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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
REGISTRATION NO. 333-33483
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AMERICAN SKIING COMPANY
(FORMERLY ASC HOLDINGS, INC.)
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
MAINE 7990 04-3373730
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
--------------------------
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
(207) 824-8100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
CHRISTOPHER E. HOWARD, ESQ.
SENIOR VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER
AMERICAN SKIING COMPANY
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
(207) 824-8100
(207) 824-5158 (FACSIMILE)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
Copies to:
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<S> <C>
THOMAS L. FAIRFIELD, ESQ. IAN B. BLUMENSTEIN, ESQ.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. Latham & Watkins
Goodwin Square, 225 Asylum Street 885 Third Avenue
Hartford, Connecticut 06103 New York, New York 10022
(860) 293-3500 (212) 906-1200
(860) 293-3555 (facsimile) (212) 751-4864 (facsimile)
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value per share $339,250,000 $102,803.00(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Previously paid.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1997
PROSPECTUS
, 1997
14,750,000 SHARES
[LOGO]
AMERICAN SKIING COMPANY
COMMON STOCK
All of the 14,750,000 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby are being sold by American Skiing Company (the
"Company").
Following the Offering (as defined), the outstanding common stock of the
Company will consist of 18,097,578 shares of Common Stock and 14,760,530 shares
of Class A Common Stock, $.01 par value per share (the "Class A Common Stock").
The rights and preferences of holders of the Common Stock and Class A Common
Stock will be identical, except that holders of Class A Common Stock will elect
a class of directors that constitutes two-thirds of the Board of Directors and
holders of Common Stock will elect a class of directors that constitutes
one-third of the Board of Directors. Each share of Class A Common Stock will be
convertible into one share of Common Stock under certain circumstances. See
"Description of Capital Stock." All of the Class A Common Stock, representing
approximately 44.9% of the combined voting power of all outstanding shares of
Common Stock and Class A Common Stock, will be held by Leslie B. Otten, the
principal shareholder of the Company (the "Principal Shareholder").
A portion of the 14,750,000 shares of Common Stock offered hereby are being
offered by the Company directly to the Principal Shareholder at the price to the
public set forth below (the "Concurrent Offering"). The Principal Shareholder
has advised the Company that he intends to purchase a number of shares of Common
Stock in the Concurrent Offering sufficient to maintain ownership of at least a
majority of all outstanding shares of Common Stock and Class A Common Stock.
Assuming that the Underwriters' (as defined) over-allotment option is not
exercised and assuming a price to the public of $18.50 per share, the midpoint
of the range shown below, 810,811 shares of Common Stock are expected to be sold
to the Principal Shareholder in the Concurrent Offering at an aggregate purchase
price of approximately $15 million. Accordingly, upon consummation of the
Concurrent Offering, the Principal Shareholder is expected to own shares of
Common Stock (including shares of Common Stock which the Principal Shareholder
has the right to purchase pursuant to fully vested stock options, exercisable at
the price to the public set forth below, granted under the Company's Stock
Option Plan (as defined)) representing approximately 13.4% of all outstanding
shares of Common Stock and, when such shares of Common Stock are aggregated with
the Principal Shareholder's shares of Class A Common Stock, representing
approximately 50.2% of all outstanding shares of Common Stock and Class A Common
Stock. So long as the Principal Shareholder owns shares of Common Stock and
Class A Common Stock representing a majority of the combined voting power of all
outstanding shares of Common Stock and Class A Common Stock, he will be able to
determine the outcome of all matters submitted to a vote of the shareholders of
the Company, except for matters requiring (i) the vote of a higher percentage of
the voting power than the percentage held by the Principal Shareholder or (ii)
the vote of the shareholders voting as a separate class under state law or the
Company's Articles of Incorporation and Bylaws. See "Capitalization,"
"Management--Stock Option Plan," "Principal Shareholders" and "Description of
Capital Stock."
All of the 14,750,000 shares of Common Stock that are not sold to the
Principal Shareholder in the Concurrent Offering will be offered by the Company
to the public (the "Public Offering" and, together with the Concurrent Offering,
the "Offering").
A portion of the proceeds of the Offering, together with borrowings under
the New Credit Facility (as defined), will be used to fund the acquisition by
the Company of the Steamboat and Heavenly ski resorts (the "Acquisition") for a
purchase price of approximately $290 million. See "Risk Factors--Substantial
Leverage and Financial Risks." Consummation of the Public Offering is
conditioned upon the concurrent consummation of the New Credit Facility, the
Acquisition and the Concurrent Offering.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be between
$17.00 and $20.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
The Company has been approved for listing of the Common Stock on the New
York Stock Exchange under the symbol "SKI."
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share
Public Offering........................................ $ $ $
Concurrent Offering.................................... $ -- $
Total (3)................................................ $ $ $
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</TABLE>
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE SEVERAL UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO 2,090,878 ADDITIONAL SHARES OF COMMON STOCK, SOLELY TO COVER OVER-
ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO
THE PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE
COMPANY WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITING."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them against
payment therefor, subject to various prior conditions, including their right to
reject any order in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
MORGAN STANLEY DEAN WITTER
<PAGE>
SCHRODER & CO. INC.
<PAGE>
[Pictures of Ski Areas, Facilities and National Map of Resort Locations]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, CONSOLIDATED FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) AND PRO FORMA COMBINED FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, ALL REFERENCES HEREIN TO THE "COMPANY" SHALL MEAN (A) AMERICAN SKIING
COMPANY AND ITS SUBSIDIARIES, EXCLUDING THE ACQUIRED RESORTS (AS DEFINED), WHEN
USED WITH RESPECT TO HISTORICAL INFORMATION CONTAINED HEREIN OR (B) AMERICAN
SKIING COMPANY AND ITS SUBSIDIARIES, INCLUDING THE ACQUIRED RESORTS, WHEN USED
WITH RESPECT TO INFORMATION ABOUT EVENTS THAT WILL OCCUR AFTER THE ACQUISITION
OR WHEN GIVING PRO FORMA EFFECT THERETO. SEE "THE TRANSACTIONS." ALL REFERENCES
HEREIN TO (A) THE COMPANY'S "FISCAL" YEAR SHALL MEAN THE 52- OR 53-WEEK PERIOD
ENDED OR ENDING ON THE LAST SUNDAY IN JULY, (B) THE ACQUIRED RESORTS' FISCAL
YEAR SHALL MEAN THE ACQUIRED RESORTS' FISCAL YEAR ENDED ON MAY 31, (C) "SKI
SEASON" SHALL MEAN THE PERIOD FROM THE OPENING OF THE FIRST OF THE COMPANY'S
MOUNTAINS FOR SKIING THROUGH THE CLOSING OF THE COMPANY'S LAST MOUNTAIN FOR
SKIING, TYPICALLY MID-NOVEMBER TO LATE MAY, (D) "SKIER VISITS" SHALL MEAN ONE
GUEST ACCESSING A SKI MOUNTAIN ON ANY ONE DAY AND (E) REAL ESTATE RESIDENTIAL
"UNITS" SHALL MEAN RESIDENTIAL REAL ESTATE OWNERSHIP INTERESTS, INCLUDING
INDIVIDUAL INTERVAL INTERESTS. ALL DISCUSSION HEREIN WITH RESPECT TO THE SIZE OF
A RESORT SHALL BE IN TERMS OF THE RELATIVE NUMBER OF SKIER VISITS AT SUCH
RESORT. EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS WITH
RESPECT TO THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK AND CLASS A COMMON,
(A) ASSUMES THAT ALL STOCK OPTIONS TO PURCHASE SHARES OF COMMON STOCK THAT ARE
EXERCISABLE BELOW THE INITIAL PUBLIC OFFERING PRICE ARE EXERCISED FOR SHARES OF
COMMON STOCK, (B) GIVES EFFECT TO THE ISSUANCE OF THE COMPANY'S 10 1/2%
CONVERTIBLE PREFERRED STOCK (AS DEFINED) AND THE CONVERSION OF SUCH STOCK INTO
2,110,518 SHARES OF COMMON STOCK, (C) ASSUMES THAT THE HOLDERS OF COMMON STOCK
(OTHER THAN THE COMPANY) IN ASC EAST, INC. ("ASC EAST") EXCHANGE SUCH STOCK FOR
AN AGGREGATE OF 615,022 SHARES OF COMMON STOCK, (D) ASSUMES THAT THE PRINCIPAL
SHAREHOLDER PURCHASES 810,811 SHARES OF COMMON STOCK IN THE CONCURRENT OFFERING,
(E) ASSUMES THAT THE OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS IS NOT
EXERCISED, (F) ASSUMES THAT NO SHARES OF CLASS A COMMON STOCK ARE CONVERTED INTO
SHARES OF COMMON STOCK AND (G) GIVES EFFECT TO THE EXCHANGE BY THE PRINCIPAL
SHAREHOLDER OF ALL OF HIS SHARES OF COMMON STOCK OF THE COMPANY FOR CLASS A
COMMON STOCK ON A 14.76-FOR-1 BASIS (THE "STOCK SPLIT") THAT WILL BE EFFECTED
PRIOR TO THE CONSUMMATION OF THE OFFERING. PRIOR TO MAKING AN INVESTMENT IN THE
COMMON STOCK, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION
DISCUSSED UNDER "RISK FACTORS."
THE COMPANY
Following the Acquisition, the Company will be the largest operator of
alpine resorts in the United States. The Company will own and operate nine ski
resorts, including two of the five largest resorts in the United States based on
1996-97 skier visits, with at least one resort in each major skiing market.
These nine resorts generated approximately 4.9 million skier visits,
representing approximately 9.4% of total skier visits in the United States
during the 1996-97 ski season. The Company's existing resorts include Sunday
River and Sugarloaf in Maine; Attitash Bear Peak in New Hampshire; Killington,
Mount Snow/Haystack and Sugarbush in Vermont; and The Canyons, adjacent to Park
City, Utah (collectively, the "Existing Resorts"). In August 1997, the Company
entered into a definitive agreement (the "Acquisition Agreement") to acquire (i)
the Steamboat ski resort and 168 acres of land held for development in Steamboat
Springs, Colorado ("Steamboat") and (ii) the Heavenly ski resort near Lake
Tahoe, California ("Heavenly" and, together with Steamboat, the "Acquired
Resorts"). After giving pro forma effect to the Transactions (as defined), the
Company's total revenues, EBITDA (as defined) and net loss to common
shareholders for fiscal 1997 would have been approximately $261.9 million, $57.8
and $5.2 million, respectively.
The Existing and Acquired Resorts include several of the top resorts in the
United States, including: (i) Steamboat, the number two overall ski resort in
the United States (number three in North America) as ranked in the September
1997 SNOW COUNTRY magazine survey and the fourth largest ski resort in the
United States with over 1.1 million skier visits in the 1996-97 ski season; (ii)
Killington, the fifth largest resort in the United States with over 1.0 million
skier visits in the 1996-97 ski season; (iii) the three largest resorts in the
Northeast (Killington, Sunday River and Mount Snow/Haystack) in the 1996-97 ski
season;
3
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(iv) Heavenly, the second largest resort in the Pacific West Region and the 11th
largest resort in the United States with approximately 700,000 skier visits in
the 1996-97 ski season; and (v) Sugarloaf, the number one resort in the
Northeast according to the September 1997 SNOW COUNTRY magazine survey.
In addition to operating alpine resorts, the Company develops mountainside
real estate which complements the expansion of its on-mountain operations. The
Company has created a unique interval ownership product, the Grand Summit Hotel,
in which individuals purchase quartershare interval interests while the Company
retains ownership of core hotel and commercial properties. The initial sale of
quartershare units typically generates a high profit margin, and the Company
derives a continuing revenue stream from operating the hotel's retail,
restaurant and conference facilities and from renting quartershare interval
interests when not in use by their owners. The Company also develops alpine
villages at prime locations within certain of its resorts designed to fit that
resort's individual characteristics. The Company's real estate development
strategy was developed and implemented at the Sunday River resort, where over
1,350 units of residential real estate (including condominiums, townhouses and
quartershares) have been developed and sold since 1983. A new Grand Summit Hotel
was recently completed at Attitash Bear Peak, one Grand Summit Hotel is
currently under construction at each of Killington, Sunday River and Mount
Snow/Haystack and a hotel at Sugarbush is near completion of the permitting
process. These hotels will have an aggregate of approximately 2,500 units, with
pre-construction sales contracts currently totaling over $45 million
(representing 845 units). In addition, the Company has over 7,000 acres of real
estate available for future development at its resorts, providing the capacity
to support over 30,000 residential units during the next 15 to 20 years. The
Company also operates golf courses at its resorts and conducts other off-season
activities, which accounted for approximately 11% of the Company's resort
revenues for fiscal 1997. See "Business--Operating Strategy--Expand Golf and
Convention Business."
The Company's primary strength is its ability to improve resort operations
by integrating investments in on-mountain capital improvements with the
development of mountainside real estate. Since 1994, the Company has increased
skier visits by 10.0% in the aggregate for the three resorts that it has owned
for multiple seasons. In addition, the Company has increased its market share of
skier visits in the northeastern United States from approximately 21.8% in the
1995-96 ski season to approximately 24.4% in the 1996-97 ski season (after
giving pro forma effect to the acquisition of the Killington, Mount Snow/
Haystack and Sugarloaf ski resorts as if such acquisitions had occurred on July
30, 1995). Management believes that the Acquired Resorts will provide the
Company with several significant operating benefits, including: (i) enhanced
cross-marketing of its resorts on a national basis; (ii) purchasing and other
economies of scale; and (iii) implementation of the Company's operating
strategies across a more diversified resort base.
For an organizational chart of the Company and its material operating
subsidiaries, see "Business-- The Company."
OPERATING STRATEGY
The Company believes that the following key operating strategies will allow
it to increase revenues and profitability by capitalizing on its position as a
leading mountain resort operator and real estate developer.
High Impact Capital Improvements
The Company attracts skiers to its resorts by creating a superior skiing
experience through high impact capital investments in on-mountain facilities.
