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As filed with the Securities and Exchange Commission on March 10, 1999.
Registration No.: 333-22705
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
POST-EFFECTIVE AMENDMENT NO. 2 ON
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THOUSAND TRAILS, INC.
(Exact name of Registrant as specified in its charter)
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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 holders of common stock
trading on the American Stock purchase warrants issued in 1994.
Exchange on 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, which
traded on the NASD OTC they may acquire by exercising common stock purchase
Bulletin Board System under warrants issued in 1991 and 1992.
the symbol "TRLS."
o The holders of the 1994 warrants must pay us the
On March 1, 1999, the last THE PRICE exercise price of $1.625 per share to acquire the shares of
reported sale price of the common stock we are offering by this prospectus.
common stock on the American
Stock Exchange was $5. 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.
o We will receive all of the proceeds from payment of the exercise price of
PROCEEDS TO THE all the warrants, if the warrant holders elect to exercise their warrants.
COMPANY 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 MARCH 10, 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 and campground or assets sales if membership continues to decline.... 5
Members rights may inhibit our ability to implement our business strategy................................... 5
Our operating results benefit from tax savings due to our net operating loss carryforwards, which may cease
to be available............................................................................................. 5
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............................................................... 6
Forward Looking Statements.................................................................................. 6
Incorporation of Certain 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 certain 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.
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; approximately 60%; of our 53 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.
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.
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.
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
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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 Although we believe that the transfer restrictions are
enforceable as to all of the common stock, a court might
disagree.
o The Internal Revenue Service may take the position that, for tax
purposes, 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.
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 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.
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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 CERTAIN 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 (collectively, 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. You may inspect and copy (at prescribed rates) 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. You may inspect and
copy (at prescribed rates) 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.
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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High Low
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1999:
Third Quarter
(through March 1) 5 1/4 4 3/8
5 1/8
Second Quarter 3 5/8
First Quarter 5 1/2 3 5/8
1998:
Fourth Quarter 3 1/8 2 1/8
Third Quarter 5 3/8 3 1/8
Second Quarter 4 1/2 3 1/4
First Quarter 4 1/4 3 1/2
1997:
Fourth Quarter 2 7/16 1 3/4
Third Quarter 1 31/32 1 5/16
Second Quarter 1 7/16 15/16
First Quarter 1 1/8 1/2
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On March 1, 1999, the last reported sale price of the common stock on
the American Stock Exchange was $5. As of March 1, 1999, the common stock was
held by 91 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 manages 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. 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 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.
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.
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 (excluding 1800 members lost in connection with the
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<PAGE> 14
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, 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
certain 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.
Marketing. Our research indicates that camping is a popular and
growing activity in the United States. Camping was the fourth largest
participant sport/activity in the United States in 1997 with approximately 20%
of all households camping at least once a year. Sales of camping equipment
total $1.5 billion annually in 1995 and 1996. In addition, although
recreational vehicle sales have been relatively flat, a recent study by the
University of Michigan Survey Research Center reported that recreational
vehicle sales revenues are expected to grow 4% annually for at least the next
ten years. Moreover, we believe that the aging of the baby boomers should have
a positive effect on sales of camping equipment and recreational vehicle, and
lead to further growth in family camping. Our campgrounds are located in
markets containing approximately 25% of all camping households in the United
States.
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. Based on our research,
approximately 35% of 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. Campground members 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 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.
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<PAGE> 15
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
associated with certain campgrounds. 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.
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<PAGE> 16
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.
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 certain information regarding the
selling security holders' beneficial ownership of the common stock, including
common stock issuable upon exercise of the 1991 or 1992 warrants, as of October
27, 1998. Each of the selling security holders had registered and, assuming
exercise of its 1991 or 1992 warrants, may sell up to the number of shares of
common stock that such selling security holder may receive as a result of such
exercise, as set forth opposite each selling security holder's name below. The
selling security holders may also sell additional shares of common stock that
may be issuable upon exercise of the 1991 or 1992 warrants as a result of
certain antidilution provisions. It is not currently possible to predict the
number of shares of common stock, if any, which will be sold or the price,
terms or conditions of their sale. See "Plan of Distribution."
<TABLE>
<CAPTION>
COMMON STOCK
ISSUABLE UPON
COMMON EXERCISE OF
STOCK 1991/1992 COMMON STOCK
BENEFICIALLY WARRANTS THAT BENEFICIALLY OWNED
SELLING SECURITY HOLDERS OWNED MAY BE OFFERED(1) AFTER OFFERING **
------------------------ ------------ ----------------- -------------------
PERCENT
NUMBER OF CLASS
------ --------
<S> <C> <C> <C> <C>
American Investors Life Insurance Company, Inc. 0 7,121 0 0
Bankers Life & Casualty Company 0 16,540 0 0
Carl Marks Strategic Investments L.P.(2) 2,474,244 194,521 2,474,244 34.6%
Fidelity & Guaranty Life Insurance Company 0 49,622 0 0
Fulton Bank, Custodian for Stanley Steiner, 0 175 0 0
Rollover IRA
Alan Kanis 706 189 706 *
OP Limited Partnership 0 13,232 0 0
Pacholder Associates, Inc. 0 551 0 0
Trussal & Co. 0 616 0 0
United States Fidelity & Guaranty Company 0 88,825 0 0
USF&G Pacholder Fund 0 33,081 0 0
Larry K. West 0 1,521 0 0
Robert and Suzanne Yudelson 0 140 0 0
--------- ------- ---------
TOTAL 2,479,950 406,134 2,479,950
========= ======= =========
</TABLE>
- ----------
* Less than 1%
** Assumes that all shares of common stock that may be offered by selling
security holders are sold.
(1) The selling security holders may also sell additional shares of common
stock that may be issuable from time to time pursuant to the antidilution
provisions applicable to the 1991 or 1992 warrants.
(2) Andrew M. Boas, a director of 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 certain
restrictions under the federal securities laws applicable to sales registered
under the registration statement, including the requirements of Regulation M
under the Securities Exchange Act. In such connection, the selling security
holders have entered into agreements with 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 certain information supplied in connection with
the registration statement. We similarly agreed to indemnify the selling
security holders for certain 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
(consisting of the 1991 or 1992 warrants and the 1994 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 certain 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. Approval of any amendment
to our certificate of incorporation or any merger or consolidation (with certain
limited exceptions) 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.
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<PAGE> 19
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 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, for a period of three years after a person becomes an
"interested stockholder" (defined generally as a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
a corporation's outstanding voting stock), engage in any of a broad range of
business combinations (which may include stock issuances) with a person or
affiliate or associate of such person who is such "interested stockholder"
unless certain board or shareholder approvals are obtained. Stockholders that
beneficially received 15% or more of the common stock in 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, certain
constructive ownership rules, which generally attribute ownership of stock to
the ultimate beneficial owner thereof
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<PAGE> 20
without regard to ownership by nominees, trusts, corporations, partnerships or
other entities, or to related individuals, are applied in determining the level
of stock ownership of a particular stockholder. Special rules can also result in
the treatment of options (including warrants) as exercised in certain
circumstances. All percentage determinations are based on the fair market value
of a company's capital stock.
If an ownership change were to occur, the amount of taxable income in
any year (or portion of a year) subsequent to the ownership change that could
be offset by NOLs or other carryovers existing (or "built-in") prior to such
ownership change could not exceed the product obtained by multiplying:
(a) the aggregate value of the outstanding common stock immediately
prior to the ownership change (with certain adjustments)
by (b) the federal long-term tax exempt rate (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 (current maximum federal rate of
35%) on any taxable income during a given year in excess of our NOL limitation.
While the NOLs not used as a result of this limitation remain available to
offset taxable income for up to 15 years from the year when the NOLs were
generated, an ownership change, under certain circumstances, would
significantly defer the utilization of the NOLs, accelerate the payment of
federal income tax, cause a portion of the NOLs to expire prior to their use
and reduce stockholders' equity (or increase stockholders' deficit).
The transfer restrictions generally restrict until 2011 (or earlier in
certain events) any direct or indirect transfer of common stock that would:
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" (as defined in 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 (after
giving effect to the transfer) owns 4.75% or less of the common stock.
Similarly, the transfer restrictions will not apply to any transfer if, as a
result of the transfer and in the determination of the Board of Directors, the
aggregate increase in the ownership of 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. 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 (within the meaning of 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 certain
options) that would increase the aggregate percentage increase owned by 4.75%
shareholders are currently subject to the transfer restrictions.
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<PAGE> 21
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. Numerous rules of attribution, aggregation and calculation
prescribed under the Internal Revenue Code (and related regulations) will be
applied in determining whether the 4.75% threshold has been met and whether a
group of less than 4.75% shareholders will be treated as a "public group" that
is a 4.75% shareholder. As a result of these attribution rules, a change in the
relationship between two or more persons or entities, or a transfer of an
interest other than the common stock, such as an interest in an entity that,
directly or indirectly, owns the common stock may result in the common stock
owned by a stockholder being subject to the remedial provisions, as described
below. The transfer restrictions (or in some cases contractual provisions
incorporating the transfer restrictions) may also apply to proscribe the
creation or transfer of 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
certain requested transfers of the common stock.
It is the intention of the transfer restrictions that any direct or
indirect transfer of common stock attempted in violation of the restrictions
would be void ab initio as to the purported transferee, and the purported
transferee would not be recognized as the owner of the shares owned in
violation of the restrictions for any purpose, including for purposes of voting
and receiving dividends or other distributions in respect of such common stock,
or in the case of options subject to the transfer restrictions, receiving
common stock in respect of their exercise. Common stock purportedly acquired in
violation of the transfer restrictions is referred to as "excess common stock."
