggregate
percentage ownership by more than 50% over the lowest percentage of stock owned
by such stockholders over the preceding three-year period. For this purpose, all
holders who each own less than 5% of a company's capital stock are generally
treated together as one or more 5% stockholders. In addition, constructive
ownership rules, which generally attribute ownership of stock to the ultimate
beneficial owner thereof without regard to ownership by nominees, trusts,
corporations, partnerships or other entities, or to related individuals, are
applied in determining the level of stock ownership of a particular stockholder.
Special rules can also result in the treatment of options and warrants as
exercised in some circumstances. All percentage determinations are based on the
fair market value of a company's capital stock.
If an ownership change were to occur, the amount of taxable income in
any year or portion of a year subsequent to the ownership change that could be
offset by NOLs or other carryovers existing or
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<PAGE> 20
"built-in" prior to such ownership change could not exceed the product obtained
by multiplying:
(a) the aggregate value of the outstanding common stock immediately
prior to the ownership change, with minor adjustments
by (b) the federal long-term tax exempt rate, which was 4.71% for
ownership changes occurring during February 1999.
Because the value of the outstanding common stock, as well as the
federal long-term tax-exempt rate, fluctuates, it is impossible to predict with
any accuracy the annual limitation upon the amount of our taxable income that
could be offset by such NOLs or other items if an ownership change were to
occur. We would incur a corporate-level tax on any taxable income during a given
year in excess of our NOL limitation. The current maximum federal rate is 35%.
While the NOLs not used as a result of this limitation remain available to
offset taxable income for up to 15 years from the year when the NOLs were
generated, an ownership change, under some circumstances, would significantly
defer the utilization of the NOLs, accelerate the payment of federal income tax,
cause a portion of the NOLs to expire prior to their use and reduce
stockholders' equity or increase stockholders' deficit.
The transfer restrictions generally restrict until 2011 any direct or
indirect transfer of common stock that would:
o except as provided below, increase to more than 4.75% the
percentage ownership of common stock of any person who at any
time during the preceding three-year period did not own more
than 4.75% of the common stock
o except as provided below, increase the percentage of common
stock owned by any person that during the preceding three-year
period owned more than 4.75% of the common stock, or by any
group of persons treated as a "5% shareholder," within the
meaning of the Internal Revenue Code, but substituting "4.75%"
for "5 percent"
o cause an ownership change of the Company within the meaning of
Section 382.
Generally, the transfer restrictions contain several exceptions. For
example, the restrictions will not prevent a transfer if, in the determination
of the Board of Directors, the transfer will not result in an aggregate increase
in the ownership of its capital stock by 4.75% shareholders over a three-year
period for purposes of Section 382. As an illustration, this exception will
permit a stockholder who owns less than 4.75% of the common stock to transfer
shares of common stock to any other stockholder who owns 4.75% or less of the
common stock, after giving effect to the transfer. Similarly, the transfer
restrictions will not apply to any transfer if, as a result of the transfer and
in the determination of the Board of Directors, the aggregate increase in the
ownership of our capital stock by 4.75% shareholders over a three-year period
does not exceed 35%. Also, the restrictions will not prevent a transfer if the
purported transferee obtains the approval of the Board of Directors, which
approval may be granted or withheld in the sole and absolute discretion of the
Board of Directors, after considering all facts and circumstances including but
not limited to future events deemed by the Board of Directors to be relevant.
Further, the transfer restrictions could terminate early in some cases. Finally,
transfers will be prohibited only with respect to the amount of the common stock
purportedly transferred in excess of the threshold established in the transfer
restrictions.
The transfer restrictions will apply differently over time. We believe
that the aggregate percentage increase in the ownership of its capital stock by
5 percent shareholders, as defined in Section 382, over the three-year period
ending on December 31, 1998, was as much as 31.6%. Therefore, all transactions,
other than the exercise of the outstanding warrants and some options, that would
increase the aggregate percentage increase owned by 4.75% shareholders are
currently subject to the transfer restrictions.
The application of the transfer restrictions to any particular
stockholder will depend on the stockholder's ownership of our capital stock,
determined after applying numerous attribution rules, and will also depend on
the history of trading of our capital stock. As a result, stockholders are urged
to consult their tax advisors prior to any purchase or sale of common stock.
Transfers included under the transfer restrictions include sales to
persons who would exceed the thresholds discussed above, or to persons whose
ownership of shares would by attribution cause another person to exceed such
thresholds.
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<PAGE> 21
Numerous rules of attribution, aggregation and calculation prescribed under the
Internal Revenue Code and its related regulations will be applied in determining
whether the 4.75% threshold has been met and whether a group of less than 4.75%
shareholders will be treated as a "public group" that is a 4.75% shareholder. As
a result of these attribution rules, a change in the relationship between two or
more persons or entities, or a transfer of an interest other than the common
stock, such as an interest in an entity that, directly or indirectly, owns the
common stock may result in the common stock owned by a stockholder being subject
to the remedial provisions, as described below. The transfer restrictions or in
some cases contractual provisions incorporating the transfer restrictions may
also apply to proscribe the creation or transfer of some "options," which are
broadly defined in respect of the common stock to the extent, generally, that
exercise of the option would result in a proscribed level of ownership.
The Board of Directors has issued instructions to or made arrangements
with our transfer agent to implement the transfer restrictions. The transfer
restrictions provide that the transfer agent shall not record any transfer of
the common stock purportedly transferred in excess of the threshold established
in the transfer restrictions. The transfer agent also has the right, prior to
and as a condition to registering any transfers of the common stock on the stock
transfer records, to request an affidavit from the purported transferee of the
common stock regarding such purported transferee's actual and constructive
ownership of the common stock. If, after requesting such an affidavit, the
transfer agent does not receive an affidavit or the affidavit evidences that the
transfer would violate the transfer restrictions, the transfer agent is required
to notify us and not enter the transfer in the stock transfer records. These
provisions may result in the delay or refusal of requested transfers of the
common stock.
It is the intention of the transfer restrictions that any direct or
indirect transfer of common stock attempted in violation of the restrictions
would be void ab initio as to the purported transferee, and the purported
transferee would not be recognized as the owner of the shares owned in violation
of the restrictions for any purpose, including for purposes of voting and
receiving dividends or other distributions in respect of such common stock, or
in the case of options subject to the transfer restrictions, receiving common
stock in respect of their exercise. Common stock purportedly acquired in
violation of the transfer restrictions is referred to as "excess common stock."
Excess common stock is automatically transferred to a trustee effective
as of the close of business on the business day prior to the date of the
violative transfer. As soon as practicable following the receipt of notice from
us that excess common stock was transferred to the trustee, the trustee is
required to sell such excess common stock in an arms-length transaction that
would not constitute a violation under the transfer restrictions. The net
proceeds of the sale, after deduction, of all costs incurred by us, the transfer
agent, and the trustee, will be distributed first to the purported transferee in
an amount equal to the lesser of such proceeds or the cost incurred by the
stockholder to acquire such excess common stock, and the balance of the
proceeds, if any, will be distributed to a charitable beneficiary together with
any other distributions with respect to such excess common stock received by the
trustee. If the excess common stock is sold by the purported transferee, such
person will be treated as having sold the excess common stock as an agent for
the trustee, and shall be required to remit all proceeds to the trustee less, in
some cases, an amount equal to the amount such person otherwise would have been
entitled to retain had the trustee sold such shares. Pending such sale, any
dividends or other distributions paid prior to discovery by us that the excess
common stock has been transferred to the trustee are treated as held by the
purported transferee as agent for the trustee and must be paid to the trustee
upon demand, and any dividends or other distributions declared but unpaid after
such time shall be paid to the trustee. Votes cast by a purported transferee
with respect to excess common stock prior to our discovery that the excess
common stock was transferred to the trustee will be rescinded as void and recast
in accordance with the desire of the trustee acting for the benefit of the
charitable beneficiary. The trustee shall have all rights of ownership of the
excess common stock.
Special provisions apply where the violative transfer involves a
transfer by a 4.75% shareholder, which provisions are designed to continue to
treat such 4.75% shareholders as owning the shares transferred. In such case, we
must attempt to locate the person or public group that purchased the excess
common stock, and if such person or public group can be located, the excess
common stock and any distributions received thereon will be required to be
returned to the transferor, and the transferor will be required to return the
purchase price, together with all other losses, damages, costs and expenses
20
<PAGE> 22
incurred by that purchaser, to the purchaser. If we are unable to locate the
purchaser within 90 days, to the extent permitted under our debt instruments, we
are required to purchase common stock in a manner that would reduce the
ownership of the person or public group whose ownership increased as a result of
the prohibited transfer and to hold such common stock on behalf of the 4.75%
shareholder that transferred the excess common stock in violation of the
transfer restrictions. In such case, the 4.75% shareholder will be treated as
the owner of the excess common stock for all purposes, and amounts we incur to
finance the purchase of such excess common stock will be treated as a loan to
such stockholder, with interest at the "applicable federal rate" under Section
1274(d) of the Internal Revenue Code.
If the violative transaction results from indirect ownership of common
stock, the transfer restrictions provide a mechanism that is intended to
invalidate the ownership of the common stock actually owned by the violating
stockholder and any persons within such stockholder's control group. Only if
such provisions will not be effective to prevent a violation of the transfer
restrictions will ownership of common stock by other persons be invalidated
under the transfer restrictions.
Notwithstanding the transfer restrictions, there remains a risk that
the following events could cause an ownership change:
o Transfers of common stock that are not restricted by the
transfer restrictions
o Transfers of common stock that are permitted by the Board of
Directors
o Changes in relationships among stockholders
Changes in the relationships of holders of common stock could cause
changes in ownership of common stock through the application of the attribution
rules discussed above, and therefore could also trigger an ownership change
causing a loss of NOLs. We cannot give you any assurance, in the event transfers
in violation of the transfer restrictions are attempted, that the Internal
Revenue Service will not assert that such transfers have federal income tax
significance notwithstanding the transfer restrictions. In addition, the
transfer restrictions will not apply to the exercise of outstanding warrants and
options to purchase common stock, including the 1991 or 1992 warrants and the
1994 warrants. Further, the transfer restrictions may not apply to some
exercises of a portion of the options under the stock option agreement with our
Chief Executive Officer that occur at the end of its term.
The Board of Directors has the discretion to approve a transfer of
stock that would otherwise violate the transfer restrictions upon the prior
written request of a stockholder to the Board of Directors. In addition, the
Board of Directors has the power to waive any of the transfer restrictions in
any instance where it determines that a waiver would be in our best interests
notwithstanding the effect of such waiver on the NOLs or other tax attributes.
If the Board of Directors permits a transfer that would otherwise violate the
transfer restrictions, that transfer or later transfers may result in an
ownership change that would limit the use of tax attributes. The Board of
Directors intends to consider any such attempted transfer individually and
determine at the time whether it is in our best interests, after consideration
of any factors that the Board deems relevant, including possible future events,
to permit such transfer notwithstanding that an ownership change may occur.
If the Board of Directors determines in writing that:
o the following actions are necessary or desirable to preserve
the NOLs or other tax attributes or
o that continuation of the transfer restrictions is no longer
reasonably necessary for the preservation of the NOLs or other
tax attributes
then the Board of Directors may exercise the following powers related to the use
of NOLs:
o accelerate or extend the expiration date of the transfer
restrictions
o modify the definitions of any terms set forth in the transfer
restrictions
o conform transfer restriction provisions to make them
consistent with any future changes in Federal tax law.
Further, the Board of Directors may also exercise the following
additional powers related to the use of NOLs:
o adopt Bylaws, regulations, and procedures not inconsistent
with the
21
<PAGE> 23
transfer restrictions for the purpose of determining whether
any acquisition of common stock would jeopardize our ability
to preserve and use the NOLs or other tax attributes and for
the orderly application, administration and implementation of
the transfer restrictions
o exclusive authority to administer, interpret and make
calculations under the transfer restrictions, which actions
shall be final and binding on all parties if made in good
faith.
As a result of the foregoing, the transfer restrictions serve to
reduce, but do not eliminate, the risk that Section 382 will cause the
limitations described above on the use of NOLs or our other tax attributes. The
transfer restrictions:
o may have the effect of impeding the attempt of a person or
entity to acquire a significant or controlling interest in us
o may render it more difficult to effect a merger or similar
transaction even if such transaction is favored by a majority
of the independent stockholders
o may serve to make a change in management more difficult.
Management does not presently intend to adopt any
anti-takeover measures, and we believe that the tax benefits
of the transfer restrictions outweigh the negative aspects of
any anti-takeover effects they may have.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the significant anticipated
federal income tax consequences with respect to the ownership and disposition of
the common stock. This discussion is general in nature, and does not discuss all
aspects of federal income taxation that may be relevant to you in light of your
particular circumstances, or to the types of investors that are subject to
special treatment under federal income tax laws, such as individual retirement
accounts, insurance companies, tax-exempt organizations, financial institutions,
brokers, dealers, foreign entities, and taxpayers that are neither citizens nor
residents of the United States. In addition, the discussion does not consider
the effect of any foreign, state, local, or other tax laws, or any other United
States tax consequences, such as estate or gift tax consequences, that may be
applicable to you. The summary is based upon the Internal Revenue Code and
applicable Treasury Regulations, proposed regulations, rulings, administrative
pronouncements and decisions as of the date hereof, all of which are subject to
change or differing interpretations at any time and in some circumstances with
retroactive effect.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES TO YOU OF THE OWNERSHIP AND
DISPOSITION OF THE COMMON STOCK.
DIVIDENDS
Dividend distributions with respect to the shares of common stock
should constitute dividends for federal income tax purposes to the extent of our
current and accumulated earnings and profits as computed for federal income tax
purposes. Accordingly, distributions should qualify to that extent for the
dividends received deduction for corporations as set forth in Section 243 of the
Internal Revenue Code. Distributions in excess of current and accumulated
earnings and profits will be treated as a tax-free return of capital, which
reduce the holder's tax basis in the shares of common stock to the extent of the
holder's basis in such shares, and, assuming such shares are held as capital
assets, as long-term or short-term capital gain, as the case may be thereafter.
Holders receiving distributions on the shares of common stock also may be
affected by the taxable income limitations set forth in Section 246(b), the
holding period requirements of Section 246(c), the debt-financed portfolio stock
limitations of Section 246A, and the "extraordinary dividend" rules of Section
1059 of the Internal Revenue Code. Holders should consult their tax advisors in
order to determine the application of these provisions. Our Foothill loan
agreement prohibits dividend payments on the common stock.
SALE OR EXCHANGE
Upon a sale or exchange of common stock, the holder generally
recognizes income or loss equal to the amount of cash plus the fair market value
of any property received over the holder's adjusted tax basis in the common
stock sold or exchanged. Assuming the holder held the common stock as a capital
asset, the income or loss will generally be
22
<PAGE> 24
capital gain or loss, and will be long-term capital gain or loss if the holder's
holding period for the common stock exceeds one year at the time of sale. Any
sale proceeds attributable to dividends will be taxed in accordance with the
rules discussed in the preceding paragraph.
BACKUP WITHHOLDING
Under the Internal Revenue Code, a holder of common stock may be
subject, under some circumstances, to "backup withholding" at a rate of 31% with
respect to payments in respect of dividends on the common stock.
This withholding generally applies only if the holder:
o fails to furnish his or its social security or other taxpayer
identification number
o furnishes an incorrect taxpayer identification number
o is notified by the Internal Revenue Service that he or it has
failed to report properly payments of interest and dividends
and the Internal Revenue Service has notified us that he or it
is subject to backup withholding
o fails, if required, to provide a certified statement, signed
under penalty of perjury, that the taxpayer identification
number provided is his or its correct number and that he or it
is not subject to backup withholding. Any amount withheld from
a payment to a holder under the backup withholding rules does
not constitute additional tax, and is allowable as a credit
against such holder's federal income tax liability, provided
that the required information is furnished to the Internal
Revenue Service. Holders of common stock should consult their
tax advisers as to their qualification for exemption from
backup withholding and the procedure for obtaining such an
exemption.
EXPERTS
The consolidated financial statements incorporated by reference in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon
for us by Gibson, Dunn & Crutcher LLP, Dallas, Texas.
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<PAGE> 25
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THE INFORMATION CONTAINED IN THIS DOCUMENT IS
ACCURATE ONLY AS OF ITS DATE AND YOU SHOULD NOT ASSUME THAT THE INFORMATION IS
STILL CURRENT BECAUSE YOU RECEIVED THIS PROSPECTUS AT A LATER DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
THOUSAND TRAILS, INC.
416,179
SHARES OF
COMMON STOCK
PROSPECTUS
DATED APRIL 5, 1999
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses other than registration fees are estimated;
however, they include amounts expended in connection with pre-effective filings.
The Registrant will pay these expenses and none of them is to be paid by the
selling security holders. The Registrant anticipates that it will incur
additional expenses in connection with any post-effective amendments to the
Registration Statement and any supplements to the Prospectus included therein:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...... $ 532
Blue Sky fees and expenses............................... 20,000
Printing ................................................ 12,000
Accountants' fees and expenses........................... 9,000
Legal fees and expenses.................................. 35,000
Miscellaneous............................................ 1,968
Total........................................... $78,500
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under its Bylaws, the Registrant must indemnify its present and former
directors and officers for the damages and expenses that they incur in
connection with threatened or pending actions, suits, or proceedings arising
because of their status as directors and officers, provided that they acted in
good faith and in a manner that they reasonably believed to be in or not opposed
to the best interests of the Company (or with respect to any criminal action or
proceeding, provided that they had no reasonable cause to believe that their
conduct was unlawful).
The Registrant must advance funds to these individuals to enable them
to defend any such threatened or pending action, suit, or proceeding. The
Registrant cannot release such funds, however, until it receives an undertaking
by or on behalf of the requesting individual to repay the amount if a court of
competent jurisdiction ultimately determines that such individual is not
entitled to indemnification. The Registrant has established trusts (the
"Indemnification Trusts") that will reimburse its present and former directors
and officers for any indemnifiable damages and expenses that they incur and that
will advance to them defense funds. The Registrant's contributions to the
Indemnification Trusts, net amounts returned to the Registrant, total $804,000
as of June 30, 1998. Pursuant to the trust agreements, interest on the
Indemnification Trusts corpus becomes part of the trust estate.
The Indemnification Trusts will terminate on the earlier of: (i) the
execution by a majority of the beneficiaries of a written instrument terminating
the trusts, (ii) the exhaustion of the entire trust estate, or (iii) the
expiration of ten years from the establishment of the trusts. The
Indemnification Trusts may not terminate, however, if there is pending or
threatened litigation with respect to a claim by a beneficiary against the
Indemnification Trust, until: (i) a final judgment in such proceeding, (ii) the
execution and delivery of a statement by such beneficiary that assertion of a
threatened claim is unlikely, or (iii) the expiration of all applicable statutes
of limitations. The Registrant possesses a residuary interest in the trust
estates upon termination of the Indemnification Trusts.
