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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1 to
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
JUNE 5, 1996
- --------------------------------------------------------------------------------
(Date of Report--Date of Earliest Event Reported)
USTRAILS INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
NEVADA 0-19743 75-2138671
- ----------------------- ----------------- ---------------------------
(State or Other (Commission (IRS Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
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(Address of Principal Executive Offices)
(214) 243-2228
---------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
INAPPLICABLE
----------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
EXHIBIT INDEX ON PAGE 4.
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The following item is hereby amended and restated in its entirety:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
EXHIBITS
NO. DESCRIPTION
- --- -----------
99.1 Press Release, dated June 5, 1996.*
99.2 Offer to Purchase for Cash, dated June 5, 1996.
[SIGNATURE ON THE NEXT PAGE]
__________________
*Previously Filed
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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 hereunto duly authorized.
Dated: June 14, 1996
USTRAILS INC.
By: \s\ Walter B. Jaccard
-----------------------
Walter B. Jaccard
Vice President
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EXHIBIT INDEX
PAGE
NO. DESCRIPTION NO.
- --- ----------- ----
99.1 Press Release, dated June 5, 1996............................... *
99.2 Offer to Purchase, dated June 5, 1996........................... 5
- ---------------------
* Previously filed.
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EXHIBIT 99.2
OFFER TO PURCHASE FOR CASH
UP TO $20,161,000 AGGREGATE PRINCIPAL AMOUNT
OF
USTRAILS INC. 12% SECURED NOTES DUE 1998 AND ADDITIONAL SERIES 12%
SECURED NOTES DUE 1998
AT $740, PLUS INTEREST, PER $1,000 OF PRINCIPAL AMOUNT
BY
USTRAILS INC.
THIS OFFER WILL TERMINATE AND THE WITHDRAWAL RIGHTS WITH
RESPECT HERETO WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN TIME,
ON TUESDAY, JULY 2, 1996, UNLESS EXTENDED.
-----------------------------------------------------------
USTrails Inc., a Nevada corporation (the "Company"), hereby offers to
purchase for cash up to $20,161,000 aggregate principal amount of its 12%
Secured Notes Due 1998 (the "Initial Series Notes") and Additional Series 12%
Secured Notes Due 1998 (the "Additional Series Notes", and collectively with the
Initial Series Notes, the "Secured Notes") for a purchase price of $740 per
$1,000 of principal amount (the "Purchase Price"), plus interest through July
15, 1996. This offer (this "Offer") is subject to the terms and conditions set
forth herein and in the Letter of Transmittal enclosed herewith (the "Letter of
Transmittal").
Any Secured Noteholder desiring to tender all or some of its Secured Notes
should complete and sign the Letter of Transmittal in accordance with the
instructions herein and therein, and deliver it along with the certificates for
such Secured Notes and any other required documents to Fleet National Bank (the
"Depositary") at one of the addresses set forth on the back cover of this Offer
to Purchase (this "Offer to Purchase"). Alternatively, a financial institution
may be able to tender its Secured Notes pursuant to the book-entry transfer
procedures set forth herein. If a Secured Noteholder cannot comply with such
procedures, it may tender its Secured Notes through the guaranteed delivery
procedures set forth herein. A holder of Secured Notes registered in the name
of a bank, broker, custodian, fiduciary, nominee, securities dealer, trust
company, or other person must contact such person if it desires to tender its
Secured Notes and request such other person to effect the transaction on its
behalf.
This Offer is being made in connection with the Company's proposed
restructuring of the outstanding debt represented by the Secured Notes (the
"Restructuring Transaction"). The Company has proposed that certain Secured
Noteholders exchange all Secured Notes held by them for a combination of cash
and newly issued debt and equity securities of the Company (the "Exchange
Offer"). Each Secured Noteholder participating in the Exchange Offer (the
"Exchanging Noteholders") will be required as a condition of the exchange to
agree not to tender its Secured Notes pursuant to this Offer but only to
exchange them pursuant to the Exchange Offer.
Consummation of this Offer is conditioned upon, among other things, (i)
there being validly tendered pursuant to this Offer and not withdrawn prior to
the Expiration Date not less than
(cover continued on next page)
___________________________
NEITHER THIS OFFER NOR THE RESTRUCTURING TRANSACTION HAS BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
AUTHORITY NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON THE FAIRNESS
OR MERITS OF THIS OFFER OR THE RESTRUCTURING TRANSACTION NOR UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
___________________________
The Information Agent for this Offer is:
HILL & KNOWLTON, INC.
June 5, 1996
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$13,000,000 (approximately 12.8%) in aggregate principal amount of Secured Notes
(the "Minimum Tender Condition"), (ii) the exchange by Exchanging Noteholders of
Secured Notes representing at least $81,300,000 (approximately 80.1%) in
aggregate principal amount of Secured Notes for cash and newly issued debt and
equity securities of the Company pursuant to the Exchange Offer (the "Minimum
Exchange Condition") and (iii) receipt by the Company of senior secured
financing on terms acceptable to it that, with the Company's available cash, is
sufficient to purchase the Secured Notes tendered pursuant to this Offer, to
consummate the Exchange Offer and to redeem all untendered or unexchanged
Secured Notes as contemplated by the Restructuring Transaction. This Offer is
also subject to other terms and conditions. See "Certain Conditions of the
Offer."
Questions and requests for assistance and additional copies of this Offer to
Purchase and the Letter of Transmittal may be directed to the Information Agent
at its address and telephone number set forth on the back cover of this Offer to
Purchase.
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TABLE OF CONTENTS
Page
----
INTRODUCTION.................................................1
Purpose of this Offer...................................1
Restructuring Transaction...............................1
Summary Capitalization..................................2
Required Financing and Exchange.........................2
Effect of Unsuccessful Restructuring....................2
BACKGROUND TO THIS OFFER.....................................3
The Company.............................................3
History of Financial Troubles/1991 Bankruptcy...........3
Prior Transactions......................................4
Stabilized Operations but Negative Cash Flow............4
Current Business Strategy...............................5
Required Recapitalization or Reorganization.............5
Events Leading to Restructuring.........................5
SPECIAL CONSIDERATIONS.......................................9
Special Committee Approval..............................9
Limited Cash Availability...............................9
Historical Prices.......................................9
Current Business Plan..................................10
Appraisals/Member Rights...............................11
Limited Redemption.....................................11
Effect of Unsuccessful Restructuring...................12
TERMS OF THE RESTRUCTURING TRANSACTION......................12
General................................................12
Exchange Offer.........................................13
Redemption.............................................15
Effect on Stockholders.................................15
SOURCE AND AMOUNT OF FUNDS..................................15
General................................................15
Terms of the Senior Secured Credit Facility............15
INTERESTS OF MANAGEMENT AND OTHERS..........................16
HISTORICAL AND PRO FORMA CAPITALIZATION.....................18
SELECTED AND PRO FORMA FINANCIAL DATA.......................19
CERTAIN CONDITIONS OF THE OFFER.............................22
THE TENDER OFFER............................................23
Terms of this Offer....................................23
Procedure for Tendering Secured Notes..................24
Payment for Accepted Secured Notes.....................25
Withdrawal Rights......................................26
No Proration...........................................26
Information Agent......................................26
CIBC Wood Gundy........................................27
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Rauscher Pierce Refsnes, Inc.................................27
Depositary...................................................27
DESCRIPTION OF THE COMPANY'S BUSINESS.............................27
General......................................................27
Campground Operations........................................27
Campground Management........................................29
Resort Operations............................................29
Contracts Receivable.........................................29
Financial Information........................................30
Recent Operating Strategy....................................30
Management...................................................32
THE SECURED NOTES.................................................32
General......................................................32
Payment Terms and Trading....................................32
Redemption, Retirement, and Purchase.........................33
Subsidiary Guarantees........................................33
Security Interests...........................................34
Financial Covenants..........................................36
Limitations on Additional Indebtedness.......................36
Other Covenants..............................................36
Events of Default............................................36
Different Circumstances of Each Series of Secured Notes......37
Tax Treatment................................................37
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.........................37
Sale of Notes Pursuant to this Offer.........................37
Effect of This Offer Upon the Company........................38
Non-Tendering Secured Noteholders............................38
Backup Withholding...........................................38
LEGAL MATTERS.....................................................39
AVAILABLE INFORMATION.............................................39
INFORMATION INCORPORATED BY REFERENCE.............................39
APPENDIX I--DEFINED TERMS.........................................I-1
EXHIBIT A - BUSINESS PLAN.........................................A-1
EXHIBIT B - OPINION OF RAUSCHER PIERCE REFSNES, INC...............B-1
EXHIBIT C - SUMMARY OF APPRAISALS.................................C-1
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JUNE 30, 1995 (delivered herewith)
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1996 (delivered herewith)
ii
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INTRODUCTION
PURPOSE OF THIS OFFER
The purpose of this Offer is to enable the Company to consummate the
Restructuring Transaction, which will result in the retirement of all of the
Secured Notes and a new capital structure for the Company.
Since emerging from Chapter 11 proceedings in 1991, the Company has not had
sufficient earnings to cover its fixed charges, principally the payment
obligations under the Secured Notes. To meet its cash flow deficiencies, the
Company has relied primarily upon collections from its portfolio of contracts
receivable, which is not being replenished materially. The remaining balances
of these contracts receivable, the sale of non-core assets and the
continuation of the Company's recently achieved operating cash flow are not
expected to be sufficient to meet the principal payment obligations due July
15, 1997 and at maturity under the Secured Notes. Moreover, the resources
available to the Company may be insufficient both to meet the continuing
operating needs of the Company and to make the mandatory sinking fund and
interest payments due on July 15, 1996. Additionally, the Company will not be
able to comply with the financial covenants of the Indenture, which have been
waived through June 30, 1996, at the September 30, 1996 measurement date.
The Restructuring Transaction is intended to permit the Company to build
upon its successful operating results in fiscal 1996 by providing a new
capital structure which is consistent with, and provides the opportunity to
achieve, the Company's business plan, which is attached hereto as Exhibit A
(the "Business Plan"). The Business Plan contemplates downsizing the Company
to a level appropriate to a stable membership base, the collection of the
remaining contracts receivable and the sale of non-core assets. Because the
Company's membership base is declining at a significant rate, stabilization
will require several years and sales significantly in excess of current
levels. Moreover, the timing and amount of asset sales cannot be assured. As
a consequence, the actual operating results achieved through implementation of
the Business Plan are uncertain and may vary significantly from those
contemplated by the Business Plan.
RESTRUCTURING TRANSACTION
The Restructuring Transaction has been proposed by the Company after
discussions with a committee of Secured Noteholders (the "Steering
Committee"), Carl Marks Strategic Investments, L.P. (together with its
affiliates, "CM Strategic") and CIBC Wood Gundy Securities Corp. ("CIBC Wood
Gundy"), which has acted as the financial advisor to both the Company and
certain Secured Noteholders. The following table summarizes the consideration
to be received by Secured Noteholders tendering pursuant to this Offer
("Tendering Noteholders") and by Exchanging Noteholders, in each case per
$1,000 in principal amount of Secured Notes.
TENDERING EXCHANGING
CONSIDERATION NOTEHOLDERS NOTEHOLDERS
- ------------- ----------- -----------
Cash $740.00 $400.00
Accrued interest $ 60.00 $ 60.00
Principal amount of Senior Surbordinated $369.00
PIK Notes
Principal amount of Junior Subordinated $ 61.50
PIK Notes
Common Stock 23 shares
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SUMMARY CAPITALIZATION
The following table summarizes the capital structure of the Company as of
June 30, 1996 (i) estimated without consummation of the Restructuring
Transaction and (ii) pro forma for the consummation of the Restructuring
Transaction assuming receipt of a $30 million secured term loan and a secured
working capital facility and satisfaction of the Minimum Exchange Condition
and Minimum Tender Condition.
AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)
ESTIMATED PRO FORMA
----------- ----------
Cash $ 33,380 $ 5,491
========== ==========
Secured Notes, gross 101,500
Debt discount (7,000)
----------
Secured Notes, net 94,500
Working Capital Facility
Term Loan 30,000
Other mortgages 940 940
Senior Subordinated PIK Notes 30,000
Junior Subordinated PIK Notes 5,000
Deferred gain on exchange to be
classified as 7,559
additional subordinated debt under
FAS 15
Total debt $ 95,440 $ 73,499
========== ==========
Shares of Common Stock outstanding (1) 3,702,726 5,572,626
---------- ----------
-----------------
(1) Does not include warrants to purchase 494,922 shares of Common Stock and
options to purchase 305,000 shares of Common Stock.
REQUIRED FINANCING AND EXCHANGE
The Company has proposed terms for a secured term loan and working capital
facility to certain financial institutions, but has not yet received a
commitment for such financing. The Company has contacted all Secured
Noteholders that may be involved in the Exchange Offer, but has not yet
received a commitment from any Secured Noteholder. The Company's two largest
Secured Noteholders, however, have advised the Company that they support the
Restructuring Transaction and intend to exchange their Secured Notes in the
Exchange Offer. Consummation of the Restructuring Transaction will require
the combined participation of holders of not less than $94.4 million
(approximately 92.9%) in aggregate principal amount of the Secured Notes in
this Offer and the Exchange Offer.
EFFECT OF UNSUCCESSFUL RESTRUCTURING
If the Company's attempt to restructure is unsuccessful, management believes
that the resources available to the Company may be insufficient both to meet
the continuing operating needs of the Company in accordance with the Business
Plan and to make the mandatory sinking fund and interest payments due on July
15, 1996. Under the terms of the Indenture, if the Company fails to make a
payment of principal or interest or defaults under the financial covenants, it
is prohibited from making withdrawals from its cash accounts except for a one-
time withdrawal of up to $5 million, which would be insufficient to meet the
business needs of the
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Company during the summer season, the period of highest demand for working
capital. Under such circumstances the Company may be forced to seek relief
under the United States Bankruptcy Code or attempt to operate at significantly
reduced levels and recapitalize or reorganize at a later date. The Company
believes that its ongoing operations, particularly collections of contracts
receivable and membership dues and sales efforts, will be materially adversely
affected by either the commencement of bankruptcy proceedings or continued
operations at significantly reduced levels. As a result, there can be no
assurance that a bankruptcy reorganization or a later recapitalization or
reorganization would not be significantly less favorable to the Secured
Noteholders than the proposed Restructuring Transaction.
BACKGROUND TO THIS OFFER
THE COMPANY
The Company owns and operates through its subsidiaries a system of 58
membership-based campgrounds located in 19 states and British Columbia,
Canada, serving 131,000 members as of March 31, 1996. Through its
subsidiaries, the Company also manages timeshare facilities and owns certain
real estate at eight full service resorts and provides a reciprocal use
program for members of approximately 330 recreational facilities. Unless the
context otherwise requires, the term the Company includes the Company's
subsidiaries.
The Company's operations in the campground and resort business commenced
on June 30, 1991, when the Company acquired 100% of the capital stock of
National American Corporation (collectively with its subsidiaries, "NACO") and
69% of the capital stock of Thousand Trails, Inc. (collectively with its
subsidiaries, "Trails"). On June 3, 1992, the Company increased its ownership
in Trails to 80% through a tender offer. On March 29, 1994, the Company
acquired the remaining 20% of the capital stock of Trails in a merger. Prior
to acquiring NACO and Trails, the Company purchased contracts receivable
generated principally by them from the sale of campground memberships and
resort interests on an installment basis. Apart from its debt and equity
interests in its subsidiaries, the Company's principal assets consist of these
receivables and the cash generated by the receivables and its subsidiaries'
operations.
HISTORY OF FINANCIAL TROUBLES/1991 BANKRUPTCY
In January 1987, in connection with the formation of the Company and its
initial purchase of contracts receivable, the Company publicly issued $149.5
million aggregate principal amount of unsecured senior notes (the "Senior
Notes"). From June 1988, the Company, then an indirect wholly-owned
subsidiary of Southmark Corp. ("Southmark"), purchased $91.7 million principal
amount of publicly traded debt securities of Southmark and $2.5 million
principal amount of publicly traded debt securities of a Southmark affiliate
(collectively, the "Southmark Debt Securities") for an aggregate purchase
price of $52.2 million. Southmark's subsequent financial difficulties and
Chapter 11 reorganization caused the Company to realize a loss of $50.1
million on the Southmark Debt Securities. As a result, the Company was faced
with a deteriorating financial condition, which led, in part, to the Company's
Chapter 11 filing on May 9, 1991. As part of its plan of reorganization, the
Company sought to combine its operations with NACO and Trails and acquired
control of NACO and Trails during the course of the reorganization
proceedings.
Under its plan of reorganization, effective December 31, 1991, the Company
issued $140.9 million in principal amount of Secured Notes and substantially
all of the Common Stock to the holders of the Senior Notes and certain other
indebtedness. In addition, the Company made certain payments and issued
certain securities to the financial advisor of the holders of the Senior Notes
and to the former parent of NACO and Trails. The Company either paid all
other remaining claims in cash or such claims remained unchanged upon
emergence from Chapter 11. Subsequently, on June 12, 1992, the Company issued
the Additional Series Notes with an
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aggregate principal amount of $10.7 million, plus warrants to acquire shares
of Common Stock, in exchange for outstanding 14-5/8% subordinated debt of
Trails having an aggregate principal amount of $8.8 million that was then in
default.
PRIOR TRANSACTIONS
After the issuance of the Initial Series Notes in its reorganization and the
Additional Series Notes thereafter, the Company was highly leveraged, with
outstanding debt of $165 million principal amount as of June 30, 1992, of
which $152 million principal amount constituted Secured Notes. Because the
results under the business plan upon which the Company was reorganized did not
meet expectations, the Company was required to amend the financial covenants
to avoid a default under the Indenture, revise its business plan and seek to
deleverage. The Company has acquired or redeemed an aggregate $50.6 million
principal amount of Secured Notes from time to time and retired $11.0 million
principal amount of secured purchase money indebtedness through repayments or
the sale or abandonment of unprofitable operations secured thereby.
On November 6, 1992, the Company repurchased $1.5 million of Secured Notes
from a single unrelated seller at a cost of $1.1 million, including accrued
interest. On November 20, 1992, the Company repurchased an additional $13.1
million in principal amount of Secured Notes in an auction held by the
Resolution Trust Corporation at a cost of $9.0 million, including accrued
interest. On March 28, 1994, the Company entered into amendments to the
Indenture which modified or eliminated certain financial ratio covenants and
modified certain other covenants in the Indenture. Additionally, pursuant to
the Indenture amendments, on June 6, 1994, the Company repurchased $10.0
million principal amount of Secured Notes at a cost of $8.5 million, including
accrued interest, in a Dutch auction available to all holders of Secured
Notes. On June 23, 1995, the Company entered into an amendment to the
Indenture that eliminated required compliance with the financial covenants of
the Indenture through the June 30, 1996 measurement date. On July 15, 1995,
the Company redeemed $18.6 million of Secured Notes at par as mandated by the
Indenture. On January 31, 1996, the Company repurchased $7.4 million in
principal amount of Secured Notes from unrelated sellers for $5.3 million,
including accrued interest.
The Company has not purchased or sold any Secured Notes during the 40
business days preceding the date hereof. The Company does not know whether
any affiliated person, or any associate or subsidiary thereof, including any
director or executive officer of any such subsidiary, purchased or sold any
Secured Notes during such period. However, members of the Steering Committee
and certain other Secured Noteholders have agreed to restrict their trading of
the Company's securities. See "Events Leading to Restructuring."
STABILIZED OPERATIONS BUT NEGATIVE CASH FLOW
Since reorganizing under Chapter 11 on December 31, 1991, the Company has
decreased its annualized operating expenses by $44.1 million (39%), and
implemented a program under which certain campground members voluntarily
increased their annual dues by an aggregate of $2.1 million. These results
are reflective of trends which have become evident since 1991. The campground
membership sales that resulted in the Company's substantial contracts
receivable portfolio could only be effected at substantial losses due to the
sales and marketing costs involved as well as decreasing demand for the
membership products the Company then offered. As a consequence, in the spring
of 1992, the Company discontinued substantially all of its sales and marketing
activities and concentrated on increasing continuing revenues and decreasing
continuing expenses. The Company has closed eleven campgrounds and changed
other campgrounds to seasonal operations, reduced staff, consolidated its
administrative functions, deferred maintenance and reduced service levels.