The Company focuses its investments on increasing lift capacity, expanding
skiable terrain and snowmaking coverage, and developing other exciting alpine
attractions. For example, during the last two years the Company has (i) created
diverse skiing experiences such as the Oz bowl and the Jordan Bowl at Sunday
River, (ii) developed above tree-line snowfields at Sugarloaf, (iii) installed
heated eight-passenger high speed gondolas at Killington and The Canyons and
(iv) built one of the longest and fastest chairlifts in the world, which
interconnects Sugarbush's North and South mountains. Since 1994, when the
Company began implementing its acquisition strategy, the
4
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Company has significantly increased lift capacity, skiable terrain and
snowmaking coverage at its resorts. The 1997 summer capital improvement budget
for on-mountain improvements totals over $57.7 million, approximately $18.2
million of which will be invested at The Canyons and approximately $7.0 million
of which will be invested at the Acquired Resorts.
Integration of Investments in Resort Infrastructure and Real Estate
The Company develops mountainside real estate that complements its
investments in ski operations to enhance the overall attractiveness of its
resorts as vacation destinations. Management believes that this integrated
approach results in growth in overall skier visits, including multi-day visits,
while generating significant revenues from real estate sales and lodging.
Investment typically begins with on-mountain capital improvements such as the
creation of new lifts, trails, expanded snowmaking capability, additional
restaurants and improved ski schools. As resort attendance increases, the
Company develops mountainside real estate to provide accommodations for the
increased number of resort guests. The Company carefully manages the type and
timing of real estate development to achieve capital appreciation and high
occupancy of accommodations. The Company's integrated investment strategy was
developed and refined at its Sunday River resort, where it has sold over 1,350
units of residential real estate since 1983. During the same period, annual
skier visits at Sunday River increased from approximately 50,000 to over
550,000, representing an approximate 18% compound annual growth rate.
Mountainside Real Estate Development
The Company's real estate development strategy is designed to capitalize on
the 7,000 acres of developable land it will control at or near its resorts and
its 15 years of experience in real estate development. Including the Acquired
Resorts, the Company owns or has rights to land providing the capacity to
develop over 30,000 residential units.
The Company's resort real estate development strategy is comprised of three
distinct components: (i) Grand Summit quartershare hotels, (ii) alpine village
development and (iii) discrete resort-specific projects. Residential units in
Grand Summit Hotels are sold in quartershare interval interests that allow each
of four quartershare unit owners to use the unit for 13 weeks divided evenly
over the year. The core commercial areas in the hotels are retained and operated
by the Company and include a lobby area, a sports club, retail shops,
restaurants and banquet and conference facilities. Unit owners may use the unit
during their allotted weeks or make the unit available for rental by the Company
under a management agreement that allows the Company to retain up to 45% of
rental revenues. In addition to its Grand Summit Hotels, the Company has
identified several areas for development of alpine villages unique to their
resort locations that consist of carefully planned communities integrated with
condominiums, luxury townhouses, single family luxury dwellings or lots and
commercial properties. Each of the Company's resorts also has the potential for
additional real estate development involving discrete projects tailored to the
characteristics of the particular resort.
Increase Revenues Per Skier
The Company seeks to increase revenues per skier by managing ticket yields
and expanding revenue sources at each resort. Management seeks to increase
non-lift ticket revenue sources by increasing point-of-sale locations and sales
volume through retail stores, food and beverage services, equipment rentals,
skier development, lodging and property management. In addition, management
believes that aggressive cross-selling of products and programs (such as the
Company's frequent skier and multi-resort programs) to resort guests increases
resort revenues and profitability. The Company believes it can increase ticket
yields by managing ticket discounts, closely aligning ticket programs to
specific customer market segments, offering multi-resort ticket products and
introducing a variety of programs that offer packages which include tickets with
lodging and other services available at its resorts. During the 1996-97 ski
season, the Company increased its average yield per skier visit by approximately
2.9% as compared to the 1995-96 ski season. The Company intends to further
increase revenues by implementing a property management
5
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program at the Acquired Resorts. In addition to its on-mountain activities, the
Company is expanding its retail operations by establishing retail stores in
strategic high traffic and recognized retail districts such as Freeport, Maine;
North Conway, New Hampshire; and South Lake Tahoe, Nevada, thereby strengthening
the name and image of the Company and its resorts.
Innovative Marketing Programs
The Company's marketing programs are designed to (i) establish a nationally
recognized high quality name and image, while promoting the unique
characteristics of its individual resorts, (ii) capitalize on cross-selling
opportunities and (iii) enhance customer loyalty. The Company engages in joint
marketing programs with nationally recognized commercial partners such as Mobil,
Budweiser, Pepsi/Mountain Dew, Visa, FILA and Rossignol. Management believes
these joint marketing programs create a high quality image and a strong market
presence on a regional and national basis. In addition, the Company utilizes
loyalty based incentive programs such as the Edge Card, a private label frequent
skier program in which participants receive credits towards lift tickets and
other products.
The Company utilizes a variety of marketing media including direct mail,
television and the Internet. Direct mail marketing efforts include the Company's
"SNO" magazine, which targets the 18 to 30 year age group and currently has a
circulation of over 300,000 copies per issue. Television marketing efforts
include targeted commercials and programming such as the MTV Winter Lodge, which
is hosted by MTV and targets teens and young adults. Internet marketing efforts
include a Company sponsored website at www.peaks.com featuring photographs and
detailed information about the Company's resorts and current skiing conditions.
The Company's aggregate marketing budget for fiscal 1998 is approximately $28
million, including the value of contributions from strategic commercial
marketing partners.
Capitalize on a Multi-Resort Network
The Company's network of resorts provides both geographic diversity and
significant operating benefits. The Company believes its geographic diversity
(i) reduces the risks associated with unfavorable weather conditions, (ii)
insulates the Company from economic slowdowns in any particular region, (iii)
increases the accessibility and visibility of the Company's network of resorts
to the overall North American skier population and (iv) enables the Company to
offer a wide range of mountain vacation alternatives.
The Company believes that its ownership of multiple resorts also provides
the opportunity to (i) create the industry's largest cross-marketing program,
(ii) achieve efficiencies and economies of scale in purchasing goods and
services, (iii) strengthen the distribution network of travel agents and tour
operators by offering a range of mountain resort alternatives, consistent
service quality, convenient travel booking and incentive packages, (iv)
establish performance benchmarks for operations across all of the Company's
resorts, (v) utilize specialized individuals and cross-resort teams at the
corporate level as resources for the entire Company and (vi) develop and
implement consumer statistical and usage information and technology systems for
application across all of the Company's resorts.
Growth through Acquisitions
Since fiscal 1994, the Company has achieved substantial growth in its
business through acquisitions. The Company intends to consider future
acquisitions of large well-established destination resorts as well as smaller
"feeder" resorts. The Company focuses on acquiring larger resorts where it
believes it can improve profitability by implementing the Company's integrated
real estate development and on-mountain capital improvement strategy. The
Company also believes that by acquiring smaller regional resorts which have a
strong local following it can capitalize on a broader customer base to
cross-market its major destination resorts. The acquisition of less developed
resorts may also offer opportunities for expansion. The Company, however, is
effectively prohibited from acquiring additional resorts in New England as a
result of antitrust concerns. Historically, the Company has financed resort
acquisitions through private and public offerings of debt securities. The
Company expects to finance future acquisitions through a combination of
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internally generated funds, bank borrowings and public offerings or private
placements of equity and/or debt securities. Following the Transactions, the
Company will be highly leveraged. See "Risk Factors-- Substantial Leverage and
Financial Risks," "--Growth Through Acquisitions; Integration of Acquired
Resorts; Ability to Finance Acquisitions" and "Description of Indebtedness--The
New Credit Facility."
Expand Golf and Convention Business
The Company is one of the largest owners and operators of resort golf
courses in New England and seeks to capitalize on this status to increase
off-season revenues. Sugarloaf, Killington, Mount Snow/ Haystack and Sugarbush
all operate championship resort golf courses. The Sugarloaf course, designed by
Robert Trent Jones Jr., is rated as one of the top 25 upscale courses in the
country according to the May 1996 GOLF DIGEST magazine survey and one of the top
25 public courses in the country according to the May 1996 GOLF magazine survey.
In addition, a championship course designed by Robert Trent Jones, Jr. is
currently under construction at Sunday River. The Company also operates eight
golf schools at locations along the east coast from Florida to Maine. The
Company's golf program and other recreational activities draw off-season
visitors to the Company's resorts and support the Company's growing off-season
convention business, as well as its real estate development operations.
7
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THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered:
Public Offering(1)(2)......... 13,939,189 shares
Concurrent Offering(2)........ 810,811 shares
Total(1).................... 14,750,000 shares
Common Stock and Class A
Common Stock to be outstanding
after the Offering:
Common Stock(1)(3)(4)......... 18,097,578 shares
Class A Common Stock(3)....... 14,760,530 shares
Total(1)(4)................. 32,858,108 shares
Voting Rights................... The rights and preferences of holders of Common Stock and
Class A Common Stock are identical, except that holders of
Class A Common Stock will elect a class of directors that
constitutes two-thirds of the Board of Directors and
holders of Common Stock will elect a class of directors
that constitutes one-third of the Board of Directors. Each
share of Class A Common Stock will be convertible into one
share of Common Stock (A) at the option of the holder at
any time, (B) automatically upon transfer to any person
that is not an affiliate of the Principal Shareholder and
(C) automatically if, at any time, the number of shares of
Class A Common Stock outstanding represents less than 20%
of all outstanding shares of Common Stock and Class A
Common Stock. Upon completion of the Offering, the
Principal Shareholder will hold 100% of the Class A Common
Stock, representing approximately 44.9% of the combined
voting power of all outstanding shares of Common Stock and
Class A Common Stock. The Principal Shareholder initially
will be able to elect five of the seven members of the
Board of Directors of the Company. To the extent that all
of the shares of Class A Common Stock are converted into
Common Stock, the class vote for directors will be
extinguished. See "Management," "Principal Shareholders"
and "Description of Capital Stock."
</TABLE>
- ------------------------
(1) Does not include up to 2,090,878 shares of Common Stock that may be sold by
the Company to the Underwriters to cover over-allotments, if any.
(2) The Principal Shareholder has advised the Company that he intends to
purchase a number of shares of Common Stock in the Concurrent Offering
sufficient to maintain ownership of at least a majority of all outstanding
shares of Common Stock and Class A Common Stock. Assuming that the
Underwriters' over-allotment option is not exercised and assuming a price to
the public of $18.50 per share, the midpoint of the range set forth on the
cover page of this Prospectus, 810,811 shares of Common Stock are expected
to be sold to the Principal Shareholder in the Concurrent Offering at an
aggregate purchase price of approximately $15 million.
(3) Does not give effect to the conversion of any shares of Class A Common Stock
into shares of Common Stock. Each share of Class A Common Stock is
convertible at the option of the holder and upon the happening of certain
events into one share of Common Stock. Assuming full conversion into Common
Stock of all Class A Common Stock, after giving effect to the Offering, a
total of 32,858,108 shares of Common Stock would be outstanding.
(4) Includes (i) 622,038 shares of Common Stock reserved for issuance pursuant
to the Company's Stock Option Plan (the "Stock Option Plan") which will be
issuable pursuant to options that are exercisable immediately after the
Offering at a price per share below the Public Offering price, (ii)
2,110,518 shares of Common Stock reserved for issuance upon conversion of
the Company's 10 1/2% Convertible Preferred Stock (assuming a price to the
public of $18.50 per share, the midpoint of the range shown on the cover
page of this Prospectus) and (iii) 615,022 shares of Common Stock reserved
for issuance upon consummation of the ASC East Exchange Offer (as defined).
Does not include (i) 5,066,661 shares of Common Stock reserved for issuance
pursuant to the Company's Stock Option Plan, 1,853,197 shares of which will
be issuable pursuant to options that are exercisable immediately after the
Offering at a price per share equal to the Public Offering price, and (ii)
up to 1,433,145 additional shares of Common Stock issuable upon conversion
of the Company's 10 1/2% Convertible Preferred Stock as a result of the
accrual of cumulative dividends thereon. All of the shares of Common Stock
reserved for issuance under the Stock Option Plan, the ASC East Exchange
Offer and the 10 1/2% Convertible Preferred Stock are subject to lock-up
restrictions for 180 days following the consummation of the Offering. See
"The Transactions--Exchange Offers" and "Management--Stock Option Plan."
8
<PAGE>
<TABLE>
<S> <C>
Concurrent Offering................. A portion of the 14,750,000 shares of Common Stock
offered hereby are being offered by the Company
directly to the Principal Shareholder at the price to
the public set forth on the cover page of this
Prospectus. The Principal Shareholder has advised the
Company that he intends to purchase a number of
shares of Common Stock in the Concurrent Offering
sufficient to maintain ownership of at least a
majority of the outstanding shares of Common Stock
and Class A Common Stock. Assuming that the
Underwriters' over-allotment option is not exercised
and assuming a price to the public of $18.50 per
share, the midpoint of the range set forth on the
cover page of this Prospectus, 810,811 shares of
Common Stock are expected to be sold to the Principal
Shareholder in the Concurrent Offering at an
aggregate purchase price of approximately $15
million. Accordingly, upon consummation of the
Concurrent Offering, the Principal Shareholder is
expected to own shares of Common Stock (including
shares of Common Stock which the Principal
Shareholder has the right to purchase pursuant to
fully vested stock options, exercisable at the price
to the public set forth on the cover page of this
Prospectus, granted under the Company's Stock Option
Plan) representing approximately 13.4% of all
outstanding shares of Common Stock and, when such
shares of Common Stock are aggregated with the
Principal Shareholder's shares of Class A Common
Stock, representing approximately 50.2% of all
outstanding shares of Common Stock and Class A Common
Stock. So long as the Principal Shareholder owns
shares of Common Stock and Class A Common Stock
representing a majority of the combined voting power
of all outstanding shares of Common Stock and Class A
Common Stock, he will be able to determine the
outcome of all matters submitted to a vote of the
shareholders of the Company, except for matters
requiring (i) the vote of a higher percentage of the
voting power than the percentage held by the
Principal Shareholder or (ii) the vote of the
shareholders voting as a separate class under state
law or the Company's Articles of Incorporation and
Bylaws. For a description of the matters which
require a vote of the shareholders voting as a
separate class, see "Description of Capital
Stock--Common Stock."