Section 145 of the Delaware Corporate Law provides that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
the person reasonably believed to be in or not
II-1
<PAGE> 27
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had not reasonable cause to believe was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action and then,
where the person is adjudged to be liable to the corporation, only if and to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action was brought determines that such person is fairly and reasonably
entitled to such indemnity and then only for such expenses as the court shall
deem proper.
The Registrant has entered into Indemnity Agreements with its directors
and officers contractually obligating the Company to provide indemnification
rights substantially similar to those described above.
The Registrant is empowered by Section 102(b)(7) of the Delaware
Corporate Law to include a provision in its Certificate of Incorporation that
limits a director's liability to the Registrant or its stockholders for monetary
damages for breaches of his or her fiduciary duty as a director. The
Registrant's Certificate of Incorporation states that directors shall not be
liable for monetary damages for breaches of their fiduciary duty to the fullest
extent permitted by the Delaware Corporate Law.
The Registrant maintains directors' and officers' insurance for certain
expenses and losses.
Under the Registrant's stock option plans, the Registrant must
indemnify the members of the Board of Directors of the Company and the
Compensation Committee thereof, which committee administers the plans, for any
damages and expenses that they incur in connection with such plans or the making
of awards thereunder, so long as they act in good faith.
Additionally, National American Corporation ("NACO"), a wholly-owned
subsidiary of the Registrant, has indemnification obligations to its directors
and officers.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Plan of Reorganization of the Company (which was formerly known as
NACO Finance Corporation), dated October 15, 1991, as supplemented
(incorporated by reference to Exhibit 2.1 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
2.2 Offer to Purchase for Cash the Company's 12% Secured Notes Due
1998 and Additional Series 12% Secured Notes Due 1998 by the
Company, dated June 5, 1996 (the "Offer to Purchase")
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the SEC on June 7, 1996,
File No. 0-19743).
2.3 Supplement to the Offer to Purchase, dated June 21, 1996
(incorporated by reference to Exhibit 2.5 to the Company's Annual
Report on Form 10-K filed with the SEC for the year ended June 30,
1996, File No. 0-19743).
2.4 Private Placement Memorandum by the Company offering to exchange
USTrails' 12% Secured Notes Due 1998 and Additional Series 12%
Secured Notes Due 1998 to certain holders of such notes, dated
June 28, 1996 (the "Private Placement Memorandum") (incorporated
by reference to Exhibit 2.6 to the Company's Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
2.5 Letter of Transmittal pertaining to the transmittal of the
Company's 12% Secured Notes Due 1998 and Additional Series 12%
Secured Notes Due 1998 by certain holders of such notes pursuant
to the exchange offer made by the Company in the Private Placement
Memorandum (incorporated by reference to Exhibit 2.7 to the
Company's Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1996, File No. 0-19743).
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
2.6 Supplement to the Private Placement Memorandum, dated July 15,
1996 (incorporated by reference to the Company's Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996,
File No. 0-19743).
2.7 Agreement and Plan of Merger, dated as of October 1, 1996, between
the Registrant and USTrails Inc. (predecessor in interest to the
Registrant) (incorporated by reference to the proxy
statement/prospectus filed with the SEC on October 3, 1996 as part
of the Registration Statement on Form S-4, Registration Statement
No. 333-13339 (the "S-4 Registration Statement")).
2.8 Offer to Purchase for Cash the Company's 12% Senior Subordinated
Pay-In-Kind Notes Due 2003, dated as of May 20, 1997 (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed with the SEC on July 8, 1997, File No. 0-19743).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the proxy statement/prospectus filed
with the SEC on October 3, 1996 as part of the S-4 Registration
Statement).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Form 8-B filed by the Registrant
with the SEC on November 27, 1996, File No. 0-19743).
4.1 Form of Reorganization Warrant Certificate to purchase shares of
Common Stock and schedule of substantially identical warrants
(incorporated by reference to Exhibit 4.7 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
4.2 Letter Agreement, dated March 19, 1993, between the Company and
Carl Marks Strategic Investments, LP (incorporated by reference to
Exhibit 4.18 to the Company's Registration Statement No. 33-571261
on Form S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
4.3 Form of Warrant Certificate to purchase shares of Common Stock
issued pursuant to the Exchange Agreement with certain holders of
Trails' indebtedness (incorporated by reference to Exhibit 4.3 to
the Company's Current Report on Form 8-K filed with the SEC on
June 25, 1992, File No. 0-19743) and schedule of substantially
identical warrants (incorporated by reference to Exhibit 4.15 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1992, File No. 0-19743).
4.4 Warrant Agency Agreement, dated as of March 2, 1994, between the
Company and Shawmut Bank Connecticut, National Association, as
Warrant Agent (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K filed with the SEC on April
11, 1994, File No. 0-19743).
4.5 Registration Rights Agreement, dated as of June 12, 1992,
regarding the Company's Additional Series Secured Notes and the
shares of Common Stock issuable upon the exercise of certain
warrants (incorporated by reference to Exhibit 4.4 of the
Company's Current Report on Form 8-K filed with the SEC on June
25, 1992, File No. 0-19743).
4.6 Indemnification Agreement, dated as of January 14, 1993, between
the Company and the selling security holders under Registration
Statement No. 33-571261 (incorporated by reference to Exhibit
10.44 to the Company's Registration Statement No. 33-571261 on
Form S-2, originally filed with the SEC on January 15, 1993, File
No. 0-19743).
5.1 Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant,
as to the validity of the securities being registered.
10.1 Credit Agreement, dated as of December 31, 1991, between the
Company and NACO (incorporated by reference to Exhibit 10.27 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1992, File No. 0-19743).
10.2 First Amendment to Credit Agreement, dated as of May 20, 1993,
between the Company and NACO (incorporated by reference to Exhibit
10.48 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1993, File No. 0-19743).
</TABLE>
II-3
<PAGE> 29
<TABLE>
<S> <C>
10.3 Second Amendment to Credit Agreement, dated as of November 10,
1994, between the Company and NACO (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No. 0-19743).
10.4 Fourth Amendment to Credit Agreement, dated as of June 10, 1998,
between the Company and NACO (incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 0-19743).
10.5 Amended and Restated Promissory Note, dated as of November 10,
1994, pursuant to which the Company provides a $40,000,000
revolving credit facility to NACO (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No.
0-19743).
10.6 Amended and Restated Promissory Note, dated as of November 10,
1994, pursuant to which the Company provided a $10,765,000 term
loan to NACO (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1995, File No. 0-19743).
10.7 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes the
Company (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement No. 33-73284 on Form S-2,
originally filed with the SEC on December 22, 1993, File No.
0-19743).
10.8 Release From Guaranty, dated as of May 31, 1993, among certain
subsidiaries of the Company, the Company, and Shawmut Bank
Connecticut, National Association, as Trustee (incorporated by
reference to Exhibit 10.56 to the Company's Registration Statement
No. 33-571261 on Form S-2, originally filed with the SEC on
January 15, 1993, File No. 0-19743).
10.9 Release under Credit Agreement and Security Agreement, dated as of
May 31, 1993, among certain subsidiaries of the Company, the
Company, and Shawmut Bank Connecticut, National Association, as
Trustee (incorporated by reference to Exhibit 10.57 to the
Company's Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.10 Security Agreement, dated as of December 31, 1991, pursuant to
which NACO granted to the Company a security interest in
substantially all of its personal and real property including the
pledge of NACO's stock in its subsidiaries as required by the
credit agreement between the Company and NACO (incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.11 First Supplement and Amendment to Security Agreement, dated as of
May 20, 1993, among NACO and certain of its subsidiaries, RPI, the
Company, and Shawmut Bank Connecticut, National Association, as
Trustee (incorporated by reference to Exhibit 10.53 to the
Company's Registration Statement No. 33-57l261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.12 Form of Mortgage from NACO and its subsidiaries to the Company
pursuant to the credit agreement between the Company and NACO
(incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1992, File
No. 0-19743, and schedule of documents substantially identical to
the Form of Mortgage (incorporated by reference to Exhibit 10.55
to the Company's Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.13 Form of First Amendment to Mortgage from NACO and its subsidiaries
to the Company amending certain terms of a Mortgage that
previously granted a beneficial security interest in certain
property to the Company pursuant to the credit agreement between
the Company and NACO, and schedule of documents substantially
identical to the Form of First Amendment to Mortgage (incorporated
by reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743).
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C>
10.14 Indenture, dated as of July 17, 1996, among the Company, Fleet
National Bank as Trustee, and certain other parties described
therein, pertaining to the Company's Senior Subordinated
Pay-In-Kind Notes Due 2003 (incorporated by reference to Exhibit
4.36 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
10.15 First Supplemental Indenture, dated as of November 20, 1996, by
and among the Registrant, each subsidiary of the Registrant named
as a subsidiary guarantor therein and Fleet National Bank, as
Trustee (incorporated by reference to Exhibit 4.2 to the Form 8-B
filed by the Registrant with the SEC on November 27, 1996).
10.16 Form of Senior Subordinated Pay-In-Kind Note Due 2003
(incorporated by reference to Exhibit 4.37 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996, File No.
0-19743).
10.17 Loan and Security Agreement, dated as of July 10, 1996, between
the Company and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.18 First Amendment to Loan and Security Agreement, dated as of May
16, 1997, between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the SEC on July 8, 1997,
File No. 0-19743).
10.19 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997, File No.
0-19743).
10.20 Third Amendment to Loan and Security Agreement dated as of January
5, 1998, between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, File No. 0-19743).
10.21 Fourth Amendment to Loan and Security Agreement, dated as of June
10, 1998, between the Company and Foothill (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
10.22 Fifth Amendment to Loan and Security Agreement, dated as of
September 15, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-19743).
10.23 Sixth Amendment to Loan and Security Agreement, dated as of
October 21, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-19743).
10.24 Secured Promissory Note (Account Note), dated July 10, 1996,
between the Company and Foothill Capital Corporation (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1996, File No. 0-19743).
10.25 Secured Promissory Note (Term Note), dated July 10, 1996, between
the Company and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.26 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation, and schedule
of documents substantially identical to the form of Pledge and
Security Agreement (incorporated by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1996, File No. 0-19743).
</TABLE>
II-5
<PAGE> 31
<TABLE>
<S> <C>
10.27 Consent and First Amendment to Pledge and Security Agreement,
dated as of October 31, 1997, between certain subsidiaries of the
Company and Foothill Capital Corporation (incorporated by
reference to exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, File No. 0-19743).
10.28 Form of Mortgage, dated as of July 10, 1996, to grant liens to
Foothill Capital Corporation to secure the Company's obligations
under the Loan Agreement with Foothill, and schedule of documents
substantially identical to the form of Mortgage (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.29 Form of Assignment of Indebtedness and Mortgage, dated as of July
10, 1996, transferring the liens securing certain indebtedness
that NACO owes to the Company to Foothill Capital Corporation
under the Loan Agreement with Foothill, and schedule of documents
substantially identical to the form of Assignment of Indebtedness
and Mortgage (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1996, File No. 0-19743).
10.30 Form of Subordination Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation,
subordinating the security interests under the credit agreement
between the Company and NACO to the security interests under the
Credit Agreement with Foothill, and schedule of documents
substantially identical to the form of Subordination Agreement
(incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996, File
No. 0-19743).
10.31 The Company's 1991 Employee Stock Incentive Plan (incorporated by
reference to Exhibit 10.40 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.32 Amendment No. 1 to the Company's 1991 Employee Stock Incentive
Plan (incorporated by reference to Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-19743).
10.33 The Company's 1993 Stock Option and Restricted Stock Purchase Plan
(incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement No. 33-73284 on Form S-2, originally filed
with the SEC on December 22, 1993, File No. 0-19743).
10.34 Amendment No. 1 to the Company's 1993 Stock Option and Restricted
Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, File No. 0-19743).
10.35 The Company's 1993 Director Stock Option Plan (incorporated by
reference to Exhibit 10.23 to the Company's Registration Statement
No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.36 Amendment No. 1 to the Company's 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996. File No. 0-19743).
10.37 Stock Option Agreement, dated as of August 1, 1996, between the
Company and William J. Shaw (incorporated by reference to Exhibit
10.26 to the Form 8-B filed by the Company with the SEC on
November 27, 1996, File No. 0-19743).
10.38 Assumption of Obligations, dated as of November 20, 1996, by the
Company assuming the obligations of USTrails under the USTrails
Inc. 1991 Employee Stock Incentive Plan, as amended; the USTrails
Inc. 1993 Stock Option and Restricted Stock Purchase Plan, as
amended; the USTrails Inc. 1993 Director Stock Option Plan, as
amended; Warrant Certificates originally issued on December 31,
1991, June 12, 1992, and March 2, 1994 to May 16, 1995; and the
Stock Option Agreement, dated as of August 1, 1996, between
USTrails and William J. Shaw (incorporated by reference to Exhibit
10.27 to the Form 8-B filed by the Company with the SEC on
November 27, 1996, File No. 0-19743).
</TABLE>
II-6
<PAGE> 32
<TABLE>
<S> <C>
10.39 Employment Agreement, dated as of May 11, 1995, between the
Company and William J. Shaw, and related Standby Letter of Credit,
dated September 22, 1995, issued by The Bank of California, N.A.,
for the benefit of Mr. Shaw, and Letter, dated September 20, 1995,
from The Wyatt Company, regarding Mr. Shaw's Employment Agreement
(incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995, File
No. 0-19743).
10.40 Letter dated June 29, 1996, from William J. Shaw to the Company,
regarding Mr. Shaw's election to receive the Enterprise Bonus
payable under his Employment Agreement, and Letter, dated July 8,
1996, from Deloitte & Touche LLP, regarding the computation of the
amount of the Enterprise Bonus payable to Mr. Shaw under his
Employment Agreement (incorporated by reference to Exhibit 10.30
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.41 Amended and Restated Employment Agreement, dated as of September
10, 1992, among NACO, Trails, RPI, and William F. Dawson
(incorporated by reference to Exhibit 10.49 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993, File
No. 0-19743), and Letter, dated December 1, 1995, from RPL to
William F. Dawson, regarding certain compensation arrangements
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly on From 10-Q for the quarter ended December 31, 1995,
File No. 0-19743).
10.42 Amended and Restated Employment Agreement, dated as of December 2,
1992, among the Company, NACO, Trails, and Walter B. Jaccard
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form l0-Q for the quarter ended December 31,
1992, File No. 0-19743), and amendment dated November 15, 1994
(incorporated by reference to Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995, File
No. 0-19743), and amendment dated December 7, 1995 (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995, File No.
0-19743).
10.43 Employment Agreement, dated as of August 31, 1995, between the
Company and R. Gerald Gelinas (incorporated by reference to
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No. 0-19743).
10.44 Indemnification Agreement, dated as of February 18, 1992, between
the Company and Andrew Boas (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743), and schedule of
substantially identical Indemnification Agreements (incorporated
by reference to Exhibit 10.33 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743).
10.45 Indemnification Agreement, dated as of September 1, 1995, between
Trails and William J. Shaw, and schedule of substantially
identical Indemnification Agreements (incorporated by reference to
Exhibit 10.36 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.46 Indemnification Agreement, dated as of September 1, 1995, between
NACO and William J. Shaw, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit
10.37 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
10.47 Indemnification Agreement, dated as of May 8, 1991, between the
Company and Donald W. Hair, and schedule of substantially
identical Indemnification Agreements (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.48 Indemnification Agreement, dated as of November 20, 1996, between
the Company and William J. Shaw and schedule of substantially
identical Indemnification Agreements (incorporated by reference to
Exhibit 10.39 to the Company's Registration Statement No.
333-19357 on Form S-1, originally filed with the SEC on January 7,
1997, File No. 0-19743).
</TABLE>
II-7
<PAGE> 33
<TABLE>
<S> <C>
10.49 Lease, dated February 24, 1994, as amended, between Carter-Crowley
Properties, Inc. as lessor, and the Company as lessee, relating to
the Company's offices in Dallas, Texas (incorporated by reference
to Exhibit 10.35 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.50 Lease, dated October 7, 1987, as amended, between Hardy Court
Shopping Center, Inc. as lessor, and NACO as lessee, relating to
NACO's offices in Gautier, Mississippi (incorporated by reference
to Exhibit 10.36 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.51 Grantor Trust Agreement, dated as of September 30, 1991, between
Union Bank of California, N.A. (formerly known as The Bank of
California, N.A., and referred to herein as "Union Bank"), and
Trails (incorporated by reference from Trails' Annual Report on
Form 10-K for the year ended June 30, 1992, File No. 0-9246).
10.52 Supplement No. 1 to Grantor Trust Agreement, dated as of July 16,
1996, by USTrails in favor of Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.) supplementing the
Old Trails Trust Agreement (incorporated by reference to Exhibit
10.44 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-19357, originally filed with the SEC on
January 7, 1997).
10.53 Supplement No 2. to Grantor Trust Agreement, dated as of November
20, 1996, by the Company in favor of Union Bank (incorporated by
reference to Exhibit 10.44 to the Company's Registration Statement
No. 333-19357 on Form S-1, originally filed with the SEC on
January 7, 1997, File No.
0-19743).
10.54 Grantor Trust Agreement, dated as of September 30, 1991, between
The Bank of California, N.A. and NACO (incorporated by reference
to Exhibit 10.43 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-19743).
10.55 Supplement to Grantor Trust Agreement, dated as of January 22,
1998, between NACO and a majority of the persons presently named
as beneficiaries under the Grantor Trust Agreement, dated as of
September 30, 1991, between NACO and Union Bank of California,
N.A., as Trustee (incorporated by reference to exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.56 Grantor Trust Agreement, dated May 8, 1991, between the Company
and Texas Commerce Bank, N.A. ("Texas Bank") (incorporated by
reference to Exhibit 10.41 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.57 Supplement and Succession Agreement to Grantor Trust Agreement,
dated as of October 13, 1992, among Union Bank, Texas Bank, the
Company, and certain beneficiaries under the Grantor Trust
Agreement (incorporated by reference to Exhibit 10.51 to the
Company's Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.58 Supplement to Grantor Trust Agreement, dated as of November 20,
1996, by the Company in favor of Union Bank (incorporated by
reference to Exhibit 10.43 to the Form 8-B filed by the Company
with the SEC on November 27, 1996, File No. 0-19743).
10.59 Supplement No. 2 to Grantor Trust Agreement, dated as of January
22, 1998, between the Company and a majority of the persons
presently named as beneficiaries under the Grantor Trust
Agreement, dated as of May 8, 1991, as supplemented, between the
Company and Union Bank of California, N.A., as Trustee
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form l0-Q for the quarter ended March 31,
1998, File No. 0-19743).
</TABLE>
II-8
<PAGE> 34
<TABLE>
<S> <C>
10.60 Trust Agreement, dated as of July 22, 1992, establishing the
Company's Flexible Benefits Plan Trust Fund (incorporated by
reference to Exhibit 10.45 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.61 Thousand Trails, Inc. Employee Savings Trust, dated as of July 1,
1994, between the Company and its subsidiaries and The Bank of
California, N.A., as trustee (incorporated by reference to Exhibit
10.42 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, File No. 0-19743).