Excess common stock is automatically transferred to a trustee
effective as of the close of business on the business day prior to the date of
the violative transfer. As soon as practicable following the receipt of notice
from 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 certain cases, an amount equal to the amount
such person otherwise would have been entitled to retain had the trustee sold
such shares). Pending such sale, any dividends or other distributions paid
prior to discovery by 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.
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<PAGE> 22
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 will be required to be returned (together with any distributions
received thereon) to the transferor, and the transferor will be required to
return the purchase price, together with all other losses, damages, costs and
expenses incurred by that purchaser, to the purchaser. If we are unable to
locate the purchaser within 90 days, we are required (to the extent permitted
under our debt instruments) to purchase common stock in a manner that would
reduce the ownership of the person or public group whose ownership increased as
a result of the prohibited transfer and to hold such common stock on behalf of
the 4.75% shareholder that transferred the excess common stock in violation of
the transfer restrictions. In such case, the 4.75% shareholder will be treated
as the owner of the excess common stock for all purposes, and amounts 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
certain transfers of common stock not restricted by the transfer restrictions
(or, although otherwise restricted, permitted by the Board of Directors) and/or
certain changes in relationships among stockholders or other events could cause
an ownership change. Changes in the relationships of holders of common stock
could cause changes in ownership of common stock through the application of the
attribution rules discussed above, and therefore could also trigger an
ownership change causing a loss of NOLs. 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) and may not apply to same 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
21
<PAGE> 23
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 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 certain types of investors subject to
special treatment under federal income tax laws (such as individual retirement
accounts, insurance companies, tax-exempt organizations, financial
institutions, brokers, dealers, foreign entities, and taxpayers that are
neither citizens nor residents of the United States). In addition, the
discussion does not consider the effect of any foreign, state, local, or other
tax laws, or any United States tax consequences other than income tax (e.g.,
estate or gift tax) consequences, that may be applicable to you. The summary is
based upon the Internal Revenue Code and applicable Treasury Regulations
(including proposed regulations), rulings, administrative pronouncements and
decisions as of the date hereof, all of which are subject to change or
differing interpretations at any time and in some circumstances with
retroactive effect.
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 (reducing the holder's tax basis in the shares of common stock) to the
extent of the holder's basis in such shares, and as long-term or short-term
capital gain, as the case may be (assuming such shares are held as capital
assets), thereafter. Holders receiving distributions on the shares of common
stock also may be affected by the taxable income limitations set forth in
Section 246(b), the holding period requirements of Section 246(c), the
debt-financed portfolio stock
22
<PAGE> 24
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 capital gain or loss, and
will be long-term capital gain or loss if the holder's holding period for the
common stock exceeds one year at the time of sale. Any sale proceeds
attributable to dividends will be taxed in accordance with the rules discussed
in the preceding paragraph.
BACKUP WITHHOLDING
Under the Internal Revenue Code, a holder of common stock may be
subject, under certain circumstances, to "backup withholding" at a rate of 31%
with respect to payments in respect of dividends on the common stock.
This withholding generally applies only if the holder:
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 MARCH 10, 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),
II-1
<PAGE> 27
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if such person acted
in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had not reasonable cause to believe was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action and then,
where the person is adjudged to be liable to the corporation, only if and to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action was brought determines that such person is fairly and reasonably
entitled to such indemnity and then only for such expenses as the court shall
deem proper.
The Registrant has entered into Indemnity Agreements with its
directors and officers contractually obligating the Company to provide
indemnification rights substantially similar to those described above.
The Registrant is empowered by Section 102(b)(7) of the Delaware
Corporate Law to include a provision in its Certificate of Incorporation that
limits a director's liability to the Registrant or its stockholders for
monetary damages for breaches of his or her fiduciary duty as a director. The
Registrant's Certificate of Incorporation states that directors shall not be
liable for monetary damages for breaches of their fiduciary duty to the fullest
extent permitted by the Delaware Corporate Law.
The Registrant maintains directors' and officers' insurance for
certain expenses and losses.
Under the Registrant's stock option plans, the Registrant must
indemnify the members of the Board of Directors of the Company and the
Compensation Committee thereof, which committee administers the plans, for any
damages and expenses that they incur in connection with such plans or the
making of awards thereunder, so long as they act in good faith.
Additionally, National American Corporation ("NACO"), a wholly-owned
subsidiary of the Registrant, 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
</TABLE>
II-2
<PAGE> 28
<TABLE>
<S> <C>
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).
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).
</TABLE>
II-3
<PAGE> 29
<TABLE>
<S> <C>
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).
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
</TABLE>
II-4
<PAGE> 30
<TABLE>
<S> <C>
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).
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).
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C>
10.26 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation, and
schedule of documents substantially identical to the form of
Pledge and Security Agreement (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.27 Consent and First Amendment to Pledge and Security Agreement,
dated as of October 31, 1997, between certain subsidiaries of the
Company and Foothill Capital Corporation (incorporated by
reference to exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, File No.
0-19743).
10.28 Form of Mortgage, dated as of July 10, 1996, to grant liens to
Foothill Capital Corporation to secure the Company's obligations
under the Loan Agreement with Foothill, and schedule of documents
substantially identical to the form of Mortgage (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.29 Form of Assignment of Indebtedness and Mortgage, dated as of July
10, 1996, transferring the liens securing certain indebtedness
that NACO owes to the Company to Foothill Capital Corporation
under the Loan Agreement with Foothill, and schedule of documents
substantially identical to the form of 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;
</TABLE>
II-6
<PAGE> 32
<TABLE>
<S> <C>
the USTrails Inc. 1993 Stock Option and Restricted Stock Purchase
Plan, as amended; the USTrails Inc. 1993 Director Stock Option
Plan, as amended; Warrant Certificates originally issued on
December 31, 1991, June 12, 1992, and March 2, 1994 to May 16,
1995; and the Stock Option Agreement, dated as of August 1, 1996,
between USTrails and William J. Shaw (incorporated by reference
to Exhibit 10.27 to the Form 8-B filed by the Company with the
SEC on November 27, 1996, File No. 0-19743).
10.39 Employment Agreement, dated as of May 11, 1995, between the
Company and William J. Shaw, and related Standby Letter of
Credit, dated September 22, 1995, issued by The Bank of
California, N.A., for the benefit of Mr. Shaw, and Letter, dated
September 20, 1995, from The Wyatt Company, regarding Mr. Shaw's
Employment Agreement (incorporated by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1995, File No. 0-19743).
10.40 Letter dated June 29, 1996, from William J. Shaw to the Company,
regarding Mr. Shaw's election to receive the Enterprise Bonus
payable under his Employment Agreement, and Letter, dated July 8,
1996, from Deloitte & Touche LLP, regarding the computation of
the amount of the Enterprise Bonus 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
</TABLE>
II-7
<PAGE> 33
<TABLE>
<S> <C>
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.48 Indemnification Agreement, dated as of November 20, 1996, between
the Company and William J. Shaw and schedule of substantially
identical Indemnification Agreements (incorporated by reference
to Exhibit 10.39 to the Company's Registration Statement No.
333-19357 on Form S-1, originally filed with the SEC on January
7, 1997, File No. 0-19743).
10.49 Lease, dated February 24, 1994, as amended, between
Carter-Crowley Properties, Inc. as lessor, and the Company as
lessee, relating to the Company's offices in Dallas, Texas
(incorporated by reference to Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994, File
No. 0-19743).
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).
</TABLE>
II-8
<PAGE> 34
<TABLE>
<S> <C>
10.59 Supplement No. 2 to Grantor Trust Agreement, dated as of January
22, 1998, between the Company and a majority of the persons
presently named as beneficiaries under the Grantor Trust
Agreement, dated as of May 8, 1991, as supplemented, between the
Company and Union Bank of California, N.A., as Trustee
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form l0-Q for the quarter ended March 31,
1998, File No. 0-19743).
10.60 Trust Agreement, dated as of July 22, 1992, establishing the
Company's Flexible Benefits Plan Trust Fund (incorporated by
reference to Exhibit 10.45 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-19743).
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 Proxy Statement for the 1998 Annual Meeting of the
Company filed on October 27, 1998.
13.4* 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.
</TABLE>
II-9
<PAGE> 35
<TABLE>
<S> <C>
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.
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 March 10, 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 March 10, 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>
<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).
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
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).
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).
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
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).
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).
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
10.16 Form of Senior Subordinated Pay-In-Kind Note Due 2003
(incorporated by reference to Exhibit 4.37 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996, File
No. 0-19743).
10.17 Loan and Security Agreement, dated as of July 10, 1996, between
the Company and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.18 First Amendment to Loan and Security Agreement, dated as of May
16, 1997, between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the SEC on July 8, 1997,
File No. 0-19743).
10.19 Second Amendment to Loan and Security Agreement dated as of
December 23, 1997, between the Company and Foothill (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997, File No.
0-19743).
10.20 Third Amendment to Loan and Security Agreement dated as of
January 5, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-19743).
10.21 Fourth Amendment to Loan and Security Agreement, dated as of June
10, 1998, between the Company and Foothill (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended June 30, 1998, File No. 0-19743).
10.22 Fifth Amendment to Loan and Security Agreement, dated as of
September 15, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-19743).