Use of Proceeds..................... The net proceeds from the Offering, together with
borrowings of approximately $137 million under the
New Credit Facility, will be used (i) to fund the
Acquisition price of approximately $290 million, (ii)
to repay all outstanding borrowings under the
Existing Credit Facility (as defined), estimated to
be approximately $60 million, (iii) to make an
investment in ASC East of approximately $27.7 million
to fund the redemption of all outstanding Discount
Notes (as defined), (iv) to repay up to $12.0 million
of indebtedness of the Company and its subsidiaries,
(v) to pay certain fees and expenses relating to the
Transactions and (vi) for general corporate purposes
and capital expenditures. See "Use of Proceeds."
New York Stock Exchange Symbol...... "SKI"
</TABLE>
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
THE COMPANY
The summary historical financial data and the unaudited pro forma summary
combined financial data (except other data) set forth below have been derived
from and should be read in conjunction with the financial statements of the
Company and the Acquired Resorts and the notes thereto included elsewhere in
this Prospectus and "Pro Forma Financial Data." The unaudited pro forma summary
combined financial data for the fiscal year ended July 27, 1997 give effect to
the Transactions as if they had occurred on July 29, 1996 with respect to the
statement of operations and other data, and on July 27, 1997 with respect to the
balance sheet data. See "Pro Forma Financial Data." The unaudited pro forma
summary combined financial data is not intended to be indicative of either
future results of operations or results that might have been achieved had the
Transactions actually occurred on the dates specified.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR
HISTORICAL FISCAL YEAR ENDED(1) ENDED(2)
----------------------------------------------------------- -----------
JULY 25, JULY 31, JULY 30, JULY 28, JULY 27, JULY 27,
1993 1994 1995 1996 1997 1997
----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AND PER SKIER VISIT AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Resort.............................................. $ 23,645 $ 26,544 $ 46,794 $ 63,489 $ 166,923 $ 253,397
Real estate......................................... 6,103 6,682 7,953 9,933 8,468 8,468
----------- ----------- ----------- --------- --------- -----------
Total net revenues................................ 29,748 33,226 54,747 73,422 175,391 261,865
Operating expenses:
Resort.............................................. 14,705 15,787 29,725 41,799 109,774 157,744
Real estate......................................... 3,245 3,179 3,994 5,844 6,813 6,813
Marketing, general and administrative(3)............ 4,718 5,940 9,394 11,289 26,126 39,464
Depreciation and amortization....................... 1,984 2,421 3,910 6,783 18,293 35,993
----------- ----------- ----------- --------- --------- -----------
Total operating expenses.......................... 24,652 27,327 47,023 65,715 161,006 240,014
----------- ----------- ----------- --------- --------- -----------
Income from operations................................ 5,096 5,899 7,724 7,707 14,385 21,851
Interest expense...................................... 849 1,026 2,205 4,699 23,730 27,327
Net income (loss) available to common shareholders.... $ 5,839 $ 4,873 $ 5,119 $ (2,237) $ (5,926) $ (5,225)
----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- --------- --------- -----------
Pro forma loss per share.............................. $ (0.38) $ (0.17)
--------- -----------
--------- -----------
Pro forma weighted average number of shares
outstanding (000s).................................. 15,416 30,781
--------- -----------
--------- -----------
OTHER DATA:
Resort:
Skier visits (000s)(4).............................. 525 528 1,060 1,290 3,025 4,821
Season pass holders (000s).......................... 3.2 3.7 11.2 13.2 30.9 38.3
Resort revenues per skier visit..................... $ 45.04 $ 50.27 $ 44.15 $ 49.22 $ 55.18 $ 52.56
Resort EBITDA(5)(6)................................. $ 4,222 $ 4,817 $ 7,675 $ 10,401 $ 31,023 $ 56,188
Real estate:
Number of units sold................................ 173 155 163 177 123 123
Number of units pre-sold(7)......................... -- -- -- 109 605 605
Real Estate EBIT(6)(8).............................. $ 2,858 $ 3,503 $ 3,959 $ 4,089 $ 1,655 $ 1,655
STATEMENT OF CASH FLOWS DATA:
Cash flows from operations.......................... $ 2,667 $ 5,483 $ 12,593 $ 7,465 $ 6,788 --
Cash flows from investing activities................ (4,432) (9,041) (13,843) (122,583) (14,070) --
Cash flows from financing activities................ 1,559 3,764 2,399 116,941 19,655 --
</TABLE>
<TABLE>
<CAPTION>
AT JULY 27, 1997
----------------------
ACTUAL PRO FORMA
--------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 15,558 $ 33,031
Total assets.............................................................................. 337,340 653,937
Long-term debt, including current portion................................................. 236,330 283,702
Mandatorily redeemable preferred stock.................................................... 16,821 36,848
Common shareholders' equity............................................................... 15,101 254,649
</TABLE>
10
<PAGE>
THE ACQUIRED RESORTS
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
HISTORICAL FISCAL YEAR ENDED MAY 31, AUGUST 31,
--------------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT (UNAUDITED)
PER SKIER VISIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (9):
Total revenues..................... $ 83,410 $ 82,034 $ 88,567 $ 84,732 $ 89,066 $ 5,400 $ 4,935
Operating expenses:
Retail, ski rental and other..... 44,778 46,560 48,715 47,374 51,139 7,452 7,075
Marketing, general,
administrative and other(10)... 15,703 14,778 17,075 16,585 17,178 3,281 3,091
Writedown of assets(11).......... -- -- -- -- 2,000 -- --
Depreciation and amortization.... 14,481 14,544 14,643 14,477 12,516 3,156 2,491
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 74,962 75,882 80,433 78,436 82,833 13,889 12,657
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)............ 8,448 6,152 8,134 6,296 6,233 (8,489) (7,722)
Net loss........................... (3,906) (5,254) (3,906) (4,538) (3,406) $ (10,921) $ (10,206)
OPERATING DATA:
Skier visits (000s)(12)............ 1,867 1,750 1,858 1,732 1,796 -- --
Season pass holders (000s)(12)..... 5.7 6.6 6.9 7.0 7.5 -- --
Total revenues per skier
visit(12).......................... $ 43.22 $ 45.23 $ 45.49 $ 47.46 $ 47.48 -- --
EBITDA(9)(10)(11)(12).............. $ 25,929 $ 23,596 $ 26,078 $ 24,074 $ 24,150 -- --
</TABLE>
- ------------------------
(1) The historical results of the Company reflect the results of operations of
the Attitash Bear Peak ski resort since its acquisition in July 1994, the
results of operations of the Sugarbush ski resort since October 1994, the
results of operations of the Mt. Cranmore ski resort from its acquisition in
June 1995 through its divestiture in November 1996, the results of
operations of S-K-I Ltd. since its acquisition in June 1996 and the results
of operations of Pico Mountain since its acquisition in November 1996.
(2) The results of operations of Wolf have not been reflected in the pro forma
statement of operations data or other data. See "Pro Forma Financial Data"
and "Risk Factors--Required Development at The Canyons; Historical Losses of
Wolf."
(3) In the first quarter of fiscal 1998, the Company granted to certain
executive officers and other employees fully vested options to purchase
622,038 shares of Common Stock at an exercise price of $2.00 per share. The
Company also agreed to pay certain tax liabilities which the receipients of
the options expect to incur upon exercise of such options. Because the $2.00
per share exercise price was below the fair market value of a share of
Common Stock on the date of grant, the Company will recognize a one-time
compensation charge of approximately $13.9 million in the first quarter of
fiscal 1998.
(4) For the purposes of estimating skier visits, the Company assumes that a
season pass holder visits the Company's resorts a number of times that
approximates the average cost of a season pass divided by the average daily
lift ticket price.
(5) Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense.
(6) Resort EBITDA and Real Estate EBIT (collectively referred herein as
"EBITDA") are not measurements calculated in accordance with generally
accepted accounting principles ("GAAP") and should not be considered as
alternatives to operating or net income as an indicator of operating
performance, cash flows as a measure of liquidity or any other GAAP
determined measurement. Certain items excluded from Resort EBITDA and/or
Real Estate EBIT, such as depreciation, amortization and non-cash charges
for stock compensation awards and asset impairments are significant
components in understanding and assessing the Company's financial
performance. Other companies may define Resort EBITDA and Real Estate EBIT
differently, and as a result, such measures may not be comparable to the
Company's Resort EBITDA and Real Estate EBIT. The Company has included
information concerning Resort EBITDA and Real Estate EBIT because management
believes they are indicative measures of the Company's liquidity and
financial position, and are generally used by investors to evaluate
companies in the resort industry.
(7) Pre-sold units represent quartershare and other residential units for which
the Company has a binding sales contract, subject to certain closing
conditions, and has received a 5% down payment on the unit from the
purchaser. Recognition of the revenue from such pre-sales is deferred until
the period in which such sales are closed.
(FOOTNOTES CONTINUED ON NEXT PAGE)
11
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(8) Real Estate EBIT represents revenues from real estate sales less cost of
real estate sold, including selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating to
property sold.
(9) The statement of operations data include the results of Sabal Point Golf
Course in Orlando, Florida which the Company intends to sell following the
closing of the Acquisition. In fiscal 1997, the Sabal Point Golf Course
generated approximately $1.3 million in revenues. In the fiscal quarter
ended August 31, 1997 the Sabal Point Golf Course generated approximately
$0.5 million in revenues.
(10) The Acquired Resorts have historically reimbursed Kamori International
Corporation ("Kamori") for certain administrative services provided. Such
reimbursements totalled approximately $3.0 million, $2.9 million, $3.3
million, $3.3 million and $3.4 million, respectively, for each of the years
ended May 31, 1993 through May 31, 1997. For each of the first fiscal
quarters ended August 31, 1996 and August 31, 1997, reimbursements to Kamori
totalled $0.5 and $0.5 million, respectively. Such amounts are included in
marketing, general and administrative expense in the accompanying selected
combined financial information, but have been excluded for purposes of
calculating EBITDA because such expenses will not be incurred by the
Acquired Resorts following the closing of the Acquisition.
(11) In 1997, the Acquired Resorts recorded a $2.0 million impairment loss
related to land, buildings and equipment of its golf resort to properly
state these fixed assets at estimated fair values. Such loss is excluded in
the calculation of EBITDA.
(12) Due to the seasonality of the business, skier visits, season pass holders,
total revenues per skier visit and EBITDA are not presented for the fiscal
quarters ended August 31, 1996 and August 31, 1997, because such data is not
meaningful to an understanding of the quarterly financial information.
12
<PAGE>
RECENT DEVELOPMENTS
THE CANYONS ACQUISITION
In May 1997, the Company commenced development of The Canyons resort.
Through a series of transactions, the Company acquired ski operations,
development rights or other interests in over 7,100 acres centered around the
former Wolf Mountain ski area ("Wolf"), which the Company intends to integrate
and develop into a world class destination resort.
The Company acquired the existing buildings, ski lifts and other
improvements, related infrastructure and personal property of Wolf for
approximately $8.3 million, $6.5 million of which was financed through the
issuance of a note payable to the seller. The Company also entered into a 200
year lease with an initial term of 50 years for the 2,100 acres that comprised
Wolf, providing for annual payments equal to 4% of the resort's net revenues.
The lease provides the option to extend for three additional 50 year periods for
an extension fee of $1.0 million for each extension period. The Company will
make additional one-time rental payments upon achieving certain specified annual
skier visit levels above Wolf's historical levels. The Company also purchased an
option which gives it the right to purchase fee title to parcels of land within
this 2,100 acre area on which it desires to develop real estate for resale for a
purchase price of 11% of the capitalized cost of real estate improvements to be
constructed thereon.
In addition to Wolf, the Company acquired 605 acres of land suitable for
real estate development and skiable terrain adjacent to Park City, Utah for $4.0
million. The Company has subleased an additional 807 acres in the center of the
resort containing the mid-mountain plateau on which it plans to develop the High
Mountain Meadows alpine village. The Company currently pays $40,000 per annum
under this sublease and is negotiating a direct lease that is expected to
include provisions which permit the Company to acquire fee title to any land
required for the development of residential projects located at the High
Mountain Meadows. The Company has leased ski rights to a third parcel of land,
consisting of 450 acres adjacent to Wolf, for annual rental payments of
$150,000. In addition, the Company entered into a joint development agreement
with the owner of approximately 3,000 contiguous acres of land pursuant to which
the Company has the right to develop the property as skiable terrain on an
integrated basis with the owner's development of a low density, large lot
subdivision. The consideration under the agreement is the mutual exchange of
certain property interests required to fully develop both the resort and the
subdivision.
In order to finance certain acquisition costs and capital improvements with
respect to The Canyons, on July 12, 1997, the Company issued $17.5 million of
Series A Exchangeable Preferred Stock (the "Series A Exchangeable Preferred
Stock") and, on July 28, 1997, the Company issued $17.5 million principal amount
of 14% Senior Exchangeable Notes (the "Exchangeable Notes" and, together with
the Series A Exchangeable Preferred Stock, the "Canyons Securities"). See "The
Transactions--Exchange Offers," "Description of Capital Stock" and "Description
of Certain Indebtedness."
The Canyons is adjacent to the Utah Winter Sports Park which will be the
venue for the ski jumping, bobsled and luge events at the 2002 Winter Olympic
Games. Because The Canyons is largely undeveloped, management believes that it
presents a unique development opportunity to build a world class destination
resort in one of the fastest growing areas in the United States. An estimated
$60 million (approximately $18 million of which is expected to be spent by
December 1997) for on mountain capital improvements and an estimated $150
million for real estate development will be required to fulfill the Company's
five-year business plan at The Canyons. See "Risk Factors--Required Development
at The Canyons; Historical Losses of Wolf," "--Real Estate Development,"
"--Leased Property and Forest Service Permits" and "Business--Existing
Resorts--The Canyons."
THE FORMATION
In June 1997, Leslie B. Otten, who formerly held 96% of the common stock of
ASC East (a subsidiary of the Company formerly doing business under the name
American Skiing Company), formed the Company. Mr. Otten contributed his 96%
interest in the common stock of ASC East to the Company in exchange for 100% of
the Common Stock of the Company (the "Formation"). Contemporaneously with the
Formation, the Company formed its ASC Utah subsidiary for the purpose of
acquiring The Canyons resort. In July 1997, the Company formed its ASC West,
Inc. subsidiary for the purpose of acquiring the Acquired Resorts.