10.62 Agreement for the Thousand Trails, Inc. Non-Qualified Deferred
Compensation Plan, effective April 23, 1998 (incorporated by
reference to Exhibit 10.56 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
10.63 Tax Allocation Agreement, dated as of September 10, 1992, between
the Company and RPI (incorporated by reference to Exhibit 99.6 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 0-19743).
10.64 Tax Allocation Agreement, dated as of July 1, 1991, between the
Company and NACO (incorporated by reference to Exhibit 10.44 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1994, File No. 0-19743).
10.65 Tax Allocation Agreement, dated as of October 29, 1993, between
the Company and Wilderness Management (incorporated by reference
to Exhibit 10.46 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.66 Exchange Agent Agreement, dated as of March 29, 1994, among the
Company, Trails, and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed with the SEC on April 11, 1994,
File No. 0-19743).
10.67 Sample form of current Membership Contract (incorporated by
reference to Exhibit 10.61 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
11.1 Statement re: Computation of Per Share Earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1998, File No.
0-19743).
13.1** The Company's Annual Report on Form 10-K for the year ended June
30, 1998.
13.2** The Company's Annual Report on Form 10-K/A for the year ended June
30, 1998.
13.3* The Company's Annual Report on Form 10-K/A (Amendment No. 2) for
the year ended June 30, 1998.
13.4** The Company's Proxy Statement for the 1998 Annual Meeting of the
Company filed on October 27, 1998.
13.5** The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998.
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 11.1 to the Company's Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1998, File No. 0-19743).
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see signature page of this Registration
Statement, as filed on March 3, 1997).
99.1 Form of Compliance Agreement between the Registrant and Selling
Security Holders.
</TABLE>
II-9
<PAGE> 35
<TABLE>
<S> <C>
99.2 Supplement to Compliance Agreement between the Registrant and
Selling Security Holders.
99.3 Additional Supplement to Compliance Agreement between the
Registrant and Selling Security Holders.
</TABLE>
* Filed herewith.
** Previously filed.
II-10
<PAGE> 36
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceedings) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
[SIGNATURES ON THE NEXT PAGE]
II-11
<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, Thousand Trails, Inc., a Delaware corporation, has duly caused
this Post-Effective Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on April 5, 1999.
THOUSAND TRAILS, INC.,
A DELAWARE CORPORATION
By: /s/ William J. Shaw
-----------------------------------------
Name: William J. Shaw
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to Registration Statement has been signed by the
following persons in the capacities indicated on April 5, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William J. Shaw Director, Chairman of the Board, President and Chief
- -------------------------------- Executive Officer (principal executive officer and
William J. Shaw acting chief financial officer)
/s/ Bryan Reed Chief Accounting Officer (principal accounting officer)
- --------------------------------
Bryan Reed
/s/ Andrew M. Boas* Director
- --------------------------------
Andrew M. Boas
/s/ William P. Kovacs* Director
- --------------------------------
William P. Kovacs
/s/ Donald R. Leopold* Director
- --------------------------------
Donald R. Leopold
/s/ H. Sean Mathis* Director
- --------------------------------
H. Sean Mathis
/s/ Douglas K. Nelson* Director
- --------------------------------
Douglas K. Nelson
*By: /s/ William J. Shaw
---------------------------
William J. Shaw
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Plan of Reorganization of the Company (which was formerly known as
NACO Finance Corporation), dated October 15, 1991, as supplemented
(incorporated by reference to Exhibit 2.1 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
2.2 Offer to Purchase for Cash the Company's 12% Secured Notes Due
1998 and Additional Series 12% Secured Notes Due 1998 by the
Company, dated June 5, 1996 (the "Offer to Purchase")
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the SEC on June 7, 1996,
File No. 0-19743).
2.3 Supplement to the Offer to Purchase, dated June 21, 1996
(incorporated by reference to Exhibit 2.5 to the Company's Annual
Report on Form 10-K filed with the SEC for the year ended June 30,
1996, File No. 0-19743).
2.4 Private Placement Memorandum by the Company offering to exchange
USTrails' 12% Secured Notes Due 1998 and Additional Series 12%
Secured Notes Due 1998 to certain holders of such notes, dated
June 28, 1996 (the "Private Placement Memorandum") (incorporated
by reference to Exhibit 2.6 to the Company's Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996, File No.
0-19743).
2.5 Letter of Transmittal pertaining to the transmittal of the
Company's 12% Secured Notes Due 1998 and Additional Series 12%
Secured Notes Due 1998 by certain holders of such notes pursuant
to the exchange offer made by the Company in the Private Placement
Memorandum (incorporated by reference to Exhibit 2.7 to the
Company's Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1996, File No. 0-19743).
2.6 Supplement to the Private Placement Memorandum, dated July 15,
1996 (incorporated by reference to the Company's Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996,
File No. 0-19743).
2.7 Agreement and Plan of Merger, dated as of October 1, 1996, between
the Registrant and USTrails Inc. (predecessor in interest to the
Registrant) (incorporated by reference to the proxy
statement/prospectus filed with the SEC on October 3, 1996 as part
of the Registration Statement on Form S-4, Registration Statement
No. 333-13339 (the "S-4 Registration Statement")).
2.8 Offer to Purchase for Cash the Company's 12% Senior Subordinated
Pay-In-Kind Notes Due 2003, dated as of May 20, 1997 (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed with the SEC on July 8, 1997, File No. 0-19743).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the proxy statement/prospectus filed
with the SEC on October 3, 1996 as part of the S-4 Registration
Statement).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Form 8-B filed by the Registrant
with the SEC on November 27, 1996, File No. 0-19743).
4.1 Form of Reorganization Warrant Certificate to purchase shares of
Common Stock and schedule of substantially identical warrants
(incorporated by reference to Exhibit 4.7 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
4.2 Letter Agreement, dated March 19, 1993, between the Company and
Carl Marks Strategic Investments, LP (incorporated by reference to
Exhibit 4.18 to the Company's Registration Statement No. 33-571261
on Form S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
4.3 Form of Warrant Certificate to purchase shares of Common Stock
issued pursuant to the Exchange Agreement with certain holders of
Trails' indebtedness (incorporated by reference to Exhibit 4.3 to
the Company's Current Report on Form 8-K filed with the SEC on
June 25, 1992, File No. 0-19743) and schedule of substantially
identical warrants (incorporated by reference to Exhibit 4.15 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1992, File No. 0-19743).
4.4 Warrant Agency Agreement, dated as of March 2, 1994, between the
Company and Shawmut Bank Connecticut, National Association, as
Warrant Agent (incorporated by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K filed with the SEC on April
11, 1994, File No. 0-19743).
4.5 Registration Rights Agreement, dated as of June 12, 1992,
regarding the Company's Additional Series Secured Notes and the
shares of Common Stock issuable upon the exercise of certain
warrants (incorporated by reference to Exhibit 4.4 of the
Company's Current Report on Form 8-K filed with the SEC on June
25, 1992, File No. 0-19743).
4.6 Indemnification Agreement, dated as of January 14, 1993, between
the Company and the selling security holders under Registration
Statement No. 33-571261 (incorporated by reference to Exhibit
10.44 to the Company's Registration Statement No. 33-571261 on
Form S-2, originally filed with the SEC on January 15, 1993, File
No. 0-19743).
5.1 Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant,
as to the validity of the securities being registered.
10.1 Credit Agreement, dated as of December 31, 1991, between the
Company and NACO (incorporated by reference to Exhibit 10.27 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1992, File No. 0-19743).
10.2 First Amendment to Credit Agreement, dated as of May 20, 1993,
between the Company and NACO (incorporated by reference to Exhibit
10.48 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1993, File No. 0-19743).
10.3 Second Amendment to Credit Agreement, dated as of November 10,
1994, between the Company and NACO (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No. 0-19743).
10.4 Fourth Amendment to Credit Agreement, dated as of June 10, 1998,
between the Company and NACO (incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 0-19743).
10.5 Amended and Restated Promissory Note, dated as of November 10,
1994, pursuant to which the Company provides a $40,000,000
revolving credit facility to NACO (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No.
0-19743).
10.6 Amended and Restated Promissory Note, dated as of November 10,
1994, pursuant to which the Company provided a $10,765,000 term
loan to NACO (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1995, File No. 0-19743).
10.7 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes the
Company (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement No. 33-73284 on Form S-2,
originally filed with the SEC on December 22, 1993, File No.
0-19743).
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
10.8 Release From Guaranty, dated as of May 31, 1993, among certain
subsidiaries of the Company, the Company, and Shawmut Bank
Connecticut, National Association, as Trustee (incorporated by
reference to Exhibit 10.56 to the Company's Registration Statement
No. 33-571261 on Form S-2, originally filed with the SEC on
January 15, 1993, File No. 0-19743).
10.9 Release under Credit Agreement and Security Agreement, dated as of
May 31, 1993, among certain subsidiaries of the Company, the
Company, and Shawmut Bank Connecticut, National Association, as
Trustee (incorporated by reference to Exhibit 10.57 to the
Company's Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.10 Security Agreement, dated as of December 31, 1991, pursuant to
which NACO granted to the Company a security interest in
substantially all of its personal and real property including the
pledge of NACO's stock in its subsidiaries as required by the
credit agreement between the Company and NACO (incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.11 First Supplement and Amendment to Security Agreement, dated as of
May 20, 1993, among NACO and certain of its subsidiaries, RPI, the
Company, and Shawmut Bank Connecticut, National Association, as
Trustee (incorporated by reference to Exhibit 10.53 to the
Company's Registration Statement No. 33-57l261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.12 Form of Mortgage from NACO and its subsidiaries to the Company
pursuant to the credit agreement between the Company and NACO
(incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1992, File
No. 0-19743, and schedule of documents substantially identical to
the Form of Mortgage (incorporated by reference to Exhibit 10.55
to the Company's Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.13 Form of First Amendment to Mortgage from NACO and its subsidiaries
to the Company amending certain terms of a Mortgage that
previously granted a beneficial security interest in certain
property to the Company pursuant to the credit agreement between
the Company and NACO, and schedule of documents substantially
identical to the Form of First Amendment to Mortgage (incorporated
by reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743).
10.14 Indenture, dated as of July 17, 1996, among the Company, Fleet
National Bank as Trustee, and certain other parties described
therein, pertaining to the Company's Senior Subordinated
Pay-In-Kind Notes Due 2003 (incorporated by reference to Exhibit
4.36 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
10.15 First Supplemental Indenture, dated as of November 20, 1996, by
and among the Registrant, each subsidiary of the Registrant named
as a subsidiary guarantor therein and Fleet National Bank, as
Trustee (incorporated by reference to Exhibit 4.2 to the Form 8-B
filed by the Registrant with the SEC on November 27, 1996).
10.16 Form of Senior Subordinated Pay-In-Kind Note Due 2003
(incorporated by reference to Exhibit 4.37 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996, File No.
0-19743).
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10.17 Loan and Security Agreement, dated as of July 10, 1996, between
the Company and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.18 First Amendment to Loan and Security Agreement, dated as of May
16, 1997, between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the SEC on July 8, 1997,
File No. 0-19743).
10.19 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997, File No.
0-19743).
10.20 Third Amendment to Loan and Security Agreement dated as of January
5, 1998, between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, File No. 0-19743).
10.21 Fourth Amendment to Loan and Security Agreement, dated as of June
10, 1998, between the Company and Foothill (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
10.22 Fifth Amendment to Loan and Security Agreement, dated as of
September 15, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No.
0-19743).
10.23 Sixth Amendment to Loan and Security Agreement, dated as of
October 21, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-19743).
10.24 Secured Promissory Note (Account Note), dated July 10, 1996,
between the Company and Foothill Capital Corporation (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1996, File No. 0-19743).
10.25 Secured Promissory Note (Term Note), dated July 10, 1996, between
the Company and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.26 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation, and schedule
of documents substantially identical to the form of Pledge and
Security Agreement (incorporated by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1996, File No. 0-19743).
10.27 Consent and First Amendment to Pledge and Security Agreement,
dated as of October 31, 1997, between certain subsidiaries of the
Company and Foothill Capital Corporation (incorporated by
reference to exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, File No. 0-19743).
10.28 Form of Mortgage, dated as of July 10, 1996, to grant liens to
Foothill Capital Corporation to secure the Company's obligations
under the Loan Agreement with Foothill, and schedule of documents
substantially identical to the form of Mortgage (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
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10.29 Form of Assignment of Indebtedness and Mortgage, dated as of July
10, 1996, transferring the liens securing certain indebtedness
that NACO owes to the Company to Foothill Capital Corporation
under the Loan Agreement with Foothill, and schedule of documents
substantially identical to the form of Assignment of Indebtedness
and Mortgage (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1996, File No. 0-19743).
10.30 Form of Subordination Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation,
subordinating the security interests under the credit agreement
between the Company and NACO to the security interests under the
Credit Agreement with Foothill, and schedule of documents
substantially identical to the form of Subordination Agreement
(incorporated by ,reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996, File
No. 0-19743).
10.31 The Company's 1991 Employee Stock Incentive Plan (incorporated by
reference to Exhibit 10.40 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.32 Amendment No. 1 to the Company's 1991 Employee Stock Incentive
Plan (incorporated by reference to Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-19743).
10.33 The Company's 1993 Stock Option and Restricted Stock Purchase Plan
(incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement No. 33-73284 on Form S-2, originally filed
with the SEC on December 22, 1993, File No. 0-19743).
10.34 Amendment No. 1 to the Company's 1993 Stock Option and Restricted
Stock Purchase Plan (incorporated by reference to Exhibit 10.9 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, File No. 0-19743).
10.35 The Company's 1993 Director Stock Option Plan (incorporated by
reference to Exhibit 10.23 to the Company's Registration Statement
No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.36 Amendment No. 1 to the Company's 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996. File No. 0-19743).
10.37 Stock Option Agreement, dated as of August 1, 1996, between the
Company and William J. Shaw (incorporated by reference to Exhibit
10.26 to the Form 8-B filed by the Company with the SEC on
November 27, 1996, File No. 0-19743).
10.38 Assumption of Obligations, dated as of November 20, 1996, by the
Company assuming the obligations of USTrails under the USTrails
Inc. 1991 Employee Stock Incentive Plan, as amended; the USTrails
Inc. 1993 Stock Option and Restricted Stock Purchase Plan, as
amended; the USTrails Inc. 1993 Director Stock Option Plan, as
amended; Warrant Certificates originally issued on December 31,
1991, June 12, 1992, and March 2, 1994 to May 16, 1995; and the
Stock Option Agreement, dated as of August 1, 1996, between
USTrails and William J. Shaw (incorporated by reference to Exhibit
10.27 to the Form 8-B filed by the Company with the SEC on
November 27, 1996, File No. 0-19743).
10.39 Employment Agreement, dated as of May 11, 1995, between the
Company and William J. Shaw, and related Standby Letter of Credit,
dated September 22, 1995, issued by The Bank of California, N.A.,
for the benefit of Mr. Shaw, and Letter, dated September 20, 1995,
from The Wyatt Company, regarding Mr. Shaw's Employment Agreement
(incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995, File
No. 0-19743).
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10.40 Letter dated June 29, 1996, from William J. Shaw to the Company,
regarding Mr. Shaw's election to receive the Enterprise Bonus
payable under his Employment Agreement, and Letter, dated July 8,
1996, from Deloitte & Touche LLP, regarding the computation of the
amount of the Enterprise Bonus payable to Mr. Shaw under his
Employment Agreement (incorporated by reference to Exhibit 10.30
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.41 Amended and Restated Employment Agreement, dated as of September
10, 1992, among NACO, Trails, RPI, and William F. Dawson
(incorporated by reference to Exhibit 10.49 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993, File
No. 0-19743), and Letter, dated December 1, 1995, from RPL to
William F. Dawson, regarding certain compensation arrangements
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly on From 10-Q for the quarter ended December 31, 1995,
File No. 0-19743).
10.42 Amended and Restated Employment Agreement, dated as of December 2,
1992, among the Company, NACO, Trails, and Walter B. Jaccard
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form l0-Q for the quarter ended December 31,
1992, File No. 0-19743), and amendment dated November 15, 1994
(incorporated by reference to Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995, File
No. 0-19743), and amendment dated December 7, 1995 (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995, File No.
0-19743).
10.43 Employment Agreement, dated as of August 31, 1995, between the
Company and R. Gerald Gelinas (incorporated by reference to
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No. 0-19743).
10.44 Indemnification Agreement, dated as of February 18, 1992, between
the Company and Andrew Boas (incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743), and schedule of
substantially identical Indemnification Agreements (incorporated
by reference to Exhibit 10.33 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, File No. 0-19743).
10.45 Indemnification Agreement, dated as of September 1, 1995, between
Trails and William J. Shaw, and schedule of substantially
identical Indemnification Agreements (incorporated by reference to
Exhibit 10.36 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.46 Indemnification Agreement, dated as of September 1, 1995, between
NACO and William J. Shaw, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit
10.37 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
10.47 Indemnification Agreement, dated as of May 8, 1991, between the
Company and Donald W. Hair, and schedule of substantially
identical Indemnification Agreements (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.48 Indemnification Agreement, dated as of November 20, 1996, between
the Company and William J. Shaw and schedule of substantially
identical Indemnification Agreements (incorporated by reference to
Exhibit 10.39 to the Company's Registration Statement No.
333-19357 on Form S-1, originally filed with the SEC on January 7,
1997, File No. 0-19743).
10.49 Lease, dated February 24, 1994, as amended, between Carter-Crowley
Properties, Inc. as lessor, and the Company as lessee, relating to
the Company's offices in Dallas, Texas (incorporated by reference
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to Exhibit 10.35 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.50 Lease, dated October 7, 1987, as amended, between Hardy Court
Shopping Center, Inc. as lessor, and NACO as lessee, relating to
NACO's offices in Gautier, Mississippi (incorporated by reference
to Exhibit 10.36 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.51 Grantor Trust Agreement, dated as of September 30, 1991, between
Union Bank of California, N.A. (formerly known as The Bank of
California, N.A., and referred to herein as "Union Bank"), and
Trails (incorporated by reference from Trails' Annual Report on
Form 10-K for the year ended June 30, 1992, File No. 0-9246).
10.52 Supplement No. 1 to Grantor Trust Agreement, dated as of July 16,
1996, by USTrails in favor of Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.) supplementing the
Old Trails Trust Agreement (incorporated by reference to Exhibit
10.44 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-19357, originally filed with the SEC on
January 7, 1997).
10.53 Supplement No 2. to Grantor Trust Agreement, dated as of November
20, 1996, by the Company in favor of Union Bank (incorporated by
reference to Exhibit 10.44 to the Company's Registration Statement
No. 333-19357 on Form S-1, originally filed with the SEC on
January 7, 1997, File No.
0-19743).
10.54 Grantor Trust Agreement, dated as of September 30, 1991, between
The Bank of California, N.A. and NACO (incorporated by reference
to Exhibit 10.43 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-19743).