The Company has also disposed of certain campgrounds and other non-core
assets. However, during this period the Company's membership base declined
from 167,000 as of December 31, 1991 to 131,000 as of March 31, 1996. The
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membership base is expected to decline at the rate of approximately 8% per
annum during the balance of fiscal 1996. The Company attributes this
continuing decline to its aging membership base, approximately 50% of whom are
senior citizens, and the low level of membership sales during the period.
During fiscal 1996, the Company stabilized its operations, and it presently
expects to achieve a positive contribution from operations for the full fiscal
year of $4.0 to 4.5 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Quarterly Report
delivered herewith. However, despite these improvements, the Company is still
experiencing net losses, excluding nonrecurring and extraordinary items, and
overall negative cash flow. Through fiscal 1996, the Company has funded this
cash flow deficiency with its cash reserves, asset sales and the collections
from the contracts receivable portfolio, which the Company is no longer
replenishing materially.
CURRENT BUSINESS STRATEGY
The Company's current strategy is to continue to improve its ongoing
operations, stabilize its campground membership base through increased sales
and marketing efforts, and determine the appropriate level at which ongoing
operations can be continued. The Company has conducted an extensive marketing
study, has redesigned its membership and other products and developed a sales
and marketing operation, appointing a Vice President of Sales and Marketing in
1995. Consistent with this strategy, the Company intends to downsize its
business by implementing additional cost reduction measures as its membership
base continues to decline. These cost reduction measures will likely include
the closure and disposition of additional campgrounds, additional reductions
in service levels at certain campgrounds, and decreased general and
administrative expenses. The disposition of campgrounds not included in a
downsized business will require 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 disposition opportunities or
the ability of the Company to realize recoveries from asset dispositions. See
"Special Considerations - Appraisals/Member Rights." These cost reduction
measures, and the possibility of campground dispositions, may adversely affect
the collectibility of membership dues and contracts receivable and accelerate
the rate at which the Company is losing members.
REQUIRED RECAPITALIZATION OR REORGANIZATION
The Company continues to be highly leveraged. At March 31, 1996, the
Company had outstanding debt of $103.4 million (excluding trade payables and
the discount on the Secured Notes) and an equity deficit of $23.7 million.
Since the Company emerged from Chapter 11 proceedings, its earnings have been
insufficient to cover its fixed charges. Based upon the Business Plan, the
Company believes that its future cash flow will be insufficient to enable it
to repay the balance of its outstanding Secured Notes at maturity on July 15,
1998 or to make the mandatory redemption of Secured Notes on July 15, 1997.
In addition, the resources available to the Company may be insufficient both
to meet its continuing operating needs and make the mandatory sinking fund and
interest payments due on July 15, 1996. Moreover, the Company presently
expects that it will default under the financial covenants in the Indenture
for the Secured Notes at the September 30, 1996 measurement date, unless
waivers are obtained.
EVENTS LEADING TO RESTRUCTURING
During the spring of 1995, the Board of Directors began to consider
recapitalization or reorganization alternatives for the Company. The Board of
Directors determined that the Company could maximize value for its
securityholders by improving its operations, replenishing its campground
membership base through increased sales and marketing efforts and downsizing
its business to a level at which ongoing operations could be continued. The
Board of Directors also determined that the Company should aggressively
collect its contracts receivable portfolio
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and sell or otherwise dispose of assets that are not essential to its ongoing
operations. As any downsizing would likely include the closure and disposition
of certain campgrounds, the Board of Directors directed the Company's outside
legal counsel to review the rights of members at the campgrounds, and the
Board obtained appraisals of the Company's campgrounds and undeveloped real
estate. See "Special Considerations - Appraisals/Member Rights."
On May 11, 1995, the Board of Directors appointed William J. Shaw as
Chief Executive Officer and President of the Company. Mr. Shaw was provided
an employment contract that contains financial incentives for increasing the
overall enterprise value of the Company, whether through a recapitalization,
reorganization or otherwise. See "Interests of Management and Others." At
the same time, the Board of Directors appointed a special committee of
independent directors (the "Special Committee") to act in connection with a
recapitalization or reorganization of the Company. The Special Committee was
formed, in part, because Andrew M. Boas is a member of the Board of Directors
and his affiliate, CM Strategic, is the beneficial owner of approximately
45.5% of the Common Stock and $22.9 million principal amount of Secured Notes,
representing approximately 21.6% of the outstanding Secured Notes.
Between May 1995 and March 1996, the Company continued to concentrate its
efforts on reducing its operating expenses and refining its sales and
marketing plans. This reflected a judgment that stabilized operations are
central to the realization of value from continuing operations as well as the
realization of additional value through the collection of the Company's
contracts receivable portfolio and the potential recoveries available from
asset sales through downsizing the business.
Effective as of March 19, 1996, with the consent of certain Secured
Noteholders representing approximately 64.5% in aggregate principal amount of
the Secured Notes, the Company retained CIBC Wood Gundy as financial advisor
to advise the Company and these Secured Noteholders on recapitalization and
reorganization alternatives for the Company.
On April 3, 1996, representatives of the Company and CIBC Wood Gundy met
with certain Secured Noteholders, representing in excess of 50% in principal
amount of Secured Notes, and the Trustee for the Secured Notes. At the
meeting, management presented an overview of the Company's business objectives
and strategy and recent financial performance. Certain Secured Noteholders
then excused themselves from the meeting and management presented certain
projected operating results of the Company to the Steering Committee. The
projected results presented are reflected in the Business Plan. The members
of the Steering Committee are SC Fundamental, Inc. (together with its
affiliates, "SC Fundamental") (representing 20.6% outstanding principal
amount), National Bank of Canada (representing 7.5% outstanding principal
amount) and IAT Reinsurance Syndicate, Ltd. (representing 3.4% outstanding
principal amount).
On May 1, 1996, at a meeting of the Board of Directors, CIBC Wood Gundy made
a presentation regarding the Company's recapitalization and reorganization
alternatives. In its presentation, CIBC Wood Gundy reviewed the factors
affecting the Company's current business strategy, including its assumptions
regarding the Company's core business, contracts receivable and assets sales,
and the factors affecting the value of the Company, including the recent
stabilization of the core business and the nature of growth opportunities.
At the meeting, CIBC Wood Gundy recommended a preliminary restructuring plan
involving the delivery of cash, subordinated debt and common and/or preferred
equity to the Secured Noteholders to retire all of the Secured Notes outside
of a Chapter 11 proceeding. The CIBC Wood Gundy recommendation took into
account the possibility that the Company's stabilized operations in fiscal
1996 and the Business Plan could permit the Company to raise commercial debt
to refinance the Secured Notes in part as well as a working capital facility,
the cash potentially available for payment to Secured Noteholders, the
advantages of preserving the
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Company's net operating loss carryforwards and the limitations on making
capital stock available to Secured Noteholders so as to avoid jeopardizing
such tax loss carryforwards. The Business Plan, which provides the primary
assumptions upon which CIBC Wood Gundy's recommendations were based,
contemplates operating a downsized campground system, with cash flow enhanced
by contracts receivable collections and asset sales as the Company seeks to
stabilize its membership base through its new sales and marketing efforts. In
the view of management, the success of the Business Plan requires continuation
of the positive operating results first achieved in fiscal 1996, significant
increases in membership sales beyond current levels, the successful
disposition of the campgrounds and other properties not included in the
ongoing operations, reduced leverage and elimination of uncertainties
regarding the Company's financial stability. Although realization of the
Business Plan involves significant uncertainties, the Board of Directors
believes that it represents the best approach to realize value for the
securityholders of the Company.
The preliminary restructuring plan is also consistent with the judgment of
management that the sale or liquidation of the Company would likely result in
lesser recoveries for the Company's securityholders. Central to this judgment
is the impact of the rights of members at the campgrounds. The Company
believes that value over the period addressed by the Business Plan will
necessarily be tied to continued operation of a downsized campground system.
Some states, including California, Oregon and Washington, where 29 of the
Company's campgrounds are located, have nondisturbance statutes that limit the
ability of an owner to sell or close, or a lienholder to foreclose a lien on,
a campground. In certain states, these statutes permit sale, closure or
foreclosure if the holders of related memberships receive access to a
comparable campground. Moreover, all of the campground mortgages that secure
the Secured Notes contain similar nondisturbance provisions. As a
consequence, although the Company may be able to sell or close some of its
campgrounds as it has done in the past, a sale or closure of significant
numbers of campgrounds will likely be limited by state law or the membership
contracts themselves, and foreclosure of the campground liens in significant
numbers will also likely be limited. Moreover, the impact of addressing
member rights in a proceeding under the United States Bankruptcy Code is
uncertain and could adversely affect the implementation of, and the recoveries
that may be available to Secured Noteholders from, such a proceeding.
Throughout the first half of May 1996, CIBC Wood Gundy held discussions
with the members of the Steering Committee to determine the outlines of an
acceptable restructuring plan. In mid-May CIBC Wood Gundy determined that the
Steering Committee members and CM Strategic were receptive to exchanging their
Secured Notes for some combination of cash (including accrued interest), newly
issued senior subordinated notes and Common Stock. However, because
consummation of such a restructuring prior to the July 15, 1996 mandatory
sinking fund payment precluded registration of securities under applicable
federal and state securities laws, the package of cash and securities could be
offered only to those Secured Noteholders the Company had reason to believe
were "accredited investors" as defined in Regulation D ("Accredited
Investors") under the Securities Act of 1933, as amended (the "Securities
Act"), and could be approached without a general solicitation. The Company
determined to offer all other Secured Noteholders only cash.
On May 24, 1996, the Special Committee met with management to discuss
CIBC Wood Gundy's recommendations and discussions with the Steering Committee
and CM Strategic. At such meeting, the Special Committee considered
alternatives that did not involve issuing additional equity or obtaining
additional funding, as well as the possibility of effecting the plan through a
Chapter 11 proceeding or of attempting to pay the July 15, 1996 sinking fund
payment on the Secured Notes and pursuing a recapitalization or reorganization
at a later date. The Special Committee approved pursuing the preliminary
restructuring plan. It also authorized retaining Rauscher Pierce Refsnes,
Inc. ("RPR") to advise the Special Committee in connection with the
contemplated transaction. RPR was retained after the meeting. RPR had
previously
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<PAGE>
served as an advisor to directors of Trails in the transactions
under which the Company purchased the minority stockholder interests in
Trails.
By May 28, 1996, CIBC Wood Gundy had identified and begun contacting
potential Exchanging Noteholders who were not affiliated with the Company or
members of the Steering Committee. All such Secured Noteholders were
contacted prior to the date of this Offer. Some, however, were unwilling to
receive the terms of the Exchange Offer until such time as it had been
publicly announced. None of such Secured Noteholders has committed to
participation in the Exchange Offer as of the date of this Offer, although CM
Strategic and SC Fundamental have advised the Company of their intent to
exchange their Secured Notes in the Exchange Offer.
On May 31, 1996, the Special Committee met to consider the potential terms
of an exchange with certain Secured Noteholders as part of the Restructuring
Transaction. At such meeting, the Special Committee received an oral report
of RPR concerning the fairness from a financial point of view of the
transaction then under discussion to the holders of Common Stock and the
estimated range of potential values of the exchange consideration then under
discussion. Immediately after the meeting, the Board of Directors met to
review the status of discussions concerning the Restructuring Transaction. At
the Board meeting, CIBC Wood Gundy reviewed the comments it had received from
members of the Steering Committee as well as other potential Exchanging
Noteholders and its recommendation as to the amount and terms of the Exchange
Consideration, including its recommendation that the Company consider
providing debt or equity to the Exchanging Noteholders in addition to that
previously contemplated. Subsequently, the Company and CIBC Wood Gundy met
with representatives of the Steering Committee and CM Strategic to discuss
additional consideration.
On June 3, 1996, the Special Committee met to consider the Restructuring
Transaction. At the beginning of the meeting, the Special Committee discussed
with Mr. Boas, among other things, the position of CM Strategic with respect
to the proposed transaction and the Company's alternatives. After Mr. Boas
departed, the Special Committee received management's recommendation as to the
terms of the contemplated restructuring, all of which are reflected in the
Restructuring Transaction. The Special Committee then received an oral
opinion from RPR that (i) the Restructuring Transaction is fair from a
financial point of view to the holders of Common Stock and (ii) that the
Purchase Price is reasonably equivalent to the Exchange Consideration. A copy
of the written report setting forth the latter conclusion is attached hereto
as Exhibit B. In rendering its opinion, RPR, among other things: (i)
reviewed this Offer to Purchase; (ii) reviewed certain publicly available
information relating to the Company; (iii) discussed the Company's historical
and current operations, financial condition and future prospects and reviewed
the Business Plan; (iv) reviewed historical market prices for the Common Stock
and the Secured Notes; (v) reviewed certain financial and market data for the
Company and compared such information with similar information for certain
publicly traded companies that RPR deemed comparable to the Company; (vi)
performed certain discounted cash flow analyses of the Company's contracts
receivable portfolio, non-core assets to be sold and net operating loss
carryforwards as presented in the Business Plan; (vii) reviewed certain
financial and market data for publicly traded high-yield debt instruments that
RPR deemed comparable to the debt included in the Restructuring Transaction;
and (viii) performed such other analyses and investigations and considered
such other factors as RPR deemed appropriate. The Special Committee then
unanimously approved recommending the Restructuring Transaction to the Board
of Directors.
On June 3, 1996, the Board of Directors met to consider the Restructuring
Transaction. The Board reviewed the transaction and the state of negotiations
with the potential Exchanging Noteholders. The Special Committee provided its
recommendation of the Restructuring Transaction to the Board of Directors.
The Board then unanimously approved the Restructuring Transaction with Mr.
Boas abstaining due to the ownership of Secured Notes by his affiliate, CM
Strategic. The principal factors identified by the Board of Directors in its
approval of the Restructuring Transaction were the following: (i) that a
Chapter 11 proceeding entails significant
8
<PAGE>
risk of deterioration in the business, especially the increased sales and
marketing efforts, and collection of dues and contracts receivable, that are
central to the Business Plan; (ii) that a depletion of significant amounts of
working capital to make the July 15, 1996 sinking fund payment on the Secured
Notes involves significant risks to the Company's liquidity and does not
address the Company's long-term need for a new capital structure consistent
with the Business Plan; (iii) that the cash available to the Company for
distribution to Secured Noteholders is limited; (iv) that the Company must
significantly reduce its leverage; (v) that the Company's tax loss
carryforwards are significant and should not be jeopardized; and (vi) that the
uncertainties inherent in the Business Plan may affect the Secured Notes as
well as the securities portion of the Exchange Consideration.
As of the date hereof, the Steering Committee has not endorsed the Purchase
Price or the Exchange Consideration. However, CM Strategic and SC Fundamental
have advised the Company that they support the Restructuring Transaction and
intend to exchange their Secured Notes in the Exchange Offer.
SPECIAL CONSIDERATIONS
In determining whether to tender its Secured Notes in this Offer, a Secured
Noteholder should take into consideration the information described below in
addition to the information included elsewhere or incorporated by reference in
this Offer to Purchase.
SPECIAL COMMITTEE APPROVAL
The Special Committee recommended this Offer to the Board of Directors
based, in part, upon the conclusion of RPR that the Purchase Price is
reasonably equivalent to the Exchange Consideration. There can be no
assurance, however, as to the actual value of the Exchange Consideration.
Neither the Company nor RPR evaluated the adequacy of the total consideration
to be received by the Secured Noteholders in the Exchange Offer or pursuant to
this Offer from the point of view of the Secured Noteholders. To the
contrary, RPR and the Special Committee evaluated the financial fairness of
the Common Stock component of the Exchange Consideration from the point of
view of the Company's stockholders.
LIMITED CASH AVAILABILITY
The Board of Directors approved the Purchase Price after discussions with
the members of the Steering Committee and certain other potential Exchanging
Noteholders, including CM Strategic, with the assistance of CIBC Wood Gundy.
These discussions, among other things, recognized a limitation as to the
maximum amount of cash available for payment to Secured Noteholders not
included in the Exchange Offer, whether from the Company's cash or the receipt
of additional debt financing. In such discussions, CIBC Wood Gundy was
advising both the Company and the Steering Committee and was not retained to
act solely from the perspective of any of the Secured Noteholders.
HISTORICAL PRICES
The Secured Notes are not listed or quoted on a recognized exchange or
quotation system and, according to information received by the Company, are
infrequently traded. From this information, the Company believes recent bid
prices for the Secured Notes have been in the range of $700 to $740 per $1,000
of principal amount. There can be no assurance that these bids are accurate
indications of prices available to willing sellers. The Company believes such
prices may not have been effectively available to non-institutional investors
because of related transaction costs. A Tendering Noteholder will not incur
brokerage commissions in tendering pursuant to this Offer.
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<PAGE>
The Common Stock does not trade every day, and the trading volume is often
small. The following bid quotations are as quoted through the NASD OTC
Bulletin Board and the National Quotation Bureau's Pink Sheets. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions. Since July
1, 1994, the highest closing bid quotation per share of Common Stock was
$1.75. On May 31, 1996, the closing bid quotation per share of Common Stock
was $.375.
CURRENT BUSINESS PLAN
The following summary is derived from the Business Plan after giving effect
to the Restructuring Transaction (assuming satisfaction of the Minimum Tender
Condition and the Minimum Exchange Condition) and the Senior Secured Credit
Facility. The Business Plan should be read in its entirety in conjunction
with the financial statements of the Company set forth in its Annual Report on
Form 10-K for the year ended June 30, 1995 (the "Annual Report") and Quarterly
Report on Form 10-Q for the Nine Months ended March 31, 1996 (the "Quarterly
Report") delivered with this Offer to Purchaser, as the Business Plan forms
the primary assumptions upon which the Board of Directors and its advisors
formulated the Restructuring Transaction.
BUSINESS PLAN SUMMARY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1998 1999 2000 2001
Revenues $74,418 $72,965 $77,693 $82,689 $88,475 $92,850
Expenses (excluding G&A) 58,249 55,170 58,814 63,230 67,044 70,104
General & Administrative Expenses 12,128 11,365 11,148 10,966 10,903 11,180
------- ------- ------- ------- ------- -------
EBIT (1) 4,041 6,430 7,731 8,493 10,528 11,566
Plus: Depreciation and Amortization 2,340 2,634 2,658 2,789 2,807 2,901
------- ------- ------- ------- ------- -------
EDITDA (2) 6,381 9,064 10,389 11,282 13,335 14,467
Plus: Collections on Contracts 15,600 9,383 5,964 4,085 2,842 2,286
Receivable (3)
Plus: Proceeds from Asset Sales, Net 7,500 7,420 4,964 3,238 2,241 0
Less: Capital Expenditures (1,703) (2,300) (2,300) (2,800) (2,800) (2,800)
Less: Decrease (Increase) in Working
Capital ------- ------- ------- ------- ------- -------
(6,378) (3,052) (2,440) (2,101) (1,539) (1,202)
and Other ------- ------- ------- ------- ------- -------
Cash Flow Available for Debt Service (4) $21,400 $20,515 $16,577 $13,704 $14,079 $12,751
------- ------- ------- ------- ------- -------
</TABLE>
- ------------
(1) Represents earnings before interest income, interest expense and taxes.
Excludes non-recurring income, gains on asset sales and extraordinary items.
(2) Represents earnings before interest income, interest expense, taxes,
depreciation and amortization, excluding the same items as note (1) above.
(3) Includes principal and interest payments on contracts receivable.
(4) Equal to EDITDA plus collections of principal and interest on contracts
receivable and net proceeds from asset sales, less capital expenditures and
increases in working capital.