13
<PAGE>
THE TRANSACTIONS
THE ACQUISITION
On August 1, 1997, the Company entered into the Acquisition Agreement to
purchase the Steamboat and Heavenly ski resorts. As part of the Acquisition, the
Company also agreed to purchase the Sabal Point Golf Course in Orlando, Florida
and a residence in Denver, Colorado, both of which the Company intends to sell
following the closing of the Acquisition (the "Divestiture"). The aggregate
consideration to be paid by the Company for the Acquired Resorts is
approximately $290 million. The Company will not acquire any of the cash or
assume any of the funded debt of the Acquired Resorts. The purchase of the
Acquired Resorts is subject to the satisfaction of certain covenants and
conditions and there can be no assurance that the Acquisition will be
consummated. Consummation of the Offering is conditioned upon the concurrent
consummation of the Acquisition. See "Business--Acquired Resorts."
Steamboat is one of the premier ski resorts in the United States, ranked
second overall by the September 1997 SNOW COUNTRY magazine survey and fourth in
skier visits for the 1996-97 ski season. Located in Steamboat Springs, Colorado
and approximately three hours from Denver, Colorado, Steamboat is a world famous
family resort recognized for its "champagne" powder and tree skiing. In the
1996-97 ski season, Steamboat skier visits increased by 8.4% from the 1995-96
ski season to 1.1 million. As part of the Acquisition, the Company also will
acquire 168 acres of land held for development.
Heavenly is located near Lake Tahoe in the states of Nevada and California.
Heavenly is the second largest ski resort in the Pacific West Region and the
11th largest ski resort in the United States with approximately 700,000 skier
visits in the 1996-97 ski season and approximately 4,800 acres of skiable
terrain.
THE REFINANCING
The Company has accepted a proposal from a lender to provide the Company
with a senior secured credit facility (the "New Credit Facility"), which will
provide borrowings of up to $215 million. The proposal provides that borrowings
under the New Credit Facility will be available: (i) to fund the Acquisition;
(ii) to repay all outstanding borrowings under ASC East's credit facility dated
June 28, 1996, among Fleet National Bank, certain other banks and ASC East (the
"Existing Credit Facility"), estimated to be approximately $60 million; (iii) to
pay certain fees and expenses relating to the Acquisition; and (iv) for ongoing
general corporate purposes and capital expenditures. Consummation of the
Offering is conditioned upon the concurrent consummation of the New Credit
Facility. See "Use of Proceeds" and "Description of Certain Indebtedness--The
New Credit Facility."
REDEMPTION OF DISCOUNT NOTES
A portion of the net proceeds of the Offering will be used to make an
approximate $27.7 million investment in ASC East to fund the redemption (the
"Redemption") of all outstanding 13.75% Subordinated Discount Notes due 2007 of
ASC East (the "Discount Notes"). The indenture relating to the Discount Notes
(the "Discount Note Indenture") provides for a redemption price equal to 113.75%
of the Accreted Value (as defined in the Discount Note Indenture) of the
Discount Notes on the redemption date. The Company expects to record a pretax
extraordinary charge of approximately $4.3 million in connection with the
redemption premium related to the Discount Notes.
EXCHANGE OFFERS
The Company currently owns 96% of the outstanding common stock of ASC East.
Concurrently with the Offering or as soon as practicable thereafter, the Company
intends to offer (the "ASC East Exchange Offer") to exchange Common Stock for
the 4% of the outstanding common stock of ASC East not owned
14
<PAGE>
by the Company. If all such holders elect to exchange their shares of ASC East
common stock for Common Stock, the Company will issue 615,022 shares of Common
Stock in the ASC East Exchange Offer, representing approximately 1.8% of all
shares of Common Stock and Class A Common Stock outstanding immediately
following the Offering. The Common Stock issued in the ASC East Exchange Offer
is expected to be registered with the Securities and Exchange Commission on a
registration statement to be effective concurrently with the closing of the
Offering or as soon as practicable thereafter. Participation in the ASC East
Exchange Offer is conditioned upon the holders of ASC East common stock entering
into lock-up agreements for a period of 180 days following the consummation of
the Offering.
Pursuant to the terms of a Securities Purchase Agreement, dated as of July
2, 1997, as amended (the "Securities Purchase Agreement"), between the Company
and the holder of the Canyons Securities, the holder of the Canyons Securities
has indicated its intention to exchange all of the Canyons Securities upon the
closing of the Offering (the "Preferred Exchange Offer" and, together with the
ASC East Exchange Offer, the "Exchange Offers") for shares of the Company's
10 1/2% Repriced Convertible Exchangeable Preferred Stock having an aggregate
liquidation preference upon consummation of the Transactions of approximately
$37.1 million (the "10 1/2% Convertible Preferred Stock"). Each share of 10 1/2%
Convertible Preferred Stock will be convertible at any time, at the holder's
option, into a number of shares of Common Stock ("Conversion Shares") equal to
the liquidation preference per share of 10 1/2% Convertible Preferred Stock
divided by the price per share of Common Stock offered to the public in the
Public Offering discounted by 5%, subject to customary antidilution adjustments.
Pursuant to a registration rights agreement with the holder of the Canyons
Securities, the Company has agreed to register the securities issuable pursuant
to the Preferred Exchange Offer with the Securities and Exchange Commission
following the closing of the Offering, subject to the holder's 180 day lock-up
agreement. If the holder of the Canyons Securities does not exchange the 10 1/2%
Convertible Preferred Stock for the Canyons Securities and the Preferred
Exchange Offer is not consummated, consummation of the Offering will trigger a
Change of Control (as defined in the Securities Purchase Agreement). In such
event, the Securities Purchase Agreement requires that the Company offer to
purchase the Canyons Securities for cash at a redemption price of 105.3% of the
principal and liquidation amount outstanding on the date of redemption
(approximately $37.9 million as of September 30, 1997). See "Risk Factors--
Immediate and Substantial Debt Obligations Upon Consummation of the Offering"
and "Description of Certain Indebtedness--Exchangeable Notes" and "Description
of Capital Stock--Series A Exchangeable Preferred Stock" and "--10 1/2%
Convertible Preferred Stock."
THE CONSENT SOLICITATION
Concurrently with the Offering, the Company is soliciting the consent (the
"Consent Solicitation") from holders of ASC East's 12% Senior Subordinated Notes
due 2006 (the "12% Notes") to amend (the "Proposed Amendment") the indenture
relating to the 12% Notes (the "12% Note Indenture") to permit the consummation
of the Offering without requiring the Company to make a Change of Control Offer
(as defined). The 12% Note Indenture requires the consent of the holders of at
least a majority in aggregate principal amount of the 12% Notes to amend the 12%
Note Indenture. If the Company obtains the requisite amount of consents pursuant
to the Consent Solicitation, the Company will execute a supplemental indenture
to give effect to the Proposed Amendment concurrently with the closing of the
Offering. In connection with the Consent Solicitation, the Company expects to
pay to the consenting holders of the 12% Notes a customary consent payment.
To the extent the Company does not receive the necessary consents to amend
the 12% Note Indenture, consummation of the Offering will trigger a Change of
Control (as defined in the 12% Note Indenture). The 12% Note Indenture provides
that upon the occurrence of a Change of Control, ASC East is required to make an
offer to repurchase the 12% Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase (the "Change of Control Offer"). See "Description of Certain
Indebtedness--The 12% Notes." In the event of a Change of
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Control, ASC East must mail a notice to all holders of 12% Notes setting forth
the terms of the Change of Control Offer. The Company cannot determine at this
time whether or not any or all holders of 12% Notes would accept such offer. If
all outstanding 12% Notes are tendered, the amount of funds necessary to
consummate the Change of Control Offer would be $121.2 million, plus the amount
of all accrued and unpaid interest ($3.6 million as of September 30, 1997). The
Company is currently negotiating a standby credit facility for up to $125
million to fund the repurchase of the 12% Notes in the event the Company is
required to make the Change of Control Offer and that any or all of such 12%
Notes are tendered to ASC East for repurchase. See "Risk Factors--Immediate and
Substantial Debt Obligations Upon Consummation of the Offering" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THE ACQUISITION, THE DIVESTITURE, THE ISSUANCE OF THE EXCHANGEABLE NOTES,
THE INITIAL BORROWINGS UNDER THE NEW CREDIT FACILITY, THE REDEMPTION, THE
EXCHANGE OFFERS, THE CONSENT SOLICITATION, THE STOCK SPLIT AND THE OFFERING ARE
COLLECTIVELY REFERRED TO HEREIN AS THE "TRANSACTIONS."
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED BY
THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS AND THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF NUMEROUS FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
SUBSTANTIAL LEVERAGE AND FINANCIAL RISKS
GENERAL. Following the Transactions, the Company will be highly leveraged.
At July 27, 1997, after giving pro forma effect to the Transactions, the
Company's total long term debt, including current maturities, and shareholders'
equity would have been approximately $284 million and $255 million,
respectively, and the Company would have had up to $62.3 million available for
borrowings under the New Credit Facility. For the fiscal year ended July 27,
1997, after giving pro forma effect to the Transactions, the Company's earnings
would have been insufficient to cover fixed charges by approximately $3.2
million. In addition, at July 27, 1997, after giving pro forma effect to the
Transactions, total indebtedness would have represented 48% of total capital and
the ratio of Resort EBITDA to interest expense would have been 2.1x. The Company
has incurred additional indebtedness in the first quarter of fiscal 1998 to fund
capital improvements, real estate development and operations. In addition,
consummation of the Offering may trigger a change of control under certain of
the Company's indebtedness which could total approximately $133 million. See
"The Transactions--Exchange Offers," "--The Consent Solicitation," "--Immediate
and Substantial Debt Obligations Upon Consummation of the Offering," "Use of
Proceeds," "--Seasonality; Fluctuations in Operating Results; Dependence on
Weather Conditions" and "Description of Indebtedness--The New Credit Facility."
IMPACT ON FINANCIAL CONDITION. The high level of debt of the Company and
its subsidiaries will have several important effects on the Company's future
operations, including: (a) the Company will have significant cash requirements
to service its debt (including approximately $10.6 million of scheduled
principal repayments over the next two fiscal years), reducing funds available
for operations, capital expenditures and acquisitions, thereby increasing the
Company's vulnerability to adverse general economic and industry conditions; and
(b) the financial covenants and other restrictions contained in the New Credit
Facility, the 12% Note Indenture and other agreements relating to the Company's
indebtedness will require the Company to meet certain financial tests and will
restrict its and its subsidiaries' ability to borrow additional funds and to
dispose of assets. The Company does not plan to establish any debt service
reserves for the payment of principal or interest on any of its indebtedness.
Substantially all of the Company's assets, other than the Grand Summit Hotel
properties, are pledged to secure borrowings under the New Credit Facility. The
Company has granted a mortgage to the construction lender on each Grand Summit
Hotel property to secure the construction financing of such properties. See
"Description of Certain Indebtedness."
MAINTENANCE EXPENDITURE DEFERRAL. Although management believes that capital
expenditures above maintenance levels can be deferred to address cash flow or
other constraints, such activities may not be deferred for extended periods
without adverse effects on skier visits, revenues and profitability.
GROWTH LIMITATIONS. The Company's continued growth depends, in part, on its
ability to maintain and expand its facilities and to engage in successful real
estate development and, therefore, to the extent it is unable to do so with
internally generated cash, its inability to finance capital expenditures or real
estate development through borrowed funds or additional equity investments could
have a material adverse effect on the Company's future operations and revenues.
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CAPITAL REQUIREMENTS
The development of ski resorts is capital intensive. The Company spent
approximately $12.0 million, $25.1 million and $45.2 million in fiscal 1995,
1996 and 1997, respectively, on resort capital expenditures and real estate
development. In fiscal 1995, 1996 and 1997, the Acquired Resorts spent an
aggregate of approximately $6.9 million, $5.9 million and $5.4 million,
respectively, on resort capital expenditures. In fiscal 1998 and fiscal 1999,
the Company plans to spend approximately $65 million and $60 million,
respectively, to enhance its resort operations and approximately $100 million
and $115 million, respectively, to develop its real estate holdings. There can
be no assurance that the Company will have adequate funds, from internal or
external sources, to make all planned or required capital expenditures. A lack
of available funds for such capital expenditures could have a material adverse
effect on the Company's ability to implement its operating strategy. The Company
intends to finance resort capital improvements through internally generated
funds and borrowings under its New Credit Facility and to finance real estate
development through project-specific construction financing. See "--Substantial
Leverage and Financial Risks," "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources," "Business--Operating Strategy," "--Resort Operations" and "--Real
Estate Development."
RISKS ASSOCIATED WITH RAPID GROWTH
Since 1994, the Company has experienced rapid and substantial growth. The
Company's rapid and substantial growth has placed, and could continue to place,
a significant strain on its management, employees and operations. The Company's
growth has increased the operating complexity of the Company and the level of
responsibility for new and existing management. For example, members of the
Company's senior management team have limited experience managing publicly
traded companies. The Company's ability to compete effectively and to manage its
recent and future growth effectively will depend on its ability to implement and
improve financial and management information systems on a timely basis and to
effect changes in its business, such as implementing internal controls to handle
the increased size of its operations and hiring, training, developing and
managing an increasing number of experienced management-level and other
employees. Unexpected difficulties during expansion, the failure to attract and
retain qualified employees, or the Company's inability to respond effectively to
recent growth or plan for future expansion, could have a material adverse effect
on the Company.
GROWTH THROUGH ACQUISITIONS; INTEGRATION OF ACQUIRED RESORTS; ABILITY TO FINANCE
ACQUISITIONS
The Company continually evaluates potential acquisition opportunities. The
Company will need to finance any future acquisitions through a combination of
internally generated funds, additional bank borrowings from existing and new
credit facilities and public offerings or private placements of equity (which
may cause dilution to existing holders of capital stock of the Company) and/or
debt securities, the combination of which will depend on several factors,
including the size of the acquired resort and the Company's capital structure at
the time of an acquisition. There can be no assurance, however, that attractive
acquisition candidates will be identified, that the Company will be able to make
acquisitions on terms favorable to it, that necessary financing will be
available on suitable terms, if at all, or that such acquisitions will be
permitted under applicable antitrust laws. The Company's ability to make such
acquisitions is limited under applicable antitrust laws, and it is effectively
prohibited from acquiring additional resorts in New England. See "--Substantial
Leverage and Financial Risks."