10.55 Supplement to Grantor Trust Agreement, dated as of January 22,
1998, between NACO and a majority of the persons presently named
as beneficiaries under the Grantor Trust Agreement, dated as of
September 30, 1991, between NACO and Union Bank of California,
N.A., as Trustee (incorporated by reference to exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.56 Grantor Trust Agreement, dated May 8, 1991, between the Company
and Texas Commerce Bank, N.A. ("Texas Bank") (incorporated by
reference to Exhibit 10.41 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.57 Supplement and Succession Agreement to Grantor Trust Agreement,
dated as of October 13, 1992, among Union Bank, Texas Bank, the
Company, and certain beneficiaries under the Grantor Trust
Agreement (incorporated by reference to Exhibit 10.51 to the
Company's Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No.
0-19743).
10.58 Supplement to Grantor Trust Agreement, dated as of November 20,
1996, by the Company in favor of Union Bank (incorporated by
reference to Exhibit 10.43 to the Form 8-B filed by the Company
with the SEC on November 27, 1996, File No. 0-19743).
10.59 Supplement No. 2 to Grantor Trust Agreement, dated as of January
22, 1998, between the Company and a majority of the persons
presently named as beneficiaries under the Grantor Trust
Agreement, dated as of May 8, 1991, as supplemented, between the
Company and Union Bank of California, N.A., as Trustee
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form l0-Q for the quarter ended March 31,
1998, File No. 0-19743).
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10.60 Trust Agreement, dated as of July 22, 1992, establishing the
Company's Flexible Benefits Plan Trust Fund (incorporated by
reference to Exhibit 10.45 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
10.61 Thousand Trails, Inc. Employee Savings Trust, dated as of July 1,
1994, between the Company and its subsidiaries and The Bank of
California, N.A., as trustee (incorporated by reference to Exhibit
10.42 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, File No. 0-19743).
10.62 Agreement for the Thousand Trails, Inc. Non-Qualified Deferred
Compensation Plan, effective April 23, 1998 (incorporated by
reference to Exhibit 10.56 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
10.63 Tax Allocation Agreement, dated as of September 10, 1992, between
the Company and RPI (incorporated by reference to Exhibit 99.6 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 0-19743).
10.64 Tax Allocation Agreement, dated as of July 1, 1991, between the
Company and NACO (incorporated by reference to Exhibit 10.44 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1994, File No. 0-19743).
10.65 Tax Allocation Agreement, dated as of October 29, 1993, between
the Company and Wilderness Management (incorporated by reference
to Exhibit 10.46 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.66 Exchange Agent Agreement, dated as of March 29, 1994, among the
Company, Trails, and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed with the SEC on April 11, 1994,
File No. 0-19743).
10.67 Sample form of current Membership Contract (incorporated by
reference to Exhibit 10.61 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
11.1 Statement re: Computation of Per Share Earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1998, File No.
0-19743).
13.1** The Company's Annual Report on Form 10-K for the year ended June
30, 1998.
13.2** The Company's Annual Report on Form 10-K/A for the year ended June
30, 1998.
13.3* The Company's Annual Report on Form 10-K/A (Amendment No. 2) for
the year ended June 30, 1998.
13.4** The Company's Proxy Statement for the 1998 Annual Meeting of the
Company filed on October 27, 1998.
13.5** The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998.
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 11.1 to the Company's Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1998, File No. 0-19743).
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
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24.1 Power of Attorney (see signature page of this Registration
Statement, as filed on March 3, 1997).
99.1 Form of Compliance Agreement between the Registrant and Selling
Security Holders.
99.2 Supplement to Compliance Agreement between the Registrant and
Selling Security Holders.
99.3 Additional Supplement to Compliance Agreement between the
Registrant and Selling Security Holders.
</TABLE>
- --------------
* Filed herewith.
** Previously filed.
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A (AMENDMENT NO. 2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
Commission file number 0-19743
THOUSAND TRAILS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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DELAWARE 75-2138671
- ------------------------------------------ -----------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2711 LBJ FREEWAY,
SUITE 200, DALLAS, TX 75234
- ------------------------------------------ -----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-2228
-----------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------------------ -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in
<PAGE> 2
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]
At September 15, 1998, the latest practicable date, the aggregate market value
of voting common stock of the Registrant held by nonaffiliates was $16.1
million.
At September 15, 1998, there were 7,503,208 shares of Common Stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10-13) is incorporated by reference
from the Registrant's definitive Proxy Statement for the Registrant's 1998
Annual Meeting of Stockholders, which was filed on October 27, 1998, with the
Securities and Exchange Commission (the "SEC") pursuant to Regulation 14A.
Explanatory Note: This Amendment No. 2 to Form 10-K amends Item 1 Business; Item
2 Properties; Item 6 Selected Financial Data; and Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operation. This amendment
provides added detail in response to comments received from the Securities and
Exchange Commission.
Page 2
<PAGE> 3
ITEM 1. BUSINESS
OVERVIEW
GENERAL. Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is
the successor by merger to USTrails Inc., a Nevada corporation ("USTrails").
Thousand Trails and its subsidiaries (the "Company") own and operate a system of
53 membership-based campgrounds located in 17 states and British Columbia,
Canada, serving 111,000 members as of June 30, 1998. Through its subsidiaries,
the Company also provides a reciprocal use program for members of approximately
325 recreational facilities and manages 130 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 LBJ
Freeway, Suite 200, Dallas, Texas 75234, its telephone number is (972) 243-2228,
and its home page on the Internet is www.1000trails.com.
The Company entered the membership campground business on June 30, 1991, with
the acquisition of 100% of the capital stock of National American Corporation, a
Nevada corporation (collectively with its subsidiaries, "NACO") and 69% of the
capital stock of Thousand Trails, Inc., a Washington corporation (collectively
with its subsidiaries, "Trails"). The Company subsequently increased its
ownership in Trails to 100% through a tender offer and merger and, on July 16,
1996, Trails was merged into the Company. Prior to acquiring NACO and Trails,
the Company purchased contracts receivable generated by them from the sale of
campground memberships on the installment basis. The Company was incorporated in
1984, NACO was incorporated in 1967, and Trails was incorporated in 1969. On
November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to improve
its campground operations and stabilize its campground membership base through
increased sales and marketing efforts or the possible acquisition of members
through the purchase of other membership campground operations. The Company
believes there is a viable market for campground memberships and that it has a
significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. The Company also believes that it
may be possible to acquire members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
The Company's membership base has been declining. In response to this decline,
the Company has downsized its business by closing and disposing of campgrounds
and decreasing campground operating costs and general and administrative
expenses. The Company intends to continue to keep the size of its campground
system in an appropriate relation to the size of its membership base. In this
regard, if the membership continues to 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
Page 3
<PAGE> 4
of members through the purchase of other membership campground organizations.
The Company believes that the ultimate size of its campground system and the
amounts realized from future asset sales will depend principally upon the degree
to which the Company can successfully implement this strategy.
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated a restructuring of
its outstanding debt (see "Liquidity and Capital Resources - Debt Restructuring"
in Item 7). This restructuring provided the Company with a new capital structure
and decreased the Company's outstanding debt to a level the Company believes it
can support under its downsized operations.
CAMPGROUND OPERATIONS
CAMPGROUNDS. The Company and its subsidiaries own and operate a network of 53
membership-based campgrounds located in 17 states and British Columbia, Canada.
The Company owns and operates a network of 32 of these campgrounds under the
Thousand Trails logo, and NACO owns and operates a network of 21 of these
campgrounds under the NACO logo. The 53 campgrounds contain a total of
approximately 9,700 acres and 17,700 campsites.
Members using the campgrounds may bring their own recreational vehicles ("RVs"),
tents or other sleeping equipment, or rent travel trailers or cabins located at
the campgrounds or visit for the day. As of June 30, 1998, there were
approximately 73,000 campground members in the Thousand Trails system and 38,000
campground members in the NACO system. However, approximately 38% of the NACO
campground members and approximately 54% of the Thousand Trails campground
members possess the right to use the campgrounds in both networks. The largest
percentage of campground members reside in California (approximately 37%). Large
numbers of campground members also reside in Florida, Oregon, Texas, and
Washington.
Memberships provide the member's family access to the Company's network of
campgrounds, but do not convey a deeded interest in the campgrounds with the
exception of six campgrounds in which members received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
In the six campgrounds in which members have received deeded undivided
interests, the Company retains the entire fee interest in the common amenities,
such as the lodge, recreational facilities, and other buildings, and an
undivided interest in the campsites to the extent the interest has not been sold
to the members.
Depending upon member usage, the campgrounds are open year-round or on a
seasonal basis. The campgrounds feature campsites with electrical, water, and in
some cases, sewer connections for RVs, restroom and shower facilities, rental
trailers or cabins, and other recreational amenities. At each campground, a
manager and staff provide security, maintenance, and recreational programs that
vary by location.
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<PAGE> 5
The Company derives other campground revenue from renting trailers, cabins, and
sports equipment to members, selling food and other items to members from
convenience stores located at the campgrounds, and providing the members access
to laundry facilities and game machines. The Company also charges members a fee
for storing recreational vehicles and providing food service.
EXISTING MEMBERSHIP. At June 30, 1998, the Company had 111,000 campground
members. The majority of these members have been members for over 10 years. The
Company's membership base has declined significantly over the past five fiscal
years and, net of new sales, the membership base is presently declining at the
rate of approximately 6% per year (excluding 1,800 members lost in connection
with the sale of two campgrounds in fiscal 1998). The Company attributes this
continuing decline principally to its aging membership base, of whom
approximately 50% are senior citizens. In addition, the Company estimates that
the memberships sold in recent fiscal years will have an expected life that is
significantly shorter than the expected life of the memberships previously sold
by the Company. To stop the continuing decline in its membership base, the
Company must significantly increase its campground membership sales over current
levels.
MEMBERSHIP SALES. As noted above, the majority of the Company's existing members
have been members for over 10 years. The Company's membership sales declined
significantly in the early 1990's due to increasing marketing costs and other
factors. In April 1992, the Company suspended the sale of new campground
memberships because its sales program was operating at a loss and with negative
cash flow. In the fall of 1992, the Company began to assist campground members
desiring to sell their memberships in the secondary market. During fiscal 1994,
the Company determined that it should increase its sales and marketing efforts
in order to replenish its declining campground membership base, and it began
selling new campground memberships on a limited basis. In May 1995, the Company
introduced new membership products and significantly increased its sales and
marketing efforts. In recent years, the Company has focused its membership sales
efforts primarily on guests referred by existing members and customers referred
by RV dealers and RV manufacturers, who management believes are more likely to
purchase memberships.
The Company's current membership products offer the consumer a choice of
membership options ranging from the use of one campground to the entire system
of campgrounds with prices ranging from $1,595 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $199 for
14 nights of use to $1,200 for up to 365 nights of use. The member is charged a
nightly fee for camping more days than are included in the dues option selected.
During fiscal 1998 and 1997, the Company sold approximately 2,900 and 3,400 new
memberships, respectively. The average sales price was $1,164 in fiscal 1998 and
$707 in fiscal 1997, and the average annual dues level was $377 in fiscal 1998
and $332 in fiscal 1997. During the past two fiscal years, the Company offered
financing for certain of its higher priced sales. The Company required a down
payment of at least 25% of the sales price and would finance the balance for
periods of up to 36 months. The Company estimates that the memberships sold in
recent fiscal years will have an expected life that is significantly shorter
than the expected life of the memberships previously sold by the Company.
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<PAGE> 6
The Company has the capacity to sell approximately 66,000 additional new
campground memberships in the future, assuming the sale of ten memberships for
each existing campsite. Further downsizing of the Company's business would
reduce this capacity.
Most memberships are transferable with payment of a transfer fee to the Company.
The membership contracts, however, prohibit the sale of a membership for a
profit.
MARKETING. The Company believes that camping is a popular and growing activity
in the United States. The Company believes this is reflected in sales of
recreational vehicles and camping equipment as well as campground use. Moreover,
the Company believes the aging of the baby boomers will have a positive effect
on sales of camping equipment and RVs, and lead to more family camping.
While most campers use national or state parks, the Company believes that it has
a significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. The Company believes that many
campers are "amenity" campers, whose needs match the benefits provided by the
Company's campgrounds, such as pools, lodges, sport courts, and recreational
activities. The Company believes the needs of amenity campers are not being met
by underfunded national and state campgrounds. In addition, the Company believes
that it can differentiate its campgrounds and services from other campgrounds by
emphasizing the quality of its facilities and the benefits and services
available at its campgrounds.
DUES. The Company's campground members, including members who own a deeded
undivided interest in a campground, currently pay annual dues ranging generally
from $100 to $600. The annual dues collected from campground members constitute
general revenue of the Company. The Company uses the dues to fund its operating
expenses, including corporate expenses and the maintenance and operation of the
campgrounds. However, the membership agreements do not require the Company to
use the dues for any specific purpose.
The average annual dues paid by the Company's campground members was $351 for
the year ended June 30, 1998, $344 for the year ended June 30, 1997, and $335
for the year ended June 30, 1996. The increases resulted primarily from the
annual increase in dues implemented by the Company in accordance with the terms
of the membership agreements. In addition, the Company's new members generally
pay annual dues at a higher level than the older members retiring from the
system.
The membership agreements generally permit the Company to increase annually the
amount of each member's dues by either (i) the percentage increase in the
consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. The Company, however, may not increase the dues on existing
contracts of senior citizens and disabled members who notify the Company of
their age or disability and request that their dues be frozen. At the present
time, approximately 35% of the members have requested that their dues be frozen
because of their age or disability. The Company estimates that approximately 50%
of the campground members are senior citizens eligible to request that their
dues be frozen. The Company is unable to estimate
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<PAGE> 7
when or if a significant number of these members will request that their dues be
frozen in the future.
MAINTENANCE AND IMPROVEMENTS. The Company makes annual capital and maintenance
expenditures to maintain and improve the campgrounds. During fiscal 1998, the
Company spent $5.2 million on major maintenance, repairs, and capital
improvements at the campgrounds and anticipates that it will spend an additional
$4.7 million on such items in fiscal 1999. The Company may be required to spend
greater amounts on such items in future years as the facilities age.
RESORT PARKS INTERNATIONAL. NACO members and holders of dual-system memberships,
which permit the member to use the campgrounds in both the NACO and Thousand
Trails systems, may join a reciprocal program operated by Resort Parks
International, Inc. ("RPI"), a wholly owned subsidiary of the Company. The RPI
program offers members reciprocal use of approximately 325 participating
recreational facilities. Members of these participating facilities pay a fee to
RPI that entitles them to use any of the participating facilities, subject to
the limitation that they cannot use an RPI facility located within 125 miles of
their home facility. As of June 30, 1998, there were approximately 96,000 RPI
members, of which approximately 80,000 were members of campgrounds that are not
affiliated with the Company.
CAMPGROUND MANAGEMENT. UST Wilderness Management Corporation ("Wilderness
Management"), a wholly owned subsidiary of the Company, manages 130 public
campgrounds for the US Forest Service containing a total of 3,300 campsites.
Pursuant to its management contracts with the US Forest Service, Wilderness
Management incurs the expenses of operating the campgrounds and receives the
related revenues, net of a fee paid to the US Forest Service. These management
contracts typically have five year terms.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns at eight
resorts located in seven states. NACO's interest in the resorts presently
consists of approximately 100 residential lots and other miscellaneous real
estate that NACO intends to sell over the next several years.
SEGMENT FINANCIAL INFORMATION
Segment financial information for the campground and resort operations is set
forth in Note 14 to the consolidated financial statements included in Item 8.
ASSET SALES
During fiscal 1998, 1997, and 1996, the Company sold certain of its real estate
assets and received proceeds of $8.6 million, $4.7 million, and $7.2 million,
respectively. During this three-year period, the Company sold the timeshare
operations at the resorts, the country club and golf operations at one resort,
and various other properties at the resorts. In addition, the Company sold or
otherwise disposed of various campgrounds and sold unused buildings
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<PAGE> 8
and trailers, and excess acreage. Over the next several years, the Company
intends to dispose of its remaining assets at the resorts, any campgrounds that
are closed as the Company downsizes, and other undeveloped, excess acreage
associated with the campgrounds. The sale of campgrounds requires addressing the
rights of members associated with such campgrounds. The impact of these rights
is uncertain and could adversely affect the availability or timing of sale
opportunities or the ability of the Company to realize recoveries from asset
sales. In addition, although the Company has successfully sold assets during the
past several years, no assurance exists that the Company will be able to locate
a buyer for any of the remaining assets or that sales on acceptable terms can be
effected.
When there are outstanding borrowings under the Credit Agreement (as amended,
the "Credit Agreement"), between the Company and Foothill Capital Corporation
("Foothill"), all proceeds from asset sales must be paid to Foothill and applied
to reduce such borrowings.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its campground
memberships and resort interests on the installment basis, creating a portfolio
of contracts receivable. This portfolio has declined significantly over the past
five fiscal years as the Company has collected the outstanding contracts
receivable. Since April 1992, the Company has sold only a limited number of
campground memberships and resort interests on an installment basis and, as a
result, the portfolio of contracts receivable will continue to decline.
Interest accrues on the unpaid balance of the contracts receivable at fixed
rates, which vary depending upon the size of the down payment and the length of
the contract. The contracts receivable bear interest at rates ranging generally
from 9.5% to 16%, with a weighted average stated interest rate of 13% as of June
30, 1998. Monthly installment payments range generally from $34 to $223 over the
term of the contracts receivable, which can be up to ten years. The terms of
most newer contracts receivable, however, have averaged two years or less. At
June 30, 1998, 97% of the campground members and 99% of the purchasers of resort
interests had paid for their membership or resort interest in full, and the
remaining outstanding contracts receivable had an average remaining term of 19
months.
As of June 30, 1998, the Company owned contracts receivable with an aggregate
principal balance of $6.8 million, consisting of $6.4 million of contracts
receivable associated with the campgrounds and $401,000 of contracts receivable
associated with the resorts (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Contracts Receivable " in Item
7).
When there are outstanding borrowings under the Credit Agreement between the
Company and Foothill, all collections on the contracts receivable, including
principal, interest, and fees, must be paid to Foothill and applied to reduce
such borrowings.
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SEASONALITY
The Company experiences its most significant demand for working capital between
May and October of each year, which period coincides with the highest level of
operating expenses. During the summer, operating expenses increase significantly
because the peak usage of the campgrounds requires seasonal workers and
increased maintenance and operating expenses. In addition, the majority of the
Company's sales and marketing efforts occur during the spring and summer. On the
other hand, most dues collection activity for campground members occurs during
the months of November through April, which is a period of relatively lower
expenses.
GOVERNMENT REGULATION
To operate its campgrounds, the Company must comply with major discretionary
permits or approvals issued by local governments under local zoning ordinances,
master plans for shoreline use, and state environmental policy statutes. The
Company has complied in all material respects with the discretionary permits and
approvals regulating its existing operations.
In addition, to construct improvements at its campgrounds, the Company has
usually been required to obtain permits that are typically non-discretionary and
routinely issued such as building and sanitary sewage permits. The Company has
generally resolved problems concerning the issuance of such permits through
design, operating, or engineering solutions negotiated with local government
officials.