10.23 Sixth Amendment to Loan and Security Agreement, dated as of
October 21, 1998, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-19743).
10.24 Secured Promissory Note (Account Note), dated July 10, 1996,
between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996, File
No. 0-19743).
10.25 Secured Promissory Note (Term Note), dated July 10, 1996, between
the Company and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996, File No. 0-19743).
10.26 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation, and
schedule of documents substantially identical to the form of
Pledge and Security Agreement (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.27 Consent and First Amendment to Pledge and Security Agreement,
dated as of October 31, 1997, between certain subsidiaries of the
Company and Foothill Capital Corporation (incorporated by
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
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
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).
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.,
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
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>
<PAGE> 44
<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>
<PAGE> 45
<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 Proxy Statement for the 1998 Annual Meeting of the
Company filed on October 27, 1998.
13.4* 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).
</TABLE>
<PAGE> 46
<TABLE>
<S> <C>
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
EXHIBIT 13.4
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission File Number 1-14645
THOUSAND TRAILS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2138671
- --------------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 243-2228
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock, par value $.01, issued and outstanding as
of February 12, 1999 was 7,667,635.
<PAGE> 2
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1998
and June 30, 1998...........................................................................3
Consolidated Statements of Operations for the six months ended
December 31, 1998 and December 31, 1997.....................................................4
Consolidated Statements of Operations for the three months ended
December 31, 1998 and December 31, 1997.....................................................5
Consolidated Statement of Stockholders' Equity for the six months
ended December 31, 1998.....................................................................6
Consolidated Statements of Cash Flows for the six months ended
December 31, 1998 and December 31, 1997.....................................................7
Notes to Consolidated Financial Statements....................................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................26
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders..........................................27
Item 6. Exhibits and Reports on Form 8-K.............................................................28
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1998 1998
------------ ------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,174 $ 13,631
Current portion of receivables, net of allowances and discount of
$1.2 million and $1.1 million 1,822 2,440
Current portion of deferred membership selling expenses 505 538
Current portion of net deferred tax assets 2,723 2,954
Other current assets 1,629 1,890
------------ ------------
Total Current Assets 7,853 21,453
Restricted cash 1,433 1,171
Receivables, net of allowances and discount of $1.1 million and $1.6
million 688 1,741
Campground and resort land 13,328 13,338
Buildings and equipment, net of accumulated depreciation of 21,274 21,879
$16.2 million and $15.0 million
Land held for sale 2,860 3,866
Deferred membership selling expenses 1,308 1,087
Net deferred tax assets 6,259 7,046
Other assets 2,390 2,681
------------ ------------
Total Assets $ 57,393 $ 74,262
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,005 $ 2,037
Accrued interest -- 1,805
Other accrued liabilities 5,421 6,410
Current portion of long term debt 2,616 --
Accrued construction costs 1,808 2,845
Current portion of deferred revenue 16,636 18,851
------------ ------------
Total Current Liabilities 27,486 31,948
Long term debt 16,372 32,973
Deferred revenue 5,234 4,588
Other liabilities 1,983 1,999
------------ ------------
Total Liabilities 51,075 71,508
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued
or outstanding
Common stock, $.01 par value, 15,000,000 shares authorized, 7,514,208 and
7,437,083 shares issued and outstanding 75 74
Additional paid-in capital 20,604 20,551
Accumulated deficit subsequent to December 31, 1991, date of emergence
from bankruptcy (14,219) (17,734)
Cumulative foreign currency translation adjustment (142) (137)
------------ ------------
Total Stockholders' Equity 6,318 2,754
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 57,393 $ 74,262
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE> 4
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Membership dues $ 18,542 $ 18,996
Campground/resort revenue 10,383 9,339
Membership and resort interest sales 1,909 2,057
RPI membership fees 1,690 1,702
Interest income 1,123 1,177
Gain on asset sales 1,106 3,749
Nonrecurring income -- 495
Other income 1,444 1,825
------------ ------------
Total Revenues 36,197 39,340
------------ ------------
EXPENSES
Campground/resort operating expenses 20,829 20,171
Selling expenses 1,780 1,542
Marketing expenses 1,044 626
RPI membership expenses 1,012 928
Corporate member services 687 702
Interest expense and amortization 2,037 2,502
General and administrative expenses 4,263 4,151
------------ ------------
Total Expenses 31,652 30,622
------------ ------------
INCOME BEFORE INCOME TAXES 4,545 8,718
INCOME TAXES --
Income tax provision - current (12) (232)
Income tax provision - deferred (1,018) --
------------ ------------
(1,030) (232)
NET INCOME $ 3,515 $ 8,486
============ ============
NET INCOME PER SHARE-- BASIC $ .47 $ 1.15
============ ============
NET INCOME PER SHARE-- DILUTED $ .42 $ 1.01
============ ============
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,485 7,390
============ ============
Diluted 8,429 8,410
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE> 5
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended December 31,
---------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Membership dues $ 9,202 $ 9,299
Campground/resort revenue 2,816 2,899
Membership and resort interest sales 931 1,036
RPI membership fees 721 820
Interest income 500 530
Gain on asset sales 1,018 329
Nonrecurring income -- 495
Other income 548 670
------------ ------------
Total Revenues 15,736 16,078
------------ ------------
EXPENSES
Campground/resort operating expenses 8,275 8,440
Selling expenses 792 678
Marketing expenses 462 348
RPI membership expenses 480 496
Corporate member services 306 318
Interest expense and amortization 959 1,137
General and administrative expenses 2,125 2,103
------------ ------------
Total Expenses 13,399 13,520
------------ ------------
INCOME BEFORE INCOME TAXES 2,337 2,558
INCOME TAXES --
Income tax benefit (provision) - current 249 (58)
Income tax provision - deferred (533) --
------------ ------------
(284) (58)
NET INCOME $ 2,053 $ 2,500
============ ============
NET INCOME PER SHARE-- BASIC $ .27 $ .34
============ ============
NET INCOME PER SHARE-- DILUTED $ .24 $ .29
============ ============
SHARES USED TO CALCULATE NET INCOME PER SHARE:
Basic 7,512 7,393
============ ============
Diluted 8,425 8,490
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE> 6
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Paid-In Accumulated Translation
Stock Capital Deficit Adjustment Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ 74 $ 20,551 ($ 17,734) ($ 137) $ 2,754
Issuance of common stock 1 53 54
Foreign currency translation
adjustment (5) (5)
Net income for the six months ended
December 31, 1998
3,515 3,515
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 $ 75 $ 20,604 ($ 14,219) ($ 142) $ 6,318
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
<PAGE> 7
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 2,317 $ 3,002
Interest received 1,030 1,050
Interest paid (1,871) (669)
General and administrative and corporate member
services costs (5,279) (5,222)
Cash collected from operations, including deferred
dues revenue 30,260 28,851
Cash from sales of campground memberships and
lots at the point of sale 1,914 2,085
Expenditures for property operations (20,415) (20,702)
Expenditures for sales and marketing (3,532) (2,169)
Expenditures for insurance premiums (889) (591)
Payment of income taxes (303) (231)
Other, net (262) 50
------------ ------------
Net cash provided by operating activities 2,970 5,454
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (1,898) (580)
Proceeds from asset sales 2,221 6,115
Issuance of Common Stock 54 19
------------ ------------
Net cash provided by investing activities 377 5,554
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of PIK Notes (34,792) --
Borrowings under Credit Agreement 24,000 --
Net repayments under Credit Agreement (5,012) (10,408)
Repayment of notes and mortgages -- (245)
------------ ------------
Net cash used in financing activities (15,804) (10,653)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,457) 355
CASH AND CASH EQUIVALENTS:
Beginning of period 13,631 1,343
------------ ------------
End of period $ 1,174 $ 1,698
============ ============
</TABLE>
-- continued --
Page 7
<PAGE> 8
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended December 31,
-------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 3,515 $ 8,486
------------ ------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES --
Depreciation 1,295 1,287
Amortization of interest discount, collection costs and
valuation allowance (191) (245)
Net deferral of sales revenue 568 446
Net deferral of selling expenses (188) (152)
Gain on asset sales (1,105) (3,749)
Deferred income tax provision 1,018 --
(Increase) decrease in restricted cash (262) 58
Decrease in receivables 1,802 2,540
Decrease in other assets 601 776
Decrease in accounts payable (1,032) (182)
Increase in accrued interest 164 1,803
Decrease in other liabilities (3,142) (5,846)
Other, net (73) 232
------------ ------------
Total adjustments (545) (3,032)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,970 $ 5,454
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 8
<PAGE> 9
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Unaudited)
GENERAL
Thousand Trails, Inc., a Delaware corporation, and its subsidiaries
(collectively, the "Company") own and operate a system of 53 membership-based
campgrounds located in 17 states and British Columbia, Canada. In addition, the
Company provides a reciprocal use program for members of approximately 325
recreational facilities and manages 130 public campgrounds for the US Forest
Service. The campground business represents the most significant portion of the
Company's business comprising 99% of the Company's operating revenues in fiscal
1998. Operating revenues consist primarily of membership dues received from
campground members, fee revenue from members of the reciprocal use program,
management fees from the campground management operations, and guest fees and
revenues received from the campground and other operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast
Financial Services, Inc. ("Coast"), National American Corporation and its
subsidiaries ("NACO"), Resort Parks International, Inc. ("RPI"), Thousand Trails
(Canada), Inc. and UST Wilderness Management Corporation ("Wilderness Mgmt.").