The Company faces risks in connection with the integration of acquired
resorts, including The Canyons and the Acquired Resorts. Significant management
resources and time will be required to integrate any acquired resorts and
unanticipated problems or liabilities with respect to such new resorts may
further divert management's attention from the Company as a whole, which could
have a material adverse effect on the Company's operations and financial
performance. There can be no assurance that the
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Company will be able to realize any additional skier visits, revenues or cost
savings in connection with integrating acquired resorts. See
"Business--Operating Strategy."
REQUIRED DEVELOPMENT AT THE CANYONS; HISTORICAL LOSSES OF WOLF
The Canyons is a largely undeveloped asset that requires substantial
development of on-mountain facilities, real estate and related infrastructure.
The Company has adopted a five-year business plan for development of the resort;
however, accomplishing its plan is contingent upon obtaining necessary permits
and approvals, obtaining required financing for planned improvements and
generating markets for the resort that will produce significant increases in
skier visits. An estimated $60 million (approximately $18 million of which is
expected to be spent by December 1997) for on-mountain capital improvements and
an estimated $150 million for real estate development will be required to
fulfill the Company's five-year business plan at The Canyons. There can be no
assurance that capital will be available to fund these capital improvements or
real estate development.
Wolf historically experienced net operating losses, estimated by the Company
to be approximately $2 million in each of fiscal 1997 and fiscal 1996. The
Company's business plan assumes that it can significantly increase skier visits
and generate positive Resort EBITDA and net income at The Canyons. There can be
no assurance, however, that The Canyons will generate additional skier visits,
positive Resort EBITDA or net income for the Company. See "Business--Alpine
Village Development" and "Description of The Canyons" on the inside back cover
page.
REAL ESTATE DEVELOPMENT
The Company intends to construct, operate and sell interval ownership and
condominium units and other real estate at its ski resorts. Real estate
development and the Company's ability to generate revenues therefrom may be
adversely affected by numerous factors, many of which are beyond the control of
the Company, including the ability of the Company to successfully market its
resorts, the national and regional economic climate, local real estate
conditions (such as an oversupply of space or a reduction in demand for real
estate), costs to satisfy environmental compliance and remediation requirements
associated with new development/renovation and ongoing operations, the
attractiveness of the properties to prospective purchasers and tenants,
competition from other available property or space, the ability of the Company
to obtain adequate insurance, the ability of the Company to obtain all necessary
zoning, land use, building, occupancy and other required governmental permits
and authorizations and changes in real estate, zoning, land use, environmental
or tax laws. In addition, real estate development will be dependent upon, among
other things, receipt of adequate financing on suitable terms, obtaining and
maintaining the requisite permits and licenses and, in certain circumstances,
acquiring additional real estate. There can be no assurance as to whether, when
or on what terms such financing, permits, licenses and real estate may be
obtained. Upon the closing of the Offering, the Company will not have the
financing available to complete all of its planned real estate development as
set forth in "Business--Real Estate Development." In addition, such efforts
entail risks associated with development and construction activities, including
cost overruns, shortages of materials or skilled labor, labor disputes,
unforeseen environmental or engineering problems, work stoppages, and natural
disasters, any of which could delay construction and result in a substantial
increase in cost to the Company. Moreover, the Company's construction activities
typically are performed by third-party contractors, the timing, quality and
completion of which cannot be controlled by the Company. Nevertheless, claims
may be asserted against the Company for construction defects and such claims may
give rise to liability. There can also be no assurance that the Company will
achieve any additional revenues from such projects. See "--Substantial Leverage
and Financial Risks," "Business-- Real Estate Development" and "--Government
Regulation."
CONCENTRATION IN INTERVAL OWNERSHIP INDUSTRY
Because a material portion of the Company's real estate development business
is conducted within the interval ownership industry, any adverse changes
affecting the interval ownership industry such as an oversupply of interval
ownership units, a reduction in demand for interval ownership units, changes in
travel and vacation patterns, changes in governmental regulations relating to
the interval ownership
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industry and increases in construction costs or taxes could have a material
adverse effect on the Company's operations. The Company enters into sales
contracts for its quartershare interval ownership units prior to completion of
construction. Although such contracts require a 5% deposit, there can be no
assurance that any or all purchasers will consummate the purchase of units under
contract and the failure by a large number of purchasers to complete such
purchases could have a material adverse effect on the Company's operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
REGULATION OF MARKETING AND SALES OF QUARTERSHARES; OTHER LAWS
The Company's marketing and sales of Grand Summit Hotel quartershares and
other operations are subject to extensive regulation by the federal government
and the states in which the resorts are located and in which Grand Summit Hotel
intervals are marketed and sold. On a federal level, the Federal Trade
Commission Act prohibits unfair or deceptive acts or competition in interstate
commerce. Other federal legislation to which the Company is or may be subject
includes the Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Interstate Land Sales Full Disclosure Act, the Real Estate Settlement Practices
Act and the Fair Housing Act. In addition, many states have adopted specific
laws and regulations regarding the sale of interval ownership programs. For
example, certain state laws grant the purchaser the right to cancel a contract
of purchase within a specified period following the earlier of the date the
contract was signed or the date the purchaser has received the last of the
documents required to be provided by the Company. No assurance can be given that
the cost of qualifying under interval ownership regulations in all jurisdictions
in which the Company desires to conduct sales will not be significant. The
Company believes that it is in compliance with all material federal, state and
local laws and regulations. The failure to comply with such laws or regulations
could have a material adverse effect on the Company.
POTENTIAL REGULATION OF QUARTERSHARES AS SECURITIES
There can be no assurance that the Company's quartershare interval ownership
units will not be considered "securities" under federal law or the state law in
the states where the Company desires to or does conduct sales or in which its
properties are located. If such interests were considered securities, the
Company would be required to comply with applicable state and federal securities
laws, including laws pertaining to registration or qualification of securities,
licensing of salespeople and other matters. There can be no assurance that the
Company will be able to comply with the applicable state and federal securities
requirements, and if the Company's quartershare interval interests are deemed to
be securities, such a determination may create liabilities or contingencies that
could have an adverse effect on the Company's operations including possible
recission rights relating to the units which have been sold, which, if
exercised, could result in losses to the Company.
GROWTH THROUGH RESORT EXPANSION
A key element of the Company's strategy is to attract additional skiers
through investment in on-mountain capital improvements. Such investments are
capital intensive and, to the extent that the Company is unable to finance such
capital expenditures from internally generated cash or otherwise, the Company's
results of operations would be adversely affected. In addition, there can be no
assurance that the Company's investment in on-mountain capital improvements will
attract additional skiers and/or generate additional revenues. See
"--Substantial Leverage and Financial Risks," "--Capital Requirements" and
"Business--Operating Strategy."
IMMEDIATE AND SUBSTANTIAL DEBT OBLIGATIONS UPON CONSUMMATION OF THE OFFERING
If the Consent Solicitation is not successfully consummated, consummation of
the Offering will trigger a Change of Control under the 12% Note Indenture which
will require ASC East to make a Change of Control Offer. See "The
Transactions--The Consent Solicitation." In the event any or all holders of 12%
Notes tender their 12% Notes for repurchase by ASC East, ASC East would be
required to obtain additional financing in an amount of up to $125 million to
fund the repurchase of the 12% Notes. There can be no assurance that ASC East
would be able to obtain the necessary financing on terms acceptable to it or at
all and the failure to obtain such financing could have a material adverse
effect on ASC East and
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the Company. Consummation of the Offering will also trigger the acceleration of
approximately $11.9 million of other indebtedness of the Company, which
indebtedness will be repaid with the proceeds of the Offering. See "Use of
Proceeds" and "Description of Certain Indebtedness." In addition, to the extent
the Preferred Exchange Offer is not consummated, the Company will be required to
offer to purchase the Canyons Securities. See "The Exchange Offers."
DEPENDENCE ON HIGHLY LEVERAGED AND RESTRICTED SUBSIDIARIES
The Company is a holding company and its ability to pay principal and
interest on the New Credit Facility and its other debt is dependent upon the
receipt of dividends and other distributions, or the payment of principal and
interest on intercompany borrowings from its subsidiaries. The Company does not
have, and may not in the future have, any assets other than the common stock of
ASC East and its other direct and indirect subsidiaries, including subsidiaries
acquired in connection with the Acquisition. ASC East and its subsidiaries are
parties to the 12% Note Indenture, which imposes substantial restrictions on ASC
East's ability to pay dividends and other distributions to the Company until the
earlier of the maturity of the 12% Notes in 2006 or the redemption thereof
pursuant to the terms of the 12% Note Indenture. In addition, Grand Summit
Resort Properties, Inc., a subsidiary of ASC East, is restricted in its ability
to pay dividends and other distributions to ASC East under the terms of the
construction financing facility for its Grand Summit Hotel projects. The
Company's other subsidiaries may become restricted in their ability to pay
dividends and other distributions to the Company in the future. In addition, the
breach of any of the conditions or provisions under the documents governing the
indebtedness of the Company's subsidiaries could result in a default thereunder
and, in the event of any such default, the holders of such indebtedness could
elect to accelerate the maturity thereof. If the maturity of any such
indebtedness were to be accelerated, such indebtedness would be required to be
paid in full before such subsidiary would be permitted to distribute any assets
or cash to the Company. There can be no assurance that the assets of ASC East or
any of the Company's other subsidiaries would be sufficient to repay all of its
outstanding debt or that the assets of the Company would be sufficient to repay
all of its outstanding debt. In addition, state law further restricts the
payment of dividends or other distributions to the Company by its subsidiaries.
SEASONALITY; FLUCTUATIONS IN OPERATING RESULTS; DEPENDENCE ON WEATHER CONDITIONS
Ski and resort operations are highly seasonal. Over the last five fiscal
years, the Company realized an average of approximately 86% of its resort
revenues and over 100% of Resort EBITDA and net income during the period from
November through April and a significant portion of resort revenues (and
approximately 23% of annual skier visits) was generated during the Christmas and
Presidents' Day vacation weeks. In addition, the Company's resorts typically
experience operating losses and negative cash flows for the period from May to
October. During the six-month period from May to October 1996, for example, the
Company had operating losses aggregating $15.1 million and negative cash flow
from operations aggregating $0.6 million. The Acquired Resorts have historically
experienced similar seasonality. There can be no assurance that the Company will
be able to finance its capital requirements from external sources during this
period. See "--Substantial Leverage and Financial Risks," "--Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The high degree of seasonality of revenues increases the impact of adverse
events on operating results including, without limitation, adverse weather
conditions, access route closures, equipment failures, and other developments of
even moderate or limited duration occurring during its peak revenue periods.
Adverse weather conditions may lead to increased power and other operating costs
associated with snowmaking and could render snowmaking wholly or partially
ineffective in maintaining quality skiing conditions. It has been the Company's
experience that unfavorable weather conditions in more highly populated areas,
regardless of actual skiing conditions, can result in decreased skier visits.
Prolonged adverse weather conditions, or the occurrence of such conditions
during key periods of the ski season, can adversely affect operating results.
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PURCHASE PRICE ALLOCATION FOR THE ACQUISITION
Under the purchase accounting method, the total purchase price for the
Acquisition will be allocated to the assets and liabilities of the Acquired
Resorts on the basis of their relative fair values and pursuant to certain
appraisals of such assets and liabilities which the Company expects to complete
prior to the end of fiscal 1998. The Company's preliminary allocation of the
Acquisition purchase price resulted in an excess of purchase price over the fair
value of the net tangible assets acquired, which was allocated to various
identifiable intangible assets and goodwill. The Company believes that its final
allocation (and related amortization periods) will not differ materially from
its preliminary allocation. No assurance can be given, however, that the actual
allocation of the Acquisition purchase price and the resulting effect on
operating income will not differ materially from the Company's preliminary
allocation as discussed under "Pro Forma Financial Data."
COMPETITION
The skiing industry is highly competitive and capital intensive. The
Company's competitors include other major ski resorts throughout the United
States, Canada and Europe. The Company's competitors also include other
worldwide recreation resorts, including warm weather resorts and various
alternative leisure activities. The competitive position of the Company's
resorts is dependent upon numerous factors, such as proximity to population
centers, availability and cost of transportation to and within a resort, natural
snowfall, snowmaking quality and coverage, resort size, attractiveness of
terrain, lift ticket prices, prevailing weather conditions, appeal of related
services, quality and availability of lodging facilities, duration of the ski
season and resort reputation. In addition, some of the Company's competitors
have greater financial resources than the Company which could adversely affect
the Company's competitive position and relative ability to withstand adverse
developments. There can be no assurance that its competitors will not be
successful in capturing a portion of the Company's present or potential customer
base. See "Business--Competition."
REGIONAL AND NATIONAL ECONOMIC CONDITIONS
The skiing and real estate development industries are cyclical in nature and
are particularly vulnerable to shifts in regional and national economic
conditions. In particular, a significant portion of the Company's current skier
visits are generated from customers that reside in the New England states which
experienced a significant economic downturn beginning in 1988. Although data
indicate that the New England economy has recovered significantly, there can be
no assurance that improvement will continue or that stagnation or declines in
skier visits or revenues will not occur. Skiing and vacation unit ownership are
discretionary recreational activities entailing relatively high costs of
participation, and any decline in the regional economies where the Company is
operating, or deterioration in national economic conditions, could adversely
impact skier visits, real estate sales and revenues. Accordingly, the Company's
financial condition, particularly in light of its highly leveraged condition,
could be adversely affected by a worsening in the regional or national economy.
See "--Substantial Leverage and Financial Risks" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ENVIRONMENTAL AND LAND USE MATTERS
The Company is subject to a wide variety of federal, state and local laws
and regulations relating to land use and development and to environmental
compliance and permitting obligations (including those related to the use,
storage, discharge, emission and disposal of hazardous materials and hazardous
and nonhazardous wastes). Failure to comply with such laws could result in the
need for capital expenditures and/or the imposition of severe penalties or
restrictions on operations that could adversely affect present and future resort
operations and real estate development. In addition, such laws and regulations
could change in a manner that materially and adversely affects the Company's
ability to conduct its business or to implement desired expansions and
improvements to its facilities. See "Business--Government Regulation."