The Company's projected results under the Business Plan are not historical,
except in the case of the first three quarters included in fiscal 1996, and
involve significant risks and uncertainties. The Company's future results of
operations and financial condition may differ materially due to several
factors, including but not limited to the Company's continued ability to
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<PAGE>
control costs, its ability to implement its sales and marketing plan, the
actual rate of decline in the campground membership base, the actual use of
the campgrounds by members and guests, the actual timing and completion of
planned asset sales, the actual collection experience of the Company's
contracts receivable, future interest rates and the other factors affecting
the Business Plan as set forth in this Offer to Purchase and the Annual Report
and Quarterly Report delivered with this Offer to Purchase. Accordingly, such
projections are not necessarily indicative of the future performance of the
Company and should not be regarded as representations that such results will
be achieved.
APPRAISALS/MEMBER RIGHTS
During 1995, the Company obtained appraisals (the "Appraisals") of its
campgrounds and undeveloped real estate. The Appraisal results are summarized
in Exhibit B hereto. With respect to the Company's campgrounds, the
Appraisals assumed that the campgrounds could be sold individually without the
encumbrance of members' rights. However, because of the material impact of
members' rights, the Company believes that the Appraisals substantially
overstated the value that could be obtained from the campgrounds in the near
term, except in the case of the limited sales of campgrounds contemplated by
the Business Plan. The Company believes that it is reasonably able to sell,
without any material adverse effect from members' rights, (i) the five
campgrounds currently held for disposition under the Business Plan, which have
an appraised value of approximately $2.3 million, and (ii) other unspecified
campgrounds that are included for disposition in the Business Plan, which have
an appraised value of $8.9 million, although there can be no assurance that
these appraised values will be realized. The Company believes, however, that
the balance of the Appraisals, which totaled approximately $118.7 million,
substantially overstated the value that could be obtained from the remaining
campgrounds because the Appraisals did not reflect the continued use of the
campgrounds as part of a membership camping system or the material impact of
the encumbrance of members' rights. The book value of these campgrounds was
$39.0 million as of March 31, 1996.
The Company believes that value over the period addressed by the Business
Plan will necessarily be tied to continued operation of a downsized campground
system. Some states, including California, Oregon and Washington, where 29 of
the Company's campgrounds are located, have nondisturbance statutes that limit
the ability of an owner to sell or close, or a lienholder to foreclose a lien
on, a campground. In certain states, these statutes permit sale, closure or
foreclosure if the holders of related memberships receive access to a
comparable campground. Moreover, all of the campground mortgages that secure
the Secured Notes contain similar nondisturbance provisions. As a
consequence, although the Company may be able to sell or close some of its
campgrounds as it has done in the past, a sale or closure of significant
numbers of campgrounds in addition to those contemplated by the Business Plan
will likely be limited by state law or the membership contracts themselves,
and foreclosure of the campground liens in such significant numbers will also
likely be limited. Moreover, the impact of members' rights in a Chapter 11
proceeding is uncertain and could adversely affect the implementation of, and
the recoveries that may be available to Secured Noteholders from, such a
proceeding.
LIMITED REDEMPTION
The Secured Notes held by a non-Exchanging Noteholder who also elects not to
tender in this Offer will be redeemed at 100% principal amount plus accrued
interest to the date of redemption if the Minimum Tender Condition and the
other conditions of the Restructuring Transaction are satisfied. If less than
12.8% in aggregate principal amount of Secured Notes are tendered in this
Offer, however, this Offer and the Restructuring Transaction will not be
consummated.
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<PAGE>
EFFECT OF UNSUCCESSFUL RESTRUCTURING
If the Company's attempt to restructure is unsuccessful, management believes
that the resources available to the Company may be insufficient both to meet
the continuing operating needs of the Company in accordance with the Business
Plan and to make the mandatory sinking fund and interest payments due on July
15, 1996. Under the terms of the Indenture, if the Company fails to make a
payment of principal or interest or defaults under the financial covenants, it
is prohibited from making withdrawals from its cash accounts except for a one-
time withdrawal of up to $5 million, which would be insufficient to meet the
business needs of the Company during the summer season, the period of highest
demand for working capital. Under such circumstances the Company may be
forced to seek relief under the United States Bankruptcy Code or attempt to
operate at significantly reduced levels and recapitalize or reorganize at a
later date. The Company believes that its ongoing operations, particularly
collections of contracts receivable and membership dues and sales efforts,
will be materially adversely affected by either the commencement of bankruptcy
proceedings or continued operations at significantly reduced levels. As a
result, there can be no assurance that a bankruptcy reorganization or a later
recapitalization or reorganization would not be significantly less favorable
to the Secured Noteholders than the proposed Restructuring Transactions.
TERMS OF THE RESTRUCTURING TRANSACTION
GENERAL
The purpose of the Restructuring Transaction is to retire the Secured
Notes and to create a capital structure for the Company consistent with the
Business Plan. Under the terms of the Restructuring Transaction, the Company
is seeking to exchange with the Exchanging Noteholders, each of whom will
represent to the Company that it is an Accredited Investor, their Secured
Notes for a combination of cash, newly issued Senior Subordinated PIK Notes,
newly issued Junior Subordinated PIK Notes and Common Stock (the "Exchange
Consideration"). As of the date hereof, the Company had contacted all of the
Secured Noteholders that may be involved in the Exchange Offer. The Company
has not yet received a binding commitment from any Secured Noteholder with
respect to the Exchange Offer, although CM Strategic and CS Fundamental have
advised the Company that they support the Restructuring Transaction and intend
to exchange their Secured Notes in the Exchange Offer.
The Company is offering to purchase the remaining Secured Notes on the terms
and conditions stated in this Offer to Purchase. Simultaneously with the
consummation of this Offer and the Exchange Offer, it is the Company's
intention to call for redemption or otherwise defease all untendered and
unexchanged Secured Notes. Upon consummation of the Restructuring
Transaction, all of the Secured Notes will be retired. The exchanges,
purchases and redemption or defeasance of the Secured Notes are conditioned on
one another and are intended to be effected simultaneously, and no exchange,
purchase, or redemption or defeasance of the Secured Notes will be effected
unless all exchanges and purchases and the redemption or defeasance is
effected.
To finance certain of its cash requirements in connection with the
Restructuring Transaction, including the payment of related expenses, the
Company is seeking a $40 million Senior Secured Credit Facility. This
facility will be senior to the Senior Subordinated PIK Notes and the Junior
Subordinated PIK Notes included in the Exchange Consideration, will be secured
by substantially all of the assets of the Company and may preclude cash
payments on the Senior Subordinated PIK Notes and Junior Subordinated PIK
Notes until a substantial portion of the Term Loan is retired. The Company
does not currently have a commitment from any lender with respect to the
Senior Secured Credit Facility. See "Source and Amount of Funds."
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<PAGE>
EXCHANGE OFFER
Assuming that $81.3 million in principal amount of Secured Notes are
exchanged in the Exchange Offer, Exchanging Noteholders will receive in the
aggregate $32.5 million in cash, $30 million in principal amount of newly
issued Senior Subordinated Pay-In-Kind Notes due 2003 (the "Senior
Subordinated PIK Notes"), $5 million in principal amount of newly issued
Junior Subordinated Pay-In-Kind Notes due 2011 (the "Junior Subordinated PIK
Notes") and 1,869,900 shares of the Company's common stock, $.01 par value per
share (the "Common Stock") representing approximately 33.5% of the outstanding
Common Stock (after giving effect to the Restructuring Transaction). Accrued
interest through July 15, 1996 will be paid in cash. The aggregate Exchange
Consideration will be exchanged in a ratio of $400.00 in cash, $369.00 in
principal amount of Senior Subordinated PIK Notes, $61.50 in principal amount
of Junior Subordinated PIK Notes and 23 shares of the Company's Common Stock
for each $1,000 in principal amount of Secured Notes. As a condition to the
Exchange Offer, each Exchanging Noteholder will be required to agree not to
tender the Secured Notes held by it pursuant to this Offer but only to
exchange the Secured Notes held by it pursuant to the Exchange Offer.
Senior Subordinated PIK Notes. The Senior Subordinated PIK Notes will bear
interest at 12% per annum, payable semi-annually on each January 15 and July
15, in cash or additional Senior Subordinated PIK Notes, at the Company's
option for a period of approximately four years, and in cash thereafter. The
interest rate on the Senior Subordinated PIK Notes will be subject to increase
under certain circumstances if the Company is not in compliance with its
obligations under the Registration Rights Agreement described below. The
Senior Subordinated PIK Notes will have a stated maturity of July 15, 2003.
The Company may, from time to time, redeem any or all of the Senior
Subordinated PIK Notes at 100% of the outstanding principal amount thereof,
plus accrued interest. The Senior Subordinated PIK Notes will be senior
subordinated obligations of the Company and will rank subordinate in right of
payment to the Senior Secured Credit Facility. At the time of issuance, it is
anticipated that there will be up to $30 million of senior indebtedness under
the Senior Secured Credit Facility, and that such facility will preclude the
payment of cash interest on the Senior Subordinated PIK Notes until a
substantial portion of the Term Loan is retired. See "Source and Amount of
Funds." The Senior Subordinated PIK Notes will rank senior to substantially
all other existing and future indebtedness of the Company. At such time as
the Senior Secured Credit Facility is retired, the Senior Subordinated PIK
Notes will become secured by all assets previously securing the Senior Secured
Credit Facility, but excluding those assets securing any Working Capital
Facility. Unless the holders of the Senior Subordinated PIK Notes waive the
requirement, the Company will be required to offer to purchase all outstanding
Senior Subordinated PIK Notes at 101% of outstanding principal amount, plus
accrued interest, upon a change in control of the Company. The Senior
Subordinated PIK Notes will be guaranteed on a senior subordinated basis by
substantially all of the Company's subsidiaries. The Senior Subordinated PIK
Note indenture will contain limitations on incurrence of additional debt,
restricted payments, restrictions on distributions from subsidiaries, sale and
leaseback transactions, transactions with affiliates, limitations on liens and
limitations on merger and consolidations.
Junior Subordinated PIK Notes. The Junior Subordinated PIK Notes will bear
interest at 12% per annum, payable semi-annually on each January 15 and July
15, in cash or additional Junior Subordinated PIK Notes, at the option of the
Company. The interest rate on the Junior Subordinated PIK Notes will be
subject to increase under certain circumstances if the Company is not in
compliance with its obligations under the Registration Rights Agreement
described below. The Junior Subordinated PIK Notes will have a stated
maturity of July 15, 2011. The Company may, from time to time, redeem any or
all of the Junior Subordinated PIK Notes at 100% of the outstanding principal
amount thereof, plus accrued interest. The Junior Subordinated PIK Notes will
be junior subordinated obligations of the Company and will rank subordinate in
right of payment to the Senior Secured Credit Facility, the Senior
Subordinated PIK Notes and substantially all other existing and future
indebtedness of the Company. The Junior Subordinated
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<PAGE>
PIK Notes will be unsecured. The Junior Subordinated PIK Note indenture will
contain no financial covenants and substantially no limitations on the
Company's operations.
Common Stock. Holders of Common Stock are entitled to one vote for each
share held of record on any matter submitted to a vote at any meeting of the
stockholders. Directors are elected by a plurality 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.
However, the affirmative vote of holders of shares representing a majority of
the votes entitled to be cast are required to approve any amendment to the
Company's Restated Articles of Incorporation or to approve any merger,
consolidation, or dissolution of the Company, or any sale, lease, or exchange
of all or substantially all of the assets of the reorganized Company.
In addition to the voting requirements specified by applicable law, the
Company's Restated Articles of Incorporation require the affirmative vote of
66-2/3% of the outstanding shares of Common Stock prior to the consummation of
certain "going private" transactions or other transactions that result in
certain changes of control of the Company for consideration less than the fair
market value of such shares at the time of issuance, unless such shares are
issued or sold (i) in an underwritten public offering pursuant to an effective
registration statement filed under the Securities Act, (ii) ratably to the
existing holders of the Company's capital stock or (iii) in connection with
benefit programs maintained for employees, officers, or directors of the
Company, which programs have been approved by the shareholders of the Company.
Under certain circumstances, the Nevada General Corporation Law (the "NGCL")
would restrict the voting rights of persons who acquire capital stock of the
Company without the consent of the Board of Directors and does limit the
ability of such persons, or persons associated or affiliated with them, from
entering into certain business combinations, as defined in the NGCL, with the
Company or its subsidiaries.
The Restated Articles of Incorporation of the Company do 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 the meeting. The directors of the Company are elected annually and serve
for terms of one year and until their successors are elected and qualified.
Holders of shares of Common Stock are entitled to receive dividends when, as
and if declared by the board of directors from funds legally available for
that purpose. Since inception the Company has not paid any dividends.
Moreover, upon consummation of the Restructuring Transaction and subject to
certain exceptions, the Company will not pay any dividends until the Senior
Secured Credit Facility, the Senior Subordinated PIK Notes and the Junior
Subordinated PIK Notes are repaid.
Registration Rights. Pursuant to a Registration Rights Agreement, the
Company will be required to file a registration statement under the Securities
Act with respect to the Senior Subordinated PIK Notes, Junior Subordinated PIK
Notes and the Common Stock. The registration statement would permit public
trading of the Senior Subordinated PIK Notes, Junior Subordinated PIK Notes
and the Common Stock, subject to any limitations imposed by applicable state
securities laws.
THE FOREGOING DESCRIPTION OF THE EXCHANGE OFFER AND OTHER REFERENCES TO THE
EXCHANGE OFFER IN THIS OFFER TO PURCHASE ARE FOR INFORMATIONAL PURPOSES ONLY.
SECURED NOTEHOLDERS WHO ARE POTENTIAL EXCHANGING NOTEHOLDERS HAVE BEEN
CONTACTED PRIOR TO THE DISTRIBUTION OF THIS OFFER. NO OTHER SECURED
NOTEHOLDERS WILL BE CONTACTED WITH RESPECT TO THE EXCHANGE OFFER. THIS OFFER
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
ANY OF THE EXCHANGE CONSIDERATION TO BE ISSUED IN CONNECTION WITH THE EXCHANGE
OFFER, WHICH WILL ONLY BE OFFERED OTHERWISE BY THE COMPANY TO THE EXCHANGING
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<PAGE>
NOTEHOLDERS ABSENT REGISTRATION UNDER OR AN AVAILABLE EXEMPTION FROM THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
REDEMPTION
Simultaneously with the successful consummation of this Offer and the
Exchange Offer, all unexchanged and untendered Secured Notes will be redeemed
effective on the July 15, 1996 mandatory redemption date, at a redemption
price of 100% of the principal amount thereof, plus accrued and unpaid
interest. Assuming that only the Minimum Tender Condition and the Minimum
Exchange Condition are satisfied, approximately $7.2 million in principal
amount of Secured Notes would be redeemed. Interest through July 15, 1996
will be paid to holders of record of the Secured Notes as of July 1, 1996. If
any Secured Note is transferred after July 1, 1996, no interest will be paid
to the transferee. Exchanging Noteholders and Secured Noteholders whose
Secured Notes are tendered and accepted in this Offer will not participate in
such redemption.
EFFECT ON STOCKHOLDERS
The Restructuring Transaction does not contemplate any action on the part
of the stockholders of the Company. However, upon consummation of the
Restructuring Transaction and issuance of the Common Stock contemplated by the
Exchange Offer, the Common Stock currently outstanding will be significantly
diluted. Assuming satisfaction of the Minimum Exchange Condition, holders of
Common Stock who are not also Exchanging Noteholders receiving Common Stock
would be reduced from approximately 40.0% of outstanding Common Stock to 26.6%
of the outstanding Common Stock. Exchanging Noteholders would receive shares
representing 33.5% of the outstanding Common Stock. The beneficial ownership
of CM Strategic, the Company's largest stockholder, will be reduced from
approximately 45.5% to 41.4% of the outstanding Common Stock. See "Interests
of Management and Others." RPR has determined that the Restructuring
Transaction is fair from a financial point of view to the common stockholders
of the Company. See "Background to this Offer."
SOURCE AND AMOUNT OF FUNDS
GENERAL
The maximum amount required by the Company to purchase the Secured Notes
pursuant to this Offer, to consummate the Exchange Offer and to redeem the
untendered and unexchanged Secured Notes, and for related fees and expenses,
is approximately $57.9 million. The Company estimates that it will have
available approximately $27.9 million from its working capital to be used in
connection with the Restructuring Transaction. The Company has circulated a
confidential memorandum seeking the additional commercial debt financing
required to consummate the Restructuring Transaction on substantially the
terms and conditions set forth herein.
TERMS OF THE SENIOR SECURED CREDIT FACILITY
If such financing can be obtained on the terms contemplated by the
confidential memorandum, such financing will consist of a $40 million senior
secured credit facility consisting of a $10 million working capital facility
(the "Working Capital Facility") and a $30 million senior secured term loan
(the "Term Loan") and, together with the Working Capital Facility, the "Senior
Secured Credit Facility") with substantially the following terms. The Working
Capital Facility and Term Loan will mature three years from the date of
consummation of the Restructuring Transaction. As collateral for the Senior
Secured Credit Facility, the lender will receive a perfected first priority
security interest in substantially all of the Company's assets, including, but
15
<PAGE>
not limited to, the campgrounds (subject to non-disturbance provisions
protecting the rights of members), contracts receivable, non-core assets and
inventory. The Senior Secured Credit Facility will rank senior to
substantially all other debt of the Company and its subsidiaries. All of the
Company's obligations under the Senior Secured Credit Facility will be
unconditionally guaranteed by each of the Company's material subsidiaries.
The Company will be required to use all Excess Cash Flow on each interest
payment date to repay amounts outstanding under the Term Loan. At such time
as certain financial tests in the Senior Secured Credit Facility have been
met, the Company may use a portion of Excess Cash Flow to repurchase Senior
Subordinated PIK Notes. Excess Cash Flow will be defined as a percentage of
cash provided by operating activities, less capital and HUD-related
expenditures and payments on notes and mortgages senior to the Senior Secured
Credit Facility, plus net proceeds from asset sales as reflected on the
Company's consolidated statements of cash flows. Any outstanding amounts on
the Senior Secured Credit Facility remaining unpaid will be due in full at
maturity. The Working Capital Facility and Term Loan will be prepayable at
any time.
The Senior Secured Credit Facility will include customary covenants,
including, but not limited to, limitations on additional debt, maintenance of
debt service coverage, limitations on capital expenditures, limitations on
restricted payments, change of control covenants, limitations on acquisitions,
limitations on mergers and consolidations, and limitation on liens. Failure
to maintain any of the above covenants will be deemed an event of default
under the Senior Secured Credit Facility.
INTERESTS OF MANAGEMENT AND OTHERS
Certain holders of Secured Notes who participated in the formulation of
the Restructuring Transaction are also holders of significant amounts of
Common Stock. CM Strategic, including its affiliate, Mr. Boas, who is a
director of the Company, beneficially owns an aggregate of 45.5% of the
outstanding Common Stock. CM Strategic also beneficially owns $22.9 million
in principal amount of Secured Notes, representing approximately 21.6% of the
outstanding aggregate principal amount of Secured Notes. CM Strategic has
advised the Company of its intention to exchange its Secured Notes in the
Exchange Offer and not to participate in this Offer. In addition, SC
Fundamental, which is also on the Steering Committee, beneficially owns an
aggregate of 17.5% of the outstanding Common Stock and $20.9 million principal
amount of the Secured Notes, representing approximately 20.6% of the
outstanding aggregate principal amount of the Secured Notes. SC Fundamental
has also advised the Company of its intention to exchange its Secured Notes in
the Exchange Offer and not to participate in this Offer. In order to
participate in the Exchange Offer and receive the Exchange Consideration in
compliance with certain provisions of the NGCL, SC Fundamental will be
required to reduce its ownership of Common Stock to less than 10% of the
outstanding Common Stock. SC Fundamental is expected to attempt to do so. If
SC Fundamental is unable to do so, the Minimum Exchange Condition may not be
satisfied. CM Strategic has expressed interest in acquiring Common Stock
which SC Fundamental may dispose of.