The Company's campgrounds are also subject to a variety of federal and state
environmental statutes and regulations. Certain environmental issues may exist
at some of the campgrounds concerning underground storage tanks, sewage
treatment plants and septic systems, and waste disposal. Management believes
that these issues will not have a material adverse impact on the Company's
operations or financial position, as the Company has conducted environmental
testing to identify and correct a number of these problems, and has removed
substantially all of the underground storage tanks. The Company does not possess
insurance or indemnification agreements with respect to any environmental
liability that it may incur.
Most of the states in which the Company does business have laws regulating
campground membership and lot sales. These laws generally require comprehensive
disclosure to prospective purchasers, and give purchasers the right to rescind
their purchase for three-to-five days after the date of sale. Some states have
laws requiring the Company to register with a state agency and obtain a permit
to market.
In some states, including California, Oregon, and Washington, laws place
limitations on the ability of the owner of a campground to close the campground
unless the members at the campground receive access to a comparable campground.
In these states, members from campgrounds that have been closed by the Company
were reassigned to other campgrounds located in the same general area as the
closed campgrounds. The impact of the rights of members under these laws is
uncertain and could adversely affect the implementation of, and the benefits or
recoveries that may be available from, additional downsizing of the Company's
business.
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<PAGE> 10
The government authorities regulating the Company's activities have broad
discretionary power to enforce and interpret the statutes and regulations that
they administer, including the power to enjoin or suspend sales activities,
require or restrict construction of additional facilities, and revoke licenses
and permits relating to business activities. The Company monitors its sales
presentations and debt collection activities to control practices that might
violate consumer protection laws and regulations or give rise to consumer
complaints. The Company believes that it has conducted its sales programs and
debt collection activities in substantial compliance with all applicable federal
and state laws and regulations.
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction
may affect the Company's portfolio of contracts receivable. Examples of such
laws include state and federal consumer credit and truth-in-lending laws
requiring the disclosure of finance charges, and usury and retail installment
sales laws regulating permissible finance charges. The Company believes that it
has complied in all material respects with these laws.
In certain states, as a result of government regulations and provisions in
certain of the membership agreements, the Company is prohibited from selling
more than 10 memberships per campsite. At the present time, these restrictions
do not preclude the Company from selling memberships in any state. However,
these restrictions may limit the Company's ability to downsize by closing
campgrounds and reassigning members to other campgrounds. In addition,
membership agreements or understandings, or governmental interpretations
thereof, may limit the Company's ability to expand or modify the type of
business activities conducted at the campgrounds.
In a decision to which the Company was not a party, the Mississippi Supreme
Court ruled that the Mississippi Timeshare Rules apply to the sale of campground
memberships in Mississippi. The Company has discussed the ramifications of this
decision with the Mississippi state agency responsible for the administration of
these rules. The Company does not believe that the agency will require the
Company to rescind any sales of campground memberships because of the decision;
however, the agency has the power to do so. The Company has sold $15.9 million
of campground memberships in Mississippi.
COMPETITION
Based on an internally conducted analysis, the Company estimates there are
approximately 15,000 privately owned campgrounds in the United States today, of
which approximately 500 are membership campgrounds. The balance of the
campgrounds are generally open to the public and usually charge fees based on
the length of stay. The 500 membership campgrounds have approximately 400,000
members, of which 111,000 are the Company's members. This information was
derived from a review of publicly available directories of campgrounds,
including those of the Company's competitors. During this analysis, the Company
identified duplicative directory entries and compiled an estimate of the total
number of campgrounds and members.
Several companies compete directly with the Company's campground operations. For
example, Resorts USA, Inc., which does business as Outdoor World, sells
memberships to its system of 14
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<PAGE> 11
campgrounds, Travel America, Inc. (formerly All Seasons Resorts, Inc. and
Thousand Adventures, Inc.) sells memberships to its system of 37 campgrounds,
and Leisure Time Resorts, Inc. sells memberships to its system of ten
campgrounds. Other companies or individuals operate the balance of the
membership campgrounds. The Company's direct competitors generally offer their
members reciprocal use of other campgrounds through affiliations. Over the past
several years, many of the Company's direct competitors have experienced
financial difficulties, and several competitors have filed for bankruptcy.
The vast majority of the campgrounds in the United States are operated for the
public by Federal, state, and local governments. Although these public
campgrounds are used by most campers, in recent years, many of these public
campgrounds have experienced overcrowding and increased user fees. The Company's
campgrounds also compete indirectly with timeshare resorts and other types of
recreational land developments that do not involve camping.
The Company's campground operations compete on the basis of location and the
quality of facilities and services offered at the campgrounds. The Company
believes it has a significant opportunity to compete for campers interested in
higher quality facilities and a higher level of service than is typically
available at public campgrounds or competing private campgrounds (see
"Marketing").
Wilderness Management competes directly with approximately four other companies
in bidding for contracts to manage public campgrounds for the US Forest Service.
Wilderness Management currently has contracts to manage 130 of the approximately
3,000 campgrounds operated for the US Forest Service by private companies.
Coast to Coast Resorts, RPI's primary competitor and the largest reciprocal use
system, has approximately 370 affiliated campgrounds and more than 250,000
members. Both RPI and Coast to Coast Resorts operate vacation clubs offering
travel and lodging discounts and services to their members.
EMPLOYEES
As of June 30, 1998, the Company had 1,355 full-time equivalent employees. Due
to the seasonal nature of the Company's business, the Company has a greater
number of employees during the summer months. The Company does not have any
collective bargaining agreements with its employees and considers its relations
with employees to be satisfactory.
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ITEM 2. PROPERTIES
OFFICES. The Company leases office space at 2711 LBJ Freeway, Suite 200, Dallas,
Texas 75234. NACO leases office space at 2325 Highway 90, Gautier, Mississippi
39553. RPI leases office space at 3711 Long Beach Blvd., Suite 110, Long Beach,
California 90807.
CAMPGROUNDS. The Company currently operates 53 campgrounds in 17 states and
British Columbia, Canada. The locations of these campgrounds are shown on the
map on page 14. The amenities presently available at each campground are listed
on the chart on page 15. The Company owns 52 of these campgrounds and leases the
LaConner campground and portions of the Lake Tawakoni and Snowflower
campgrounds. The Company has sold undivided interests to members at six of the
campgrounds. Of the 53 campgrounds, 25 operate all year, 21 operate year-round
but provide only limited services during the off-season, and seven operate
seasonally only.
ENCUMBRANCES. The Company has granted liens on substantially all of its assets
to secure its obligations under the Credit Agreement between the Company and
Foothill. The Company repaid all outstanding borrowings under the Credit
Agreement in January 1998, and it had no outstanding borrowings under the Credit
Agreement as of the date of this report. However, the Company has entered into
an amendment to the Credit Agreement that will provide the Company the
flexibility to borrow up to $35.0 million (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7). All of
the Company's subsidiaries (other than an immaterial utility subsidiary)
(collectively, the "Subsidiary Guarantors") have fully and unconditionally
guaranteed, on a joint and several basis, the Company's obligations under the
Credit Agreement, and subject to certain limitations, have granted liens on
substantially all of their assets to secure their guarantees.
NACO has also granted liens, subject to certain limitations, on substantially
all of its assets to secure the repayment of its indebtedness to the Company,
which totaled approximately $28.0 million as of the date of this report. These
security interests were subordinated to the security interests securing the
guarantees of the Credit Agreement. The indebtedness that these security
interests secure, however, is pledged by the Company to Foothill to secure its
obligations under the Credit Agreement, and these security interests have been
collaterally assigned to Foothill. Furthermore, the subsidiaries of NACO each
guaranteed their parent's indebtedness to the Company and granted security
interests in substantially all of their assets to secure such guarantees.
The Subsidiary Guarantors have also fully and unconditionally guaranteed, on a
joint and several basis, the Company's obligations under the Senior Subordinated
Pay-In-Kind Notes Due 2003 (the "PIK Notes") that were issued on July 17, 1996,
as well as the PIK Notes issued in lieu of cash payment of interest. The PIK
Notes are presently unsecured and will remain unsecured until the amended Credit
Agreement terminates on July 17, 2002. However, if the Company has not repaid in
full or otherwise retired all of the PIK Notes by July 15, 2000, all borrowings
under the amended Credit Agreement in excess of $10.0 million will mature on
July 15, 2000, and up to $10.0 million of borrowings under the amended Credit
Agreement will be refinanced on such
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date and thereafter be available to the Company for working capital purposes
only. This $10.0 million working capital facility will then become the Working
Capital Replacement Facility defined in the Indenture for the PIK Notes. Upon
the termination of the amended Credit Agreement, the PIK Notes will be secured
by the same assets as then secure the amended Credit Agreement other than cash
and cash equivalents and other assets required to secure a new Working Capital
Replacement Facility, which may provide borrowings for working capital purposes
only up to $10.0 million in principal amount. Any new Working Capital
Replacement Facility may be secured by substantially all of the assets of the
Company and its subsidiaries other than certain excluded assets.
Some states, including California, Oregon, and Washington, have nondisturbance
statutes that place limitations on the ability of the owner of a campground to
sell or close, or a lienholder to foreclose a lien on, a campground. In certain
states, these statutes permit sale, closure, or foreclosure if the holders of
related memberships receive access to a comparable campground. The mortgages on
the Company's campgrounds that were granted to secure the Company's obligations
under the Credit Agreement, and any mortgages on the Company's campgrounds that
are granted in the future to secure the Company's obligations under the PIK
Notes, contain or will contain similar nondisturbance provisions. As a
consequence, although the Company may be able to sell or close some of its
campgrounds as it has done in the past, a sale or closure of significant numbers
of campgrounds would likely be limited by state law or the membership contracts
themselves, and a foreclosure of liens on significant numbers of campgrounds
would also likely be limited. The impact of the rights of members under these
laws and nondisturbance provisions is uncertain and could adversely affect the
availability or timing of sale opportunities or the ability of the Company or
lienholder to realize recoveries from asset sales.
OTHER. The Company owns approximately 100 residential lots and other
miscellaneous real estate at eight resorts located in seven states, and various
other parcels of undeveloped real estate, that it intends to sell over time.
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THOUSAND TRAILS, INC.
CAMPGROUNDS
[MAP]
<TABLE>
<CAPTION>
+ THOUSAND TRAILS CAMPGROUNDS o NACO CAMPGROUNDS
- ----------------------------- ------------------
<S> <C> <C> <C>
BRITISH COLUMBIA TEXAS WASHINGTON INDIANA
Cultus Lake Medina Lake Birch Bay Indian Lakes*
Lake Conroe Little Diamond
WASHINGTON Colorado River Rainier VIRGINIA
LaConner Lake Whitney Long Beach Virginia Landing*
Mount Vernon Lake Texoma
Chehalis Lake Tawakoni OREGON NEW JERSEY
Leavenworth South Jetty Chestnut Lakes
MICHIGAN
OREGON Saint Clair CALIFORNIA
Bend Lake Minden
Pacific City INDIANA Russian River
Horseshoe Lakes Snowflower
CALIFORNIA Turtle Beach
Lake of the Springs OHIO Yosemite
Morgan Hill Wilmington Windsor
San Benito Kenissee Lake Rancho Oso
Soledad Canyon Wilderness Lakes
Idyllwild PENNSYLVANIA
Pio Pico Hershey TEXAS
Oakzanita Springs Bay Landing*
Palm Springs VIRGINIA
Lynchburg MISSISSIPPI
NEVADA Chesapeake Bay Indian Point
Las Vegas
NORTH CAROLINA SOUTH CAROLINA
ARIZONA Forest Lake Carolina Landing* * Some members of
Verde Valley these six campgrounds
TENNESSEE own a deeded,
FLORIDA Natchez Trace* undivided interest in
Orlando Cherokee Landing* campsites at their
campground.
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
CAMPGROUND FACILITIES ACREAGE RV SITES TENT ADULT FAMILY POOL TENNIS ATHLETIC VEHICLE REST- TRAILERS HORSE-
AND AMENITIES SITES LODGE CENTER/ COURT COURT STORAGE ROOMS/ (SEASONAL SHOE
PAVILION SHOWERS AVAIL- PITS
ABILITY)
- -----------------------------------------------------------------------------------------------------------------------------------
THOUSAND TRAILS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BEND 93 300 10 1 1 2 2 1 1 6 17 4
- -----------------------------------------------------------------------------------------------------------------------------------
CHEHALIS 306 278 1 1 2 2 2 1 8 9 7
- -----------------------------------------------------------------------------------------------------------------------------------
CHESAPEAKE BAY 280 373 19 1 1 2 1 1 1 4 45 6
- -----------------------------------------------------------------------------------------------------------------------------------
COLORADO RIVER 217 128 1 1 1 1 1 1 2 10 4
- -----------------------------------------------------------------------------------------------------------------------------------
CULTUS LAKE 14 185 12 1 1 1 2 2 1 4 5 2
- -----------------------------------------------------------------------------------------------------------------------------------
FOREST LAKE 205 294 12 1 1 2 2 1 1 3 16 4
- -----------------------------------------------------------------------------------------------------------------------------------
HERSHEY 196 310 1 1 1 1 1 1 3 38 4
- -----------------------------------------------------------------------------------------------------------------------------------
HORSESHOE LAKES 202 118 1 1 2 1 1 2 11 4
- -----------------------------------------------------------------------------------------------------------------------------------
IDYLLWILD 181 287 38 1 1 1 3 1 6 35 4
- -----------------------------------------------------------------------------------------------------------------------------------
KENISEE LAKE 159 83 10 1 1 1 1 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
LACONNER 106 313 1 1 1 1 6 18 6
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE CONROE 130 285 1 1 1 2 2 1 4 21 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE OF THE SPRINGS 176 541 12 1 1 1 1 2 1 12 36 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE TAWAKONI 300 318 1 1 1 2 1 1 5 22 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE TEXOMA 198 319 2 1 1 2 1 1 6 17 6
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE WHITNEY 253 244 3 1 1 2 1 1 1 5 22 8
- -----------------------------------------------------------------------------------------------------------------------------------
LAS VEGAS 11 217 2 1 1 2 1 3 2
- -----------------------------------------------------------------------------------------------------------------------------------
LEAVENWORTH 279 275 1 1 2 4 2 1 8 5 5
- -----------------------------------------------------------------------------------------------------------------------------------
LYNCHBURG 150 223 1 1 1 2 6 1 5 5 7
- -----------------------------------------------------------------------------------------------------------------------------------
MEDINA LAKE 260 387 1 1 1 1 1 4 34 4
- -----------------------------------------------------------------------------------------------------------------------------------
MORGAN HILL 62 317 28 1 1 1 1 1 1 7 24 4
- -----------------------------------------------------------------------------------------------------------------------------------
MOUNT VERNON 185 248 3 1 1 1 1 1 6 5 4
- -----------------------------------------------------------------------------------------------------------------------------------
OAKZANITA SPRINGS 118 121 30 1 1 1 1 1 2 13 4
- -----------------------------------------------------------------------------------------------------------------------------------
ORLANDO 269 734 1 1 2 2 1 7 33 6
- -----------------------------------------------------------------------------------------------------------------------------------
PACIFIC CITY 105 305 1 1 1 1 2 1 5 18 12
- -----------------------------------------------------------------------------------------------------------------------------------
PALM SPRINGS 28 392 1 1 1 1 1 4 35 4
- -----------------------------------------------------------------------------------------------------------------------------------
PIO PICO 182 453 12 1 1 2 5 3 8 24 12
- -----------------------------------------------------------------------------------------------------------------------------------
SAN BENITO 200 517 51 1 1 2 1 1 7 28 4
- -----------------------------------------------------------------------------------------------------------------------------------
SOLEDAD CANYON 230 809 9 1 1 2 2 3 1 14 53 13
- -----------------------------------------------------------------------------------------------------------------------------------
SAINT CLAIR 110 110 8 1 1 1 1 3 13 2
- -----------------------------------------------------------------------------------------------------------------------------------
VERDE VALLEY 300 333 6 2 1 1 2 3 16 8
- -----------------------------------------------------------------------------------------------------------------------------------
WILMINGTON 109 125 1 1 1 1 2 1 2 13 2
- -----------------------------------------------------------------------------------------------------------------------------------
NACO
- -----------------------------------------------------------------------------------------------------------------------------------
BAY LANDING 305 257 1 1 1 1 2 6
- -----------------------------------------------------------------------------------------------------------------------------------
BIRCH BAY 30 215 8 1 1 1 1 3 13 2
- -----------------------------------------------------------------------------------------------------------------------------------
CAROLINA LANDING 119 193 1 2 2 1 1 4 4
- -----------------------------------------------------------------------------------------------------------------------------------
CHEROKEE LANDING 55 341 1 1 1 1 1 3 3
- -----------------------------------------------------------------------------------------------------------------------------------
CHESTNUT LAKE 31 179 1 1 1 1 1 16 2
- -----------------------------------------------------------------------------------------------------------------------------------
INDIAN LAKES 545 1202 50 2 1 3 2 2 1 5 8
- -----------------------------------------------------------------------------------------------------------------------------------
INDIAN POINT 11 157 1 2 1 2 3 1
- -----------------------------------------------------------------------------------------------------------------------------------
LAKE MINDEN 97 162 161 1 1 1 3 15 2
- -----------------------------------------------------------------------------------------------------------------------------------
LITTLE DIAMOND 200 541 100 1 4 1 1 1 5 4 3
- -----------------------------------------------------------------------------------------------------------------------------------
LONG BEACH 17 120 20 1 1 1 2 6 2
- -----------------------------------------------------------------------------------------------------------------------------------
NATCHEZ TRACE 623 561 1 2 1 1 5 1
- -----------------------------------------------------------------------------------------------------------------------------------
RAINIER 107 609 300 1 1 1 1 10 10 8
- -----------------------------------------------------------------------------------------------------------------------------------
RANCHO OSO 310 118 50 1 1 1 1 1 3 4
- -----------------------------------------------------------------------------------------------------------------------------------
RUSSIAN RIVER 42 125 30 1 4 10 2
- -----------------------------------------------------------------------------------------------------------------------------------
SNOWFLOWER 720 248 10 1 1 11 7 3
- -----------------------------------------------------------------------------------------------------------------------------------
SOUTH JETTY 60 162 10 1 1 1 1 5 15 3
- -----------------------------------------------------------------------------------------------------------------------------------
TURTLE BEACH 39 72 120 1 2 2
- -----------------------------------------------------------------------------------------------------------------------------------
VIRGINIA LANDING 339 210 1 1 1 3 2
- -----------------------------------------------------------------------------------------------------------------------------------
WILDERNESS LAKES 74 523 5 1 1 2 1 1 1 8 34 6
- -----------------------------------------------------------------------------------------------------------------------------------
WINDSOR 17 95 25 1 1 1 1 7 3
- -----------------------------------------------------------------------------------------------------------------------------------
YOSEMITE LAKES 387 379 131 1 1 1 8 24 4
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CAMPGROUND FACILITIES CHILD- TRADING MINI- SHUFFLE SPA VOLLEY- BOAT LAUNDRY CABINS/
AND AMENITIES REN'S POST ATURE BOARD BALL LAUNCH/ FACILITY LODGING
PLAY GOLF MARINA
AREA
- -----------------------------------------------------------------------------------------------------------
THOUSAND TRAILS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BEND 2 1 1 1 1 7
- -----------------------------------------------------------------------------------------------------------
CHEHALIS 1 1 1 1 1 1 1 4
- -----------------------------------------------------------------------------------------------------------
CHESAPEAKE BAY 3 1 1 2 1 1 1 1 18
- -----------------------------------------------------------------------------------------------------------
COLORADO RIVER 2 1 1 1 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
CULTUS LAKE 2 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
FOREST LAKE 2 1 1 2 2 1 1 18
- -----------------------------------------------------------------------------------------------------------
HERSHEY 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
HORSESHOE LAKES 10 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
IDYLLWILD 3 1 1 2 1 3 4
- -----------------------------------------------------------------------------------------------------------
KENISEE LAKE 2 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
LACONNER 3 1 1 3 1 1 1 1 17
- -----------------------------------------------------------------------------------------------------------
LAKE CONROE 2 1 1 2 1 2 1 2
- -----------------------------------------------------------------------------------------------------------
LAKE OF THE SPRINGS 3 1 1 1 1 1 1 3
- -----------------------------------------------------------------------------------------------------------
LAKE TAWAKONI 2 1 1 8 2 2 1 1
- -----------------------------------------------------------------------------------------------------------
LAKE TEXOMA 2 1 1 2 2 1 1 1 18
- -----------------------------------------------------------------------------------------------------------
LAKE WHITNEY 2 1 1 2 1 2 1
- -----------------------------------------------------------------------------------------------------------
LAS VEGAS 1 1 1 1 3
- -----------------------------------------------------------------------------------------------------------
LEAVENWORTH 2 1 1 4 1 2 8
- -----------------------------------------------------------------------------------------------------------
LYNCHBURG 2 1 1 2 1 2 1
- -----------------------------------------------------------------------------------------------------------
MEDINA LAKE 3 1 1 4 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
MORGAN HILL 3 1 1 4 1 1
- -----------------------------------------------------------------------------------------------------------
MOUNT VERNON 2 1 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
OAKZANITA SPRINGS 3 1 1 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
ORLANDO 2 1 1 16 1 1 1 4
- -----------------------------------------------------------------------------------------------------------
PACIFIC CITY 2 1 1 1 1 1 4
- -----------------------------------------------------------------------------------------------------------
PALM SPRINGS 1 2 1 3
- -----------------------------------------------------------------------------------------------------------
PIO PICO 3 1 1 8 2 2 2
- -----------------------------------------------------------------------------------------------------------
SAN BENITO 4 1 1 6 2 2 1
- -----------------------------------------------------------------------------------------------------------
SOLEDAD CANYON 7 1 1 8 1 4 1
- -----------------------------------------------------------------------------------------------------------
SAINT CLAIR 2 1 1 1 1 1 2
- -----------------------------------------------------------------------------------------------------------
VERDE VALLEY 3 1 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
WILMINGTON 2 1 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
NACO
- -----------------------------------------------------------------------------------------------------------
BAY LANDING 1 1 1 4 1 1 1 19
- -----------------------------------------------------------------------------------------------------------
BIRCH BAY 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
CAROLINA LANDING 1 1 1 1 1 18
- -----------------------------------------------------------------------------------------------------------
CHEROKEE LANDING 1 1 1 2 1 1 30
- -----------------------------------------------------------------------------------------------------------
CHESTNUT LAKE 1 1 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
INDIAN LAKES 3 1 1 2 3 1 3 54
- -----------------------------------------------------------------------------------------------------------
INDIAN POINT 1 1 1 1 1 1 16
- -----------------------------------------------------------------------------------------------------------
LAKE MINDEN 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
LITTLE DIAMOND 3 1 2 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
LONG BEACH 2 1 1 1
- -----------------------------------------------------------------------------------------------------------
NATCHEZ TRACE 4 1 1 1 1 1 58
- -----------------------------------------------------------------------------------------------------------
RAINIER 2 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
RANCHO OSO 1 1 1 2 2
- -----------------------------------------------------------------------------------------------------------
RUSSIAN RIVER 1 1
- -----------------------------------------------------------------------------------------------------------
SNOWFLOWER 1 2 1 1 4
- -----------------------------------------------------------------------------------------------------------
SOUTH JETTY 1 1 2 1 1
- -----------------------------------------------------------------------------------------------------------
TURTLE BEACH 1 1 1 1 1
- -----------------------------------------------------------------------------------------------------------
VIRGINIA LANDING 2 1 1 2 1 1 1 19
- -----------------------------------------------------------------------------------------------------------
WILDERNESS LAKES 2 1 1 3 3 1 4
- -----------------------------------------------------------------------------------------------------------
WINDSOR 1 1 1
- -----------------------------------------------------------------------------------------------------------
YOSEMITE LAKES 1 1 1 1 1 2 32
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
The following historical Selected Financial Data has been restated for the
fiscal years indicated because for fiscal 1997 the Company changed its
accounting method to recognize revenue from the sale of campground memberships
that do not convey a deeded interest in real estate on a straight-line basis
over the expected life of the memberships sold (see Note 1 to the consolidated
financial statements included in Item 8).