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LEASED PROPERTY AND FOREST SERVICE PERMITS
Significant portions of the land underlying certain of the Company's ski
resorts are leased or subleased by the Company or used pursuant to renewable
permits or licenses. If any such lease, sublease, permit or license were to be
terminated or not renewed upon expiration, or renewed on terms materially less
favorable to the Company, the Company's ability to possess and use the land
subject thereto and any improvements thereon would be materially adversely
affected. A substantial portion of the land constituting skiable terrain at
Attitash Bear Peak, Sugarbush, Mount Snow/Haystack, Steamboat and Heavenly is
located on federal land that is used under the terms of the permits with the
United States Forest Service (the "Forest Service"). Generally, under the terms
of such permits, the Forest Service has the right to review and comment on the
location, design and construction of improvements in the permit area and on many
operational matters. The permits can also be terminated or modified by the
Forest Service to serve the public interest. A termination or modification of
any of the Company's permits could have a material adverse effect on the results
of operations of the Company. The Company believes termination or modification
of the Forest Service permits is not likely. See "Business--Leased Properties."
ADEQUACY OF WATER SUPPLY
The Company's current operations and anticipated growth are heavily
dependent upon its ability, under applicable federal, state and local laws,
regulations, permits, and/or licenses or contractual arrangements, to have
access to adequate supplies of water with which to make snow and otherwise to
conduct its operations. There can be no assurance that applicable laws and
regulations will not change in a manner that could have an adverse effect, or
that important permits, licenses or agreements will be renewed, not cancelled,
or, if renewed, renewed on terms no less favorable to the Company. The failure
of the Company to have access to adequate water supplies to support its current
operations and anticipated expansion would have a material adverse effect on the
Company. See "Business--Government Regulation."
POTENTIAL ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation contain, among other things,
provisions authorizing the issuance of "blank check" preferred stock, 10 1/2%
Convertible Preferred Stock with rights to elect two directors upon the
occurence of certain events and two classes of common stock. The Company is also
subject to the provisions of Section 611-A of the Maine Business Corporation Act
(the "MBCA"). See "Description of Capital Stock." These provisions could delay,
deter or prevent a merger, consolidation, tender offer or other business
combination or change of control involving the Company that some or a majority
of the Company's shareholders might consider to be in their best interests or
that might otherwise result in such shareholders receiving a premium over the
market price for the Common Stock.
CONTROL OF THE COMPANY BY PRINCIPAL SHAREHOLDER
The Company's common stock is divided into two classes. Leslie B. Otten, the
Company's principal shareholder, owns 100% of the Class A Common Stock, and,
therefore, has the power to elect two-thirds of the Board of Directors of the
Company, which allows for the maintenance of control of the Company by Mr. Otten
with respect to all matters requiring approval of the Board of Directors. In
addition, upon consummation of the Offering, Mr. Otten is expected to own shares
of Common Stock and Class A Common Stock representing at least a majority of all
outstanding shares of Common Stock and Class A Common Stock and, accordingly, is
expected to be able to determine the outcome of all matters submitted to a vote
of the shareholders of the Company, except for matters requiring (i) the vote of
a higher percentage of the voting power than that held by Mr. Otten or (ii) the
vote of the shareholders voting as a separate class under state law or the
Company's Articles of Incorporation and Bylaws. See "Description of Capital
Stock--Common Stock."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the performance
and continued service of Mr. Otten, as well as several other key management and
operational personnel. The loss of the services of Mr. Otten or of such other
personnel could have a material adverse effect on the business and operations of
the Company. Other than Warren C. Cook and Christopher E. Howard, Mr. Otten and
the
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other key members of management are not subject to employment agreements with
the Company or any of its subsidiaries. The Company maintains key person life
insurance on Mr. Otten in the amount of $14.0 million, the proceeds of which are
expected to be assigned to the lenders under the New Credit Facility. See
"Management."
STOCK OPTIONS-COMPENSATION CHARGE
In the first quarter of fiscal 1998, the Company granted to certain
executive officers and other employees fully vested options to purchase 622,038
shares of Common Stock at an exercise price of $2.00 per share. The Company also
agreed to pay certain tax liabilities which the recipients of the options expect
to incur upon exercise of the options. Because the $2.00 per share exercise
price was below the fair market value of a share of Common Stock on the date of
grant, the Company will recognize a one-time compensation charge of
approximately $13.9 million in the first quarter of 1998, based on the estimated
Public Offering price of $18.50 per share. Such charge is a one-time charge and
will be reflected in the Company's operating results for the first quarter of
1998 and for the 1998 fiscal year. As a result of the charge the Company's net
loss or net income for such periods, if any, will be increased or decreased, as
the case may be, by the full amount of such charge.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Transactions, the Company will have outstanding
18,097,578 shares of Common Stock (excluding all shares issuable upon the
exercise of options which are exercisable at a price per share equal to the
Public Offering price and additional shares issuable upon conversion of the
Company's 10 1/2% Convertible Preferred Stock as a result of the accrual of
cumulative dividends thereon, and assuming no exercise of the Underwriters'
over-allotment option and no conversion of the Class A Common Stock into Common
Stock) and 14,760,530 shares of Class A Common Stock. All of the shares of
Common Stock sold in the Public Offering will be freely tradeable under the
Securities Act unless purchased by "affiliates" of the Company as that term is
defined under the Securities Act. Upon the expiration of the lock-up agreements
discussed below and exercise of all options granted under the Stock Option Plan,
4,585,753 shares of Common Stock and 14,760,530 shares of Class A Common Stock
will become eligible for sale, subject to compliance with Rule 144 of the
Securities Act. Pursuant to the lock-up agreements, the Company, certain
shareholders and the executive officers and directors of the Company have agreed
with the Underwriters, until 180 days after the consummation of the Offering (or
90 days with respect to shares purchased by the Principal Shareholder in the
Concurrent Offering), not to directly or indirectly offer, pledge, sell,
contract to sell, sell any option or contract to purchase or grant any option,
right or warrant to purchase or otherwise transfer or dispose of any Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or enter into any swap or other arrangement that transfers all or
a portion of the economic consequences associated with the ownership of the
Common Stock, or cause a registration statement covering any shares of Common
Stock to be filed, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), subject to certain exceptions,
including pursuant to a foreclosure by a lender on a loan to the Principal
Shareholder for which shares of Class A Common Stock and/or Common Stock will be
pledged as collateral. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will have
on the market price of the Common Stock. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise additional capital through an offering of its
equity securities. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the New York Stock
Exchange (subject to notice of issuance), there can be no assurance that an
active public market for the Common Stock will develop or continue after the
Offering. Prices for the Common Stock will be determined in the marketplace and
may be influenced by many factors, including variations in the financial results
of the Company, changes in earnings estimates by industry research analysts,
investors' perceptions of the Company and general economic, industry and
24
<PAGE>
market conditions. The initial public offering price per share of the Common
Stock will be determined by negotiations among the Company and the
representatives of the Underwriters and may not be indicative of the price at
which the Common Stock will trade after completion of the Offering. See
"Underwriting." The Company believes that there are relatively few comparable
companies that have publicly-traded equity securities which may also impact the
trading price of the Common Stock after the Offering. In addition, the stock
market has from time to time experienced extreme price and volume volatility and
such volatility may adversely affect the market price of the Common Stock. The
market price of the Common Stock could be subject to significant fluctuations in
response to the Company's operating results and other factors, and there can be
no assurance that the market price of the Common Stock will not decline below
the initial public offering price.
DIVIDENDS
The Company currently intends to retain earnings, if any, to support its
operating strategy and does not anticipate paying cash dividends on its Common
Stock or Class A Common Stock in the foreseeable future. In addition, the New
Credit Facility and the 10 1/2% Convertible Preferred Stock are expected to
contain restrictions on the ability of the Company to pay cash dividends on its
Common Stock and Class A Common Stock. See "Dividend Policy" and "Description of
Certain Indebtedness--The New Credit Facility."
DILUTION
Purchasers of Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value of the Common Stock. See
"Dilution."
25
<PAGE>
CONCURRENT OFFERING
A portion of the 14,750,000 shares of Common Stock offered hereby are being
offered by the Company directly to the Principal Shareholder at the price to the
public set forth on the cover page of this Prospectus. The Principal Shareholder
has advised the Company that he intends to purchase a number of shares of Common
Stock in the Concurrent Offering sufficient to maintain ownership of at least a
majority of the outstanding Common Stock and Class A Common Stock. Assuming that
the Underwriters' over-allotment option is not exercised and assuming a price to
the public of $18.50 per share, the midpoint of the range set forth on the cover
page of this Prospectus, approximately 810,811 shares of Common Stock are
expected to be sold to the Principal Shareholder in the Concurrent Offering at
an aggregate purchase price of approximately $15 million. The Company has agreed
to pay certain expenses in connection with the Concurrent Offering, expected to
be approximately $0.9 million.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock pursuant to the Offering are expected to be approximately $250.9 million,
assuming an initial public offering price of $18.50 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. The net proceeds, together with borrowings of approximately $137
million under the New Credit Facility, will be used (i) to fund the Acquisition
price of approximately $290 million, (ii) to repay all outstanding borrowings
under the Existing Credit Facility, estimated to be approximately $60 million,
(iii) to make an investment in ASC East of approximately $27.7 million, the
proceeds of which will be used to fund the redemption of all outstanding
Discount Notes, (iv) to repay up to $12 million of indebtedness of the Company
and its subsidiaries, (v) to pay certain fees and expenses relating to the
Transactions and (vi) for general corporate purposes and capital expenditures.
The Existing Credit Facility bears interest at a rate of LIBOR plus 1.5% to 2.5%
per annum and matures on December 31, 2001. The Discount Notes bear interest at
a rate of 13.75% per annum and mature on January 15, 2007. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Description of Certain Indebtedness."
DIVIDEND POLICY
Since the Formation, the Company has not declared or paid any cash dividends
on its capital stock. The Company currently intends to retain earnings, if any,
to support its capital improvement and growth strategies and does not anticipate
paying cash dividends on its Common Stock or Class A Common Stock in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for capital improvements and expansion. The
New Credit Facility and the 10 1/2% Convertible Preferred Stock are expected to
contain certain restrictions on the ability of the Company to pay any cash
dividends on its Common Stock or ClassA Common Stock. The 12% Note Indenture
contains certain restrictive covenants that, among other things, limit the
payment of dividends or the making of distributions on equity interests of ASC
East. See "Risk Factors--Dependence on Highly Leveraged and Restricted
Subsidiaries," "--Dividends" and "Description of Certain Indebtedness."
26
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of Common Stock.
At July 27, 1997, the deficit in the net tangible book value of the Company was
approximately $3.7 million, or $0.25 per share of Common Stock and Class A
Common Stock. The deficit in net tangible book value per share is equal to the
Company's total tangible assets less total liabilities, divided by the number of
shares of Common Stock and Class A Common Stock outstanding at July 27, 1997
(after giving effect to the Stock Split). After giving effect to the sale of
14,750,000 shares at an assumed initial Public Offering price of $18.50 per
share (the midpoint of the range shown on the cover page of this Prospectus) and
after deducting underwriting discounts and commissions, the pro forma net
tangible book value of the Company at July 27, 1997 would have been
approximately $247.2 million, or $8.38 per share. This represents an immediate
increase in pro forma net tangible book value of $8.63 per share to existing
shareholders and an immediate dilution of $10.12 per share to new investors
purchasing shares of Common Stock in the Public Offering. Dilution to new
investors is determined by subtracting pro forma net tangible book value per
share of Common Stock and Class A Common Stock after giving effect to the Public
Offering, from the price to be paid by new investors in the Public Offering for
a share of Common Stock. The following table illustrates the per share dilution
to investors in the Public Offering:
<TABLE>
<CAPTION>
PER SHARE
----------------------
<S> <C> <C>
Assumed Public Offering price............................................ $ 18.50
Net tangible book value as of July 27, 1997.............................. $ (0.25)
Increase attributable to new investors in the Public Offering............ 8.63
---------
Pro forma net tangible book value........................................ 8.38
-----------
Dilution to new investors in the Public Offering(1)(2)................... $ 10.12
-----------
-----------
</TABLE>
- ------------------------
(1) Does not give effect to the exercise of all fully vested options granted to
certain employees at an exercise price less than the initial Public Offering
price. Exercise of such options would result in further dilution to new
investors in the Public Offering. If all such options eligible for exercise
were exercised at July 27, 1997, dilution to the new investors in the Public
Offering would be $10.26 per share.
(2) Does not give effect to the shares of Common Stock that would be issued in
the ASC East Exchange Offer. Exchange of such shares would result in further
dilution to new investors in the Public Offering. If all such ASC East
shares were exchanged for 615,022 shares of Common Stock, dilution to the
new investors in the Public Offering would be $10.42 per share.
The following table summarizes on a pro forma basis as of July 27, 1997,
after giving effect to the Offering, the number of shares of Common Stock and
Class A Common Stock purchased from the Company, the total consideration paid to
the Company and the average consideration paid per share by the existing
shareholders and by the new investors in the Public Offering and the Concurrent
Offering (at an assumed initial Public Offering price of $18.50 per share):
<TABLE>
<CAPTION>
COMMON STOCK AND
CLASS A
COMMON STOCK
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- -------------
Existing shareholders..................... 14,760,530 49.0% $ 2,796,000(1) 1.0% $ 0.19
Investors in ASC East Exchange Offer...... 615,022 2.0 976,000 0.4 1.59
Investors in the Public Offering.......... 13,939,189 46.3 257,875,000 93.2 18.50
Investor in the Concurrent Offering....... 810,811 2.7 15,000,000 5.4 18.50
------------- ----- -------------- ----- ------
Total................................... 30,125,552 100.0% $ 276,647,000 100.0% $ 9.18
------------- ----- -------------- ----- ------
------------- ----- -------------- ----- ------
</TABLE>
- ------------------------
(1) Reflects investments in the Company by the Principal Shareholder between
1980 and 1997.