The accompanying consolidated financial statements of the Company have not been
examined by independent accountants, but in the opinion of management, the
unaudited interim financial statements furnished herein reflect all adjustments,
which are necessary for a fair presentation of the results for the interim
periods. All such adjustments are of a normal recurring nature, except for the
items described in the footnotes to the consolidated financial statements.
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1998, filed
with the Securities and Exchange Commission (the "SEC") on September 25, 1998,
as amended by a Form 10-K/A filed with the SEC on October 7, 1998.
NOTE 1 -- BASIS OF FINANCIAL STATEMENT PRESENTATION
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, the Company adopted fresh start reporting,
under which a new reporting entity was created and assets and liabilities were
restated to reflect their reorganization value which approximated fair value at
the date of reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the six and
three month periods ended December 31, 1998 and 1997, and in the consolidated
balance sheet as of June 30, 1998.
Page 9
<PAGE> 10
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," on July 1, 1998. SFAS No. 130 requires
the Company to classify items of other comprehensive income by their nature in
its financial statements and to display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of its consolidated balance sheet. Comprehensive
income includes all changes in equity during a period except those resulting
from investments by owners and distributions to owners, and includes certain
items that were historically reported directly through equity as well as net
income reported on the income statement. Currently, the Company's only item of
other comprehensive income is its foreign currency translation adjustment. The
following table provides statements of comprehensive income for the six and
three months ended December 31, 1998 and 1997, as if the statement had been
implemented in the six and three months ended December 31, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
For the six months ended For the three months ended
December 31, December 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 3,515 $ 8,486 $ 2,053 $ 2,500
Foreign Currency Translation
Adjustment (5) (7) (2) (3)
------------ ------------ ------------ ------------
Comprehensive Income $ 3,510 $ 8,479 $ 2,051 $ 2,497
============ ============ ============ ============
</TABLE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for the way
that public companies report information about operating segments and related
disclosures in annual and interim financial statements. In February 1998, the
FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits," which revises employers' disclosures about pension and
other postretirement benefit plans. These statements are effective for the
Company commencing at the end of fiscal 1999. The Company does not anticipate a
material impact from the adoption of these statements.
Net Income Per Share
- --------------------
The Company adopted SFAS No. 128 during the second quarter of fiscal 1998. SFAS
No. 128 replaced the calculation of primary and fully diluted net income per
share with basic and diluted net income per share. Basic net income per share is
computed by dividing net income by the weighted average number of common shares
outstanding, as determined by the treasury stock method. Diluted net income per
share includes the dilutive effects of common stock equivalents and is computed
by dividing net income by the weighted average number of common and common
equivalent shares outstanding, as determined by the treasury stock method.
Page 10
<PAGE> 11
The tables below set forth the information necessary to compute basic and
diluted net income per share for the six and three months ended December 31,
1998 and 1997, including a summary of the components of the numerators and
denominators of the basic and diluted net income per share computations for the
periods presented (dollars and shares in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the six months ended For the three months ended
December 31, December 31,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 3,515 $ 8,486 $ 2,053 $ 2,500
============ ============ ============ ============
Weighted Average Number of
Shares - Basic 7,485 7,390 7,512 7,393
Dilutive Options 938 986 907 1,033
Dilutive Warrants 6 34 6 64
------------ ------------ ------------ ------------
Weighted Average Number of
Shares - Diluted 8,429 8,410 8,425 8,490
============ ============ ============ ============
Net Income Per Share - Basic $ .47 $ 1.15 $ .27 $ .34
============ ============ ============ ============
Net Income Per Share - Diluted $ .42 $ 1.01 $ .24 $ .29
============ ============ ============ ============
</TABLE>
Since inception, the Company has not paid any dividends. The Credit Agreement
("Credit Agreement") between the Company and Foothill Capital Corporation
("Foothill") prohibits the payment of any cash dividends without the consent of
Foothill during the term of the Credit Agreement.
NOTE 2 -- LONG TERM DEBT
PIK NOTES
The Company issued $40.2 million principal amount of 12% Senior Subordinated
Pay-In-Kind Notes Due 2003 ("PIK Notes") in a restructuring of its debt in July
1996. On January 15, 1997, the Company issued an additional $2.4 million
principal amount of PIK Notes in lieu of cash interest. On June 25, 1997, the
Company repurchased $13.4 million principal amount of PIK Notes at a cost of
$12.6 million, including accrued interest. On July 15, 1997, January 15, 1998,
and July 15, 1998, the Company issued an additional $1.8 million, $1.9 million,
and $2.0 million principal amount of PIK Notes, respectively, in lieu of cash
interest.
On December 15, 1998, the Company completed the redemption of all $34.8 million
principal amount of PIK Notes outstanding, which included the payment of $1.7
million of accrued interest. The Company funded this redemption with $12.5
million of its existing cash and $24.0 million of new borrowings under its
Credit Agreement with Foothill (see below).
Page 11
<PAGE> 12
Pursuant to the terms of the Indenture for the PIK Notes, the holders of the PIK
Notes received from the Company on December 15, 1998 the sum of $1,000, plus
accrued interest from July 15, 1998 to December 15, 1998 of $50.00 for each
$1,000 principal amount of PIK Notes, for a total price of $1,050.00 for each
$1,000 principal amount of PIK Notes (the "Redemption Price"). On December 15,
1998, interest ceased to accrue and the holders have no other rights as holders
other than the right to receive the Redemption Price, without further interest,
upon surrender of their certificates representing the PIK Notes.
CREDIT AGREEMENT WITH FOOTHILL
As of June 30, 1998, there were no outstanding borrowings under the Credit
Agreement with Foothill. On October 21, 1998, the Company entered into an
amendment to the Credit Agreement that gave the Company the flexibility to
borrow up to $5.0 million for working capital purposes and up to an additional
$30.0 million to use to redeem the PIK Notes and for the possible acquisition of
members through the purchase of other membership campground operations. Under
the amended Credit Agreement, the first $15.0 million of borrowings bear
interest at prime plus .25% per annum, borrowings over $15.0 million and up to
$25.0 million bear interest at prime plus .50% per annum, and borrowings over
$25.0 million bear interest at prime plus 1.5% per annum.
On December 15, 1998, the Company borrowed $24.0 million under the amended
Credit Agreement to partially fund the redemption of the PIK Notes as discussed
above. As a result of subsequent repayments, on December 31, 1998, the Company
had $19.0 million of outstanding borrowings under the amended Credit Agreement,
and it had the ability to borrow an additional $5.0 million for working capital
purposes and an additional $10.5 million to use for the possible acquisition of
members through the purchase of other membership campground operations. All
borrowings under the amended Credit Agreement will mature on January 17, 2003.
Under the terms of the amended Credit Agreement, the Company must use all
collections of principal and interest on the contracts receivable and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the Credit Agreement. The
maximum amount of the available borrowing capacity declines as these principal
reductions are made.
NOTE 3 -- NONRECURRING INCOME AND CONTINGENCIES
NONRECURRING INCOME
In December 1997, the Company received a refund of $495,000 for deposits made in
previous years to cover workers' compensation claims in excess of those covered
by the standard premium paid by the Company. These deposits were expensed in the
years the deposits were made because the Company anticipated that the deposits
would be used to cover workers' compensation claims. This refund is presented as
nonrecurring income in the accompanying consolidated statements of operations
for the six and three month periods ended December 31, 1997.
Page 12
<PAGE> 13
CONTINGENCIES
General Liability Insurance
- ---------------------------
Commencing July 1, 1998, the Company obtained insurance covering general
liability losses up to an annual limit of $27.0 million, with no self-insured
deductible. Prior to this date, the Company's insurance covered general
liability losses up to an annual limit of $26.8 million, but required the
Company to pay the first $250,000 per occurrence, with an annual aggregate
exposure of $2.0 million. The Company has provided a liability for estimated
known and unknown claims related to uninsured general liability risks based on
actuarial estimates. At December 31, 1998 and June 30, 1998, the Company's
recorded liability for estimated losses related to uninsured general liability
claims totaled $1.2 million, which is included in other liabilities in the
accompanying consolidated balance sheets.
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (92% in fiscal 1998). The Company's membership base has
declined significantly over the past five fiscal years, and net of new sales,
the membership base is presently declining at the rate of approximately 6% per
year. The Company attributes this continuing attrition principally to its aging
membership base, of whom approximately 50% are senior citizens. In addition, the
Company estimates that the memberships sold in recent fiscal years will have an
expected life that is significantly shorter than the expected life of the
memberships previously sold by the Company. To stop the continuing decline in
the Company's membership base, the Company must significantly increase its
campground membership sales over current levels or acquire members in another
manner, such as through the purchase of other membership campground operations.
There is no assurance that the Company will be successful in these efforts.
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campgrounds
concerning underground storage tanks, sewage treatment plants and septic
systems, and waste disposal. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations or
financial position.
Litigation
- ----------
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by SFAS No. 95, "Statement of Cash Flows," are presented below for the six
months ended December 31, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Six months ended December 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Non-cash payment of PIK Note interest (see Note 2)
PIK Notes issued in lieu of cash interest payment $ 1,969 $ 1,752
</TABLE>
Page 13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended June 30,
1998, filed with the SEC on September 25, 1998, as amended by a Form 10-K/A
filed with the SEC on October 7, 1998.
All capitalized terms used herein have the same meaning as those defined in Item
1 -- Financial Statements.