Mr. Shaw has an employment agreement with the Company that entitles him to
receive a one-time bonus equal to 4% to 6% of the amount by which the
aggregate market value of the Company's outstanding securities exceeds $75
million at the time he elects to receive the bonus. Mr. Shaw's right to
receive such bonus is currently 75% vested, and the Company has accrued
$800,000 therefor. The Restructuring Transaction will have an adverse effect
on Mr. Shaw's bonus and, as a result, the Board of Directors and Mr. Shaw are
presently negotiating an amendment to Mr. Shaw's employment agreement that
will ensure that he receives the material benefit of his original agreement.
16
<PAGE>
There are currently outstanding options to purchase 305,000 shares of Common
Stock granted under the Company's 1991 Employee Stock Incentive Plan, 1993
Stock Option and Restricted Stock Purchase Plan and 1993 Director Stock Option
Plan at exercise prices ranging from $.59 to $2.75 per share, representing
approximately 7.6% of the outstanding Common Stock (after giving effect to the
exercise thereof). The Company granted 95,000 of these options on May 1, 1996
at an exercise price of $.59 per share, representing the fair market value of
the Common Stock on such date, contingent upon the termination of an equal
number of existing options held by the employees involved that were granted in
1992 with an exercise price of $2.50 per share. After giving effect to the
Restructuring Transaction, the options outstanding under these plans will
represent approximately 5.2% of such outstanding Common Stock. Management has
requested that options to purchase additional shares of Common Stock be made
available to key employees of the Company, including management, after the
Restructuring Transaction. The Board of Directors has yet to act upon
management's request.
17
<PAGE>
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the historical capitalization of the
Company at March 31, 1996 and the pro forma capitalization of the Company
immediately following implementation of the Restructuring Transaction,
assuming it occurred on July 1, 1994, the first day of the most recent full
fiscal year, and assuming satisfaction of the Minimum Tender Condition and
Minimum Exchange Condition. This table should be read in conjunction with the
pro forma financial data set forth in "Selected and Pro Forma Financial Data."
For a summary of the capitalization of the Company after giving effect to the
Restructuring Transaction, see "Introduction - Summary Capitalization."
MARCH 31, 1996
----------------------------
HISTORICAL PRO FORMA
------------- ------------
(UNAUDITED, IN THOUSANDS)
Secured Notes (due July 15, 1998; $101,454
$18,599,000 currently
redeemable on each of July 15, 1996
and 1997), gross
Secured Notes, discount (1) (8,163)
--------
Secured Notes, net 93,291
Senior Secured Credit Facility
Real estate mortgages (due through June 2009) 1,923 $ 1,923
Senior Subordinated PIK Notes, at face 30,000
Additional Senior Subordinated PIK Notes 5,309
Subordinated debt, FAS 15 (2) 5,603
Junior Subordinated PIK Notes 5,000
Additional Junior Subordinated PIK Notes 1,312
--------
Total Borrowings 95,214 49,147
Preferred stock, $.01 par value,
1,500,000 shares authorized,
none issued and outstanding
Common Stock, $.01 par value,
15,000,000 shares
authorized, 3,702,726 shares issued 37 56
and outstanding,
5,572,626 pro forma as adjusted (3)
Additional paid-in capital 17,549 19,381
Accumulated deficit (41,138) (25,981)
Total Stockholders' Deficit (23,798) (6,544)
-------- --------
Total Capitalization $ 71,539 $ 42,603
======== ========
- ---------
(1) In accordance with generally accepted accounting principles, the Company
recorded a discount to the principal amount of the Secured Notes when it
issued them because the market yield on the Secured Notes significantly
exceeded their stated interest rate. Each month the Company expenses a
portion of this discount as interest expense.
(2) In accordance with generally accepted accounting principles, the Company
will not record a gain on the Restructuring Transaction. Rather, the
amount which would have otherwise been recorded as a gain will be recorded
as a subordinated obligation which will be amortized over the estimated
payout period of the obligation to reduce future interest expense on the
Senior Subordinated PIK Notes issued in the Restructuring Transaction.
(3) Does not include 494,922 shares that may be issued upon the exercise of
warrants and 305,000 shares issuable upon the exercise of options granted
under the Company's stock option plans.
18
<PAGE>
SELECTED AND PRO FORMA FINANCIAL DATA
The pro forma financial data contained in this Offer to Purchase gives
effect to the Restructuring Transaction as if it had occurred as of the
beginning of the periods presented. The pro forma balance sheet information
contained in this Offer to Purchase gives effect to the Restructuring
Transaction as if it occurred on July 1, 1994, the first day of the most
recent full fiscal year.
The consummation of this Offer and the consummation of the Exchange Offer
are conditioned upon each other. However, it is impossible to predict the
exact aggregate principal amount of Secured Notes that may be tendered and
accepted for payment in this Offer or exchanged in the Exchange Offer.
Therefore, the Company cannot predict whether the consummation of the
Restructuring Transaction will conform to the assumptions used in the
preparation of the pro forma financial data. In analyzing the pro forma
financial data and other information contained in this Offer to Purchase,
Secured Noteholders should consider that the Restructuring Transaction as
actually consummated could differ from the assumptions relating thereto.
Notwithstanding the foregoing, the Company believes that the assumptions made
with respect to such events provide a reasonable basis on which to present the
pro forma financial data.
THE PRO FORMA FINANCIAL DATA PRESENTED HEREIN DO NOT PURPORT TO REPRESENT
WHAT THE COMPANY'S RESULTS OF OPERATIONS OR FINANCIAL POSITION WOULD HAVE BEEN
HAD SUCH TRANSACTIONS IN FACT OCCURRED AT THE BEGINNING OF THE PERIODS OR TO
PROJECT THE COMPANY'S RESULTS OF OPERATIONS IN ANY FUTURE PERIOD. THE PRO
FORMA FINANCIAL DATA SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCORPORATED BY REFERENCE
IN THIS OFFER TO PURCHASE.
19
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
1996 1996 1995 1995
PRO FORMA(1) ACTUAL 1995 PRO FORMA(1) ACTUAL 1994 1993
------------ ---------- ---------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONAL
DATA:
Total revenue $ 69,977 $ 69,977 $ 69,633 $ 91,546 $91,54 6 $100,922 $ 98,189
Membership dues 29,956 29,956 31,073 41,175 41,175 43,200 39,555
Other campground/resort
revenues 16,641 16,641 17,112 23,500 23,506 23,524 28,056
Membership and real estate
sales 2,798 2,798 3,159 4,228 4,228 3,975 4,427
Interest income 3,981 5,146 7,536 8,147 9,935 12,202 16,345
Interest expense 4,617 13,399 15,686 6,609 20,950 21,446 22,249
Income (loss) from
operations before taxes,
minority interest, and
extraordinary item
11,849 4,771 (5,515) 640 (11,669) (5,967) (9,781)
Extraordinary gain on debt
discharge 1,390 671 2,507
Net income (loss) 11,849 6,150 (5,730) 158 (11,920) (6,046) (7,582)
Dividends paid (4)
Earnings (loss) per share
data:
Earnings (loss) before
extraordinary item 2.13 1.29 (1.55) 0.03 (3.22) (1.81) (2.73)
Extraordinary item 0.37 0.16 0.68
Net income (loss) 2.13 1.66 (1.55) 0.03 (3.22) (1.63) (2.05)
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash equivalents
(6) 5,491 36,255 47,924 5,491 60,696 50,059 44,359
Receivables, net 15,541 15,541 22,295 18,698 18,608 32,585 57,731
Campground properties 46,524 46,524 50,863 51,327 51,327 49,330 47,939
Resort properties 2,977 2,977 6116 5,736 5,736 5,612 11,252
Total assets 78,822 110,331 137,548 89,692 135,886 148,164 170,067
Senior and Senior
Equivalent Notes, net
Secured Notes, net 93,291 114,282 115,490 110,854 115,389
Senior Secured Credit
Facility 19,054
Senior Subordinated PIK
Notes (7) 40,912 40,200
Junior Subordinated PIK
Notes 6,312 5,618
Total long term debt, net 38,438 75,928 96,879 47,224 98,308 115,877 121,889
Stockholders' equity
(deficit) (6,544) (23,675) (23,639) (18,389) (29,821) 17,912 (11,703)
STATISTICAL DATA
(AT END OF PERIOD):
Campgrounds-
Number of operating
campgrounds 58 58 60 60 60 62 65
Number of members 131,000 131,000 142,000 136,000 136,000 149,000 157,000
Average annual dues per
member $ 324 $ 324 $ 327 $ 329 $ 329 $ 315 $ 290
Average cost per camper
night $17.95 $17.95 $20.29 $19.69 $19.69 $18.36 $17.29
Resorts-
Number of lot owners 1,100 1,100 5,200 5,100 5,100 50,000 5,100
Total timeshare weeks 32,000 32,000 32,000 32,000 32,000 32,000 32,000
Timeshare weeks available
for sale 1,700 1,700 1,700 1,700 1,700 2,100 3,300
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR ENTITY
------------------
SIX
MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
JUNE 30, DEC. 31, JUNE 30,
1992 1991(2) 1991(3)
-------- ---------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONAL
DATA:
Total revenue $ 54,310 $ 63,670 $ 20,754
Membership dues 19,170 20,345
Other campground/resort
revenues 13,224 13,401
Membership and real estate
sales 6,442 15,140
Interest income 11,780 12,090 20,165
Interest expense 11,947 13,578 15,361
Income (loss) from
operations before taxes,
minority interest, and
extraordinary item
(23,195) 7,151 (8,495)
Extraordinary gain on debt
discharge
Net income (loss) (21,737) 6,278 (8,405)
Dividends paid (4)
Earnings (loss) per share (5) (5)
data:
Earnings (loss) before
extraordinary item (5.88)
Extraordinary item
Net income (loss) (5.88)
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash equivalents
(6) 32,989 42,233 3,500
Receivables, net 93,442 119,318 137,023
Campground properties 49,582 58,552 54,199
Resort properties 11,578 12,530 12,632
Total assets 196,788 242,587 253,694
Senior and Senior
Equivalent Notes, net 150,675
Secured Notes, net 123,511 113,095
Senior Secured Credit
Facility
Senior Subordinated PIK
Notes (7)
Junior Subordinated PIK
Notes
Total long term debt, net 130,210 120,150 163,842
Stockholders' equity
(deficit) (4,151) 17,586 (5,003)
STATISTICAL DATA
(AT END OF PERIOD):
Campgrounds-
Number of operating
campgrounds 69 69 69
Number of members 165,000 167,000 170,000
Average annual dues per
member $ 246 $ 243
Average cost per camper
night $16.55
Resorts-
Number of lot owners 5,000 4,900 4,900
Total timeshare weeks 32,000 32,000 32,000
Timeshare weeks available
for sale 4,200 4,400 4,600
</TABLE>
20
<PAGE>
(1) The pro forma information presented assumes the Restructuring Transaction
occurred on July 1, 1994, the first day of the most recent full fiscal
year.
(2) "Fresh Start Reporting" under the provisions of SOP 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code," was
reflected as of December 31, 1991, in the above balance sheet captions. As
a result, the information for the years ended June 30, 1995, 1994 and 1993,
and the six months ended June 30, 1992, was prepared as if the Company is a
new reporting entity and a black line is shown to separate it from prior
period information since it was not prepared on a comparable basis.
(3) The Company acquired NACO and Trails on June 30, 1991. The captions
reflecting results of operations, therefore, do not include the operations
of NACO and Trails for the year ended June 30, 1991. The assets,
liabilities, and stockholders' equity (deficit) captions, however, reflect
the consolidation of the Company, NACO and Trails as of June 30, 1991, and
thereafter.
(4) The Company is prohibited from paying any cash dividends until the
repayment of its secured and subordinated indebtedness.
(5) Income (loss) per share is not meaningful due to reorganization and
revaluation entries and the issuance of a material amount of Common Stock
in a stock split and bankruptcy reorganization. At June 30, 1995, there
were 3,702,726 shares of Common Stock outstanding, compared with 1,000
shares immediately before the consummation of the reorganization on
December 31, 1991. Outstanding warrants and stock options are excluded
from the net loss per share computation as they would have reduced net loss
per share, which is anti-dilutive.
(6) Cash held by the Company and its wholly owned subsidiaries, other than that
required for operations, is generally deposited in accounts that are
pledged for the benefit of the holders of the Secured Notes.
(7) In accordance with generally accepted accounting principles, the Company
will not record a gain on the Restructuring Transaction. Rather, the
amount which would have otherwise been recorded as a gain will be recorded
as a subordinated obligation which will be amortized over the estimated
the payout period of the obligation to reduce future interest expense on
the Senior Subordinated PIK Notes issued in the Restructuring Transaction.
21
<PAGE>
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of this Offer, or any extension of this
Offer, the Company will not be required to accept for purchase any tendered
Secured Notes, and may terminate this Offer, or, at its option, modify or
otherwise amend this Offer, if any of the following conditions have not been
satisfied, whether prior to or simultaneously with the completion of this
Offer:
(a) satisfaction of the Minimum Tender Condition;
(b) satisfaction of the Minimum Exchange Condition;
(c) no action shall have been taken or threatened by or before any
court or governmental regulatory or administrative agency or authority,
or any other person or tribunal, or any statute, rule, regulation,
judgment, order, stay, decree or injunction shall have been promulgated,
enacted, entered, enforced or shall be or deemed applicable to this
Offer, the Exchange Offer, the proposed redemption, the purchase of
Secured Notes pursuant to this Offer, the exchange of the Secured Notes
pursuant to the Exchange Offer, the acquisition of any of the Exchange
Consideration by any Exchanging Noteholder or the consummation of the
Restructuring Transaction (collectively, the "Transactions") which (i)
challenges any of the Transactions in any respect or might directly or
indirectly prohibit, prevent, restrict or delay consummation of or
otherwise adversely affects any of the Transactions in any material
manner or (ii) in the sole judgment of the Company could materially
adversely affect the business, condition (financial or otherwise),
operations or prospects of the Company or materially impair the
contemplated benefits of any of the Transactions to the Company;
(d) there shall not have been threatened, instituted, or pending any
action, proceeding, application or counterclaim by or before any court or
governmental, regulatory or administrative agency or authority, or any
other person or tribunal that (i) challenges or seeks to challenge,
restrain or prohibit any of the Transactions, or any other matter
directly or indirectly relating to any of the Transactions, or obtain any
material damages or otherwise directly or indirectly relating to any of
the Transactions or (ii) seeks to make the acceptance for payment of, or
payment for, some or all of the Secured Notes pursuant to this Offer, the
Exchange Offer or any redemption or defeasance of any Secured Notes
illegal or results in a delay in or otherwise restricts the ability of
the Company, or renders the Company unable, to accept for payment or pay
for some or all of the Secured Notes pursuant to this Offer, the Exchange
Offer or any redemption or defeasance of any Secured Notes;
(e) no event shall have occurred or be likely to occur affecting the
business or financial affairs of the Company that, in the sole judgment
of the Company, would or might prohibit, prevent, restrict or delay
consummation of any of the Transactions, or that will, or is reasonably
likely to, materially impair the contemplated benefits of any of the
Transactions to the Company;
(f) the Trustee shall not have objected in any respect to, or taken
any action that could, in the sole judgment of the Company, adversely
affect the consummation of any of the Transactions, or have taken any
action that challenges the validity or effectiveness of the procedures
used by the Company in making of the Offer or the acceptance of the
Secured Notes tendered for purchase, effecting the exchange of the
Secured Notes pursuant to the Exchange Offer or the redemption of Secured
Notes in connection with the Restructuring Transaction; or
22
<PAGE>
(g) the Senior Secured Credit Facility shall have been obtained on
terms acceptable to the Company in its sole discretion, and the funds
required by the Company to purchase the Secured Notes tendered pursuant
to this Offer and to consummate the Exchange Offer and the proposed
redemption of Secured Notes as contemplated by the terms of the
Restructuring Transaction, and to pay related fees and expenses, shall be
available to the Company.
If any of the foregoing conditions is not satisfied, the Company may
terminate this Offer and return the Secured Notes to the holders who tendered
them; extend this Offer and retain all tendered Secured Notes until the
expiration of such Offer, subject, however, to the withdrawal rights of
Secured Noteholders; or waive the unsatisfied conditions with respect to this
Offer and accept all Secured Notes tendered.
THE TENDER OFFER
TERMS OF THIS OFFER
Upon the terms and conditions set forth herein and the Letter of
Transmittal, the Company hereby offers to purchase for the Purchase Price,
plus accrued interest through July 15, 1996, all Secured Notes that are
validly tendered and not withdrawn prior to the Expiration Date. Interest
through July 15, 1996 will be paid to holders of record of the Secured Notes
as of July 1, 1996. If any Secured Note is transferred after July 1, 1996, no
interest will be paid to the transferee.
Expiration Date. Only Secured Notes validly tendered on or before the
Expiration Date and not withdrawn will be eligible for purchase pursuant to
this Offer. A Secured Noteholder desiring to tender its Secured Notes
pursuant to this Offer may tender such Secured Notes pursuant to the terms and
conditions set forth herein beginning on the date hereof and ending at 12:00
midnight, Eastern Time, on Tuesday, July 2, 1996, or if extended, the time and
date to which the Company has extended this Offer.
Company's Determination Final and Binding. The Company's interpretation
of the terms and conditions of this Offer is final and binding. The Company,
in its sole discretion, will determine all questions concerning acceptance,
form, time of receipt, validity, withdrawal, and any other matter with respect
to this Offer. Moreover, notwithstanding anything to the contrary herein, on
or before the Expiration Date, the Company may abandon this Offer or amend it
in any respect. The tender offer rules under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), however, will limit the Company's
ability to delay paying for any tendered Secured Notes that the Company has
accepted. These rules require the payment of the consideration offered or the
return of the tendered securities promptly after the withdrawal or termination
of a tender offer.
The Company reserves the right to reject any or all tenders of Secured
Notes that it determines are in inappropriate form or the acceptance or
payment for which may be unlawful. The Company also reserves the right to
waive any defect or irregularity in any tender with respect to any particular
Secured Notes or any particular Secured Noteholder. A tender or withdrawal of
Secured Notes will not be validly made until all defects and irregularities
have been cured or expressly waived. Neither the Company nor the Depositary,
however, will be obligated to notify a Secured Noteholder of any defects or
irregularities in its tender or withdrawal.
Abandonment or Amendment. If the Company abandons or amends this Offer,
the Company will promptly publicly announce such abandonment or amendment. If
the Company extends the Expiration Date, the Company will publicly announce
such extension no later than 9:00 a.m., Eastern Time, on the business day
immediately after the previously scheduled
23
<PAGE>
Expiration Date. The Company will make such public announcement of any
abandonment, amendment, or extension by making a release to the Dow Jones News
Service. In any public announcement extending the Expiration Date, the Company
will disclose the approximate principal amount of Secured Notes tendered at
that time. If the Company changes this Offer or the information with respect
thereto, the tender offer rules under the Exchange Act may require the Company
to disseminate additional tender offer materials and extend the Expiration
Date to permit adequate dissemination thereof.
PROCEDURE FOR TENDERING SECURED NOTES
Letter of Transmittal. To effectuate a valid tender of Secured Notes,
the Depositary must receive a properly completed Letter of Transmittal with
respect thereto at one of the addresses set forth on the back cover hereof,
along with the certificates for the tendered Secured Notes and any other
required documents. Only a registered holder of Secured Notes on the Secured
Note register or a person registered as the holder of Secured Notes on the
records of a Clearing Agency that delivers an omnibus endorsement to the
Depositary may complete a Letter of Transmittal. The Depositary will request
Depository Trust Company and its nominee Cede & Co., Midwest Securities Trust
Company and its nominee Kray & Co. and The Philadelphia Depository Trust
Company and its nominee Philadep & Co. (collectively, the "Clearing Agencies")
to deliver to the Depositary an omnibus endorsement for the benefit of the
persons registered on their records as the holders on the Expiration Date of
the Secured Notes for which they are the registered holders. If a Clearing
Agency delivers such an endorsement, the persons designated thereon may
complete, execute and deliver a Letter of Transmittal with respect to the
Secured Notes for which such endorsement indicates that they are the holders
as if they were the registered holders thereof. On or before the Expiration
Date, however, such a Clearing Agency must deliver to the Depositary the
Secured Note certificates representing any such Secured Notes. Instead of
having Depository Trust Company and its nominee Cede & Co. deliver such
Secured Note certificates, however, the persons registered on its records as
the holders of Secured Notes may tender such Secured Notes pursuant to the
book-entry transfer procedures set forth below.