27
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at July 27,
1997 on an actual basis and on a pro forma basis after giving effect to the
Transactions (assuming an initial Public Offering price of $18.50 per share),
after deducting underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements and the Unaudited Pro Forma Combined
Financial Data and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JULY 27, 1997
----------------------
<S> <C> <C>
ACTUAL(1) PRO FORMA
--------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash................................................................................................ $ 15,558 $ 33,031
--------- ---------
--------- ---------
Short-term debt, including current portion of long-term debt........................................ $ 39,748 $ 14,681
Long-term debt:
Existing Credit Facility, excluding current portion............................................... 30,000 --
New Credit Facility (2)........................................................................... -- 131,801
12% Notes (net of unamortized discount of $3,322)................................................. 116,678 116,678
Discount Notes.................................................................................... 22,121 --
Other long-term debt, excluding current portion................................................... 27,783 20,542
--------- ---------
Total long-term debt, including current portion............................................... 236,330 283,702
--------- ---------
Series A Exchangeable Preferred Stock, $1,000 par value per share; 200,000 shares authorized; 17,500
shares issued and outstanding; net of unaccreted issuance costs and including accretion of
discount and cumulative dividends in arrears (redemption value of $18,537)........................ 16,821 --
10 1/2% Convertible Preferred Stock (3)............................................................. -- 36,848
--------- ---------
Shareholders' equity:
Common Stock, $.01 par value per share; 1,000,000 shares authorized, no shares issued and
outstanding (actual); 100,000,000 shares authorized, 15,365,022 shares issued and outstanding
(pro forma) (4)................................................................................. -- 154
Class A Common Stock, $.01 par value per share; 15,000,000 shares authorized, 14,760,530 shares
outstanding (actual); 15,000,000 shares authorized, 14,760,530 shares outstanding (pro forma)... 10 148
Additional paid in capital........................................................................ 2,786 275,011
Retained earnings................................................................................. 12,305 (20,664)
--------- ---------
Total shareholders' equity.................................................................... 15,101 254,649
--------- ---------
Total capitalization.......................................................................... $ 268,252 $575,199
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Does not include $17.5 million in principal amount of Exchangeable Notes
issued on July 28, 1997 in connection with the financing of The Canyons
acquisition, which securities are expected to be converted into 10 1/2%
Convertible Preferred Stock upon consummation of the Offering, or other
indebtedness incurred subsequent to July 27, 1997. The creation of Class A
Common Stock and the Stock Split has been given retroactive effect as if
such occurred as of the balance sheet date. See Consolidated Financial
Statements and the Notes thereto.
(2) Total commitments under the New Credit Facility will be $215 million. See
"Description of Certain Indebtedness--New Credit Facility."
(3) The 10 1/2% Convertible Preferred Stock will be subject to mandatory
redemption in 2002 if not previously converted into Common Stock. See
"Description of Capital Stock--10 1/2% Convertible Preferred Stock."
(4) Does not include (i) 2,110,518 shares issuable upon conversion of the
10 1/2% Convertible Preferred Stock and (ii) 2,475,235 shares issuable upon
the exercise of outstanding stock options.
28
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Pro Forma Financial
Data") is derived from the historical financial statements of the Company and
the Acquired Resorts, in each case included elsewhere in this Prospectus. The
Pro Forma Financial Data and accompanying notes should be read in conjunction
with the historical financial statements and the notes thereto included
elsewhere in this Prospectus.
The unaudited pro forma combined balance sheet data as of July 27, 1997
gives effect to the Transactions as if they had occurred on such date. The
unaudited pro forma combined statement of operations data for the year ended
July 27, 1997 gives effect to the Transactions as if they had occurred on July
29, 1996. The unaudited pro forma combined balance sheet data for the Acquired
Resorts is as of May 31, 1997; the unaudited pro forma combined statement of
operations data of the Acquired Resorts is for the year ended May 31, 1997.
The Pro Forma Financial Data is not intended to be indicative of either
future results of operations or results that might have been achieved had the
Transactions actually occurred on the dates specified. In the opinion of the
Company's management, all adjustments necessary to present fairly the Pro Forma
Financial Data have been made based upon the terms and structure of each of the
Transactions noted above. The following information should be read in
conjunction with "Selected Historical Consolidated Financial Data of the
Company," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements of the Company and the
Acquired Resorts and the notes thereto included elsewhere in this Prospectus.
Management expects to realize annual cost reductions following the
Transactions that have not been identified at this time and that are not
reflected in the Pro Forma Financial Data. These reductions are expected to
result largely from decreases in discretionary costs and savings from purchasing
efficiencies. There can be no assurance, however, that any such cost reductions
will be realized.
29
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA
AS OF JULY 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
THE ACQUIRED FORMA TRANSACTIONS PRO FORMA
COMPANY RESORTS COMBINED ADJUSTMENTS AS ADJUSTED
-------- -------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 15,558 $ 15,654 $31,212 $ 1,819( e,f) $ 33,031
Restricted cash................................... 2,812 -- 2,812 -- 2,812
Accounts receivable, net.......................... 3,801 575 4,376 -- 4,376
Inventory and supplies............................ 7,282 3,321 10,603 -- 10,603
Prepaid expenses and other current assets......... 3,339 743 4,082 (246)(f) 3,836
Real estate developed for sale.................... 537 -- 537 -- 537
-------- -------- ------- --------- ------------
Total current assets.......................... 33,329 20,293 53,622 1,573 55,195
Property and equipment, net....................... 252,346 92,632 344,978 65,996(g) 410,974
Land held for development and sale................ -- 27,382 27,382 7,700(h) 35,082
Assets held for sale.............................. -- -- -- 4,500(i) 4,500
Real estate developed for sale.................... 23,003 -- 23,003 -- 23,003
Other assets, net................................. 17,998 7,110 25,108 (1,285) b,f) 23,823
Goodwill and other intangibles, net............... 10,664 2,027 12,691 88,669(j) 101,360
-------- -------- ------- --------- ------------
Total assets.................................. $337,340 $149,444 $486,784 $167,153 $ 653,937
-------- -------- ------- --------- ------------
-------- -------- ------- --------- ------------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Line of credit and current portion
of long-term debt............................... $ 39,748 $ 5,054 $44,802 $(30,121) f,b) $ 14,681
Accounts payable and other current liabilities.... 25,738 7,828 33,566 3,648(m) 37,214
Accrued interest.................................. -- 1,204 1,204 (1,204)(f) --
Demand note, shareholder.......................... 1,933 -- 1,933 -- 1,933
Deposits and deferred revenue..................... 4,379 -- 4,379 -- 4,379
-------- -------- ------- --------- ------------
Total current liabilities..................... 71,798 14,086 85,884 (27,677) 58,207
Deferred income taxes............................. 28,514 -- 28,514 -- 28,514
Indebtedness of Kamori............................ -- 130,359 130,359 (130,359)(f) --
Other long-term debt.............................. 46,833 -- 46,833 (37,286) n,c) 9,547
New Credit Facility............................... -- -- -- 131,801(b) 131,801
Subordinated notes and debentures................. 149,749 -- 149,749 (22,076)(b) 127,673
Other long-term liabilities....................... 7,898 -- 7,898 (1,200) b,d) 6,698
Minority interest in subsidiary................... 626 -- 626 (626)(k) --
-------- -------- ------- --------- ------------
Total long-term liabilities................... 233,620 130,359 363,979 (59,746) 304,233
Mandatorily redeemable preferred stock............ 16,821 -- 16,821 (16,821)(n) --
10 1/2% Convertible Preferred Stock............... -- -- -- 36,848(n) 36,848
Shareholders' Equity
Common and Class A Common Stock................... 10 -- 10 292(s) 302
Additional paid-in capital........................ 2,786 44,400 47,186 227,825( m,s) 275,011
Retained earnings................................. 12,305 (39,401) (27,096) 6,432( k,m) (20,664)
-------- -------- ------- --------- ------------
Total shareholders' equity.................... 15,101 4,999 20,100 234,549 254,649
-------- -------- ------- --------- ------------
Total liabilities, mandatorily redeemable
preferred stock and shareholders' equity.... $337,340 $149,444 $486,784 $167,153 $ 653,937
-------- -------- ------- --------- ------------
-------- -------- ------- --------- ------------
</TABLE>
30
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
JULY 27,
BALANCE SHEET ACCOUNT NOTE ADJUSTMENT 1997
- --------------------------------------------- ----- --------------------------------------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents.................... a Gross proceeds from the Offering $ 272,875
b Proceeds from the New Credit Facility 131,801
b Retirement of the Existing Credit Facility (55,067)
c Issuance of Exchangeable Notes 17,474
d Purchase price of Acquired Resorts (287,365)
b Prepayment of Discount Notes (22,076)
b Prepayment penalty pertaining to Discount
Notes (3,036)
e Underwriting discounts and other Offering
expenses (22,000)
b Repayment of indebtedness accelerated upon
change of control (11,858)
b Payment of commitment fee pertaining to the
New Credit Facility (3,275)
f Cash excluded from the Acquired Resorts (15,654)
------------
Net adjustment to cash and cash equivalents 1,819
------------
Prepaid expenses and other current assets.... f Receivable from parent excluded from the
Acquired Resorts (246)
------------
Property and equipment, net.................. g Allocation of purchase price pertaining to
the Acquired Resorts 65,996
------------
Land held for development and sale........... h Allocation of purchase price pertaining to
the Acquired Resorts 7,700
------------
Assets held for sale......................... i Reclassification of assets held for sale from
property and equipment 4,500
------------
Other assets, net............................ c Fees on Exchangeable Notes 26
b Prepayment of Discount Notes (1,081)
b Retirement of Existing Credit Facility (1,290)
b Capitalized financing costs on New Credit
Facility 3,275
f Other assets excluded from the acquisition of
the Acquired Resorts (2,215)
------------
Net adjustment to other assets (1,285)
Goodwill and other intangibles, net.......... j Allocation of purchase price pertaining to
the Acquired Resorts 88,669
------------
Net effect on total assets............... $ 167,153
------------
------------
</TABLE>
31
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
JULY 27,
BALANCE SHEET ACCOUNT NOTE ADJUSTMENT 1997
- --------------------------------------------- ----- --------------------------------------------- ------------
<S> <C> <C> <C>
Line of credit and current portion of
long-term debt............................. f Current debt excluded in the Acquisition $ (5,054)
b Retirement of Exisiting Credit Facility (25,067)
------------
(30,121)
------------
Accounts payable and other current
liabilities................................ m Accrual for tax liability relating to grant
of stock options 3,648
------------
Accrued interest............................. f Acquired Resorts liability not assumed (1,204)
------------
Net effect on total current liabilities.... (27,677)
------------
------------
Indebtedness of Kamori....................... f Acquired Resorts long-term debt not assumed (130,359)
------------
Other long-term debt......................... b Retirement of Existing Credit Facility (30,000)
c Issuance of Exchangeable Notes 17,500
b Retirement Sugarbush acquisition debt (7,286)
n Conversion of Exchangeable Notes (17,500)
------------
Net adjustments to other long-term debt (37,286)
------------
New Credit Facility.......................... b Proceeds from the New Credit Facility 131,801
------------
Subordinated notes and debentures............ b Prepayment of Discount Notes (22,076)
------------
Other long-term liabilities.................. d Contingency consideration pertaining to
acquisition 3,000
b Retirement of Canyons acquisition debt (4,200)
------------
Net adjustments to other long-term
liabilities (1,200)
------------
Minority interest in subsidiary.............. k ASC East Exchange Offer (626)
------------
Net effect on total long-term
liabilities................................ (59,746)
------------
------------
Mandatorily redeemable preferred stock....... n Exchange of Series A Exchangeable Preferred
Stock for 10 1/2% Convertible Preferred Stock (16,821)
------------
10 1/2% Convertible Preferred Stock.......... n Exchange of Canyons Securities for 10 1/2%
Convertible Preferred Stock 36,848
------------
Common and Class A Common Stock.............. s Adjustment to par value pertaining to Stock
Split in Class A Common Stock 138
s Increase in issued and outstanding Common
Stock pertaining to Offering and ASC East
Exchange Offer 154
------------
Net effect on Common and Class A Common
Stock...................................... 292
------------
------------
Additional paid-in capital................... a Gross proceeds from the issuance of Common
Stock 272,875
e Payment of costs pertaining to the Offering (22,000)
f Elimination of Acquired Resorts shareholders'
Common Stock (44,400)
k ASC East Exchange Offer 11,378
m Effect of stock compensation award on
additional paid-in capital 10,264
s Reflect Stock Split in Class A Common Stock (138)
s Reflect increase in issued and outstanding
Common Stock pertaining to Offering and ASC
East Exchange Offer (154)
------------
Net effect on additional paid-in capital... 227,825
------------
------------
Retained earnings............................ f Remove accumulated deficit of Acquired
Resorts 39,401
n Exchange of mandatorily redeemable preferred
stock (2,526)
b Retirement of Sugarbush acquisition debt (371)
b Prepayment penalty on Discount Notes (3,036)
b Write-off of prepaid loan fees (1,081)
b Retirement of the Existing Credit Facility (1,290)
k ASC East Exchange Offer (10,752)
m Effect of stock compensation award on
retained earnings (13,913)
------------
Net effect on retained earnings............ $ 6,432
------------
------------
</TABLE>
32
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA FOR THE YEAR ENDED
JULY 27, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED FISCAL YEAR ENDED
JULY 27, 1997 MAY 31, 1997 RESULTS OF
---------------- ----------------- OPERATIONS TRANSACTIONS PRO FORMA
THE COMPANY ACQUIRED RESORTS TO BE SOLD ADJUSTMENTS AS ADJUSTED
---------------- ----------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Resort........................ $ 166,923 $ 86,474 $ -- $ -- $ 253,397
Real estate................... 8,468 -- -- -- 8,468
Other......................... -- 2,592 (2,592) -- --
---------------- ------- ------------- ------------- ------------------
Total revenues............ 175,391 89,066 (2,592) -- 261,865
Operating expenses:
Cost of resort operations..... 109,774 51,079 (2,088) (1,021)(q) 157,744
Cost of real estate sold...... 6,813 -- -- -- 6,813
Writedown of assets........... -- 2,000 (2,000) -- --
Marketing, general and
administrative.............. 26,126 17,238 (500) (3,400)(p) 39,464
Depreciation and
amortization................ 18,293 12,516 (265) 5,449(b ,r) 35,993
---------------- ------- ------------- ------------- ------------------
Total operating
expenses................ 161,006 82,833 (4,853) 1,028 240,014
---------------- ------- ------------- ------------- ------------------
Income from operations.......... 14,385 6,233 2,261 (1,028) 21,851
Other income and expenses:
Interest income............... -- (682) -- 682(f) --
Interest expense.............. 23,730 10,659 (332) (6,730)( ,q) 27,327
---------------- ------- ------------- ------------- ------------------
Income (loss) before taxes...... (9,345) (3,744) 2,593 5,020 (5,476)
Provision (benefit) for income
taxes......................... (3,613) (338) -- 1,651(f) (2,300)
---------------- ------- ------------- ------------- ------------------
Net income (loss) before
minority interest in loss of
subsidiary.................... (5,732) (3,406) 2,593 3,369 (3,176)
---------------- ------- ------------- ------------- ------------------
Minority interest in loss of
subsidiary.................... (250) -- -- 250(k) --
---------------- ------- ------------- ------------- ------------------
Net income (loss) after minority
interest in loss of
subsidiary.................... (5,482) (3,406) 2,593 3,119 (3,176)
---------------- ------- ------------- ------------- ------------------
Accretion of discount and
issuance costs and dividends
accrued on mandatorily
redeemable preferred stock.... 444 -- -- 1,605(n) 2,049
---------------- ------- ------------- ------------- ------------------
Net income (loss) available to
common shareholders........... $ (5,926) $ (3,406) $ 2,593 $ 1,514 $ (5,225)
---------------- ------- ------------- ------------- ------------------
---------------- ------- ------------- ------------- ------------------
Net loss per weighted average
common shares outstanding..... $ (0.38) $ (0.17)(t)
---------------- ------------------
---------------- ------------------
Weighted average number of
common shares outstanding
(000s)........................ 15,416 30,781
---------------- ------------------
---------------- ------------------
</TABLE>
33
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
STATEMENT OF OPERATIONS ITEM NOTE ADJUSTMENT JULY 27, 1997
- ------------------------------------------------ ----- ---------------------------------------------- ---------------
<S> <C> <C> <C>
Cost of resort operations....................... q Expected insurance savings (325)
q Capitalization of equipment costs (350)
q Purchase of operating leases (346)
---------------
(1,021)
Marketing, general and
administrative................................ p Elimination of Kamori management fees (3,400)
---------------
Depreciation and amortization................... j Amortization of goodwill and other intangibles
of Acquired Resorts 3,900
b Amortization of the New Credit Facility
commitment fee 409
r Remove depreciation and amortization of
acquired assets (12,251)
r Depreciation related to assets of Acquired
Resorts 13,219
b Amortization of deferred financing costs
relating to the Existing Credit Facility (322)
b Amortization of deferred financing costs
relating to Discount Notes (119)
q Reclassification of capital expenditures by
Acquired Resorts 350
q Purchase of operating leases 263
---------------
5,449
Interest income................................. f Remove interest income from Acquired Resorts 682
---------------
Interest expense................................ q Interest on Discount Notes (2,890)
f Interest on Kamori long-term debt (10,326)
o Interest on incremental borrowings under the
New Credit Facility 5,482
n Additional accretion on 10 1/2% Convertible
Preferred Stock 921
q Interest expense from additional capital
leases 83
---------------
(6,730)
---------------
Provision (benefit) for income taxes.......... l Tax effect of pro forma adjustments 1,651
---------------
Effect on net loss.............................. 3,369
---------------
Minority interest in loss of subsidiary......... k ASC East Exchange Offer 250
---------------
Accretion of discount and issuance costs and
dividends accrued on mandatorily redeemable
preferred stock............................. n Full accretion of discount and issuance costs
pertaining to mandatorily redeemable
preferred stock 1,605
---------------
Net loss available to common
shareholders................................ $ 1,514
---------------
---------------
</TABLE>
34
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
GENERAL
The Acquisition will result in the assets of the Acquired Resorts being
written up to reflect the purchase price. The purchase price of the Acquired
Resorts will be calculated as the sum of (i) cash paid to the current
Acquired Resorts shareholder, (ii) the fair value of any liabilities of the
Acquired Resorts assumed, and (iii) the transaction costs incurred by the
Company. The deposit of $11 million for the purchase of the Acquired Resorts
is not included in the historical accounts since the event occurred after
the Company's fiscal 1997 year end and is not reflected in the pro forma
adjustments because it is included as part of the purchase price. The
Acquisition will be treated as a purchase for financial reporting purposes.