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies, plans, and conditions for periods after December
31, 1998. All of these statements are forward-looking statements made pursuant
to the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended. These statements are not historical and involve risks and
uncertainties. The Company's actual financial condition, results of operations,
cash flows, and business strategies, plans, and conditions for future periods
may differ materially due to several factors, including but not limited to the
Company's ability to control costs, campground market conditions and other
factors affecting the Company's sales and marketing plan, the actual rate of
decline in the campground membership base, the actual use of the campgrounds by
members and guests, the effects on members and guests of the Company's efforts
to downsize its business, the Company's success in collecting its contracts
receivable and selling assets, and the other factors affecting the Company's
operations described in this report.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to improve
its campground operations and stabilize its campground membership base through
increased sales and marketing efforts or the possible acquisition of members
through the purchase of other membership campground operations. The Company
believes there is a viable market for campground memberships and that it has a
significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. The Company also believes it may
be possible to acquire members through the purchase of other membership
campground operations, many of whom are experiencing financial difficulties.
The Company's membership base has been declining. In response to this decline,
the Company has downsized its business by closing and disposing of campgrounds
and decreasing campground operating costs and general and administrative
expenses. The Company intends to continue to keep the size of its campground
system in an appropriate relation to the size of its membership base. In this
regard, if the membership base continues to decline, the Company may close and
dispose of additional campgrounds and it will seek to decrease other expenses.
At the same time, the Company intends to expand its sales and marketing efforts
with a view to stopping the membership decline. The Company also intends to
explore the possible acquisition of members through the purchase of other
membership campground organizations. The Company believes that the ultimate size
of its campground system and the amounts realized
Page 14
<PAGE> 15
from future asset sales will depend principally upon the degree to which the
Company can successfully implement this strategy.
REDEMPTION OF PIK NOTES. On December 15, 1998, the Company completed the
redemption of all $34.8 million principal amount of PIK Notes outstanding, which
included the payment of $1.7 million of accrued interest. The Company funded
this redemption with $12.5 million of its existing cash and $24.0 million of new
borrowings under its Credit Agreement with Foothill.
Pursuant to the terms of the Indenture for the PIK Notes, the holders of the PIK
Notes received from the Company on December 15, 1998 the sum of $1,000, plus
accrued interest from July 15, 1998 to December 15, 1998 of $50.00 for each
$1,000 principal amount of PIK Notes, for a total price of $1,050.00 for each
$1,000 principal amount of PIK Notes (the "Redemption Price"). On December 15,
1998, interest ceased to accrue and the holders have no other rights as holders
other than the right to receive the Redemption Price, without further interest,
upon surrender of their certificates representing the PIK Notes.
CASH. On December 31, 1998, the Company had $1.2 million of cash and cash
equivalents, a decrease of $12.5 million from June 30, 1998. During the six
months ended December 31, 1998, the Company's operating activities produced $3.0
million of cash, its investing activities produced $377,000 of cash, and its
financing activities used $15.8 million of cash, which included the $12.5
million of cash used to partially fund the redemption of the PIK Notes. The
Company's investing activities consisted principally of $2.2 million from the
sale of assets less $1.9 million of capital and HUD-related expenditures.
With respect to the Company's operating activities, for the six months ended
December 31, 1998, the principal sources of cash were $30.3 million in dues
collections and other campground and resort revenues, $3.3 million in principal
and interest collections on contracts receivable and invested cash, and $1.9
million in cash collected from sales of campground memberships and lots at the
point of sale. Principal uses of operating cash for the six months ended
December 31, 1998, were $20.4 million in operating expenses, $5.3 million in
administrative expenses (including general and administrative expenses and
corporate member services costs), and $3.5 million in sales and marketing
expenditures.
As of June 30, 1998, there were no outstanding borrowings under the Credit
Agreement with Foothill. On October 21, 1998, the Company entered into an
amendment to the Credit Agreement that gave the Company the flexibility to
borrow up to $5.0 million for working capital purposes and up to an additional
$30.0 million to use to redeem the PIK Notes and for the possible acquisition of
members through the purchase of other membership campground operations. Under
the amended Credit Agreement, the first $15.0 million of borrowings bear
interest at prime plus .25% per annum, borrowings over $15.0 million and up to
$25.0 million bear interest at prime plus .50% per annum, and borrowings over
$25.0 million bear interest at prime plus 1.5% per annum.
On December 15, 1998, the Company borrowed $24.0 million under the amended
Credit Agreement to partially fund the redemption of the PIK Notes as discussed
above. The Company repaid $5.0 million of such borrowings by December 31, 1998.
All borrowings under the amended Credit Agreement will mature on January 17,
2003.
Page 15
<PAGE> 16
Under the terms of the amended Credit Agreement, the Company must use all
collections of principal and interest on the contracts receivable and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the Credit Agreement. The
maximum amount of the revolving loan declines as these principal reductions are
made.
As of the date of this report, the Company had $14.8 million of outstanding
borrowings under the amended Credit Agreement, and it had the ability to borrow
an additional $5.0 million for working capital purposes and an additional $14.3
million to use for the possible acquisition of members through the purchase of
other membership campground operations. Based upon its current business plan,
the Company believes that future cash flows provided from operations, asset
sales, and borrowings available under the amended Credit Agreement will be
adequate for the Company's operating and other cash requirements during the
remaining term of the amended Credit Agreement. While any borrowings are
outstanding under the amended Credit Agreement, all cash held by the Company and
its wholly owned subsidiaries will generally be deposited in accounts that are
controlled by and pledged to Foothill.
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $16.9 million during the six months ended December 31,
1998. Cash decreased by $12.5 million as discussed above. Contracts receivable
decreased by $1.7 million due primarily to $2.3 million in cash collections
partially offset by new financed sales and amortization of the allowances for
interest discount, collection costs, and valuation discount. Other current
assets decreased by $261,000 due primarily to lower dues receivable and
inventory due to the seasonal nature of the business. Buildings and equipment
decreased by $605,000 due primarily to depreciation, partially offset by capital
improvements made at certain campgrounds. Land held for sale decreased by $1.0
million due to the sale of acreage not related to the campground operations.
Other assets decreased by $291,000 due primarily to the release of certain prior
year workers' compensation insurance deposits that were applied to current year
insurance payments.
Total liabilities decreased by $20.4 million during the six months ended
December 31, 1998. Accounts payable decreased by $1.0 million due to the timing
of payments and the seasonality of the business. Accrued interest decreased by
$1.8 million due to the payment of all accrued interest on the PIK Notes on
December 15, 1998 in connection with the redemption of such notes. Accrued
construction costs decreased by $1.0 million as a result of HUD-related
improvements made at one resort during the period. Deferred revenue decreased by
$1.6 million due primarily to the recognition of $2.0 million of dues revenue in
excess of dues collected during the period, partially offset by a $568,000 net
increase in deferred sales revenue. In addition, the Company's outstanding debt
decreased by $14.0 million during the period. This decrease was due to the
redemption of the PIK Notes and the subsequent repayment of $5.0 million of the
new borrowings the Company made under the Credit Agreement to partially fund the
redemption of the PIK Notes.
MARKET RISK AND INTEREST RATE SENSITIVITY. As noted above, on December 15, 1998,
the Company completed the redemption of all $34.8 million principal amount of
PIK Notes outstanding. The Company funded this redemption with $12.5 million of
its existing cash and $24.0 million of new borrowings under the amended Credit
Agreement with Foothill. The
Page 16
<PAGE> 17
Company used substantially all of its invested cash to fund the redemption,
which eliminated any interest rate market risk with respect to cash balances.
However, the borrowings under the amended Credit Agreement accrue interest at
rates that fluctuate with changes in the prime rate and, thus, are subject to
interest rate market risk. In management's opinion, a hypothetical ten percent
change in market interest rates over the next year would not have a material
effect on the fair value of the Company's contracts receivable, long term debt,
or cash balances.
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the six and three months ended December 31, 1998
and 1997. The financial information set forth below should be read in
conjunction with the Company's consolidated financial statements included in
Item 1.
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
NET INCOME. The Company reported net income of $3.5 million or $.42 per diluted
share on revenues of $36.2 million for the six months ended December 31, 1998.
This compares with net income of $8.5 million or $1.01 per diluted share on
revenues of $39.3 million for the same period last year. Excluding gains on
asset sales and nonrecurring income, the Company's revenues remained
approximately the same between periods. Gains on asset sales were $1.1 million
in the current period, compared with $3.7 million in the same period last year.
In addition, the prior period had $495,000 of nonrecurring income. The Company
also incurred higher expenses in the current period, which resulted in the
decline in net income between periods.
The table on the following page shows separately the results of the campground
operations, Wilderness Mgmt., Resort Parks International, and resort operations,
without any allocation of corporate expenses, as well as corporate expenses and
other revenues and expenses in the aggregate, for the six months ended December
31, 1998 and 1997.