<TABLE>
<CAPTION>
For the year ended June 30,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $ 76,509 $ 78,413 $ 91,022 $ 91,392 $ 101,697
Campground membership dues 37,330 39,945 39,924 41,175 43,200
Other campground/resort revenues 16,475 17,906 22,288 23,506 23,524
Membership and resort interest sales 3,894 3,477 3,013 4,074 4,750
Interest income 2,635 3,726 6,756 9,935 12,202
Interest expense 4,599 9,084 17,693 20,960 21,446
Income (loss) from operations before taxes,
minority interest and extraordinary item 15,716 7,169 (240) (11,573) (5,338)
Extraordinary gain on debt repurchases -- -- 1,390 -- 671
Net income (loss) 24,879 6,799 1,109 (11,828) (5,417)
Dividends paid (1) -- -- -- -- --
Dividends paid per share (1) -- -- -- -- --
Income (loss) per share data-basic (2):
Income (loss) before extraordinary item 3.36 .94 (.08) (3.19) (1.64)
Extraordinary item -- -- .38 -- .18
Net income (loss) 3.36 .94 .30 (3.19) (1.46)
Weighted average shares 7,407 7,223 3,703 3,703 3,703
Income (loss) per share data-diluted (2):
Income (loss) before extraordinary item 2.96 .88 (.08) (3.19) (1.64)
Extraordinary item -- -- .38 -- .18
Net income (loss) 2.96 .88 .30 (3.19) (1.46)
Weighted average shares 8,398 7,704 3,721 3,703 3,703
BALANCE SHEET DATA (AT END OF YEAR):
Cash and cash equivalents 13,631 1,343 37,403 50,596 50,596
Receivables, net 4,181 7,517 13,219 18,698 32,585
Campground properties 37,991 42,764 46,309 51,960 49,761
Resort properties 1,092 1,530 2,902 5,736 6,612
Total assets 74,262 63,302 111,631 137,517 149,546
PIK Notes, including deferred gain 32,973 29,393 -- -- --
Borrowings under Credit Agreement -- 14,097 -- -- --
Secured Notes, net of discount -- -- 94,350 115,490 110,854
Other notes payable -- 604 1,102 4,753 5,503
Long term debt 32,973 38,230 66,922 98,308 115,877
Stockholders' equity (deficit) 2,754 (22,168) (31,952) (33,054) (21,240)
STATISTICAL DATA (AT END OF YEAR):
Number of operating campgrounds 53 55 58 60 62
Number of campsites 17,700 18,400 19,300 19,400 20,000
Number of members 111,000 120,000 128,000 136,000 149,000
Average annual dues per member $ 351 $ 344 $ 335 $ 329 $ 315
Average cost per camper night $ 18.23 $ 18.13 $ 18.03 $ 19.69 $ 18.36
</TABLE>
(continued)
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<PAGE> 17
FOOTNOTES
(1) During the periods presented, the Company has been prohibited from paying
any cash dividends by the indentures governing its Secured Notes and PIK
Notes, and by the Credit Agreement with Foothill.
(2) As part of a restructuring of the Company, on July 17, 1996, the Company
issued 3,680,550 additional shares of Common Stock, which represent 49%
of the shares of Common Stock currently outstanding.
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies, plans, and conditions for periods after June 30,
1998. All of these statements are forward-looking statements made pursuant to
the safe harbor provisions of Section 21 (E) of the Securities Exchange Act of
1934, as amended. These statements are not historical and involve risks and
uncertainties. The Company's actual financial condition, results of operations,
cash flows, and business strategies, plans, and conditions for future periods
may differ materially due to several factors, including but not limited to the
Company's ability to control costs, campground market conditions and other
factors affecting the Company's sales and marketing plan, the actual rate of
decline in the campground membership base, the actual use of the campgrounds by
members and guests, the effects on members and guests of the Company's efforts
to downsize its business, the Company's success in collecting its contracts
receivable and selling assets, and the other factors affecting the Company's
operations described in this report.
CHANGE IN ACCOUNTING METHOD
During the first quarter of fiscal 1998, the Staff of the Securities and
Exchange Commission (the "SEC") informed the Company that the SEC will now
require the Company, commencing with fiscal 1997, to recognize revenue from the
sale of campground memberships that do not convey a deeded interest in real
estate on a straight-line basis over the expected life of the memberships sold.
This new accounting method differs from the revenue recognition method
historically used by the Company for over 20 years. Accordingly, to show
comparable results for the periods presented, the consolidated statement of
operations for the year ended June 30, 1996, has been restated from that
originally reported to reflect this change in accounting method (see Note 1 to
the consolidated financial statements included in Item 8). The deferral of
historical sales revenues and expenses resulting from this change in accounting
method has no impact on the Company's liquidity or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to improve
its campground operations and stabilize its campground membership base through
increased sales and marketing efforts or the possible acquisition of members
through the purchase of other membership campground operations. The Company
believes there is a viable market for campground memberships and that it has a
significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. The Company also believes that it
may be possible to acquire members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
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
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<PAGE> 19
continue to keep the size of its campground system in an appropriate relation to
the size of its membership base. In this regard, if the membership base
continues to decline, the Company may close and dispose of additional
campgrounds and it will seek to decrease other expenses. At the same time, the
Company intends to expand its sales and marketing efforts with a view to
stopping the membership decline. The Company also intends to explore the
possible acquisition of members through the purchase of other membership
campground organizations. The Company believes that the ultimate size of its
campground system and the amounts realized from future asset sales will depend
principally upon the degree to which the Company can successfully implement this
strategy.
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated a restructuring
(the "Restructuring") of its 12% Secured Notes Due 1998 (the "Secured Notes")
whereby all of the $101,458,000 principal amount of Secured Notes outstanding
were retired. The Restructuring provided the Company with a new capital
structure and decreased the Company's outstanding debt to a level the Company
believes it can support under its downsized operations. The Secured Notes were
issued in the Company's 1991 bankruptcy reorganization and in a 1992
restructuring of a subsidiary's debt.
In the Restructuring, the Company purchased $10,070,000 in aggregate principal
amount of Secured Notes pursuant to a tender offer for $780 per $1,000 principal
amount, and exchanged $81,790,000 in aggregate principal amount of Secured Notes
pursuant to a private exchange offer for, in each case per $1,000 in principal
amount: $400 in cash, $492 in principal amount of PIK Notes, and 45 shares of
Common Stock. The remaining $9,598,000 in aggregate principal amount of Secured
Notes were redeemed at 100% of principal amount, plus accrued interest. In
connection with the Restructuring, the Company entered into the Credit Agreement
with Foothill (see "Borrowings").
CASH. On June 30, 1998, the Company had approximately $13.6 million of cash and
cash equivalents, an increase of $12.3 million during fiscal 1998. The Company's
primary sources of cash included $19.4 million provided by operations, $8.6 from
the sale of assets, and $1.1 million from the settlement of insurance claims.
Significant offsetting reductions to cash included $14.7 million of principal
repayments on the Company's outstanding debt and $2.1 million of capital
expenditures.
The Company's principal sources of operating cash for the year included $62.4
million of cash collected from operations, including dues collections, other
campground revenues, RPI membership fees, other operating revenues, and $1.3
million of insurance deposit refunds related to prior years. The Company also
received $5.8 million in principal collections on contracts receivable, $2.4
million in interest on contracts receivable and invested cash, and $3.7 million
from the sale of memberships and lots. The principal uses of operating cash for
fiscal 1998 were $37.9 million in operating expenses, $10.1 million in general
and administrative expenses (including corporate member services costs), and
$4.7 million in sales and marketing expenses. During fiscal 1998, the Company
also spent $2.1 million on capital improvements at the campgrounds, and made
principal payments on mortgages and other notes totaling $604,000.
The Company repaid all outstanding borrowings under the Credit Agreement in
January 1998, and it had no outstanding borrowings under the Credit Agreement as
of June 30, 1998, and as of
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<PAGE> 20
the date of this report. However, the Company has entered into an amendment to
the Credit Agreement that will provide the Company the flexibility to borrow up
to $35.0 million (see "Borrowings - Credit Agreement with Foothill").
Based upon its current business plan, the Company believes that future cash
flows provided from operations, asset sales, and borrowings available under the
amended Credit Agreement will be adequate for the Company's operating and other
cash requirements during the remaining term of the Credit Agreement.
CONTRACTS RECEIVABLE. As of June 30, 1998, the Company on a consolidated basis
owned $6.8 million of contracts receivable related to the sale of campground
memberships and resort interests (see "Contracts Receivable" in Item 1). Because
of low interest rates available in the marketplace during fiscal 1998, 1997, and
1996, some members chose to prepay their accounts, and the Company received
principal payments of $1.1 million, $1.6 million, and $2.5 million,
respectively, in excess of scheduled payments. The Company may continue to
experience such prepayments in the future, although at a decreasing rate as the
contracts receivable portfolio continues to decline.
Allowance for Doubtful Accounts
The Company's allowance for doubtful accounts was 31% of gross contracts
receivable at June 30, 1998, compared with 31% of gross contracts receivable at
June 30, 1997, and 30% at June 30, 1996. The cancellation rate as a percentage
of average contracts receivable was 8% for fiscal 1998, compared with 7% for
fiscal 1997 and 8% for fiscal 1996. In fiscal 1998, 1997, and 1996, the Company
reduced the allowance for doubtful accounts on the contracts receivable by $1.0
million, $1.2 million, and $5.1 million, respectively. These adjustments were
made because the Company experienced lower contract losses than anticipated in
these years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. Prior to
fiscal 1996, the Company's historic cancellation rates ranged as high as 16.7%.
By fiscal 1996, the Company's cancellation rates appeared to stabilize at
approximately 8%. The Company reduced the allowance for doubtful accounts to 30%
of the portfolio for such fiscal year after applying the then-current
cancellation rate to the maturities of the then-outstanding portfolio and taking
into account the higher historical cancellation rates and the uncertainties
associated with its strategy of reducing the size of the campground system.
In 1997 and 1998, the cancellation rates were essentially unchanged. However,
the contracts receivable portfolio also declined faster than projected primarily
because collections each year exceeded estimates. As a result, using the same
methodology and considering the same factors deemed relevant to the analysis as
in 1996, the Company reduced the allowance to approximately 31% of the portfolio
in each year.
The Company does not presently anticipate any further adjustments to the
allowance for doubtful accounts on the contracts receivable. However, the
allowance and the rate at which the Company provides for future losses on its
contracts receivable could be increased or decreased in the future based on the
Company's actual collection experience.
Other Allowances
In connection with the purchase of NACO and Trails, the Company recorded an
allowance for interest discount to increase to 14.75% the weighted average yield
on the contracts receivable then owned by NACO and Trails. The allowance for
interest discount is being amortized using the effective interest method over
the respective terms of the contracts. Additionally, in connection with the
purchase of NACO and Trails and the Company's bankruptcy reorganization in 1991,
the Company recorded an allowance for future collection costs, which is being
amortized as a reduction of general and administrative expenses based on cash
collected on the related portfolio. The Company also purchased contracts
receivable from certain third parties and recorded a valuation allowance to
record the contracts receivable at the purchase price. This
Page 20
<PAGE> 21
valuation allowance is being amortized as an increase to interest income over
the respective terms of the contracts.
Change in Receivables
The net balance of contracts receivable decreased by $3.3 million during fiscal
1998, due primarily to $5.8 million in cash collections on contracts receivable,
offset by new financed sales, a $1.0 million reduction in the allowance for
doubtful accounts, and scheduled amortization of the allowances for interest
discount, collection costs, and valuation discount.
CAMPGROUND AND RESORT PROPERTIES. The Company's campground properties consist of
land, buildings, and other equipment used in administration and operations as
well as land held for sale. Campground properties decreased by $4.8 million in
fiscal 1998, primarily as a result of the sale of several campgrounds and
certain other real estate, and depreciation on property and equipment. The
decrease was partially offset by $2.1 million of capital expenditures.
The Company makes annual capital and maintenance expenditures to maintain and
improve the campgrounds. During fiscal 1998, the Company spent $5.2 million on
major maintenance, repairs, and improvements at the campgrounds. The Company
anticipates that it will spend an additional $4.7 million on such items in
fiscal 1999, which will be funded by existing cash or cash provided by
operations. The Company may be required to spend greater amounts on such items
in future years as the facilities age.
During the periods presented, the Company's resort properties consisted of lot
inventory, buildings and equipment used in operations, and land held for sale.
Resort properties decreased by $438,000 in fiscal 1998, due primarily to the
bulk sale of lots at one of the resorts, the sale of excess acreage and
buildings at certain resorts, and the sale of lots in the normal course of
business. Over the past several years, the Company has been selling the assets
it owns at the resorts.
At June 30, 1998, the Company had obligations to spend $2.8 million in
connection with reports that it filed with the Department of Housing and Urban
Development ("HUD"). Although certain of these HUD obligations remain
substantially incomplete, the Company plans to spend approximately $1.0 million
in fiscal 1999 in fulfilling these obligations, which will be funded by existing
cash or cash provided by operations. A person who purchased a lot when a
particular HUD report was in effect may allege that the failure to make timely
improvements constitutes a breach of his or her agreement with the Company and
could seek damages from the Company or rescission of the lot purchase.
Approximately 1,400 persons purchased lots from the Company when the HUD reports
in effect described improvements that the Company has not yet constructed. An
insignificant number of persons have asserted claims against the Company for the
failure to make these improvements.
OTHER ASSETS. Other current assets decreased by $2.2 million during fiscal 1998.
The decrease was due partially to the repayment of a note receivable arising
from the sale of the resort timeshare operations (see Note 4 to the consolidated
financial statements included in Item 8). In addition, in fiscal 1999, the
Company will begin paying insurance premiums monthly rather than annually, which
resulted in a $1.6 million decrease in prepaid insurance between years.