Unless a Secured Noteholder is an Eligible Institution, such Secured
Noteholder must have its signature guaranteed by an Eligible Institution that
is a member of: (i) the Securities Transfer Agents Medallion Program, (ii)
the New York Stock Exchange Medallion Signature Program or (iii) the Stock
Exchange Medallion Program (collectively, the "Medallion Programs").
An "Eligible Institution" is: (i) a firm that is a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or (ii) a commercial bank or trust company that has an office or
a correspondent in the United States of America.
When Secured Note certificates are held by joint tenants, both joint tenants
should sign. When signing as administrator, attorney-in-fact, executor,
fiduciary, guardian, officer, trustee or other person acting in a
representative capacity, the person signing should give such person's full
title and deliver evidence to the Depositary of its authority to execute the
Letter of Transmittal. If a corporation, an authorized officer should sign in
the name of the corporation. If a partnership, a general partner should sign
in the name of the partnership.
The method of delivery of all documents is at the election and risk of the
tendering Secured Noteholder. Although a Secured Noteholder may use the
enclosed pre-addressed envelope to send its documents to the Depositary, a
tender of Secured Notes will not occur until the Depositary actually receives
all of the documents required to effectuate the tender at one of the addresses
set forth on the back cover hereof. Accordingly, if a Secured Noteholder
mails its documents to the Depositary, the Depositary recommends that it use
certified or registered mail and allow sufficient time to insure receipt on or
before the Expiration Date.
24
<PAGE>
Book-Entry Transfer. The Depositary will request Depository Trust Company
and its nominee Cede & Co. to establish a book-entry transfer account for the
Secured Notes. Any financial institution that participates in the Book-Entry
Transfer Facility's system may make book-entry delivery of Secured Notes by
causing the Book-Entry Transfer Facility to transfer such Secured Notes into
the Depositary's account thereat. The Company anticipates using the Automated
Tender Offer Program (ATOP) system to determine the Secured Notes tendered
pursuant to this Offer from time to time.
Book-entry transfer of Secured Notes, however, will not obviate the
requirement that the Depositary receive a Letter of Transmittal with respect
to such Secured Notes and any other required documents on or before the
Expiration Date. Delivery of the Letter of Transmittal and such other
documents to the Book-Entry Transfer Facility will not constitute delivery to
the Depositary.
Guaranteed Delivery. If a Secured Noteholder cannot deliver a Letter of
Transmittal and its Secured Notes to the Depositary on or before the
Expiration Date, such Secured Noteholder may tender its Secured Notes through
an Eligible Institution. To make such a tender, on or before the Expiration
Date the Depositary must receive from the Eligible Institution a properly
completed Notice of Guaranteed Delivery substantially in the form enclosed
herewith. Within three business days after receipt of the Notice of
Guaranteed Delivery, the Depositary must receive from the Eligible Institution
a properly completed Letter of Transmittal, the Secured Note certificates for
the tendered Secured Notes or confirmation of a book-entry transfer of such
Secured Notes into the Depositary's account at the Book-Entry Transfer
Facility, and any other required documents.
PAYMENT FOR ACCEPTED SECURED NOTES
Upon the terms and subject to the conditions of this Offer, the Company will
purchase by accepting for payment and will pay for all Secured Notes properly
tendered pursuant to this Offer on or prior to the Expiration Date and not
withdrawn. In all cases, the Company will pay for accepted Secured Notes only
after the Depositary timely receives the Secured Note certificates for such
Secured Notes or confirmation of a book-entry transfer of such Secured Notes
into the Depositary's account at the Book-Entry Transfer Facility. For
purposes of this Offer, the Company shall be deemed to have accepted for
payment tendered Secured Notes as, if and when the Company gives oral or
written notice of such acceptance to the Depositary.
The Company will pay for the accepted Secured Notes by transferring the
aggregate purchase price therefor along with interest due thereon to the
Depositary. Interest through July 15, 1996 will be paid only to holders of
record of a Secured Note on July 1, 1996. If a tendered Secured Note was
transferred to the tendering Secured Noteholder after July 1, 1996, no
interest will be paid to the transferee. Upon the Depositary's receipt
thereof, the Company will be deemed to have purchased the accepted Secured
Notes and this Offer will be deemed consummated for all purposes. At that
time, such Secured Notes shall be retired and cease to be outstanding. The
Depositary will act as the agent for the tendering Secured Noteholders for the
purpose of receiving such payment and transmitting the appropriate portions
thereof to them. Under no circumstances will any interest be owed or paid on
such amounts because of any delay in making such payments. A tendering
Secured Noteholder will generally not incur brokerage commissions or transfer
taxes with respect to its Secured Notes that the Company purchases pursuant
hereto, except that a Secured Noteholder may incur transfer taxes if it
instructs the Depositary to pay any amounts owed to it with respect to its
accepted Secured Notes to another person.
With respect to tendered Secured Notes that the Company does not accept, as
soon as possible after determining which Secured Notes the Company has
accepted, the Depositary will return the Secured Note certificates for such
unaccepted Secured Notes to the registered holder thereof or redeliver such
unaccepted Secured Notes by book-entry transfer to the Book-Entry
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Transfer Facility account from which the Secured Noteholder caused their
delivery. If a Secured Note certificate represents both accepted and
unaccepted Secured Notes, the Depositary will cause the cancellation of such
certificate and the issuance of a new certificate for the unaccepted Secured
Notes to the registered holder of the original certificate.
WITHDRAWAL RIGHTS
A Secured Noteholder's tender of Secured Notes pursuant to this Offer
will be irrevocable, except that the Secured Noteholder may withdraw such
tendered Secured Notes on or before the Expiration Date and on or after August
3, 1996, unless the Company has accepted them before that date. To withdraw
tendered Secured Notes, the Depositary must receive a written notice of
withdrawal (a "Notice of Withdrawal") from the Secured Noteholder at one of
the Depositary's addresses set forth on the back cover hereof. The Notice of
Withdrawal must specify: (i) the name of the person who tendered the Secured
Notes to be withdrawn, (ii) the principal amount of Secured Notes to be
withdrawn and (iii) the name in which the Secured Note certificates
representing such Secured Notes are registered.
If the Secured Noteholder has delivered or otherwise identified to the
Depositary the Secured Note certificates for the Secured Notes to be
withdrawn, prior to the physical release of those Secured Note certificates
the Secured Noteholder must also furnish to the Depositary the serial numbers
for such Secured Note certificates and have the signatures on the Notice of
Withdrawal guaranteed by an Eligible Institution that is a member of a
Medallion Program, unless the person submitting the Notice of Withdrawal is an
Eligible Institution. If a Secured Noteholder has delivered Secured Notes to
the Depositary pursuant to the procedure for book-entry transfers, the Notice
of Withdrawal must specify the account at the Book-Entry Transfer Facility to
be credited with such withdrawn Secured Notes and must otherwise comply with
the Book-Entry Transfer Facility's procedures.
A Secured Noteholder may not rescind a withdrawal of tendered Secured Notes.
Any withdrawn Secured Notes will not be validly tendered for purposes of this
Offer. A Secured Noteholder may re-tender withdrawn Secured Notes, however,
by again following the procedures described herein at any time on or before
the Expiration Date.
NO PRORATION
If the Minimum Exchange Condition is satisfied and this Offer and the
Restructuring Transaction are consummated, the Company will accept and pay for
all Secured Notes validly tendered prior to the Expiration Date.
INFORMATION AGENT
The Company has engaged Hill & Knowlton, Inc. as Information Agent in
connection with this Offer. The Information Agent may contact Secured
Noteholders and may request brokers, dealers and other nominees to forward
materials relating to this Offer to beneficial owners. The Company will pay
the Information Agent reasonable and customary compensation for its services
in connection with this Offer, plus reimbursement of out-of-pocket expenses.
The Company will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the federal
securities laws.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
the Company for customary mailing and handling expenses incurred by then in
forwarding material to their customers. The Company will not pay any fees or
commissions to any broker, dealer or other person in connection with the
solicitation of tenders of Secured Notes pursuant to this Offer.
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Requests for information or additional copies of this Offer to Purchase and
related Letter of Transmittal should be directed to the Information Agent.
CIBC WOOD GUNDY
CIBC Wood Gundy has provided certain financial advisory services to the
Company and certain Secured Noteholders in connection with the Restructuring
Transaction. The Company has agreed to pay CIBC Wood Gundy a monthly fee of
$85,000 for the period of its engagement, plus a $300,000 fee payable upon the
consummation of a restructuring transaction for its advisory services, plus
reimbursement for out-of-pocket expenses. In addition, the Company will pay
CIBC Wood Gundy a fee of 2.5% of the committed amount if the Senior Secured
Credit Facility is funded. The Company has agreed to indemnify CIBC Wood
Gundy against certain liabilities in connection with its services as financial
adviser, including liabilities under the federal securities laws.
RAUSCHER PIERCE REFSNES, INC.
For RPR's services in connection with the Restructuring Transaction, the
Company has agreed to pay RPR a fee of $100,000, plus reimbursement for out-of
pocket expenses. The Company has agreed to indemnify RPR against certain
liabilities in connection with its services, including liabilities under the
federal securities laws.
DEPOSITARY
The Depositary for this Offer is Fleet National Bank. All deliveries,
correspondence and questions sent or presented to the Depositary relating to
this Offer should be directed to one of the addresses or telephone numbers set
forth on the back cover of this Offer to Purchase.
The Company will pay the Depositary reasonable and customary compensation
for its services in connection with this Offer, plus reimbursement for out-of-
pocket expenses. The Company will indemnify the Depositary against certain
liabilities and expenses in connection therewith, including liabilities under
the federal securities laws.
DESCRIPTION OF THE COMPANY'S BUSINESS
GENERAL
The Company owns and operates through its subsidiaries a system of 58
membership-based campgrounds located in 19 states and British Columbia,
Canada, serving 131,000 members as of March 31, 1996. Through its
subsidiaries, the Company also manages timeshare facilities and owns certain
real estate at eight full service resorts and provides a reciprocal use
program for members of approximately 330 recreational facilities.
CAMPGROUND OPERATIONS
The Company owns and operates its network of membership-based campgrounds
through NACO and Trails. NACO owns and operates a network of 23 of these
campgrounds, and Trails owns and operates a network of 35 of these
campgrounds. Members 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 March 31, 1996, NACO had
approximately 49,000 campground members and Trails had approximately 82,000
campground members. However, approximately 31% of NACO's campground members
and approximately 48% of Trails' campground members possess the right to use
the campgrounds in the network of the other
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company. Campground members are concentrated in several states, including
California, Florida, Oregon, Texas and Washington. California has the largest
concentration of members.
Prior to April 1992, the Company sold new campground memberships on an
installment basis at sales prices up to approximately $8,000. In April 1992,
the Company suspended the sale of new campground memberships because its sales
program was operating at a loss and with negative cash flow. In the fall of
1992, the Company began to assist campground members desiring to sell their
memberships in the secondary market. During fiscal 1994, as part of its focus
on ongoing revenues from campground operations, the Company determined that it
should increase its sales and marketing efforts in order to replenish its
campground membership base. As a result, in May 1994, the Company instituted
a new sales and marketing program under which it began selling new campground
memberships on a limited basis. Since that time, the Company has been testing
membership products and revising them based on results and its ongoing market
research.
The Company's research indicates that camping is a popular and growing
activity in the United States. Camping was the fifth largest participant
sport/activity in the United States in 1993, and the number of campers has
increased during each of the preceding five years. Moreover, the Company's
campgrounds are located in markets containing approximately 25% of all camping
households in the United States. While most campers use national or state
parks, the Company believes that it has a significant opportunity to compete
for campers interested in higher quality facilities and a higher level of
service than is typically available at public campgrounds or competing private
campgrounds. The Company believes that it can differentiate its campgrounds
and services from other campgrounds by emphasizing the quality of its
facilities and the benefits and services available at its campgrounds.
Campground members pay annual dues ranging from $60 to $998. The annual
dues collected from campground members constitute general revenue of the
Company. Although the Company uses the dues to fund its operating expenses,
including corporate expenses and the maintenance and operation of the
campgrounds, the membership agreements do not require the Company to use the
dues for any specific purpose.
From January 1, 1993 to March 31, 1995, the Company requested its
campground members to participate in a voluntary dues program (the "TTN
Alliance Program") under which participating members agreed to increase their
dues and campground fees voluntarily. Under this program, participating
members either: (i) increased their annual dues by $100, up to a maximum of
$429 per year, and agreed to pay a use fee of $2.00 per night after staying at
the campgrounds for 50 nights in any calendar year, or (ii) increased their
annual dues to $730 per year without agreeing to pay any use fee.
Participating members, however, received certain considerations. A total of
34,200 of the Company's members (25%) chose to participate in the TTN Alliance
Program, which has resulted in additional ongoing dues revenue of $2.1 million
per year.
The membership agreements generally permit the Company to increase
annually the amount of each member's dues by either (i) the percentage
increase in the consumer price index ("CPI") or (ii) the greater of 10% or the
percentage increase in the CPI. The Company, however, may not increase the
dues on existing contracts of senior citizens and disabled members who notify
the Company of their age or disability and request that their dues be frozen.
At the present time, approximately 36% of the members have requested that
their dues be frozen because of their age or disability. The Company
estimates that approximately 50% of the campground members are senior citizens
eligible to request that their dues be frozen. The Company is unable to
estimate when or if a significant number of these members will request that
their dues be frozen in the future.
NACO members and holders of dual-system memberships, which permit the
member to use the campgrounds in both the NACO and Trails systems, may join
Resort Parks International
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("RPI"). A wholly owned subsidiary of the Company operates the RPI program,
which offers a reciprocal program for members of approximately 330
participating recreational facilities. Members of these participating
facilities pay a fee to RPI that entitles them to use any of the participating
facilities, subject to the limitation that they cannot use an RPI facility
located within 125 miles of their home facility. As of March 31, 1996, there
were approximately 98,000 RPI members, of which approximately 78,000 were
members of campgrounds that are not affiliated with the Company.
CAMPGROUND MANAGEMENT
During fiscal 1994, a wholly owned subsidiary of the Company ("Wilderness
Management") began to manage public campgrounds for the U.S. Forest Service.
As of March 31, 1996, Wilderness Management had entered into management
contracts covering 35 campgrounds containing a total of 1,436 campsites.
Pursuant to these contracts, the Company incurs the expenses of operating the
campgrounds and receives the related revenues, net of a fee paid to the Forest
Service.
RESORT OPERATIONS
NACO manages timeshare facilities and owns certain real estate at eight
full service resorts located in seven states. NACO currently owns and
operates the resort amenities at one of these locations, and has sold the
resort amenities at the other locations. NACO's interest in the resorts
consists principally of residential lots and timeshare interests in
townhouses. As of March 31, 1996, NACO had approximately 29,000 resort
members who owned a timeshare interest or lot.
Timeshare owners pay annual fees to their respective timeshare
associations for the cost of operating and maintaining the timeshare
facilities. From these fees, the timeshare associations pay management fees
to NACO averaging 11% of the annual fees. The Company cannot use these annual
fees, other than the management fees, to pay the Company's expenses.
Additionally, NACO pays dues to the timeshare associations on unsold timeshare
inventory, and receives rental income on the unsold timeshare inventory when
the units are rented. In the past, the fees paid to certain timeshare
associations were sometimes insufficient to pay the cost of maintaining the
facilities. Under these circumstances, NACO performed the maintenance and
billed the timeshare associations. As of March 31, 1996, NACO had an
aggregate receivable of $3.1 million due from various timeshare associations.
The Company believes that collection of certain of these amounts could be
difficult due to the limited funds of the timeshare associations. Therefore,
the Company has recorded a $2.1 million reserve for amounts considered
uncollectible.
Since June 1992, NACO has been selling its timeshare interests and lots at
significantly reduced prices in order to decrease the timeshare inventory on
which it pays dues and its inventory of lots.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its campground
memberships and resort interests on the installment basis, creating a
portfolio of contracts receivable. The Company charges interest 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 6.0% to 18.9%, with an
approximate weighted average stated interest rate of 12.9% as of March 31,
1996. Monthly installment payments range from $90 to $210 over the term of
the contracts receivable, which can be up to ten years. The terms of most
newer contracts receivable, however, do not exceed five years and contract
terms under the Company's current campground membership sales program are
limited to one year. At March 31, 1996, approximately 95% of the Company's
campground and resort members had paid
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for their membership or resort interest in full. As of March 31, 1996, the
Company possessed contracts receivable from campground and resort members with
an aggregate principal balance of $24.3 million, consisting of $6.9 million of
contracts receivable associated with the NACO campgrounds, $14.1 million of
contracts receivable associated with the Trails campgrounds and $3.3 million
of contracts receivable associated with the NACO resorts.
FINANCIAL INFORMATION
The Company's financial statements for the fiscal year ended June 30,
1995 are contained in the Annual Report incorporated by reference herein and
delivered herewith. The Company's interim financial statements for the nine
months ended March 31, 1996 are contained in the Quarterly Report incorporated
by reference herein and delivered herewith.
During fiscal 1996, the Company has made operational changes in order to
reduce operating costs at its campgrounds and general and administrative
expenses. These changes have been achieved through the reduction of excess
campground personnel, the seasonal closure of certain facilities with low
usage during off-season periods, the permanent closure and abandonment of four
campgrounds and the reduction of excess corporate personnel. As a result,
total operating costs declined to $25.5 million for the nine months ended
March 31, 1996, from $29.6 million for the comparable period in fiscal 1995 (a
14% reduction), while general and administrative expenses fell $1.2 million to
$9.3 million (an 11% reduction) for the same periods. For the nine months
ended March 31, 1996, the Company had a positive contribution from operations
of $4.4 million, compared with a negative contribution of $1.0 million for the
same period of fiscal 1995. The Company presently expects to have a positive
contribution from operations of $4.0 million to $4.5 million for fiscal 1996.
See Item 2, "Management's Discussion and Analysis of Financial Conclusion and
Results of Operations" in the Quarterly Report incorporated by reference
herein.
RECENT OPERATING STRATEGY
Over the past two years, the Company has modified its membership product
to better address the needs of its target market and focused on membership
referrals in its sales efforts. The Company's current strategy involves
selling multiple and more affordable types of membership products to better
suit the desires of various campers. The Company offers membership products
with up-front fees ranging from $495 to $2,495 based principally on the number
and location of the campgrounds the member wishes to access, with accompanying
annual dues ranging from $198 for 15 days of camping per year to $998 for
unlimited camping. The Company focuses its new membership sales efforts on
guests referred by existing members, whom management believes are more likely
to purchase memberships.
New membership sales have increased substantially. For the nine months
ended March 31, 1996, the Company sold 1,834 new memberships at an average
sales price of $905 for total revenue of $1.7 million, compared to 439
memberships at an average price of $1,613 for total revenue of $708,000 for
the same period in 1995, with accompanying aggregate annual dues of $565,000
in the current period compared to $173,000 in the same period last year.
Improved sales, particularly the increase in aggregate annual dues, have
enabled the Company to partially offset decreases in revenue resulting from
member attrition, but at a level below that necessary to stabilize the
membership base. The membership base is declining at a rate of approximately
8% annually. The Company attributes the decline principally to the aging of
its members. The Company believes that as new membership sales improve, its
net attrition rate will decrease substantially and the membership base will
stabilize.
Over the past two years, the Company's collection of its contracts
receivables portfolio has improved as a result of management's implementation
of well-defined policies regarding collections procedures and as a result of
the portfolio becoming more seasoned. As of March 31,
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1996, approximately 95% of the gross contracts receivable balance was current,
and less than 2% was more than 90 days past due. The Company estimates that as
of June 30, 1996, it will have contracts receivable from campground and resort
members with an aggregate principal balance of $22.0 million and a balance of
$14.0 million, net of reserves.