Page 17
<PAGE> 18
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 18,542 $ 18,996
Campground revenues 8,666 8,064
Cost of campground revenues (3,901) (3,391)
Operating expenses (15,404) (15,598)
------------ ------------
Contribution from campground operations 7,903 8,071
------------ ------------
SALES
Sales revenues 1,851 1,479
Selling expenses (1,738) (1,259)
Marketing expenses (1,044) (626)
------------ ------------
Loss on sales (931) (406)
------------ ------------
WILDERNESS MGMT
Revenues 1,694 895
Expenses (1,439) (713)
------------ ------------
Contribution from Wilderness Mgmt 255 182
------------ ------------
RESORT PARKS INTERNATIONAL
Revenues 1,690 1,702
Expenses (1,012) (928)
------------ ------------
Contribution from RPI 678 774
------------ ------------
RESORT OPERATIONS
Revenues 81 958
Expenses (127) (752)
------------ ------------
Contribution (loss) from resort operations (46) 206
------------ ------------
7,859 8,827
------------ ------------
Other income 1,444 1,825
Corporate member services (687) (702)
General and administrative expenses (4,263) (4,151)
------------ ------------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME, AND TAXES 4,353 5,799
------------ ------------
Interest income 1,123 1,177
Interest expense (2,037) (2,502)
Gain on asset sales 1,106 3,749
Nonrecurring income -- 495
------------ ------------
OPERATING INCOME BEFORE TAXES $ 4,545 $ 8,718
============ ============
</TABLE>
Page 18
<PAGE> 19
OPERATING INCOME. During the six months ended December 31, 1998, the Company's
contribution from operations was $4.4 million, a decrease of $1.4 million from
the $5.8 million achieved in the same period last year. The decrease was due
primarily to a higher loss from sales operations, a lower contribution from the
Company's reciprocal use and resort businesses, and a decrease in other income.
For this purpose, the contribution from operations is defined as operating
income before interest income and expense, gain on asset sales, nonrecurring
income and taxes. See the table on the previous page for the elements of the
contribution from operations and the Company's operating income before taxes for
the historical periods presented.
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The Company
receives the majority of the dues revenue from its members during the winter,
which are recognized as income ratably during the year. However, the Company
incurs a higher level of operating expenses during the summer. In addition, a
majority of the Company's sales and marketing efforts occur during the summer.
Campground membership dues revenue was $18.5 million for the six months ended
December 31, 1998, compared with $19.0 million for the same period last year.
The decline in dues revenue was due primarily to the net loss of campground
members during the year, partially offset by the effect of the annual dues
increase.
Campground revenues were $8.7 million for the six months ended December 31,
1998, compared with $8.1 million for the same period last year. The related
expenses were $3.9 million for the six months ended December 31, 1998, compared
with $3.4 million for the same period last year. The increase in campground
revenues and related expenses in the current period was due primarily to a
greater emphasis on the ancillary revenue programs at the campgrounds.
Campground operating expenses were $15.4 million for the six months ended
December 31, 1998, compared with $15.6 million for the same period last year.
The decrease in expenses in the current period reflects the effects of the
closure and sale of two campgrounds in the second quarter of fiscal 1998, as
well as the Company's continuing efforts to reduce operating expenses.
The Company intends to continue to keep the size of its campground system in an
appropriate relation to the size of its membership base. In this regard, if the
membership base continues to decline, the Company may close and dispose of
additional campgrounds and it will seek to decrease other expenses. Although the
Company believes that this strategy should result in lower future operating
expenses, no assurance can be given that this strategy will not reduce revenues
by an amount in excess of the expense reductions.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold. For the six months ended December 31,
1998 and 1997, the Company recognized campground membership sales revenues of
$1.9 million and $1.5 million, respectively. These amounts include revenues of
$1.4 million and $1.2 million, respectively, that were deferred in prior
periods. Moreover, during these same periods, the Company deferred revenues of
$2.0 million and $1.6 million, respectively, which are recognized in subsequent
periods. Sales revenues increased in the current period due to the sale of a
greater number of memberships at
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<PAGE> 20
slightly higher average sales prices, partially offset by a higher net deferral
of sales revenues in the current period.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the six months ended December
31, 1998 and 1997, the Company recognized selling expenses of $1.7 million and
$1.3 million, respectively. These amounts include expenses of $340,000 and
$265,000, respectively, that were deferred in prior periods. Moreover, for these
same periods, the Company deferred expenses of $529,000 and $417,000,
respectively, which are recognized in subsequent periods.
Selling and marketing expenses exceeded sales revenues by $931,000 and $406,000
for the six months ended December 31, 1998 and 1997, respectively. These
expenses exceeded sales revenues because of 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 during the periods presented.
The Company's selling and marketing efforts require significant expenditures,
the majority of which must be expensed in the current period, while the related
sales revenues are generally deferred and recognized on a straight-line basis
over the expected life of the memberships sold. As a consequence, the Company
expects that its selling and marketing expenses will continue to exceed its
campground membership sales revenue. This disparity will increase if the Company
is successful in growing its membership sales.
The Company's selling and marketing efforts have not produced the level of sales
needed to stop the continuing decline in the Company's membership base. If the
Company is not able to significantly increase its campground membership sales
over current levels, the membership base will continue to decline, which will
further decrease the Company's revenues. Further decreases in revenues that are
not offset by sufficient expense reductions could have a material adverse impact
on the Company's business and results of operations.
CAMPGROUND MANAGEMENT. Wilderness Mgmt. manages 130 public campgrounds for the
US Forest Service. For the six months ended December 31, 1998, these operations
produced a net contribution of $255,000 on revenues of $1.7 million, compared
with a net contribution of $182,000 on revenues of $895,000 for the same period
last year. The increases in net contribution and revenues between periods was
due primarily to new contracts entered into in the spring of 1998, which
significantly increased the number of campgrounds managed. The revenues and
expenses related to the campground management operations are included in other
campground/resort revenue and campground/resort operating expenses in the
consolidated statement of operations.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the approximately 325 campgrounds participating in
RPI's reciprocal use system, subject to certain limitations. For the six months
ended December 31, 1998, RPI's operations produced a net contribution of
$678,000 on revenues of $1.7 million, compared with a contribution of $774,000
on revenues of $1.7 million for the same period last year. The decrease in the
net contribution between periods was due primarily to higher costs associated
with directories provided to new members in the first quarter of fiscal 1999.
Page 20
<PAGE> 21
RESORT OPERATIONS. The Company's resort operations presently consist solely of
the sale of residential lots and other miscellaneous real estate at three
resorts. For the six months ended December 31, 1998, the resort operations
produced a loss of $46,000 on revenues of $81,000, compared with a net
contribution of $206,000 on revenues of $958,000 for the same period last year.
The prior year results include a bulk sale of lots that did not require the
payment of commissions, and revenues and expenses related to selling property
and managing the amenities at one resort. The amenities previously managed by
the Company were transferred to the resort's property owners' association during
fiscal 1998. The Company does not expect a positive contribution from the resort
operations in the future as its continues its efforts to sell the remaining
assets it owns at the resorts.
INTEREST INCOME AND EXPENSE. Interest income was $1.1 million for the six months
ended December 31, 1998, compared with $1.2 for the same period last year.
During these periods, interest income included amortization of the allowances
for interest and valuation discounts related to the contracts receivable of
$109,000 and $134,000, respectively. There was only a slight decline in interest
income between periods because, in the current period, the decrease in interest
income from the Company's diminishing portfolio of contracts receivable was
substantially offset by an increase in interest income from invested cash. The
interest earned on the Company's portfolio of contracts receivable will continue
to decrease in the future as the portfolio declines. In addition, the interest
earned on invested cash will be significantly lower in future periods as the
Company used substantially all of its existing cash in the current quarter to
partially fund the redemption of the PIK Notes.
Interest expense was $2.0 million for the six months ended December 31, 1998,
compared with $2.5 million for the same period last year. The $465,000 decrease
in interest expense between periods was due primarily to repayments of
outstanding debt during the periods. In the third quarter of fiscal 1998, the
Company repaid all then outstanding borrowings under the Credit Agreement and
all remaining mortgage notes. In addition, on December 15, 1998, the Company
completed the redemption of all $34.8 million principal amount of PIK Notes
outstanding. The Company funded this redemption with $12.5 million of its
existing cash and $24.0 million of new borrowings under the amended Credit
Agreement. The redemption of the PIK Notes lowered the Company's outstanding
debt and is expected to lower its interest expense in future periods. However,
in contrast to the interest on the PIK Notes that could be paid in the form of
additional PIK Notes, the interest on the borrowings under the amended Credit
Agreement must be paid in cash on a monthly basis.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of $1.1
million for the six months ended December 31, 1998, compared with $3.7 million
for the same period last year. The decrease in the current period was due to the
timing of asset sales. The gain in the current period resulted primarily from
the sale of acreage not related to the campground operations. Over the next
several years, the Company intends to dispose of the remaining land that it
holds for sale and any campgrounds that are closed as the Company downsizes. The
sale of campgrounds requires addressing the rights of members associated with
such campgrounds. The impact of these rights is uncertain and could adversely
affect the availability or timing of sale opportunities or the ability of the
Company to realize recoveries from asset sales. In addition, although the
Company has successfully sold assets during the past several years, no assurance
exists that the Company will be able to locate a buyer for any of the remaining
assets or that sales on acceptable terms can be made.
Page 21
<PAGE> 22
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, settlements received on defaulted contracts and delinquent
dues, and subscription fees received from members who subscribe to the Company's
member magazine. Other income was $1.4 million for the six months ended December
31, 1998, compared with $1.8 million for the same period last year. The decrease
between periods was due, in part, to lower settlements received on defaulted
contracts and delinquent dues in the current period. The Company also had
$495,000 of nonrecurring income in the prior period resulting from a refund of
deposits made in previous years to cover workers' compensation claims in excess
of those covered by the standard premium paid by the Company. These deposits
were expensed in the years the deposits were made because the Company
anticipated that the deposits would be used to cover workers' compensation
claims.