Page 21
<PAGE> 22
Other assets decreased by $591,000 in fiscal 1998 due primarily to the partial
termination of the Company's Indemnification Trusts (see Note 15 to the
consolidated financial statements included in Item 8).
BORROWINGS. On June 30, 1998, the Company had outstanding $33.0 million of long
term debt, which consisted of $32.8 million principal amount of PIK Notes plus a
deferred gain of $150,000. The PIK Notes were issued in the Restructuring (see
"Debt Restructuring" above). The Restructuring was accounted for as a Troubled
Debt Restructuring, whereby the restructured debt was recorded at the carrying
value of the old debt, and no gain or loss was recorded on the transaction.
During fiscal 1998, the Company repaid all of the outstanding borrowings under
the Credit Agreement totaling $14.1 million and all of the outstanding mortgage
notes totaling $604,000.
Credit Agreement with Foothill
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. The Credit
Agreement originally had a three year term expiring on July 16, 1999. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement, which totaled $32.0 million.
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.8 million to repurchase PIK Notes and to pay the accrued interest on the
PIK Notes repurchased. The Company incurred debt issue costs of $3.1 million to
obtain the original Credit Agreement, which were capitalized and were being
amortized as additional interest expense over the life of the Credit Agreement.
However, because of the substantial modifications made to the original Credit
Agreement, the amendment of the Credit Agreement was accounted for as an
extinguishment of debt and the remaining $1.3 million unamortized balance of the
original debt issue costs was charged to expense.
The Company repaid all outstanding borrowings under the Credit Agreement in
January 1998, and it had no outstanding borrowings under the Credit Agreement as
of June 30, 1998, and as of the date of this report. However, the Company has
entered into an amendment to the Credit Agreement that, when it becomes
effective, will provide the Company the flexibility to borrow up to $5.0 million
for working capital purposes and up to an additional $30.0 million to use for
the possible purchase of securities. Under the amended Credit Agreement, the
first $15.0 million of borrowings will bear interest at prime plus .25% per
annum, borrowings over $15.0 million and up to $25.0 million will bear interest
at prime plus .50% per annum, and borrowings over $25.0 million will bear
interest at prime plus 1.5% per annum. All borrowings under the amended Credit
Agreement will mature on July 17, 2002. However, if the Company has not
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<PAGE> 23
repaid in full or otherwise retired all of the PIK Notes by July 15, 2000, all
borrowings under the amended Credit Agreement in excess of $10.0 million will
mature on July 15, 2000, and up to $10.0 million of borrowings under the amended
Credit Agreement will be refinanced on such date and thereafter be available to
the Company for working capital purposes only. This $10.0 million working
capital facility will then become the Working Capital Replacement Facility
defined in the Indenture for the PIK Notes and will be secured by substantially
all of the assets of the Company as discussed below. The amendment of the Credit
Agreement will become effective upon the satisfaction of customary conditions.
The Company's ability to borrow under the amended Credit Agreement for working
capital and other purposes is subject to continued compliance by the Company
with the financial covenants and other requirements of the amended Credit
Agreement, including certain covenants respecting minimum earnings before
interest, taxes, depreciation and amortization, and minimum tangible net worth.
The amended Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
The Company has granted liens on substantially all of its assets to secure its
obligations under the amended Credit Agreement. In addition, the Company's
subsidiaries other than an immaterial utility subsidiary have guaranteed the
Company's obligations under the amended Credit Agreement and, subject to certain
limitations, have granted liens on substantially all of their assets to secure
their guarantees.
The amended Credit Agreement limits the type of investments in which the Company
may invest its available cash, resulting in a relatively low yield. Investments
of cash had a weighted average yield of 6% at June 30, 1998.
PIK Notes
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes that do not require the cash payment of interest until fiscal 2001 and
mature on July 15, 2003 without earlier scheduled principal payments.
On January 15, 1997, the Company issued an additional $2.4 million principal
amount of PIK Notes as interest. On June 25, 1997, the Company repurchased $13.4
million principal amount of PIK Notes at a cost of $12.6 million, including
accrued interest. The Company made these repurchases at an average price of $897
per $1,000 of principal amount in a Dutch auction available to all holders of
PIK Notes. A gain of $1.2 million was recognized on this transaction. On July
15, 1997, January 15, 1998, and July 15, 1998, the Company issued an additional
$1.7 million, $1.9 million, and $2.0 million, respectively, of principal amount
of PIK Notes as interest.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount, plus interest, in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sale proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial covenants,
but it does prohibit the Company from borrowing from other sources in
significant amounts
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<PAGE> 24
except for the Credit Agreement with Foothill, a $10.0 million Working Capital
Replacement Facility, and equipment purchases.
Interest on the PIK Notes is payable in the form of additional PIK Notes until
after July 15, 2000, unless all borrowings under the amended Credit Agreement
are paid in full on or before such date. If all borrowings under the amended
Credit Agreement are paid in full on or before July 15, 2000, the Company has
the option to issue additional PIK Notes in lieu of cash interest through July
15, 2000. After July 15, 2000, interest on the PIK Notes must be paid in cash.
While the Company pays interest in the form of additional PIK Notes, the
principal amount of PIK Notes outstanding will increase at the rate of 12% per
year, compounded semi-annually. The payment-in-kind feature of the PIK Notes
will decrease the Company's cash interest costs during this period. However, the
payment-in-kind feature of the PIK Notes will also decrease the rate at which
the Company is able to retire its total debt outstanding.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit Agreement,
distributions from, and the assets of, the Subsidiary Guarantors may not be
available to satisfy other obligations of the Company, including the obligations
of the Company to the holders of the PIK Notes.
DEFERRED REVENUES AND EXPENSES. Deferred revenues of $23.4 million and $23.6
million at June 30, 1998 and 1997, respectively, include $14.8 million and $15.6
million, respectively, of membership dues collections which relate to future
periods, $6.9 million and $6.3 million, respectively, of campground membership
sales revenues to be recognized in future periods, and other deferred revenues
related primarily to RPI's operations. Deferred membership selling expenses of
$1.6 million and $1.4 million at June 30, 1998 and 1997, respectively, represent
incremental direct selling costs to be recognized in future periods.
GENERAL LIABILITY INSURANCE. Commencing July 1, 1998, the Company obtained
insurance covering general liability losses up to an annual limit of $27.0
million, with no self-insured deductible. Prior to this date, the Company's
insurance program covered general liability losses up to an annual limit of
$26.8 million, but required the Company to pay the first $250,000 per
occurrence, with an annual aggregate exposure of $2.0 million. The Company has
provided a liability for estimated known and unknown claims related to uninsured
general liability risks based on actuarial estimates. In fiscal 1998, the
Company reduced this liability by $858,000 because the estimated losses were
less than the recorded liability. This adjustment amount is included in
nonrecurring income. At June 30, 1998 and 1997, the Company's recorded liability
for estimated losses related to uninsured general liability claims totaled $1.2
million and $2.0 million, respectively.
PROPERTY INSURANCE. In fiscal 1998, the Company received proceeds of $1.1
million from insurance settlements for flood and fire damage at certain
campgrounds, and recognized a gain of $588,000.
EMPLOYEE HEALTH INSURANCE. The Company provides medical and dental benefits for
its employees under employee benefit plans (collectively, the "Plans") that are
funded primarily through employer and employee contributions. The Company has
purchased stop loss insurance
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<PAGE> 25
that protects the Plans against claims in excess of set policy amounts. The
Company has provided a liability for estimated uninsured claims of $828,000 and
$1.4 million at June 30, 1998 and 1997, respectively. This liability is based on
actuarial estimates of amounts needed to fund expected uninsured claims, as well
as premium payments and administrative costs of the Plans.
WORKERS' COMPENSATION INSURANCE. Commencing July 1, 1998, the Company obtained
insurance covering workers' compensation claims with no self-insured deductible.
Prior to this date, the Company's insurance program required the Company to pay
up to $250,000 per occurrence and to deposit funds with the insurance company to
pay claims in excess of the estimated claims that were covered by the amounts
originally paid by the Company. These deposits were generally expensed in the
years the deposits were made because the Company anticipated that the deposits
would be used to cover claims. However, during fiscal 1997, the Company
determined that it was entitled to refunds of $865,000 in future periods for
certain deposits made in previous years. At June 30, 1997, the Company recorded
the refundable amount as an asset, resulting in nonrecurring income of $865,000.
In fiscal 1998, the Company received refunds totaling $1.3 million for certain
other deposits expensed in previous years, which were recorded as nonrecurring
income.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board (the "FASB")
recently issued several accounting pronouncements that are effective for the
Company in either fiscal 1998 or fiscal 1999. The Company adopted SFAS No. 128,
"Earnings Per Share" in the second quarter of fiscal 1998, which modified the
Company's net income per share calculation and required restatement of prior
period calculations. SFAS No. 130, "Reporting Comprehensive Income", is
effective for the Company in the first quarter of fiscal 1999, and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" and SFAS
No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits", are effective for the Company at the end of fiscal 1999. The Company
does not expect the adoption of these statements to have a material impact on
its consolidated financial statements.
MARKET RISK. In 1997, the Securities and Exchange Commission issued new rules
(Item 305 of Regulation S-K), which require disclosure of material risks, as
defined in Item 305, related to market risk sensitive financial instruments. As
defined, the Company currently has market risk sensitive instruments related to
interest rates.
The Company does not have significant exposure to changing interest rates on
invested cash, which was $12.0 million at June 30, 1998. The Company invests
available cash in certificates of deposit and investment grade commercial paper
that have maturities of three months or less. As a result, the interest rate
market risk implicit in these investments at June 30, 1998, is low, as the
investments mature within three months.
The Company had $6.8 million of contracts receivable at June 30, 1998, which
have a weighted average stated interest rate of 13% and an average remaining
term of 19 months. The Company does not have significant exposure to changing
interest rates related to the contracts receivable because the interest rates on
the contracts receivable are fixed.
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The Company had $32.8 million of PIK Notes at June 30, 1998, which bear interest
at 12% per annum and mature in 2003. The Company does not have significant
exposure to changing interest rates related to the PIK Notes because the
interest rate on the PIK Notes is fixed.
The Company also has the amended Credit Agreement with Foothill that provides
the Company the flexibility to borrow up to $35.0 million at interest rates that
fluctuate with changes in the prime rate (see "Borrowings Credit Agreement with
Foothill"). Although the Company has exposure to changing interest rates related
to the Credit Agreement, the Company had no outstanding borrowings under the
Credit Agreement as of June 30, 1998, and as of the date of this report.
The Company has not undertaken any actions to cover interest rate market risk
and is not a party to any interest rate market risk management activities.
The Company also receives revenues from its Canadian subsidiary and exchanges
them into US Dollars at exchange rates that fluctuate with market conditions;
however, such revenues are not material to the Company's operations.
INTEREST RATE SENSITIVITY. A hypothetical ten percent change in market interest
rates over the next year would not materially impact the Company's earnings or
cash flow as the interest rates on the Company's long term debt are fixed and
its cash investments are short term. A hypothetical ten percent change in market
interest rates would not have a material effect on the fair value of the
Company's contracts receivable, PIK Notes, or its short term cash investments.
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the years ended June 30, 1998, 1997, and 1996, as
restated (see "Change in Accounting Method"). The financial information set
forth below should be read in conjunction with the Company's consolidated
financial statements included in Item 8.
NET INCOME. For the year ended June 30, 1998, the Company reported net income of
$24.9 million or $3.36 per share on revenues of $76.5 million. This compares
with net income of $6.8 million or $.94 per share on revenues of $78.4 million
for the year ended June 30, 1997, and net income of $1.1 million or $.30 per
share on revenues of $91.0 million for the year ended June 30, 1996.
Excluding extraordinary gains, nonrecurring income and expenses, and
restructuring costs, the Company would have had net income of $11.1 million for
fiscal 1998, compared with net income of $5.3 million for fiscal 1997, and a net
loss of $2.8 million for fiscal 1996. Excluding these items, the Company's
results improved in the current fiscal year, despite declining revenues, due
primarily to decreases in expenses, principally campground operating costs,
general and administrative expenses, and interest.
The results for fiscal 1998 include $3.8 million of nonrecurring income from a
$1.0 million reduction in the allowance for doubtful accounts, an $858,000
reduction in certain insurance reserves, a $1.3 million refund of insurance
deposits expensed in prior years, and a $588,000 gain on insurance settlements
for flood and fire damage at certain campgrounds. In addition, the
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results for fiscal 1998 include a $10.0 million deferred income tax benefit
resulting from a reduction in the valuation allowance for the Company's net
deferred tax assets. This adjustment will have no effect on current or future
income tax payments, but will result in higher tax provisions in the future in
the periods the related deferred tax assets are realized, which will decrease
net income.
The results for fiscal 1997 include $2.7 million of nonrecurring income from a
$1.2 million reduction in the allowance for doubtful accounts and a $1.5 million
reduction in certain insurance reserves. The fiscal 1997 results also include
$1.1 million of restructuring costs related to the Restructuring and $132,000 of
nonrecurring expenses representing the net loss resulting from the amendment of
the Credit Agreement and the repurchase of PIK Notes.
The results for fiscal 1996 include a $1.4 million extraordinary gain from the
repurchase of Secured Notes and $5.9 million of nonrecurring income consisting
of $5.1 million from a reduction in the allowance for doubtful accounts and
$799,000 from the reversal of a contingent liability. The fiscal 1996 results
also include $1.1 million of restructuring costs related to the Company's
efforts to restructure the Secured Notes, and $2.3 million of other nonrecurring
expenses consisting of a $1.0 million charge to record a provision for certain
uncollectible membership dues receivable and a $1.3 million charge to accrue a
one-time bonus for the Company's Chief Executive Officer.
The table on the next page shows separately the results of the campground
operations, RPI's operations, and the resort operations, without any allocation
of corporate expenses, as well as corporate expenses and other revenues and
expenses in the aggregate, for the years ended June 30, 1998, 1997, and 1996, as
restated (see "Change in Accounting Method").
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THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------
1998 1997 1996
-------- -------- --------
(Restated)
<S> <C> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 37,330 $ 39,945 $ 39,924
Campground revenues 15,955 15,302 15,313
Cost of campground revenues (7,718) (7,608) (7,726)
Operating expenses (30,794) (32,454) (35,211)
-------- -------- --------
Contribution from campground operations 14,773 15,185 12,300
-------- -------- --------
SALES
Sales revenues 3,227 2,892 1,656
Selling expenses (2,646) (2,654) (3,094)
Marketing expenses (1,700) (1,383) (1,294)
-------- -------- --------
Loss on sales (1,119) (1,145) (2,732)
-------- -------- --------
RESORT PARKS INTERNATIONAL
Revenues 4,035 4,086 4,579
Expenses (2,132) (1,978) (2,237)
-------- -------- --------
Contribution from RPI 1,903 2,108 2,342
-------- -------- --------
15,557 16,148 11,910
-------- -------- --------
RESORT OPERATIONS
Revenues 1,186 3,189 8,332
Expenses (1,091) (3,218) (8,297)
-------- -------- --------
Contribution (loss) from resort operations 95 (29) 35
-------- -------- --------
15,652 16,119 11,945
-------- -------- --------
Other income 3,083 3,673 4,479
Corporate member services (1,472) (1,532) (1,843)
General and administrative expenses (8,640) (10,100) (10,473)
-------- -------- --------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME AND EXPENSES, RESTRUCTURING COSTS, TAXES
AND EXTRAORDINARY ITEM 8,623 8,160 4,108
-------- -------- --------
Interest income 2,635 3,726 6,756
Interest expense (4,599) (9,084) (17,693)
Gain on asset sales 5,287 2,892 4,038
Nonrecurring income 3,770 2,708 5,945
Nonrecurring expenses (132) (2,270)
Restructuring costs (1,101) (1,124)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM $ 15,716 $ 7,169 ($ 240)
======== ======== ========
</TABLE>
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OPERATING INCOME. During the year ended June 30, 1998, the Company achieved a
positive contribution from operations of $8.6 million, an improvement over the
$8.2 million and $4.1 million achieved in the years ended June 30, 1997 and
1996, respectively. For this purpose, the contribution from operations is
defined as operating income before interest income and expense, gain on asset
sales, restructuring costs, nonrecurring income and expenses, taxes, and
extraordinary item. See the table on page 33 for the elements of the
contribution from operations and the Company's operating income (loss) before
taxes and extraordinary item for the historical periods presented.
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The Company
receives the majority of the dues revenue from its members during the winter,
which are recognized as income ratably during the year. However, the Company
incurs a higher level of operating expenses during the summer. In addition, a
majority of the Company's sales and marketing efforts occur during the summer.
Campground membership dues revenue was $37.3 million for the year ended June 30,
1998, compared with $39.9 million for the years ended June 30, 1997 and 1996.
Dues revenue declined in fiscal 1998 due primarily to the net loss of 9,000
campground members during the year which included the loss of 1,800 members in
connection with the sale of two campgrounds. This decline was partially offset
by the effect of the annual dues increase. In fiscal 1997, the effect of the
annual dues increase substantially offset the decline in dues revenue caused by
the net loss of members during the year.
Campground revenues were $16.0 million for the year ended June 30, 1998,
compared with $15.3 million for the years ended June 30, 1997 and 1996. The
related expenses were $7.7 million, $7.6 million, and $7.7 million for fiscal
1998, 1997, and 1996, respectively. The increase in campground revenues in
fiscal 1998 was due primarily to modest increases in rental and other service
fees at certain campgrounds and proceeds received from harvesting timber at
selected campgrounds.
Campground operating expenses were $30.8 million for the year ended June 30,
1998, compared with $32.5 million for the year ended June 30, 1997, and $35.2
million for the year ended June 30, 1996. The continuing reduction in expenses
between years was due primarily to the closure and disposition of campgrounds
and to operational changes made at the campgrounds in these periods. In fiscal
1996, the Company closed and disposed of several campgrounds, reduced campground
management and personnel, and changed to seasonal operations at campgrounds with
low usage during off-season periods. In fiscal 1997, the Company closed and
disposed of several additional campgrounds and lengthened the off-season for the
campgrounds with seasonal closures. In fiscal 1998, the Company sold several
additional campgrounds and closed one campground.
The Company intends to continue to keep the size of its campground system in an
appropriate relation to the size of its membership base. In this regard, if the
membership base continues to decline, the Company may close and dispose of
additional campgrounds and it will seek to decrease other expenses. Although the
Company believes that the anticipated changes should result in lower future
operating expenses, no assurance can be given that such changes will not reduce
revenues by an amount in excess of the expense reductions.
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The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold (see "Change in Accounting Method"). For
the years ended June 30, 1998, 1997, and 1996, the Company recognized campground
membership sales revenues of $3.2 million, $2.9 million, and $1.7 million,
respectively. These amounts include revenues of $2.5 million, $1.7 million, and
$1.1 million, respectively, that were deferred in prior periods. Moreover, for
fiscal 1998, 1997, and 1996, the Company deferred revenues of $3.1 million, $2.1
million, and $2.1 million, respectively, which will be recognized in future
periods.