The Company is divesting non-core assets to generate cash and reduce
indebtedness. Non-core assets include undeveloped land, lots and buildings in
connection with the full service resorts, excess acreage at certain of the
Company's campgrounds, and campgrounds that have been removed from the
membership system. For the nine months ended March 31, 1996, the Company sold
a variety of real estate for aggregate net proceeds of $7.0 million. For
fiscal 1996, the Company estimates that it will generate net proceeds of $7.5
million from the sale of non-core assets.
The Company has approximately $54 million in net operating loss
carryforwards incurred during fiscal 1992 through 1995 that are available to
shelter future cash flows. The net operating loss carryforwards expire
fifteen years after incurred. The Restructuring Plan is intended to avoid a
change in control for federal income tax purposes and, therefore, preserve the
Company's ability to utilize its net operating loss carryforwards.
The Company has formulated the Business Plan on the important assumption,
among others, that the progress made in fiscal 1996 will continue and, in the
case of its sales and marketing program, increase materially. The Company's
calculations under the Business Plan are not historical, except in the case of
the first three quarters of fiscal 1996, and involve significant risks and
uncertainties. The Company's future results of operations and financial
condition may differ materially due to several factions; including but not
limited to the Company's continued ability to control costs, its ability to
implement its sales and marketing plan, the actual rate of decline in the
campground membership base, the actual use of the campgrounds by members and
guests, the actual timing of planned asset sales, the actual collection
experience of the Company's contracts receivable, future interest rates and
the other factors affecting the Business Plan that are set forth in this Offer
to Purchase and the Annual Report and Quarterly Report incorporated herein by
reference.
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MANAGEMENT
The following table sets forth the directors and executive officers of
the Company as of the date hereof.
NAME AGE OFFICES AND POSITIONS WITH COMPANY
- ------------------------- -------- -----------------------------------------
William J. Shaw 53 Director (May 1995)
Chairman of the Board, Chief Executive
Officer and President
Andrew Boas 41 Director (December 1991)
William P. Kovacs 50 Director (December 1991)
Donald R. Leopold 47 Director (December 1995)
H. Sean Mathis 49 Director(December 1991)
Douglas K. Nelson 53 Director (December 1991)
Harry J. White, Jr. 42 Vice President, Chief Financial Officer,
Chief Accounting Officer and Treasurer
R. Gerald Gelinas 50 Vice President, Sales and Marketing
Walter B. Jaccard 42 Vice President, General Counsel and Secretary
THE SECURED NOTES
GENERAL
The Secured Notes were issued pursuant to an Indenture dated as of July
15, 1991, with Fleet National Bank, as Trustee (the "Trustee"). The Indenture
has been amended by seven supplemental indentures, dated as of December 31,
1991, June 12, 1992, May 20, 1993, September 13, 1993, March 28, 1994, March
29, 1994 and June 22, 1995. The Indenture as so amended is referred to in
this Offer to Purchase as the "Indenture." The aggregate outstanding
principal amount of the Secured Notes is $101,454,000.
PAYMENT TERMS AND TRADING
Stated Maturity. The Secured Notes have a stated maturity of July 15,
1998. The Company, however, may from time to time redeem any or all of the
Secured Notes at 100% of the principal amount thereof plus accrued interest
thereon.
Interest. The Secured Notes bear interest at 12% per annum, payable
semi-annually on January 15 and July 15 of each year. The Company pays the
interest to the Secured Noteholders on the close of business on the first day
of the month in which the interest payment date occurs. The interest rate
increases to 14% per annum after an Event of Default (as defined in the
Indenture).
Trading. An established public trading market for the Initial Series
Notes may not exist and an established public trading market for the
Additional Series Notes does not exist. The securities laws of many states
prohibit or restrict trading in the Secured Notes because of the
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Company's financial condition. The Company, however, has either registered or
obtained exemptions to permit secondary trading in the Secured Notes in the
States of Illinois, New York, and Utah. Moreover, many other jurisdictions
have statutory exemptions that permit certain institutions to trade the
Secured Notes.
REDEMPTION, RETIREMENT, AND PURCHASE
Redemption. The Company must redeem $18.7 million in principal amount of
the Secured Notes on each of July 15, 1996 and 1997, at 100% of the principal
amount thereof plus accrued interest thereon. The Company may credit the
principal amount of any Secured Notes that it delivers to the Trustee for
cancellation against these mandatory redemption requirements. Generally, the
Indenture credits such cancellations in inverse order of maturity against the
stated maturity of the Secured Notes and the mandatory redemptions on July 15,
1996 and 1997. The Indenture, however, credits the Secured Notes that the
Company acquires pursuant to a mandatory retirement or purchase in connection
with certain asset sales, changes of control, and other events in equal
principal amounts among any then remaining mandatory redemptions and the
stated maturity of the Secured Notes.
Retirement Obligation Upon Sale of Assets. Subject to certain
limitations, the Company must apply 80% of the Net Cash Proceeds (as defined
in the Indenture) of certain asset sales to retire outstanding Secured Notes,
unless the Company obtains a waiver. Generally, the Company may retire such
Secured Notes through open market purchases and privately negotiated
transactions occurring not later than 90 days after the closing of such asset
sale. In the absence of such purchases, the Company must use 80% of the Net
Cash Proceeds to redeem Secured Notes at 100% of the principal amount thereof
plus accrued interest thereon. After reaching certain Net Cash Proceeds
thresholds, the Indenture does not permit the Company to purchase Secured
Notes other than pursuant to an offer to all Secured Noteholders.
Purchase Obligation Upon Change of Control and Other Events. Unless the
Company obtains a waiver, the Company must offer to purchase all of the
outstanding Secured Notes at 100% of the principal amount thereof plus accrued
interest thereon upon: (i) an adoption by the Company of a plan of liquidation
or dissolution, (ii) a sale of all or substantially all of the Company's
assets, (iii) a merger or other corporate transaction requiring the approval
of the Company's board of directors, other than a Widely Distributed Public
Offering (as defined in the Indenture), that causes the holders of the
Company's Voting Stock (as defined in the Indenture) to hold less than 66-2/3%
of the voting power thereof, or if the Company is not the surviving entity, of
the surviving entity, immediately after consummation of such transaction or
(iv) a person or group acquiring or holding more than a 50% interest in the
voting power of the Company's Voting Stock.
SUBSIDIARY GUARANTEES
The Company has granted liens on substantially all of its assets to
secure its obligations under the Indenture for the Secured Notes. The
Company's subsidiaries, other than an immaterial utility subsidiary (the
"Subsidiary Guarantors"), have guaranteed the Company's obligations under the
Indenture and, subject to certain limitations, have granted liens on
substantially all of their assets to secure their guarantees. A guarantee by
a subsidiary of the obligation of its parent may be voided, in whole or in
part, if the creditors of the subsidiary, a trustee in bankruptcy of the
subsidiary, or the subsidiary itself as the debtor-in-possession in
bankruptcy, determine that, among other things, the subsidiary received less
than reasonably equivalent value in exchange for the guarantee and the
subsidiary was insolvent on the date the guarantee was made or became
insolvent as a result of the guarantee. Creditors of these companies could
contend that the guarantees and grants of security interests were not
supported by sufficient consideration, and could therefore contend that some
or all of the guarantees could be unenforceable, in whole or in
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part. The Company believes that these companies received adequate financial
and other benefits for their guarantees and security interests.
NACO and Trials have also granted liens, subject to certain limitations,
on substantially all of their assets to secure the repayment of their
respective indebtedness to the Company. These security interests were
subordinated to the security interests securing the guarantees of the Secured
Notes. The indebtedness that these security interests secure, however, was
pledged by the Company under the Indenture to secure the Secured Notes, and
these security interests were collaterally assigned to the Indenture trustee.
Such liens, however, are only enforceable to the extent of the underlying
indebtedness secured thereby, which at March 31, 1996, totaled $27.4 million
for NACO and $1,000 for Trails. Furthermore, the subsidiaries of NACO and
Trails each guaranteed their respective parent's indebtedness to the Company
and granted security interests in substantially all of their assets to secure
such guarantees. As discussed above, these guarantees and liens are also
subject to a risk that they may be unenforceable, in whole or in part.
SECURITY INTERESTS
Generally. The assets subject to the liens of the Indenture include:
(i) the capital stock of the Company's subsidiaries, including NACO and its
subsidiaries, RPI, Trails and its subsidiaries other than an immaterial
utility subsidiary, and Wilderness Management, (ii) the campgrounds and common
amenities at one resort owned by the Company's subsidiaries, together with
related improvements, trailers, equipment, and certain other tangible personal
property located thereat to the extent existing mortgages do not prohibit such
liens, (iii) the closed campgrounds and other real estate that the Company's
subsidiaries own and are in the process of selling, (iv) the contracts
receivable that the Company and each of its subsidiaries own, (v) all
indebtedness owed to the Company by its subsidiaries, together with all
related liens and (vi) substantially all of the cash balances of the Company
and each of its subsidiaries. Currently, 56 of the Company's 58 operating
campgrounds and the common amenities at one resort are subject to the liens of
the Indenture. However, certain specified assets are excluded from the liens
of the Indenture, including two of the Company's operating campgrounds,
certain leasehold interests, rights and franchises that would become void if
mortgaged or pledged, certain vehicles, trailers, and movable equipment,
certain cash in restricted accounts, and the stock and assets of one
immaterial utility subsidiary.
Certain of NACO's and Trails' campgrounds and resorts are also subject to
mortgages in favor of the party from whom NACO or Trails purchased the
property.
Cash Collateral. The Company and the Subsidiary Guarantors must deposit
substantially all of their cash receipts directly into one or more cash
collection accounts (collectively, the "Collection Accounts") or a
concentration account (the "Concentration Account"). The Company and the
Subsidiary Guarantors have pledged the balances of these accounts for the
benefit of the Secured Noteholders. The Company currently has only one
Collection Account. The Company currently maintains both the Collection
Account and the Concentration Account at The Bank of California, N.A.
The Company and the Subsidiary Guarantors must irrevocably instruct any
bank maintaining a Collection Account to transfer all funds in such account
into the Concentration Account each week. Additionally, the Company and the
Subsidiary Guarantors must deposit all other proceeds in various small
accounts that the Subsidiary Guarantors may maintain (collectively, the "Field
Accounts"). A Subsidiary Guarantor must irrevocably instruct any bank
maintaining a Field Account for it to transfer all funds in such account in
excess of $500 to a Collection Account or the Concentration Account each week.
A Field Account that a NACO resort maintains (a "Resort Field Account"),
however, may hold $20,000 per account. A Subsidiary Guarantor maintaining a
Resort Field Account must irrevocably instruct the bank maintaining such
account to transfer all funds therein in excess of $20,000 to a Collection
34
<PAGE>
Account or the Concentration Account each month. The Subsidiary Guarantors do
not currently have any Field Accounts because the financial institutions near
the campgrounds and resorts have declined to accept responsibility for making
the required transfers to the Collection Account. To resolve this problem,
the Indenture has been amended to permit the Company to maintain subaccounts
at various financial institutions with respect to each Collection Account.
The Indenture permits the Company to withdraw limited amounts of money
from the Concentration Account and deposit such money in an operating account
(the "Operating Account") for use in the Company's business, unless a Material
Event of Default (as defined in the Indenture) exists. While such a default
exists, the Indenture prohibits the Company from making withdrawals from the
Concentration Account, except withdrawals used for the payment of Secured
Notes and certain insurance premiums and a one-time withdrawal in an amount
equal to the excess of $5 million over the funds in the Operating Account and
the Field Accounts.
Priority. The security interests securing the Secured Notes are or will
be subordinate to or pari passu with certain other security interests. The
Indenture permits superior security interests securing any Senior Secured
Working Capital Facilities ("Senior Secured Working Capital Facilities"), tax
liens, mechanics' and materialmens' liens, and certain existing security
interests. The Indenture also permits the Company and its subsidiaries to
grant security interests to secure certain purchase money indebtedness, which
security interests will be superior to the security interests securing the
Secured Notes, and security interests to secure certain Permitted Pari Passu
Debt (as defined in the Indenture), which will be equal in priority to the
security interests securing the Secured Notes. As of the date hereof, the
Company has not established a Senior Secured Working Capital Facility, except
for a letter of credit in the amount of $1.5 million to secure a bonus payable
to Mr. Shaw under his employment contract, or incurred any Permitted Pari
Passu Debt. The Company's subsidiaries, however, had $1.9 million in secured
real estate and other indebtedness outstanding as of March 31, 1996, to which
the Secured Notes are effectively subordinate.
Limitations on Foreclosure. Some states, including California, Oregon
and Washington, have nondisturbance statutes that place limitations on the
ability of the owner of a campground to close the campground or a lienholder
to foreclose its lien. In certain states, these statutes permit the owner of
a campground to close the campground or a lienholder to foreclose its lien if
the holders of memberships at the campground receive access to a comparable
campground. The mortgages on the Company's campgrounds that were granted to
secure the Company's obligations under the Indenture, and the mortgages on the
Company's campgrounds that were granted to secure NACO's and Trails'
indebtedness to the Company, contain nondisturbance provisions that limit the
ability of the lienholder to foreclose its lien unless the holders of the
related memberships receive access to a comparable campground. The impact of
the rights of members under these laws and non-disturbance provisions is
uncertain and could adversely effect the implementation of, and the benefits
or recoveries that may be available from, a foreclosure or in a
reorganization.
Disposition of Collateral. So long as an Event of Default (as defined in
the Indenture) has not occurred and the Secured Notes have not been
accelerated, the Indenture provides that the Company and the Subsidiary
Guarantors may dispose of their properties, other than Material Assets (as
defined in the Indenture), free from the security interests securing the
Secured Notes without obtaining any consent or release from the Trustee.
During this period, the Company and the Subsidiary Guarantors may also sell or
otherwise dispose of any Material Assets free from the security interests
securing the Secured Notes if the Company's Board of Directors passes a
resolution stating that such sale or other disposition is in the best
interests of the Company and the Company complies with the appraisal and other
requirements of the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Indenture generally requires the Company and the
Subsidiary Guarantors to deposit any proceeds from such sales in the
Concentration Account or a Collection Account.
35
<PAGE>
FINANCIAL COVENANTS
The Indenture contains the following financial ratio tests: (i) ratio of
Consolidated Financial Assets to Consolidated Senior Debt, (ii) ratio of
Consolidated Tangible Assets to Consolidated Senior Debt and (iii) ratio of
Consolidated Tangible Assets to Consolidated Total Debt. The Indenture also
contains a covenant that limits the Adjusted Consolidated Net Loss that the
Company may incur. On June 23, 1995, the Company entered into an amendment to
the Indenture which eliminated required compliance with the financial
covenants in the Indenture through and including June 30, 1996.
LIMITATIONS ON ADDITIONAL INDEBTEDNESS
Subject to certain exceptions, the Indenture limits the Company's ability
to incur additional indebtedness. These exceptions include: (i) indebtedness
of up to $25 million under the Senior Secured Working Capital Facilities, (ii)
indebtedness of up to $5 million under a working capital facility for Trails,
(iii) indebtedness, pari passu with the Secured Notes, used to redeem Secured
Notes, (iv) indebtedness that the Company incurs to pay other indebtedness
that is secured by a security interest senior to the security interest granted
to the Trustee, (v) indebtedness that is unsecured and subordinate to the
Secured Notes, (vi) indebtedness that is purchase money indebtedness, subject
to certain limitations and (vii) indebtedness to which a property or a company
is subject at the time of its acquisition.
OTHER COVENANTS
The Indenture also contains other covenants that limit or restrict the
Company's ability to: (i) grant security interests in its assets, (ii) pay
cash dividends, (iii) make acquisitions and investments, (iv) purchase Secured
Notes, (v) enter into transactions with affiliates and insiders, (vi) issue
new securities and (vii) make loans and other financings.
EVENTS OF DEFAULT
Events of Default include: (i) the default in the payment of interest and
the continuance of such default for 30 days, (ii) the default in the payment
of principal, (iii) the default under any financial covenant, (iv) the default
under any other covenant and the continuance of such default for 30 days after
notice from the Trustee or from Secured Noteholders with respect to 30% in
principal amount of the outstanding Secured Notes, (v) the acceleration or
nonpayment at maturity of certain indebtedness and (vi) the occurrence of
certain insolvency or bankruptcy events.
During the continuance of an Event of Default, the Trustee or Secured
Noteholders with respect to at least 30% in principal amount of the
outstanding Secured Notes may declare the Secured Notes due and payable
immediately. The Indenture generally provides that after an acceleration, the
Trustee may sell the collateral in accordance with the Uniform Commercial Code
and other applicable laws. Any time after such a declaration of acceleration,
however, but before the sale of any collateral has occurred or any judgment
obtained for payment of the Secured Notes, Secured Noteholders owning a
majority in principal amount of the outstanding Secured Notes may rescind such
declaration and its consequences if: (i) the Company has deposited with the
Trustee a sum sufficient to pay any principal due on the Secured Notes, other
than by the acceleration thereof, and certain other payments, and (ii) the
Company has cured all Events of Default or obtained a waiver with respect
thereto.
Under the Indenture, a waiver requires consent with respect to at least
66 2/3% in principal amount of the outstanding Secured Notes. Moreover, under
the Trust Indenture Act, a waiver of a past default and its consequences will
also require consent with respect to not less
36
<PAGE>
than a majority in principal amount of the outstanding Secured Notes,
excluding any Secured Notes that any affiliate of the Company owns.
DIFFERENT CIRCUMSTANCES OF EACH SERIES OF SECURED NOTES
The Company issued the Secured Notes in two series, the Initial Series
Notes when the Company emerged from bankruptcy proceedings on December 31,
1991, and the Additional Series Notes when the Company exchanged Secured Notes
for outstanding 14-5/8% subordinated debt of Trails that was then in default
on June 12, 1992. The Indenture provides that each Secured Note should be
treated equally, notwithstanding whether it was part of the initial or
additional series. The Company, however, issued each series at a different
time, under different circumstances, for different consideration, and with
different tax consequences. Accordingly, competing creditors of the Company,
including the holders of each series of Secured Notes, could assert that such
differences cause the holders of each such series to have the different claims
to the assets of the Company and its subsidiaries.
TAX TREATMENT
The Company issued the Secured Notes with Original Issue Discount
("OID"). A portion of the OID on each Secured Note accrues daily until the
Secured Note matures or the Company otherwise repays it. This accrual is
taxable interest to the Secured Noteholder. The Company issued the Initial
Series Notes and the Additional Series Notes with different amounts of OID.
Accordingly, the Code subjects the Initial Series Notes and the Additional
Series Notes to different OID treatment.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain anticipated federal income
tax considerations with respect to this Offer. This discussion is general in
nature, and does not discuss all aspects of federal income taxation that may
be relevant to a particular Tendering Noteholder in light of its particular
circumstances, or to certain types of Tendering Noteholders 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, this
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
consequences that may apply to a particular Tendering Noteholder. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), and applicable Treasury Regulations (including proposed regulations),
rulings, administrative pronouncements and decisions as of the date hereof,
all of which are subject to change or differing interpretations at any time
and in some circumstances with retroactive effect. This discussion assumes
that a Tendering Noteholder holds its Notes as "capital assets" within the
meaning of Section 1221 of the Code, which is generally property held for
investment.
THE COMPANY URGES EACH SECURED NOTEHOLDER TO CONSULT ITS OWN TAX ADVISOR
TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES TO
IT OF TENDERING SECURED NOTES.