ADMINISTRATIVE EXPENSES. Administrative expenses, including corporate member
service costs and general and administrative expenses, were approximately $4.9
million for the six months ended December 31, 1998 and 1997.
INCOME TAXES. The Company's current provision for income taxes was $12,000 for
the six months ended December 31, 1998, compared with $232,000 for the same
period last year. The current provisions for these periods include amounts for
federal alternative minimum taxes and state income taxes payable in the various
states where the Company conducts its operations. With the exception of federal
alternative minimum taxes, the Company does not have federal income taxes
payable on a consolidated basis due to its net operating tax loss carryforwards,
which were estimated to total $26.9 million at June 30, 1998.
The Company recorded a deferred tax provision of $1.0 million for the six months
ended December 31, 1998. At June 30, 1998, the Company reduced the valuation
allowance related to its net deferred tax assets by $10.0 million because
management determined it was more likely than not that the Company would realize
the benefits of a significant portion of the net deferred tax assets. The net
deferred tax assets had previously been fully reserved. The Company will
continue to record a deferred tax provision in future periods as the related
deferred tax assets are realized. The deferred tax provision will not affect
current or future income tax payments, but will result in higher tax provisions
in the future in the periods the related deferred tax assets are realized.
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
NET INCOME. The Company reported net income of $2.1 million or $.24 per diluted
share on revenues of $15.7 million for the three months ended December 31, 1998.
This compares with net income of $2.5 million or $.29 per diluted share on
revenues of $16.1 million for the same period last year. Although the Company
reduced operating expenses in the current period, its revenues declined by a
greater amount, which resulted in the decline in net income between periods.
The table on the following page shows separately the results of the campground
operations, Wilderness Mgmt., Resort Parks International, and resort operations,
without any allocation of corporate expenses, as well as corporate expenses and
other revenues and expenses in the aggregate, for the three months ended
December 31, 1998 and 1997.
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<PAGE> 23
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,202 9,299
Campground revenues 2,770 2,674
Cost of campground revenues (1,502) (1,233)
Operating expenses (6,510) (6,926)
------------ ------------
Contribution from campground operations 3,960 3,814
------------ ------------
SALES
Sales revenues 911 788
Selling expenses (779) (588)
Marketing expenses (462) (348)
------------ ------------
Loss on sales (330) (148)
------------ ------------
WILDERNESS MGMT
Revenues 41 47
Expenses (221) (69)
------------ ------------
Loss from Wilderness Mgmt (180) (22)
------------ ------------
RESORT PARKS INTERNATIONAL
Revenues 721 820
Expenses (480) (496)
------------ ------------
Contribution from RPI 241 324
------------ ------------
RESORT OPERATIONS
Revenues 25 426
Expenses (55) (302)
------------ ------------
Contribution (loss) from resort operations (30) 124
------------ ------------
3,661 4,092
------------ ------------
Other income 548 670
Corporate member services (306) (318)
General and administrative expenses (2,125) (2,103)
------------ ------------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET SALES, NONRECURRING
INCOME AND TAXES 1,778 2,341
------------ ------------
Interest income 500 530
Interest expense (959) (1,137)
Gain on asset sales 1,018 329
Nonrecurring income -- 495
------------ ------------
OPERATING INCOME BEFORE TAXES $ 2,337 $ 2,558
============ ============
</TABLE>
Page 23
<PAGE> 24
OPERATING INCOME. During the three months ended December 31, 1998, the Company's
contribution from operations was $1.8 million, a decrease of $563,000 from the
$2.3 million achieved in the same period last year. The decrease was due
primarily to a higher loss from sales operations, a lower contribution from the
Company's reciprocal use and resort businesses, and a decrease in other income.
For this purpose, the contribution from operations is defined as operating
income before interest income and expense, gain on asset sales, nonrecurring
income and taxes. See the table on the previous page for the elements of the
contribution from operations and the Company's operating income before taxes for
the historical periods presented.
CAMPGROUND OPERATIONS. Campground membership dues revenue was $9.2 million for
the three months ended December 31, 1998, compared with $9.3 million for the
same period last year. The slight decline in dues revenue was due primarily to
the net loss of campground members during the year, partially offset by the
effect of the annual dues increase.
Campground revenues were $2.8 million for the three months ended December 31,
1998, compared with $2.7 million for the same period last year. The related
expenses were $1.5 million for the three months ended December 31, 1998,
compared with $1.2 million for the same period last year. The increase in
campground revenues and related expenses in the current period was due primarily
to a greater emphasis on the ancillary revenue programs at the campgrounds.
Campground operating expenses were $6.5 million for the three months ended
December 31, 1998, compared with $6.9 million for the same period last year. The
decrease in expenses in the current period reflects the effects of the closure
and sale of two campgrounds in the second quarter of fiscal 1998, as well as the
Company's continuing efforts to reduce operating expenses.
For the three months ended December 31, 1998 and 1997, the Company recognized
campground membership sales revenues of $911,000 and $788,000, respectively.
These amounts include revenues of $748,000 and $610,000, respectively, that were
deferred in prior periods. Moreover, during these same periods, the Company
deferred revenues of $664,000 and $808,000, respectively, which are recognized
in subsequent periods. Sales revenues increased in the current period due
primarily to the effect of the deferral accounting. Sales revenue included in
the current period that had been deferred in earlier periods exceeded the sales
revenue that was deferred in the current period. In contrast, the sales revenue
that was deferred in the prior period exceeded the sales revenue included in
such period that had been deferred in earlier periods. Excluding the effect of
the deferral accounting, sale revenues declined slightly in the current period
due primarily to the sale of fewer membership upgrades.
For the three months ended December 31, 1998 and 1997, the Company recognized
selling expenses of $779,000 and $588,000, respectively. These amounts include
expenses of $164,000 and $139,000, respectively, that were deferred in prior
periods. Moreover, for these same periods, the Company deferred expenses of
$343,000 and $207,000, respectively, which are recognized in subsequent periods.
Selling and marketing expenses exceeded sales revenues by $330,000 and $148,000
for the three months ended December 31, 1998 and 1997, respectively. These
expenses exceeded sales
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<PAGE> 25
revenues because of increased marketing activity and the low volume of sales,
which did not cover fixed costs.
CAMPGROUND MANAGEMENT. For the three months ended December 31, 1998, the
operations of Wilderness Mgmt. produced a loss of $180,000 on revenues of
$41,000, compared with a loss of $22,000 on revenues of $47,000 for the same
period last year. The loss increased in the current period because of higher
expenses resulting from the management of a greater number of campgrounds in the
current period and a requirement to keep such campgrounds open for a specific
period of time regardless of usage. The campground management operations
generally incur a loss during the second fiscal quarter due to fixed expenses
and the seasonal closure of the campgrounds. The revenues and expenses related
to these operations are included in other campground/resort revenue and
campground/resort operating expenses in the consolidated statement of
operations.
RESORT PARKS INTERNATIONAL. For the three months ended December 31, 1998, RPI's
operations produced a net contribution of $241,000 on revenues of $721,000,
compared with a net contribution of $324,000 on revenues of $820,000 for the
same period last year. Although RPI reduced its operating expenses slightly in
the current period, its revenues declined by a greater amount, which resulted in
the decline in the net contribution between periods.
RESORT OPERATIONS. For the three months ended December 31, 1998, the resort
operations produced a loss of $30,000 on revenues of $25,000, compared with a
net contribution of $124,000 on revenues of $426,000 for the same period last
year. The prior year results include a bulk sale of lots that did not require
the payment of commissions, and revenues and expenses related to selling
property and managing the amenities at one resort. The amenities previously
managed by the Company were transferred to the resort's property owners'
association during fiscal 1998.
INTEREST INCOME AND EXPENSE. Interest income was $500,000 for the three months
ended December 31, 1998, compared with $530,000 for the same period last year.
During these periods, interest income included amortization of the allowances
for interest and valuation discounts related to the contracts receivable of
$49,000 and $68,000, respectively. There was only a slight decline in interest
income between periods because, in the current period, the decrease in interest
income from the Company's diminishing portfolio of contracts receivable was
substantially offset by an increase in interest income from invested cash.
Interest expense was $959,000 for the three months ended December 31, 1998,
compared with $1.1 million for the same period last year. The $178,000 decrease
in interest expense between periods was due primarily to repayments of
outstanding debt during the periods.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of $1.0
million for the three months ended December 31, 1998, compared with $329,000 for
the same period last year. The increase in the current period was due to the
timing of asset sales.
OTHER INCOME. Other income was $548,000 for the three months ended December 31,
1998, compared with $670,000 for the same period last year. The decrease between
periods was due, in part, to lower settlements received on defaulted contracts
and delinquent dues in the current period. The Company also had $495,000 of
nonrecurring income in the prior period resulting from a refund of deposits made
in previous years to cover workers' compensation claims in
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<PAGE> 26
excess of those covered by the standard premium paid by the Company. These
deposits were expensed in the years the deposits were made because the Company
anticipated that the deposits would be used to cover workers' compensation
claims.
ADMINISTRATIVE EXPENSES. Administrative expenses, including corporate member
service costs and general and administrative expenses, were approximately $2.4
million for the three months ended December 31, 1998 and 1997.
INCOME TAXES. The Company had a current income tax benefit of $249,000 for the
three months ended December 31, 1998, compared with a current income tax
provision of $58,000 for the same period last year. The income tax benefit in
the current period arose primarily from the reversal of income taxes accrued
during the first quarter. This reversal resulted from the redemption of the PIK
Notes in December 1998 which allowed the Company to deduct the interest
previously paid on the PIK Notes in the form of additional PIK Notes. This
deduction reduced the Company's anticipated income tax liability for the year.