The increase in sales revenues resulted primarily from the Company's increased
sales and marketing efforts during the past three fiscal years. The Company has
expanded its sales and marketing efforts with a view to stopping the decline in
its membership base. Although the Company's membership sales revenues have
increased, the level of sales in fiscal 1998 did not meet the Company's
expectations. In an effort to improve its membership sales, the Company has been
working to increase the number of prospects that attend its sales presentations.
In this regard, in fiscal 1997, the Company entered into a joint marketing
arrangement with Fleetwood Industries, Inc. ("Fleetwood"), the largest
manufacturer of recreational vehicles ("RVs"). Under this marketing arrangement,
purchasers of Fleetwood RVs receive a temporary membership and are invited to
visit one of the Company's campgrounds. Purchasers of new Fleetwood RVs
accounted for approximately 10% of sales in fiscal 1998. In the fourth quarter
of fiscal 1998, the Company entered into a similar marketing arrangement with a
major RV financing company and it plans to seek other similar alliances. The
Company has also recently entered into reciprocal sales agreements with two
other companies in an effort to increase sales.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the years ended June 30,
1998, 1997, and 1996, the Company recognized selling expenses of $2.6 million,
$2.7 million, and $3.1 million, respectively. These amounts include expenses of
$560,000, $358,000, and $235,000, respectively, that were deferred in prior
periods. Moreover, for fiscal 1998, 1997, and 1996, the Company deferred
expenses of $794,000, $505,000, and $481,000, respectively, which will be
recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $1.1 million, $1.1 million, and $2.7 million
for the years ended June 30, 1998, 1997, and 1996, respectively. These expenses
exceeded sales revenue because of the increased marketing activity, and the low
volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales revenues than selling expenses in each of the periods
presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are deferred and recognized on a straight-line basis over the
expected life of the memberships sold. As a consequence, the Company expects
that its selling and marketing expenses will continue to exceed its campground
membership sales revenues. This disparity will increase as the Company grows
campground membership sales.
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The Company's selling and marketing efforts during the past three fiscal years
have not produced the level of sales needed to stop the continuing decline in
the Company's membership base. If the Company is not able to significantly
increase its campground membership sales over current levels, the membership
base will continue to decline, which will further decrease the Company's
revenues. Further decreases in revenues that are not offset by sufficient
expense reductions could have a material adverse impact on the Company's
business and results of operations.
CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the
Company, manages 130 public campgrounds for the US Forest Service. For the year
ended June 30, 1998, these operations produced revenues of $1.3 million with
related expenses (excluding certain shared administrative costs) of $1.5
million. This compares with revenues for fiscal 1997 of $1.1 million and related
expenses (excluding certain shared administrative costs) of $1.0 million, and
revenues for fiscal 1996 of $853,000 and related expenses (excluding certain
shared administrative costs) of $831,000. The increase in revenues and expenses
between years was due primarily to new contracts entered into in these periods.
The loss in fiscal 1998 was due to start-up costs incurred in connection with
new management contracts entered into in the Spring of 1998, which significantly
increased the number of campgrounds managed.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the campgrounds participating in RPI's reciprocal
use system, subject to certain limitations. For the year ended June 30, 1998,
RPI's operations produced a net contribution of $1.9 million, compared with $2.1
million for the year ended June 30, 1997, and $2.3 million for the year ended
June 30, 1996. The decline in results in fiscal 1998 was due primarily to the
decrease in revenues between periods and costs incurred in fiscal 1998 to
provide directories to new members recently gained through a new program. RPI's
revenues have declined over the three year period as a result of declining sales
in the membership camping industry generally. During this period, however, RPI
has been able to maintain its positive contribution by reducing its expenses. To
maintain its contribution in the future, RPI is working to introduce new
products to increase its revenues; however, there is no assurance that it will
be successful.
RESORT OPERATIONS. During the last five years, the Company sold a substantial
portion of the assets it owned at eight resorts. In fiscal 1998, the sale of
resort assets produced cash proceeds totaling $1.2 million. This compares with
cash proceeds of $1.7 million plus notes receivable of $1.1 million in fiscal
1997, and cash proceeds of $5.0 million in fiscal 1996. The differences between
years were due to the timing of asset sales. As the resort assets were sold, the
revenues and expenses from the resort operations decreased accordingly. The
Company's present operations at the resorts are limited primarily to the sale of
residential lots.
During the year ended June 30, 1998, the resort operations produced a positive
contribution of $95,000, compared with a negative contribution of $29,000 for
the year ended June 30, 1997, and a positive contribution of $35,000 for the
year ended June 30, 1996. The Company expects a minimal contribution from the
resort operations in the future as it continues its efforts to sell the
remaining assets it owns at the resorts. These assets consist of approximately
100 residential lots and other miscellaneous real estate. There is no assurance
that the Company will be able to locate a buyer for any of the remaining resort
assets or that sales on acceptable terms can be effected.
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OTHER INCOME. Other income consists principally of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections on written-off contracts, subscription fees
received from members who subscribe to the Company's member magazine, and
beginning in fiscal 1997, fees charged to members for making more than five
operator-assisted reservations in a given year.
Other income was $3.1 million for the year ended June 30, 1998, compared with
$3.7 million for the year ended June 30, 1997, and $4.5 million for the year
ended June 30, 1996. Other income was higher in fiscal 1996, compared with the
other years, because in fiscal 1996 the Company increased its use of outside
collection agencies to collect on written-off contracts, which resulted in a
one-time increase in such collections. The decrease between years is directly
related to lower fees and other income received from the declining contracts
receivables portfolio and shrinking membership base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$8.6 million for the year ended June 30, 1998, compared with $10.1 million for
the year ended June 30, 1997, and $10.5 million for the year ended June 30,
1996. General and administrative costs continued to decline as a result of the
Company's continued efforts to reduce administrative costs. The lower costs in
fiscal 1998 were due primarily to personnel reductions in various administrative
departments, lower legal fees, and reduced depreciation, as certain of the
Company's corporate assets have been fully depreciated. In fiscal 1997, the
Company's lower costs were partially offset by legal fees incurred in connection
with the Company's reincorporation merger and the registration of the PIK Notes.
General and administrative expenses include costs related to collecting the
contracts receivable and membership dues of $2.2 million, $2.4 million, and $3.0
million for the years ended June 30, 1998, 1997, and 1996, respectively. These
collection costs were reduced by $229,000, $314,000, and $513,000, respectively,
as a result of the amortization of the allowance for collection costs related to
the contracts receivable (see "Liquidity and Capital Resources -- Contracts
Receivable"). The Company anticipates that these costs will continue to decrease
as the contracts receivable portfolio declines further.
CORPORATE MEMBER SERVICES. Corporate member services include the reservation and
member support services performed at the corporate office, as well as the costs
incurred to produce the Company's member magazine. These costs were $1.5 million
for the years ended June 30, 1998 and 1997, compared with $1.8 million for the
year ended June 30, 1996. The decrease in costs between fiscal 1996 and fiscal
1997 reflects efficiencies implemented in producing the Company's member
magazine.
INTEREST INCOME AND EXPENSE. Interest income decreased by $1.1 million and $3.0
million for the years ended June 30, 1998 and 1997, respectively, from the
previous year. The decrease in fiscal 1998 was due primarily to a decrease in
interest earned on the Company's diminishing portfolio of contracts receivable,
partially offset by an increase in interest earned on higher cash balances. The
decrease in fiscal 1997 was due to a decrease in interest earned on the
contracts receivable, and a decrease in interest earned on lower cash balances.
Also included in interest income is amortization of the allowance for interest
discount and valuation allowance related to the contracts receivable, of which
$293,000 was amortized during fiscal 1998, $379,000 was
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amortized in fiscal 1997, and $607,000 was amortized in fiscal 1996 (see
"Liquidity and Capital Resources -- Contracts Receivable").
Interest expense decreased by $4.5 million for the year ended June 30, 1998,
from the previous year, due primarily to the repayment of $14.7 million of
outstanding debt during the year, which included the repayment of all
outstanding borrowings under the Credit Agreement with Foothill and all
outstanding mortgage notes. As of the date of this report, the Company's only
outstanding debt was $34.8 million principal amount of PIK Notes. While the
Company pays interest on the PIK Notes in the form of the issuance of additional
PIK Notes, a significant portion of the Company's interest expense will
represent non-cash interest. However, the principal amount of PIK Notes
outstanding will increase at the rate of 12% per year, compounded semi-annually,
which will increase interest expense in the future.
Interest expense decreased by $8.6 million for the year ended June 30, 1997,
from the previous year, due primarily to a net $50.9 million reduction in the
Company's outstanding debt resulting from the Restructuring, subsequent
repayments under the Credit Agreement, and scheduled repayments of mortgage
notes. In addition, the Company repurchased $7.4 million principal amount of
Secured Notes in January 1996, and reduced mortgage notes by $2.5 million in the
Fall of 1995 in connection with the abandonment of two operating campgrounds,
which also contributed to the reduction in outstanding debt and the decrease in
interest expense.
Interest expense for the year ended June 30, 1998, includes amortization of the
deferred gain related to the PIK Notes, which reduced interest expense by
$30,000. Interest expense for the year ended June 30, 1997 includes (i)
amortization of debt issue costs incurred in connection with obtaining the
Credit Agreement in July 1996, which increased interest expense by $1.8 million,
and (ii) amortization of the deferred gain related to the PIK Notes, which
reduced interest expense by $39,000. The remaining unamortized balance of the
debt issue costs and a portion of the deferred gain were eliminated in
connection with the amendment of the Credit Agreement and repurchase of PIK
Notes at the end of fiscal 1997. Interest expense for fiscal 1996 includes
amortization of the discount on the Secured Notes, which increased interest
expense by $4.2 million. The discount on the Secured Notes was recorded to
reduce the carrying value of the Secured Notes to their estimated fair value on
the date of issuance. On July 17, 1996, the unamortized balance of this discount
was eliminated in connection with the retirement of the Secured Notes in the
Restructuring.
GAINS ON ASSET SALES. During the years ended June 30, 1998, 1997, and 1996, the
Company sold certain of its real estate assets and recognized related gains of
$5.3 million, $2.9 million, and $4.0 million, respectively. The differences
between years were due to the timing of asset sales. During this three-year
period, the Company sold the timeshare operations at the resorts, the country
club and golf operations at one resort, and various other properties at the
resorts. In addition, the Company sold or otherwise disposed of several
campgrounds and sold unused buildings and trailers and excess acreage associated
with certain campgrounds. Over the next several years, the Company intends to
dispose of the remaining assets it owns at the resorts, any campgrounds that are
closed as the Company downsizes, and other undeveloped, excess acreage
associated with the campgrounds. The sale of campgrounds requires addressing the
rights of members associated with such campgrounds. The impact of these rights
is uncertain and could adversely affect the availability or timing of sale
opportunities or the ability of the Company to
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realize recoveries from asset sales. In addition, although the Company has
successfully sold assets during the past three years, no assurance exists that
the Company will be able to locate a buyer for any of the remaining assets or
that sales on acceptable terms can be effected.
NONRECURRING INCOME. Nonrecurring income was $3.8 million, $2.7 million, and
$5.9 million for the years ended June 30, 1998, 1997, and 1996, respectively.
Nonrecurring income for fiscal 1998 consists of $1.0 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable,
$858,000 from a reduction in certain insurance reserves, $1.3 million from the
refund of insurance deposits made in prior years, and a $588,000 gain on
insurance settlements for flood and fire damage at certain campgrounds.
Nonrecurring income for fiscal 1997 consists of $1.2 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and $1.5
million from a reduction in certain insurance reserves. Nonrecurring income for
fiscal 1996 consists of $5.1 million from a reduction in the allowance for
doubtful accounts related to the contracts receivable and $799,000 from the
reversal of a contingent liability.
Prior to 1996, the Company's workers' compensation insurance premium was subject
to an experience audit and retroactive adjustment. Historically, this audit
required payment of an additional retroactive premium. Therefore, a liability
would be recorded based on the historical amounts the Company was required to
pay. At year end 1996, however, the Company changed its workers' compensation
insurance program such that its premiums would not be adjusted retroactively.
The then-existing recorded contingent liability of $799,000 was accordingly
reversed. Prior to fiscal 1997, due to the Company's financial condition, its
insurance carrier required deposits in an amount to cover, in part, the
additional retroactive premium historically experienced. The Company had
expensed these deposits principally because the historical experience audit
results required it to pay an additional premium in excess of the deposits. In
addition, the Company's insurance carrier experienced financial difficulties,
which called into question the Company's ability to recover prior years'
deposits even if owed. During fiscal 1997, the Company's insurance carrier
determined that it had excess amounts on deposit for premiums as much as five
years earlier and returned $865,000 to the Company. The Company recorded this as
non-recurring income in fiscal 1997. In fiscal 1998, the Company received
refunds of $1.3 million for workers' compensation insurance deposits. These were
also recorded as non-recurring income.
The Company reduced its insurance reserves for its self-insured employee health
insurance program by $611,000 in fiscal 1997. These reserves had been based on
an actuarial analysis for employee pools of similar size. As the claims history
developed, the Company experienced a lower claims history than expected. In
fiscal 1997, the Company's reserve exceeded its claims history by $1 million.
The Company determined the actuarial-based reserve to be excessive. Accordingly,
the Company reduced its reserve by $611,000 to eliminate the excess of the
amounts accrued for the two previous fiscal years over the amount of actual
claims.
In fiscal 1998, the Company received an insurance settlement for flood and fire
damage at certain campgrounds, which amount was $588,000 in excess of the
Company's basis in the damaged assets and the cost of repair. This was recorded
as nonrecurring income.
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In fiscal 1998, the Company retained an actuarial firm to analyze its general
liability insurance reserves. On the basis of such analysis, the Company
determined that its recorded liabilities for anticipated losses under its
uninsured deductible were excessive by $858,000 and reduced the reserves.
NONRECURRING EXPENSES. Nonrecurring expenses were $132,000 and $2.3 million for
the years ended June 30, 1997 and 1996, respectively. Nonrecurring expenses for
fiscal 1997 consist of a $1.3 million loss resulting from expensing unamortized
debt issue costs upon significantly modifying the Credit Agreement in May 1997,
reduced by a $1.2 million gain resulting from repurchasing PIK Notes at a
discount (see "Liquidity and Capital Resources-Borrowings"). Nonrecurring
expenses for fiscal 1996 consist of a $1.0 million charge to record a provision
for certain uncollectible membership dues receivable and a $1.3 million charge
to accrue a one-time bonus for the Company's Chief Executive Officer that was
due under his employment agreement (see Note 8 to the accompanying consolidated
financial statements included in Item 8).
RESTRUCTURING COSTS. In fiscal 1997, the Company incurred $1.1 million of costs
in connection with the consummation of the Restructuring. The Company also
incurred $3.1 million of costs in connection with obtaining the Credit Agreement
with Foothill, which were capitalized as debt issue costs. In May 1997, the
unamortized balance of these debt issue costs of $1.3 million was charged to
expense upon amendment of the Credit Agreement (see "Liquidity and Capital
Resources-Borrowings").
During the year ended June 30, 1996, the Company incurred $1.1 million of
restructuring costs related to its efforts to restructure the Secured Notes.
INCOME TAXES. The Company's current provision for income taxes was $837,000,
$370,000, and $41,000 for the years ended June 30, 1998, 1997, and 1996,
respectively. The provisions for fiscal 1998 and 1997 include amounts for
federal alternative minimum taxes, as well as amounts for state income taxes
payable in the various states where the Company conducts its operations. The
provision for fiscal 1996 relates primarily to state income taxes. With the
exception of the alternative minimum tax amounts, the Company does not have
federal income taxes payable on a consolidated basis due to its net operating
tax loss carryforwards, which are estimated to total $26.9 million at June 30,
1998, and expire in years 2009 through 2011. Prior to net operating loss
deductions, the Company had taxable income (losses) of $22.8 million, $4.6
million, and ($5.6 million) in fiscal years 1998, 1997, and 1996, respectively.
The tax provision for the year ended June 30, 1998, also includes a $10.0
million deferred income tax benefit resulting from a reduction in the valuation
allowance for the Company's net deferred tax assets (see Note 7 to the
consolidated financial statements included in Item 8). The adjustment will have
no effect on current or future income tax payments, but will result in higher
future tax provisions in the periods the related deferred tax assets are
realized. The Company reduced the valuation allowance because it expects to
generate sufficient taxable income over the next five years to realize the net
deferred tax asset. No increases in current levels of income are required to do
so. Although the Company has experienced a declining membership base, it does
not expect the net effect of such decline to prevent the realization of the net
deferred tax asset over such period.
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EXTRAORDINARY ITEM. The $1.4 million extraordinary gain in fiscal 1996 resulted
from a repurchase of Secured Notes in January 1996.
INFLATION. During the past three fiscal years, the Company's results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by the campground members
because the Company cannot increase the dues on existing contracts of senior
citizens and disabled members who notify the Company of their age or disability
and request that their dues be frozen. At the present time, approximately 35% of
the members have requested that their dues be frozen because of their age or
disability (see "Campground Operations - Dues").
IMPACT OF YEAR 2000. Based on recent assessments, the Company has determined
that it must modify certain software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company
presently believes that by modifying existing software, the Company's computer
systems will not experience material operational problems as a result of the
year 2000 issue. However, if such modifications are not made, or are not timely
completed, the year 2000 issue could have a material adverse impact on the
operations of the Company. The most significant disruption would impact member
billings and collections and campground reservations. In addition, although the
Company does not have any significant suppliers whose timely compliance would
impact the Company, the Company utilizes a number of financial institutions that
are highly dependent upon the proper function of their computer systems. The
Company's depository and treasury functions could be disrupted if these
financial institutions do not become year 2000 compliant within the required
timeframe.
The Company will primarily utilize internal resources to modify existing
software to address the year 2000 issue. The Company anticipates completing the
year 2000 project by December 31, 1998, which, if timely completed, will avoid
any material impact on its operating systems. The Company currently estimates
that it will cost approximately $100,000 to make the necessary modifications to
its software, which will not significantly impact the Company's financial
position, operations, or cash flows. The Company does not presently have a
formal contingency plan because it believes the necessary modifications will be
completed in the required timeframe. However, should it become evident that the
year 2000 modifications will not be completed on a timely basis, the Company
will explore alternatives to employ until such time as the year 2000
modifications are completed.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates
which were derived utilizing numerous assumptions of future events. However,
there can be no assurance that these estimates and timetable will be achieved,
and actual results could differ materially from those anticipated.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THOUSAND TRAILS, INC.
(Registrant)
Date: April 5, 1999 By: /s/ William J. Shaw
-----------------------------------------
William J. Shaw
Chairman of the Board, President,
Chief Executive Officer, and acting
Chief Financial Officer
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated September 4, 1998, on the consolidated financial statements of Thousand
Trails, Inc. and Subsidiaries (and to all references to our Firm), incorporated
by reference in the Post Effective Amendment No 5 to the Registration Statement
on Form S-2.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas,
April 2, 1999