SALE OF NOTES PURSUANT TO THIS OFFER
In general, except as otherwise indicated below, a Tendering Noteholder
will recognize gain or loss on the sale of a Secured Note to the Company at
the time of such sale in an amount equal to the difference between the
Tendering Noteholder's adjusted tax basis in such Secured Note (including
basis attributable to OID accrued through the date of the sale) and the cash
received by the Tendering Noteholder upon the sale (other than the amount, if
any, paid in respect
37
<PAGE>
of accrued interest). Subject to the market discount rules described below,
such gain or loss will constitute capital gain or loss, which will be long-
term capital gain or loss if the Tendering Noteholder's holding period for the
Secured Note is more than one year on the date of the sale. Cash that a
Tendering Noteholder receives in payment of the interest on such Secured Note
accrued through the date of the sale will be taxed as ordinary income to the
extent that the Tendering Noteholder has not already included the accrued
interest in its income. Currently, the maximum tax rate with respect to long-
term capital gains realized by an individual is 28%, and the maximum tax rate
on ordinary income is 39.6%. The ability of a holder to use long-term capital
losses to offset income other than capital gains is subject to significant
limitations.
In the case of a Tendering Noteholder who acquired a Secured Note at a
market discount, any gain recognized upon the sale of such Secured Note will
represent ordinary income to the extent of the market discount that accrued
during the period such Tendering Noteholder held such Secured Note, unless the
Tendering Noteholder previously elected to include such accrued market
discount in its income as it is accrued. Market discount with respect to a
Secured Note generally equals the excess of: (i) the aggregate of the original
issue price of the Secured Note and the amount of any OID with respect thereto
includable in the income of all holders of the Secured Note (without regard to
the acquisition premium rules of the Code) before the acquisition of the
Secured Note by the Secured Noteholder, over (ii) the Tendering Noteholder's
initial tax basis in the Secured Note. A Secured Note may also have market
discount attributable to a debt instrument that the Tendering Noteholder
exchanged for such Secured Note in a transaction qualifying as a
recapitalization under Section 368(a)(1)(E) of the Code.
If a Tendering Noteholder purchased a Secured Note at a price in excess
of the stated redemption price at maturity thereof, and the Tendering
Noteholder elected to amortize and deduct bond premium, the Tendering
Noteholder may be permitted to deduct any remaining unamortized bond premium
as an ordinary loss upon the sale of the Secured Note to the Company pursuant
to this Offer.
EFFECT OF THIS OFFER UPON THE COMPANY
The Company will recognize cancellation of indebtedness ("COD") income
with respect to the Secured Notes purchased pursuant to this Offer in an
amount equal to the excess of: (i) the aggregate of the original issue price
of such Secured Notes and the amount of any OID that the Company has deducted
with respect thereto, over (ii) the amount that the Company paid for the
Secured Notes, other than the amount paid in respect of accrued interest. The
Company believes, however, that any such COD income will have an immaterial
effect upon the Company's federal income tax liability because of the
Company's current operating losses and loss carryforwards.
NON-TENDERING SECURED NOTEHOLDERS
In the event of the successful consummation of the Restructuring
Transaction, the federal income tax effect on non-tendering Secured
Noteholders whose Secured Notes are redeemed generally will be the same as
that described herein with respect to Tendering Noteholders.
BACKUP WITHHOLDING
Under federal income tax law, a person may under certain circumstances be
subject to backup withholding at the rate of 31% with respect to certain
payments, unless such person: (i) is a corporation or otherwise exempt from
backup withholding, and when required demonstrates this fact, or (ii) provides
a correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. To prevent backup withholding
with respect to the payment of the gross proceeds from the sale of Secured
Notes, each Tendering Noteholder should complete a Substitute Form W-9 and
return it to the Depositary. For the convenience of the Tendering
38
<PAGE>
Noteholders, a blank Substitute Form W-9 that the Tendering Noteholders can
complete is part of this Offer to Purchase. Any Tendering Noteholder who does
not complete a Substitute Form W-9 and return it to the Depositary will be
subject to federal income tax withholding on the gross amount of sale proceeds
from the sale of any accepted Secured Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH SECURED
NOTEHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO IT OF TENDERING SECURED NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
LEGAL MATTERS
Except as described below, the Company is unaware of any approval or
other action by any governmental authority or public body necessary in
connection with this Offer. Should this Offer require any such approval or
other action, the Company contemplates that it would seek to obtain such
approval or action.
Under the tender offer rules of the State of North Dakota, the Company
cannot commence this Offer to any person therein until June 12, 1996.
Accordingly, notwithstanding anything to the contrary herein, this Offer is
not extended to any person in North Dakota, and the Depositary will not accept
delivery of any tenders of Secured Notes from any persons therein, until June
12, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements, and other
information with the Commission. The public may inspect and copy at
prescribed rates such reports, proxy statements and other information that the
Company has filed with the Commission at the public reference facilities that
the Commission maintains at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the Commission's regional offices located at Room 3190,
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and
7 World Trade Center, 13th Floor, New York, New York 10048. In addition, the
public may obtain such reports, proxy statements, and other information
concerning the Company from the Public Reference Section of the Commission,
Washington, D.C. 20549 at prescribed rates. Neither the Exchange Act nor the
regulations thereunder required the Company to file, and the Company has not
filed, this Offer to Purchase with the Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents which have been filed with the Commission
pursuant to the Exchange Act are being delivered to the Secured Noteholders
with this Offer to Purchase and are incorporated herein by reference: the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995
and the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996. Exhibits to such documents are not included unless such
exhibits are specifically incorporated by reference in such documents.
Any statements contained in a document all or a portion of which is
incorporated by reference in this Offer to Purchase will be deemed to be
modified or superseded for the purposes of this Offer to Purchase to the
extent that a statement contained in this Offer to Purchase
39
<PAGE>
modifies or supersedes such statement. Any statement so modified will not be
deemed a part of this Offer to Purchase, except as so modified, and any
statement so superseded will not be deemed part of this Offer to Purchase.
40
<PAGE>
APPENDIX I
DEFINED TERMS
I-1
<PAGE>
This appendix lists all of the defined terms in the Offer to Purchase and
indicates the page on which the Offer to Purchase defines them.
DEFINED TERMS PAGE
Accredited Investors....................... 7
Additional Series Notes.................... Cover Page
Annual Report.............................. 10
Appraisals................................. 11
Business Plan.............................. 1
CIBC Wood Gundy............................ 1
Clearing Agencies.......................... 24
CM Strategic............................... 1
COD........................................ 38
Code....................................... 37
Collection Accounts........................ 34
Common Stock............................... 13
Company.................................... Cover Page
Concentration Account...................... 34
CPI........................................ 28
Depositary................................. Cover Page
Event of Default *........................ 32, 35
Exchange Act............................... 23
Exchange Consideration..................... 12
Exchange Offer............................. Cover Page
Exchanging Noteholders..................... Cover Page
Field Accounts............................. 34
Indenture.................................. 32
Information Agent.......................... Cover Page
Initial Series Notes....................... Cover Page
Junior Subordinated PIK Notes.............. 13
Letter of Transmittal...................... Cover Page
Material Assets *......................... 35
Material Event of Default *............... 35
Medallion Programs......................... 24
Minimum Exchange Condition................. ii
Minimum Tender Condition................... ii
NACO....................................... 3
Net Cash Proceeds *....................... 33
NGCL....................................... 14
Notice of Withdrawal....................... 26
Offer...................................... Cover Page
Offer to Purchase.......................... Cover Page
OID........................................ 37
Operating Account.......................... 35
I-2
<PAGE>
Permitted Pari Passu Debt *............... 35
Purchase Price............................. Cover Page
Quarterly Report........................... 10
Resort Field Account....................... 34
Restructuring Transaction.................. Cover Page
RPI........................................ 29
RPR........................................ 7
SC Fundamental............................. 6
Secured Notes.............................. Cover Page
Securities Act............................. 7
Senior Notes............................... 3
Senior Secured Credit Facility............. 15
Senior Secured Working Capital Facilities.. 35
Senior Subordinated PIK Notes.............. 13
Source and Amount of Funds................. 12, 13
Southmark.................................. 3
Southmark Debt Securities.................. 3
Special Committee.......................... 6
Steering Committee......................... 1
Subsidiary Guarantors *................... 33
Tendering Noteholders...................... 1
Term Loan.................................. 15
Trails..................................... 3
Transactions............................... 22
Trust Indenture Act........................ 35
Trustee.................................... 32
TTN Alliance Program....................... 28
Voting Stock *............................ 33
Widely Distributed Public Offering *...... 33
Wilderness Management...................... 29
Working Capital Facility................... 15
* As defined in the Indenture.
I-3
<PAGE>
EXHIBIT A
USTRAILS INC. AND SUBSIDIARIES
BUSINESS PLAN
A-1
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
BUSINESS PLAN
TABLE OF CONTENTS
ASSUMPTIONS........................................................ 3
FINANCIAL STATEMENTS
Operating Statement........................................... 8
Balance Sheet................................................. 9
Cash Flows Available.......................................... 10
A-2
<PAGE>
USTRAILS INC. AND SUBSIDIARIES
BUSINESS PLAN
SIGNIFICANT ASSUMPTIONS
GENERAL OVERVIEW
Set forth herein is the business plan (the "Business Plan") for USTrails Inc.
and subsidiaries ("USTrails" or the "Company") for the fiscal years ending June
30, 1996 through June 30, 2001. Historical financial statements for the years
ended June 30, 1994 and 1995 are also included. The Business Plan contemplates
downsizing the Company to a level appropriate to a stable membership base, the
collection of the remaining contracts receivable and the sale of non-core
assets. Because the Company's membership base is declining at a significant
rate, stabilization will require several years and sales significantly in excess
of current levels. Moreover, the timing and amount of asset sales cannot be
assured. As a consequence, the actual operating results achieved through
implementation of the Business Plan are uncertain and may vary significantly
from those set forth herein.
The Business Plan assumes that a restructuring (the "Restructuring") of the
Company's 12% senior secured notes due 1998 (the "Secured Notes") is consummated
on July 15, 1996. In the restructuring, holders of the Secured Notes will
receive approximately $50 million to $55 million in cash, $30 million in new
senior subordinated pay-in-kind notes (the "Senior Subordinated PIK Notes"), $5
million in new junior subordinated pay-in-kind notes (the "Junior Subordinated
PIK Notes") and approximately 33% of the common stock of the Company, plus
accrued interest ($6.1 million through July 15, 1996). Furthermore, the Business
Plan assumes that the Company raises a $10 million working capital facility (the
"Working Capital Facility") to fund future working capital needs and a $30
million senior secured term loan (the "Term Loan") to fund a portion of the cash
payment to holders of the Secured Notes and pay related fees and expenses.
The Business Plan also assumes the Company pays interest on the Working Capital
Facility at 9.25% per annum and on the Term Loan at 9.75% per annum. For the
first 4 years, interest on the Senior Subordinated PIK Notes at 12% per annum
will be paid in additional Senior Subordinated PIK Notes. After 4 years
interest on the Senior Subordinated PIK Notes will be paid in cash. The Junior
Subordinated PIK Notes accrue interest at 12% per annum for 15 years, which will
be in additional Junior Subordinated PIK Notes. Pro forma for the restructuring
and the financing, the Company is assumed to have $5 million of cash on hand,
$65 million of funded debt (including the $30 million of Senior Subordinated PIK
Notes and $5 million of Junior Subordinated PIK Notes) and a $10 million Working
Capital Facility.
In addition, the Business Plan assumes that the Company continues to market and
sell memberships similar to those introduced in the spring of 1995. These
products, which allow purchasing members to select various access and usage
levels based on their individual needs, appear to be well received by certain
camping consumers. The Company's sales and marketing organizations and sales
processes have been enhanced, so that the Company is now able to sell more
memberships. Despite the increased membership sales assumptions, however, it is
assumed that the membership base will continue to decline until the year 2000,
as member attrition will continue due to the advanced age of the current
membership base and other normal reasons.
A-3
<PAGE>
An assumption is made for one major new product called the Cottage membership
whereby ten-year memberships will be sold beginning in fiscal 1997. The Cottage
membership entitles the purchasing member the right to a one-week per year
rental in an upscale rental trailer, plus other amenities. It is projected that
approximately 7,200 of these memberships will be sold between fiscal 1997 and
2001.
Other major assumptions provide that the Company will be able to continue
reducing both operating expenses and general and administrative expenses as the
membership base declines. These effects are partially offset by inflation which
is projected to occur at a rate of 3% per annum.
The overall improvements in results projected in the Business Plan are in large
part due to increased membership sales, ancillary revenues and the introduction
of a profitable cottage program. If these individual improvements do not occur,
the actual results will vary significantly from the Business Plan.
In addition, significant sales of non-core assets are included in fiscal 1997
through 2000. The sale of these non-core assets is subject to identifying buyers
will to pay appraised value, and to addressing the rights of members at the
campgrounds projected to be withdrawn from the system and sold. The timing and
amounts of these sales could also vary significantly from the Business Plan.
BACKGROUND
USTrails owns and operates one of the largest privately owned campground systems
in the United States, with 58 campgrounds serving approximately 131,000 members
as of March 31, 1996. The Company also manages timeshare facilities and owns
certain real estate at eight full service resorts and provides a reciprocal use
program for members of approximately 330 recreational facilities.
Over the past four years, the Company has focused on stabilizing operations by
reducing costs, improving its overall services to members, and attempting to
increase revenues from its existing membership base. During the last year and
one-half, the Company has increased its sales and marketing efforts in order to
replenish its membership base. The Company's current strategy is to continue to
seek to improve its ongoing operations, enhance marketing efforts and determine
the appropriate level at which ongoing operations should be continued. In this
regard, the Company intends to down-size its business by implementing additional
cost reduction measures as its membership base continues to decline. The
Business Plan assumes that these cost reduction measures will include reduced
service levels at certain campgrounds, decreased general and administrative
expenses, and a reduction of the number of campgrounds in the system beginning
in fiscal 1997. The Company's current strategy also includes efforts to dispose
of assets not required for ongoing operations, such as land and other assets at
the campgrounds and full service resorts.
A-4
<PAGE>
SPECIFIC ASSUMPTIONS
DUES REVENUE AND MEMBERSHIP BASE
- --------------------------------
The Company's membership base has declined from 167,000 at December 31, 1991, to
131,000 at March 31, 1996 (22%), and the membership base is presently declining
at the rate of approximately 8% per year. Through increased sales and marketing
efforts, the Company believes that its declining membership base will stabilize
by fiscal 1999 at a level substantially below the current level (approximately
117,000 members). In addition, the membership agreements generally permit the
Company to increase annually the amount of each member's dues, subject to
specified limitations. The Business Plan includes the following assumptions
affecting dues revenue:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
# Members at Year-end 128,155 122,718 119,044 117,152 117,226 117,409
Average Dues at Year-end $ 336 $ 346 $ 356 $ 367 $ 378 $ 389
Dues Revenue (in 000Os) $ 39,000 $ 37,139 $ 36,854 $ 37,098 $ 37,954 $ 39,146
</TABLE>
The Business Plan assumes the loss of members and dues revenue as a result of
campground closures as the Company downsizes.
SALES AND MARKETING EFFORTS
- ---------------------------
In April 1992, new membership sales were suspended because the Company's sales
program was operating at a loss and with negative cash flow. In the fall of
1992, the Company began to assist campground members desiring to sell their
memberships in the secondary market, and in May 1994, began selling new
campground memberships on a limited basis and testing new sales programs. Since
that time, the Company has been testing membership sales programs and revising
them based on results and its ongoing market research. Based on the results
from the summer of 1995, the Company believes that it will be able to increase
the level of membership sales in the future. The Business Plan anticipates that
the sales program will generate a positive contribution by fiscal 1998. The
following assumptions are made affecting sales revenue:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
# Sales Units 3,005 4,454 6,054 7,949 10,030 10,795
Average Sales Price $ 950 $1,079 $1,141 $1,181 $ 1,223 $ 1,256
Sales Revenue (in 000Os) $2,856 $4,805 $6,907 $9,387 $12,263 $13,561
</TABLE>
ANCILLARY CONTRIBUTION
- ----------------------
The Business Plan assumes that the ancillary revenue generated from the
campground operations will increase steadily during the periods presented and
that expenses will increase in a similar manner, maintaining a contribution
margin during the period of between 47% and 49%.
A-5
<PAGE>
CAMPGROUND OPERATING COSTS
- --------------------------
The Business Plan reflects a $4.1 million (10%) decrease in operating expenses
during the period presented from fiscal 1995 levels, as a result of service
reductions at certain campgrounds, campground closures and other operational
changes, offset by inflation. The Business Plan assumes that the cost reduction
measures will not materially impact the Company's ability to attract and retain
members at the projected levels.
FULL SERVICE RESORTS AND RPI
- ----------------------------
The Company anticipates that its operations at the full service resorts will
yield a positive contribution for the projected periods after fiscal 1997,
primarily from the timeshare management operations, and that RPI will produce a
positive contribution from its operations of $2.1 million for fiscal 1996, which
steadily increases during the subsequent periods presented as the result of the
introduction of a new program in fiscal 1997.
GENERAL AND ADMINISTRATIVE COSTS
- --------------------------------
The Company's general and administrative costs declined during fiscal 1994 and
1995, and are projected to decrease significantly in fiscal 1996 and 1997 over
fiscal 1995 levels. Cost savings will be achieved primarily through head count
reductions and other efficiencies realized in the various administrative
departments and significant cost reductions in the area of receivables billings
and collections in connection with the diminishing contracts receivable
portfolio.
INTEREST INCOME
- ---------------
Interest income represents the interest earned on the contracts receivable
portfolio as well as interest income earned on cash balances. As the majority of
the Company's current new membership sales are not being financed, the Company's
portfolio of contracts receivable is rapidly diminishing. The Business Plan
assumes that the outstanding gross balance of contracts receivable will decline
to $2.7 million by fiscal 2001 from a gross balance of $35.4 million at June 30,
1995. The interest earned on the contracts receivable will in turn decrease,
with interest income on the portfolio projected to decline from $7.4 million in
fiscal 1995 to $744,000 in fiscal 2001. The Business Plan assumes the Company
earns interest income on its cash balances at an annual rate of 4%.
ACCOUNTING FOR SUBORDINATED DEBT
- --------------------------------
The Restructuring meets the definition of a Troubled Debt Restructuring under
Financial Accounting Standards Number 15 - "Accounting by Debtors and Creditors
for Troubled Debt Restructurings" ("FAS 15"). Under FAS 15, no gain is
recognized in a troubled debt restructuring; rather the amount that would have
otherwise been recorded as a gain is recorded as a subordinated obligation which
is amortized over the estimated payout period of the Senior Subordinated PIK
Notes and Junior Subordinated PIK Notes issued in the Restructuring to reduce
future interest expense.
ASSET SALES
- -----------
The Company believes that it is reasonably likely that it will be able to sell,
without any material adverse effect from members rights, the five campgrounds
held for disposition under the Business Plan, which have an appraised value of
$2.3 million, and other unspecified campgrounds that are included for
disposition in the Business Plan, which have an appraised value of $8.9 million,
although there can be no assurance that these appraised values will be realized
or that sales can be completed on the schedule projected in the Business Plan.
However, some states, including California, Oregon, and Washington, have non-
disturbance statutes that place limitations on the ability of the owner of a
campground to sell or close, or a lienholder to foreclose a lien on, a
campground. In certain states, these statutes permit the sale, closure or
foreclosure if the holders of related memberships receive access to a comparable
campground. The campground mortgages
A-6
<PAGE>
that secure the Secured Notes contain similar nondisturbance provisions. The
impact of the rights of members under these laws and non-disturbance provisions
is uncertain and could adversely effect the availability or timing of
disposition opportunities or the ability of the company to realize recoveries
from asset disposition.
INCOME TAX CONSIDERATIONS
- -------------------------
It is assumed that the Restructuring occurs outside a bankruptcy proceeding and
does not involve a change in ownership under Section 382 of the Internal Revenue
Code of 1986, as amended. However, if that is not the case and a change in
ownership is deemed to have occurred, the Company's accumulated net operating
losses ("NOLs"), which approximated $54 million as of June 30, 1995, would be
diminished significantly or their annual utilization substantially limited.
If a change in ownership were to occur, the annual NOL usage limitation is
calculated based on the fair value of the Company's stock immediately prior to
the Restructuring. In this instance, the Company's NOLs would be virtually
eliminated, with only a nominal annual amount available to be used
over the 15-year carryforward period.