The Company recorded a deferred tax provision of $533,000 for the three months
ended December 31, 1998.
INFLATION. During the past several fiscal years, the Company's results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by the campground members
because the Company cannot increase the dues on existing contracts of senior
citizens and disabled members who notify the Company of their age or disability
and request that their dues be frozen. At the present time, approximately 35% of
the members have requested that their dues be frozen because of their age or
disability.
IMPACT OF YEAR 2000. Based on recent assessments, the Company has determined
that it must modify certain software and replace certain hardware so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has begun making the internal software modifications
and anticipates completing the year 2000 project by June 30, 1999. These
modifications, if timely completed, will avoid any material impact on its
operating systems. The Company spent approximately $75,000 during the six months
ended December 31, 1998 on year 2000 modifications, and currently estimates that
it will spend an additional $200,000 during the remainder of the fiscal year to
make the necessary enhancements to its hardware and software. These expenditures
will not significantly impact the Company's financial position, operations, or
cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently does not have any derivative financial instruments.
However, the Company does have other financial instruments that contain market
risk. Management believes that the market risk associated with the Company's
financial instruments as of December 31, 1998 is not significant. The
information required by Item 305 of S-K is contained in Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Market Risk and Interest Rate Sensitivity," which is incorporated
herein by reference.
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<PAGE> 27
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On December 10, 1998, the Company held its annual meeting of stockholders. As of
the record date for the meeting, the Company had 7,511,708 shares of common
stock outstanding, of which 6,940,320 shares were represented at the meeting in
person or by proxy. The stockholders took the following actions at the meeting.
1. The stockholders elected the six members of the Board of Directors of the
Company who will serve until the next annual meeting of stockholders and
until their successors are elected and qualified. The six directors and the
votes cast for and withheld for each of them were as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Andrew M. Boas 6,666,483 4,980
William P. Kovacs 6,666,483 4,980
Donald R. Leopold 6,666,483 4,980
H. Sean Mathis 6,666,483 4,980
Douglas K. Nelson 6,666,483 4,980
William J. Shaw 6,666,483 4,980
</TABLE>
2. The stockholders ratified the appointment of Arthur Andersen LLP as the
independent certified public accountants for the Company for the fiscal
year ending June 30, 1999. The votes cast for, votes cast against, and
abstentions were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
6,668,483 2,780 200
</TABLE>
Page 27
<PAGE> 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.1 Amendment dated as of December 10, 1998 to the Employment
Agreement between the Company and William J. Shaw.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the six and three months ended
December 31, 1998.
</TABLE>
REPORTS ON FORM 8-K
On December 22, 1998, the Company filed with the SEC a Current Report on Form
8-K reporting under Item 5 the redemption of the PIK Notes.
Page 28
<PAGE> 29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOUSAND TRAILS, INC.
Date: February 12, 1999 By: /s/William J. Shaw
-------------------------------
William J. Shaw
President, Chief Executive Officer
and acting Chief Financial Officer
Date: February 12, 1999 By: /s/Bryan D. Reed
-------------------------------
Bryan D. Reed
Chief Accounting Officer
Page 29
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.1 Amendment dated as of December 10, 1998 to the Employment
Agreement between the Company and William J. Shaw.
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule for the six and three months ended
December 31, 1998.
</TABLE>
Page 30
<PAGE> 31
EXHIBIT 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement, dated as of the 10th day of
December, 1998, is between Thousand Trails, Inc., a Delaware Corporation (the
"Corporation"), and William J. Shaw, a resident of Frisco, Texas (the
"Executive").
RECITALS
The Corporation and the Executive entered into an Employment Agreement,
dated as of May 5, 1995 (the "Employment Agreement"). The Executive has
requested, and the Board of Directors of the Corporation has approved, an
amendment to the Employment Agreement as set forth herein.
AGREEMENTS
In consideration of the mutual covenants and promises set forth herein
and other good and valuable consideration, the Corporation and the Executive
agree as follows:
1. AMENDMENT OF SECTION 3B. Section 3B of the Employment Agreement is
hereby amended in its entirety to read as follows:
"SECTION 3B. CHANGE IN CONTROL BONUS. In addition to all other
compensation payable to the Executive under this Employment Agreement, if
during the Term of Employment a Change in Control (as hereinafter defined)
occurs, the Corporation shall pay to the Executive a cash bonus in an
amount equal to the Executive's then current Base Salary multiplied by two
(the "Change in Control Bonus"). The Corporation shall pay, or cause NACO
to pay, the Change in Control Bonus to the Executive promptly after the
Corporation becomes aware of the occurrence of a Change in Control.
(a) A "Change in Control" shall mean an Unaffiliated Person's (as
hereinafter defined) purchase from the Major Shareholder (as
hereinafter defined) of 42% or more of the outstanding shares of
Common Stock after the date of this Employment Agreement.
(b) An "Unaffiliated Person" shall mean a person or group of persons
acting together other than: (i) the Executive, an affiliate of the
Executive, or any member of his immediate family, (ii) the
Corporation, any subsidiary of the Corporation, or any employee
benefit plan of the Corporation or any of its subsidiaries, or (iii)
the Major Shareholder, any person who is part of the Major
Shareholder, any affiliate of the Major Shareholder or any such
person or any member of the immediate family of any such affiliate or
person.
- 1 -
<PAGE> 32
EXHIBIT 10.1
(c) The "Major Shareholder" shall mean Carl Marks Management Co., L.P.
and the persons whose shares of Common Stock it is described as
beneficially owning in the Corporation's most recent annual meeting
proxy statement prior to the date of this Employment Agreement.
(d) For purposes of this Section 3B, a Change of Control can occur only
once.
(e) Notwithstanding anything to the contrary in this Section 3B, however,
if the Change in Control Bonus, along with any other payments to the
Executive, would be subject to any excise tax, including the excise
tax on excess parachute payments set forth in Section 4999 of the
Internal Revenue Code of 1986, as amended, then the amount of the
Change in Control Bonus shall be decreased to the extent that such
decrease would cause the Executive to receive a greater net amount
with respect to the Change in Control Bonus after consideration of
applicable excise and income taxes."
2. RATIFICATION. Except as modified by the terms of this Amendment, the
terms of the Employment Agreement are hereby ratified and shall continue in full
force and effect.
Executed as of the day and year first above written.
THOUSAND TRAILS, INC.
/s/ Walter B. Jaccard
---------------------------------
Walter B. Jaccard, Vice President
THE EXECUTIVE
/s/ William J. Shaw
---------------------------------
William J. Shaw
- 2 -
<PAGE> 33
Exhibit 11.1
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,485 7,390
============ ============
Net income allocable to common shareholders $ 3,515 $ 8,486
============ ============
Net income per common share -- basic $ 0.47 $ 1.15
============ ============
DILUTED:
Weighted average number of common shares outstanding 7,485 7,390
Weighted average common stock equivalents -
Dilutive options 938 986
Dilutive warrants 6 34
------------ ------------
Weighted average number of common shares outstanding 8,429 8,410
============ ============
Net income allocable to common shareholders $ 3,515 $ 8,486
============ ============
Net income per common share -- diluted $ 0.42 $ 1.01
============ ============
</TABLE>
Page 1 of 2
<PAGE> 34
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
BASIC:
Weighted average number of common shares outstanding 7,512 7,393
============ ============
Net income allocable to common shareholders $ 2,053 $ 2,500
============ ============
Net income per common share -- basic $ 0.27 $ 0.34
============ ============
DILUTED:
Weighted average number of common shares outstanding 7,512 7,393
Weighted average common stock equivalents -
Dilutive options 907 1,033
Dilutive warrants 6 64
------------ ------------
Weighted average number of common shares outstanding 8,425 8,490
============ ============
Net income allocable to common shareholders $ 2,053 $ 2,500
============ ============
Net income per common share -- diluted $ 0.24 $ 0.29
============ ============
</TABLE>
Page 2 of 2
<PAGE> 35
[ARTICLE] 5
[MULTIPLIER] 1,000
[CURRENCY] US DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] JUN-30-1999
[PERIOD-START] JUL-01-1998
[PERIOD-END] DEC-31-1998
[EXCHANGE-RATE] 1
[CASH] 1174
[SECURITIES] 0
[RECEIVABLES] 2510
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 7,853
[PP&E] 21,274
[DEPRECIATION] 0
[TOTAL-ASSETS] 57,393
[CURRENT-LIABILITIES] 27,486
[BONDS] 18,988
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 75
[OTHER-SE] 6,385
[TOTAL-LIABILITY-AND-EQUITY] 57,393
[SALES] 1,909
[TOTAL-REVENUES] 36,197
[CGS] 0
[TOTAL-COSTS] 31,652
[OTHER-EXPENSES] 29,615
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 2,037
[INCOME-PRETAX] 4,545
[INCOME-TAX] (1,030)
[INCOME-CONTINUING] 3,515
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,515
[EPS-PRIMARY] .47
[EPS-DILUTED] .42
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated September 4, 1998, on the consolidated financial statements of Thousand
Trails, Inc. and Subsidiaries (and to all references to our Firm), incorporated
by reference in the Pre-Effective Amendment No 1 to the Post Effective Amendment
No 2 to the Registration Statement on Form S-2.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas,
March 9, 1999