It should also be noted that NOL carryforwards can be utilized to shelter
federal income taxes of the company and its subsidiaries, but are subject to
additional limitations under various state laws. For example, the inability of
a subsidiary company to utilize USTrails NOL carryforwards. Therefore, the
Company projects that it will have to incur state income taxes based on its pre-
tax income.
A-7
<PAGE>
USTrails Inc. and Subsidiaries
Business Plan Operating Statements
Historical through June 30, 1995, Business Plan Thereafter
(Amounts in thousands)
<TABLE>
<CAPTION>
Actual June 30, Business Plan for the Years Ending June 30,
------------------ -----------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001
--------- -------- --------- ----------- ------------ ------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Campground Operations
Membership dues $43,200 $41,175 $39,000 $37,139 $36,854 $37,098 $37,954 $39,146
Ancillary revenues 13,529 15,411 15,835 16,348 17,015 17,816 18,711 19,486
Cost of Ancillary Revenues (7,643) (8,148) (8,141) (8,463) (8,895) (9,403) (10,008) (10,392)
--------- -------- --------- ------------ ------------ ------------ --------------------
5,886 7,263 7,694 7,885 8,120 8,413 8,703 9,094
Operating expenses (37,880) (40,163) (35,351) (32,954) (33,559) (34,269) (35,024) (36,069)
--------- -------- --------- ----------- ------------ ------------ --------------------
Contribution Before Sales & Marketing 11,206 8,275 11,343 12,070 11,415 11,242 11,633 12,171
--------- -------- --------- ----------- ------------ ------------ --------------------
Sales 1,457 1,780 2,856 4,805 6,907 9,387 12,263 13,561
Selling expenses (1,583) (1,985) (2,602) (3,078) (4,021) (5,281) (6,629) (7,242)
Marketing expenses (1,282) (3,639) (1,741) (2,288) (2,757) (3,532) (3,986) (4,195)
--------- -------- --------- ----------- ------------ ------------ --------------------
Net Sales (1,408) (3,844) (1,487) (561) 129 574 1,648 2,124
Cottage membership operations - - - 406 1,215 1,737 2,034 2,271
--------- -------- --------- ----------- ------------ ------------ --------------------
Contribution from Campground
Operations 9,798 4,431 9,856 11,915 12,759 13,553 15,315 16,566
--------- -------- --------- ----------- ------------ ------------ --------------------
Full service resorts, net (142) 465 107 (101) 423 450 579 596
RPI, net 2,231 2,118 2,128 2,367 2,681 2,743 2,922 3,001
General and administrative expenses (14,568) (14,181) (12,128) (11,365) (11,155) (10,980) (10,932) (11,214)
Other revenue 4,056 3,485 4,077 3,612 3,023 2,727 2,644 2,617
--------- -------- --------- ----------- ------------ ------------ --------------------
Operating Income (Loss) 1,375 (3,682) 4,040 6,428 7,731 8,493 10,528 11,566
--------- -------- --------- ----------- ------------ ------------ --------------------
Interest income 12,202 9,935 7,393 3,617 2,609 2,138 1,639 1,505
Interest expense (21,446) (20,960) (17,653) (6,585) (4,630) (3,610) (3,078) (2,408)
--------- -------- --------- ----------- ------------ ------------ --------------------
Net interest income (expense) (9,244) (11,025) (10,260) (2,968) (2,021) (1,472) (1,439) (903)
Gain on asset sales 5,544 658 3,410 4,024 2,155 874 1,159 -
Restructuring charges (3,313) (637) (1,500) (2,500) - - - -
Extraordinary gain on debt transactions 671 - 1,419 - - - - -
Enterprise bonus - - (800) - - - - -
Insurance reserves released - - 568 - - - - -
Adjust receivable reserves - - 4,146 - - - - -
State income taxes - - (72) (482) (618) (749) (912) (945)
All other (1,079) 2,763 1 2 - - - -
--------- -------- --------- ----------- ------------ ------------ --------------------
Net Income (Loss) ($6,046)($11,923) $952 $4,504 $7,247 $7,146 $9,336 $9,718
========= ======== ========= =========== ============ ============ ====================
</TABLE>
The accompanying assumptions are an integral part of these business plan
operating statements.
A-8
<PAGE>
USTrails Inc.
Business Plan Balance Sheets
Historical through June 30, 1995, Business Plan Thereafter
(Amounts in thousands)
<TABLE>
<CAPTION>
Actual June 30, Business Plan as of June 30,
------------------- -------------------------------------------------------------------
ASSETS 1994 1995 1996 1997 1998 1999 2000 2001
-------- -------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash $ 50,059 $ 50,596 $ 33,380 $ 5,491 $ 5,491 $ 5,491 $ 5,491 $5,491
Restricted Cash 1,225 1,629 2,963 2,963 2,963 2,963 2,963 2,963
Contracts Receivable, gross 54,413 35,386 21,985 14,227 10,526 8,649 7,412 6,534
Allowance for Doubtful Accounts (17,495) (13,806) (6,085) (5,136) (3,867) (3,068) (2,564) (2,247)
Other Allowances (4,333) (2,882) (1,855) (1,272) (886) (697) (612) (551)
-------- -------- -------- --------- --------- --------- --------- ---------
Contracts Receivable, net 32,585 18,698 14,045 7,819 5,773 4,884 4,236 3,736
Campground Real Estate 15,977 15,331 13,362 12,994 12,805 12,541 12,198 12,198
Resort Real Estate 2,853 1,352 1,352 962 962 962 962
Buildings and Equipment, gross 36,148 40,441 38,868 40,728 41,915 44,000 46,141 48,941
Accumulated Depreciation (5,890) (8,402) (11,029) (13,863) (16,672) (19,510) (22,343) (25,269)
-------- -------- -------- --------- -------- --------- --------- ---------
Buildings and Equipment, net 30,258 32,039 27,839 26,865 25,243 24,490 23,798 23,672
Land Held for Sale 6,854 8,341 6,820 4,736 3,229 1,844 1,764 1,764
Dues and Accounts Receivable 3,546 3,017 1,268 2,212 2,223 2,234 2,292 2,292
Inventories 1,401 1,281 1,156 1,174 1,223 1,278 1,336 1,396
Prepaid Expenses 526 651 621 620 618 620 617 615
Consent Fee, net 1,512 1,089 647 - - -
Other Assets 1,368 1,862 1,998 2,813 3,590 4,146 4,712 5,198
-------- -------- -------- --------- -------- --------- --------- ---------
Total Assets $148,164 $135,886 $105,451 $ 68,649 $ 64,120 $ 61,453 $ 60,369 $60,287
======== ======== ======== ======== ======== ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts Payable $ 3,215 $ 3,740 $ 1,824 $ 1,874 $ 1,924 $ 1,974 $ 2,024 $ 2,024
Accrued Wages 3,023 4,212 3,389 2,889 2,889 2,889 2,889 2,889
Accrued Liabilities 6,055 3,568 3,492 2,775 2,785 2,798 2,812 2,825
Accrued Interest Payable 6,988 7,008 5,617 - - - - -
Borrowings -
Notes and Mortgages 5,503 4,753 940 504 306 139 - -
Senior Secured Notes 13,018
Subordinated Notes - Legal 33,708 36,093 27,795 18,220 8,649
Subordinated Notes - FAS 15 6,621 5,319 3,550 2,188 1,295
Junior Subordinated Notes 5,618 6,312 7,093 7,970 8,926
Secured Notes 127,421 127,421 101,461 - - - - -
Discount on Secured Notes (16,567) (11,931) (7,096) - - - - -
-------- -------- -------- --------- -------- --------- --------- ---------
Secured Notes, net 110,854 115,490 94,365 - - - - -
Deferred Dues Revenue 18,414 18,622 17,631 17,631 17,631 17,631 17,631 17,631
Other Liabilities 12,024 8,314 7,062 6,525 6,128 5,705 5,420 5,115
-------- -------- -------- --------- -------- --------- --------- ---------
Total Liabilities 166,076 165,707 134,320 91,163 79,387 69,574 59,154 49,354
-------- -------- -------- --------- -------- --------- --------- ---------
Shareholders' Equity (Deficit):
Removal of Debt - - - - - - - -
Common Stock 37 37 37 56 56 56 56 56
Additional Paid-In Capital 17,549 17,549 17,549 19,381 19,381 19,381 19,381 19,381
Accumulated Earnings (Deficit) (35,498) (47,407) (46,455) (41,951) (34,704) (27,558) (18,222) (8,504)
-------- -------- -------- --------- -------- --------- --------- ---------
Total Shareholders' Equity (Deficit) (17,912) (29,821) (28,869) (22,514) (15,267) (8,121) 1,215 10,933
-------- -------- -------- --------- -------- --------- --------- ---------
Total Liabilities & Shareholders'
Equity (Deficit) $148,164 $135,886 $105,451 $68,649 $64,120 $61,453 $60,369 $60,287
======== ======== ======== ========= ======== ========= ========= =========
</TABLE>
The accompanying assumptions are an integral part of these business plan balance
sheets.
A-9
<PAGE>
USTrails Inc. and Subsidiaries
Business Plan Cash Flows Available
Historical through June 30, 1995, Projections Thereafter
(Amounts in thousands)
<TABLE>
<CAPTION>
Actual June 30, Business Plan for the Years Ending June 30,
------------------ ---------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Income (loss) from operations $ 1,375 $ (3,682) $ 4,040 $ 6,428 $ 7,731 $ 8,493 $ 10,528 $ 11,566
Depreciation 2,457 2,591 2,340 2,635 2,658 2,789 2,808 2,901
Capital expenditures - campground
operations (1,806) (4,881) (1,703) (2,300) (2,300) (2,800) (2,800) (2,800)
-------- -------- -------- -------- -------- -------- -------- --------
Net Cash Provided By (Used In) Operations 2,026 (5,972) 4,677 6,763 8,089 8,482 10,536 11,667
Principal collections on contracts
receivable 26,256 16,678 11,164 6,447 4,290 3,503 3,414 3,422
Processing fees 1,501 1,044 825 750 688 641 400 400
Interest income on contracts receivable 8,741 5,732 3,611 2,273 1,453 1,106 903 754
-------- -------- -------- -------- -------- -------- -------- --------
36,498 23,454 15,600 9,470 6,431 5,250 4,717 4,576
Proceeds from asset sales 10,294 1,130 7,526 7,420 4,964 3,238 2,241 -
Principal payments on notes and mortgages (2,280) (750) (1,295) (436) (198) (167) (139) -
Interest payments on notes and mortgages (822) (590) (311) (122) (70) (45) (35) -
Interest income on cash balances 110 110 110 110 110
Other, net (5,933) (1,452) (5,413) (3,138) (2,907) (3,266) (3,415) (3,492)
-------- -------- -------- -------- -------- -------- -------- --------
Cash Available Before Debt and Taxes 39,783 15,820 20,784 20,067 16,419 13,602 14,015 12,861
-------- -------- -------- -------- -------- -------- -------- --------
Repurchases of Secured Notes (8,000) - (5,226) - - - - -
Payment of consent fees to Secured
Noteholders (1,610) - - - - - - -
Mandatory redemption of Secured Notes - - (18,599) - - - - -
Redemption - Secured Notes - - - (49,300) - - - -
Proceeds from Senior Secured Notes - - - 30,000 - - - -
Payment of Senior Secured Notes - - - (16,982) (13,018) - - -
Payment of Subordinated Notes - - - - (1,781) (12,760) (13,010) (9,571)
Interest paid on Secured Notes (16,976) (15,283) (14,175) (6,088) - - - -
Interest paid on Senior Secured Notes - - - (2,604) (1,002) (93) (93) (93)
Interest paid on Subordinated Notes - - - - - - (2,252)
Fees and expenses on restructuring - - - (2,500) - - - -
State income taxes (482) (618) (749) (912) (945)
Trails acquisition (7,497) - - - - - - -
-------- -------- -------- -------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,700 537 (17,216) (27,889) - - - -
CASH AND CASH EQUIVALENTS:
Beginning of year 44,359 50,059 50,596 33,380 5,491 5,491 5,491 5,491
-------- -------- -------- -------- -------- -------- -------- --------
End of year $ 50,059 $ 50,596 $ 33,380 $ 5,491 $ 5,491 $ 5,491 $ 5,491 $ 5,491
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompany assumptions are an integral part of these
business plan cash flows.
A-10
<PAGE>
EXHIBIT B
OPINION OF RAUSCHER PIERCE REFSNES, INC.
B-1
<PAGE>
EXHIBIT B
RAUSCHER PIERCE REFSNES, INC.
June 13, 1996
Special Committee of the Board of Directors
USTrails Inc.
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
Gentlemen:
We understand that USTrails Inc. (the "Company") proposes to restructure
its outstanding 12% Secured Notes Due 1998 and Additional Series 12% Secured
Notes Due 1998 (the "Secured Notes") through an offer to purchase for cash up to
$20,161,000 aggregate principal amount of Secured Notes (the "Tender Offer") and
an offer to exchange for cash and newly issued debt and equity securities
certain other Secured Notes (the "Exchange Offer"), as more fully described in
the Offer to Purchase to be dated June 5, 1996. You have requested our opinion
as to whether the consideration to be paid in the Tender Offer is reasonably
equivalent to the consideration to be paid in the Exchange Offer.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Offer to
Purchase. We have also reviewed certain other information, including financial
forecasts, provided to us by the Company and met with the Company's management
to discuss the business and prospects of the Company. We have also considered
certain financial and market data of the Company and such other information,
financial studies, analyses and investigations and financial economic and market
criteria as we deemed relevant.
In connection with our review, we have not independently verified any of
the foregoing information. We have not made an independent evaluation or
appraisal of the assets of the Company. With respect to the Company's financial
projections, we have assumed that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the Company's
management as to the future financial performance of the company, and we express
no opinion with respect to such forecasts or the assumptions on which they are
based. Our opinion is based upon circumstances existing and disclosed to us as
of the date hereof.
B-2
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be paid in the Tender Offer is reasonably equivalent to the
consideration to be paid in the Exchange Offer.
Very truly yours,
RAUSCHER PIERCE REFSNES, INC.
B-3
<PAGE>
EXHIBIT C
SUMMARY OF APPRAISALS
C-1
<PAGE>
USTRAILS INC.
CAMPGROUND APPRAISALS
SYSTEM PROPERTIES
PROPERTY STATE APPRAISED VALUE TOTAL
-------- ----- ---------------------
Donner Pass CA $ 1,950,000
Idyllwild CA 1,813,000
L.O.T.S. CA 1,815,000
Lake Minden CA 2,400,000
Oakzanita CA 1,334,000
Palm Springs CA 11,400,000
Pio Pico CA 2,570,000
Rancho Oso CA 1,400,000
Russian River CA 850,000
San Benito CA 4,700,000
San Jose CA 3,900,000
Snowflower CA 1,225,000
Soledad CA 10,150,000
Turtle Beach CA 1,275,000
Wilderness Lakes CA 2,860,000
Windsor CA 3,350,000
Yosemite CA 2,545,000
Birch Bay WA 1,750,000
Black Point WA 1,970,000
Chehalie WA 1,625,000
La Conner WA 1,750,000
Leavenworth WA 1,860,000
Little Diamond WA 1,260,000
Long Beach WA 850,000
Mt. Vernon WA 820,000
Ranier WA 1,230,000
Bend OR 2,930,000
Pacific City OR 4,220,000
South Jetty OR 3,310,000
-----------
Subtotal (29 campgrounds in CA, WA
and OR) $79,112,000
C-2
<PAGE>
USTRAILS INC.
CAMPGROUND APPRAISALS
SYSTEM PROPERTIES (CONT'D)
PROPERTY STATE APPRAISED VALUE TOTAL
-------- ----- ---------------------
Verde Valley AZ $ 4,360,000
Cultus Lake BC 1,187,840
Orlando FL 6,565,000
Fox River IL 1,512,500
Horseshoe Lake IN 528,000
Indian Lakes IN 2,500,000
St. Clair MI 660,000
Jefferson MO 1,100,000
Indian Point MS 1,130,000
Forest Lake NC 1,675,000
Chestnut Lakes NJ 700,000
Las Vegas NV 3,250,000
Kenisee Lake OH 568,000
Wilmington OH 730,000
Hershey PA 2,000,000
Carolina Landing SC 960,000
Cherokee Landing TN 570,000
Natchez Trace TN 3,050,000
Bay Landing TX 1,660,000
Colorado River TX 580,000
Galveston TX 480,000
Lake Conroe TX 1,910,000
Lake Tawakoni TX 1,510,000
Lake Texoma TX 1,690,000
Lake Whitney TX 1,165,000
Medina Lake TX 1,860,000
Chesapeake Bay VA 2,300,000
Lynchburg VA 760,000
Virginia Landing VA 1,500,000
------------
Subtotal $ 48,461,340
------------
Total System $125,098,340
C-3
<PAGE>
USTRAILS INC.
CAMPGROUND APPRAISALS
NON-SYSTEM PROPERTIES
PROPERTY STATE APPRAISED VALUE TOTAL
-------- ----- ---------------------
Anza Borrego CA $ 785,000
Nottawa Lake MI 250,000
Stagecoach CA 362,000
Weel Port WA 700,000
Wisconsin Dells WI 219,000
------------
Total Non-System $ 2,316,000
------------
All Properties $130,164,340
============
C-4
<PAGE>
=========================================== ==================================
A Secured Noteholder desiring to tender
some or all of its Secured Notes
pursuant to this Offer should complete USTRAILS INC.
the Letter of Transmittal in
accordance with the instructions
herein and therein and then deliver OFFER TO PURCHASE
it along with the certificates for
such Secured Notes and any other
required documents to the Depositary. DEPOSITARY:
Alternatively a financial
institution may be able to tender its FLEET NATIONAL BANK,
Secured Notes pursuant to the AS DEPOSITARY
book-entry transfer procedures set CORPORATE TRUST OPERATIONS
forth herein. If a Secured Noteholder 777 MAIN STREET, CTMO 0224
cannot deliver a Letter of Transmittal HARTFORD, CT 06115
and its Secured Notes to the TELEPHONE NO. (860) 986-1271
Depositary on or before the Expiration FACSIMILE NO. (860) 986-7908
Date such Secured Noteholder may
tender its Secured Notes through the
guaranteed delivery procedures set
forth herein. The Company has not
authorized the Depositary or any other
person to give any information with
respect to this Offer other than the
information set forth herein.
Moreover under no circumstances
shall the information set forth herein
be considered correct or unchanged as
of any date subsequent to the date
hereof. This Offer to Purchase does
not constitute an offer to purchase
Secured Notes in any jurisdiction
where such an offer would be illegal
or otherwise prohibited.
_________
BY HAND DELIVERY IN NEW YORK:
SUMMARY TABLE OF CONTENTS SHAWMUT TRUST COMPANY
C/O FIRST CHICAGO TRUST
PAGE COMPANY OF NEW YORK
---- 14 WALL STREET,
Introduction......................... 1 8TH FLOOR, WINDOW 2
Background to this Offer.............. 3 NEW YORK, NY 10015
Special Considerations................ 9
Terms of the Restructuring Transaction 12 INFORMATION AGENT:
Source and Amount of Funds 15 HILL & KNOWLTON, INC.
Interests of Management and Others 16 466 LEXINGTON AVENUE
Historical and Pro Forma NEW YORK, NY 10017
Capitalization....................... 18 TELEPHONE NO. (212) 855-0555
Selected and Pro Forma Financial Data. 19 OR (800) 755-3002
Certain Conditions of the Offer....... 22
The Tender Offer...................... 23
Description of the Company's Business. 27
The Secured Notes..................... 32
Certain Federal Income Tax OFFER TO PURCHASE
Considerations....................... 37 JUNE 5, 1996
Legal Matters......................... 39
Available Information................. 39
Information Incorporated By Reference. 39
Appendix I -- Defined Terms........... I-1
Exhibit A - Business Plan............ A-1
Exhibit B - Opinion of Rauscher Pierce
Refsnes, Inc............. B-1
Exhibit C - Summary of Appraisals.... C-1
=========================================== ==================================