Preliminary analyses indicate that there will be a portion of the purchase
price allocated to goodwill and other intangibles. The Acquisition will be
funded from the proceeds of the Offering and borrowings under the New Credit
Facility.
Pro forma adjustments have been made to depreciate the assets acquired over
their estimated useful lives and to amortize goodwill and other intangibles
over estimated useful lives ranging from 10 to 40 years. The actual
depreciation and amortization charges recorded subsequent to the Acquisition
may differ when the final purchase price is computed as of the closing date
and an actual allocation of the purchase price to the underlying assets
acquired is completed. Only after the final purchase price has been
allocated and the estimated remaining useful lives are determined by
management will the actual depreciation and amortization charges associated
with the assets of the Acquired Resorts become available. These charges
could ultimately be higher than what has been reflected in the unaudited pro
forma combined statement of operations. The Company has not yet received the
results of appraisals and other valuation studies which are in process, nor
has it made a final determination of the useful lives of the assets
acquired. Accordingly, the allocation of the excess of purchase cost over
the fair value of the assets acquired to identifiable intangibles and
goodwill may differ from that reflected herein. The actual allocation of
purchase cost and the resulting effect on operating income may differ
significantly from the pro forma amounts below. No deferred taxes have been
provided on the step-up in the basis of the assets acquired because a
338(h)(10) election under the Internal Revenue Code of 1986 was made and,
therefore, the assets acquired are also written up to fair value for tax
purposes. The Company expects to finalize purchase accounting for the
Acquisition by the end of fiscal 1998.
(a) The gross proceeds to be received by the Company from the sale of Common
Stock pursuant to the Offering are expected to be approximately $272,875,
assuming an initial public offering price of $18.50 per share.
(b) A portion of the initial borrowings under the New Credit Facility will be
used to retire the Existing Credit Facility. In connection with the
retirement of the Existing Credit Facility, certain prepaid loan fees
related to such facility amounting to $1,290 will be written off and charged
to expense when incurred. These nonrecurring charges are not included in the
unaudited pro forma combined statement of operations but have been reflected
in retained earnings in the unaudited pro forma combined balance sheet data.
Upon closing of the New Credit Facility, the Company will pay $3,275 as a
commitment fee to the lender. The commitment fee will be amortized to
expense over the term of the credit facility. The unaudited pro forma
combined statement of operations reflects $409 of commitment fee
amortization related to the New Credit Facility for the year ended July 27,
1997. The amortization of the Existing Credit Facility's prepaid loan fees
of $322 for the year ended July 27, 1997 has been removed.
A portion of the proceeds of the Offering will be used to retire the
outstanding principal balance of Discount Notes and a prepayment premium of
$3,036 as of July 27, 1997 related to such prepayment. In connection with
the retirement of the Discount Notes, certain prepaid loan fees associated
with
35
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
such debt in the amount of $1,081 will be written off and charged to expense
when incurred. The prepayment penalty and the write-off of the prepaid loan
fees represent nonrecurring charges and, therefore, are not included in the
unaudited pro forma combined statement of operations. Such amounts have been
charged against retained earnings in the unaudited pro forma combined
balance sheet data.
The amortization of the prepaid loan fees for the Discount Notes total $119
for the year ended July 27, 1997 and has been removed from the Pro Forma
Financial Data.
Two notes associated with the acquisition of Sugarbush become due based on a
change in control. The amount of these notes is approximately $7,700.
The following table details the anticipated initial advances on the New
Credit Facility:
<TABLE>
<S> <C>
Retirement of Existing Credit Facility, current portion........... 25,067
Retirement of Existing Credit Facility, long term portion......... 30,000
Closing fees on New Credit Facility............................... 3,275
Payment of Wolf Mountain (The Canyons) acquisition note required
by the Offering................................................. 4,200
Payment of Sugarbush acquisition notes required by change of
control......................................................... 7,657
Amount required in addition to the Offering to purchase Acquired
Resorts......................................................... 61,602
---------
$ 131,801
---------
---------
</TABLE>
(c) The Company issued $17,500 in 14% Senior Exchangeable Notes due 2002 in a
private offering to an institutional investor on July 28, 1997. The Company
incurred various fees totaling $26, resulting in net proceeds of $17,474.
(d) The following table sets forth the purchase price of the Acquired Resorts:
<TABLE>
<S> <C>
Stated Purchase Price............................................. $ 290,000
Net working capital adjustment.................................... (3,435)
Estimated transaction costs....................................... 800
Liability established for contingencies........................... 3,000
---------
$ 290,365
---------
---------
</TABLE>
(e) The Company estimates that total costs associated with the Offering will be
approximately $22,000.
(f) Certain assets and liabilities including all cash and funded debt of the
Acquired Resorts are being excluded in the Acquisition and are therefore
eliminated in the pro forma balance sheet data.
(g) Fixed assets were adjusted to their estimated fair market value pursuant to
purchase accounting. These estimates are based on preliminary purchase price
allocations which are subject to final allocations pursuant to appraisals.
(h) Adjusts real estate held for development and sale to estimated fair value
pursuant to purchase accounting. These are estimated based on preliminary
purchase price allocations which are subject to final allocations pursuant
to appraisals.
(i) Management has determined that the golf course assets and a personal
residence to be purchased from the Acquired Resorts will be sold. These
assets are presented at their estimated net realizable value and are
classified as assets held for sale in the accompanying unaudited pro forma
combined balance sheet data. The results of operations of the golf course
operations have been eliminated in the unaudited pro forma combined
statement of operations data.
36
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
(j) Various intangible assets were recorded based on their fair value and
goodwill was recorded as part of purchase accounting. These are estimates
based on preliminary purchase price allocations which are subject to final
allocations pursuant to appraisals.
The following table lists the purchase price that was allocated to intangible
assets:
<TABLE>
<CAPTION>
ANNUAL
USEFUL LIFE AMORTIZATION
--------------- -------------
<S> <C> <C> <C>
Tradenames.............................................. $ 22,000 30 $ 733
Software................................................ 5,000 10 500
Customers............................................... 15,000 10 1,500
Goodwill................................................ 46,669 40 1,167
--------- ------
Total............................................... $ 88,669 $ 3,900
--------- ------
--------- ------
</TABLE>
(k) The Company currently owns 96% of the outstanding common stock of ASC East.
Concurrently with the Offering the Company intends to offer to exchange
Common Stock for all minority interests owned in ASC East. The pro forma
financial data assumes all minority owners exchange their shares. The amount
of $626 represents the elimination of the minority interest.
The fair market value of the minority interest at an assumed initial Public
Offering price of $18.50 a share is $10.8 million. This entire amount is
recorded to common stock with the difference between the book value of the
minority interest and the fair market value of the shares exchanged being a
reduction to additional retained earnings.
(l) All adjustments to the unaudited pro forma combined statement of operations
data have been tax-effected using the expected effective tax rate of 42%.
(m) The Company has adopted a stock option plan for senior and other management
of the Company. The senior management group will receive, prior to the date
of the Acquisition and the Offering, deeply discounted options with a $2.00
exercise price. The estimated compensation expense related to the vested
portion of the discounted options is $13,912, which has not been reflected
as a pro forma adjustment to the unaudited pro forma combined statement of
operations data because the granting of discounted options is a one-time
occurrence, and all future options granted by the Company are expected to
have an exercise price equal to the fair market value of the underlying
shares as of the date the option is expected to be granted. The effect of
the Stock Option Plan has been recorded as an adjustment to the unaudited
pro forma combined balance sheet data.
(n) In July 1997, ASC Utah, a subsidiary of the Company, acquired The Canyons.
Prior to such acquisition, Leslie B. Otten, who formerly held 96% of the
outstanding common stock of ASC East, transferred all his shares of common
stock of ASC East to the Company. The effects of such transactions are
reflected in the Company's financial statements as of and for the year ended
July 27, 1997.
Concurrently with or as soon as practicable after the Offering, the Company
intends to conduct the ASC East Exchange Offer. If all such holders elect to
exchange their shares of ASC East common stock for Common Stock, the Company
will issue 615,022 shares of Common Stock in the ASC East Exchange Offer,
representing approximately 1.8% of all shares of Common Stock and Class A
Common Stock outstanding immediately following the Offering. Consummation of
the ASC East Exchange Offer is conditioned upon such holders entering into
lock-up agreements for a period of 180 days following the consummation of
the Offering.
Pursuant to the terms of the Securities Purchase Agreement, the Company
intends to conduct the Preferred Exchange Offer, and is expected to exchange
the Canyons Securities for shares of the
37
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
Company's 10 1/2% Convertible Preferred Stock, which is convertible into an
aggregate of 2,110,518 shares of Common Stock at a 5% discount to the
initial public offering price, representing 6.5% of the Common Stock and
Class A Common Stock outstanding after giving effect to the Offering. The
effects of such discount are accounted for in the Pro Forma Financial Data.
The unaudited pro forma combined balance sheet data includes a charge to
retained earnings of $2,526 which represents the recording of the discount
of $921 pertaining to the debt securities and $1,605 which represents the
accretion of the discount and the issuance costs pertaining to the preferred
stock securities. The $921 has been reflected in the unaudited pro forma
combined statement of operations data as a charge to interest expense, while
the $1,605 has been reflected in the unaudited pro forma combined statement
of operations data as accretion of discount and issuance costs. The Pro
Forma Financial Data assumes that the Preferred Exchange Offer will occur.
If the holders of the Canyons Securities do not elect to exchange such
securities for 10 1/2% Convertible Preferred Stock or Common Stock,
consummation of the Offering will trigger a Change of Control (as defined)
under the Securities Purchase Agreement. In such event the Securities
Purchase Agreement would require that the Company offer to purchase the
Canyons Securities for cash at a redemption price of 105.3% of the principal
amount outstanding or the amount of the liquidation preference on the date
of redemption (approximately $37,092 at September 30, 1997). See
"Description of Certain Indebtedness--Exchangeable Notes" and "Description
of Capital Stock--Series A Exchangeable Preferred Stock" and "--10 1/2%
Convertible Preferred Stock".
Related to the purchase of The Canyons, ASC Utah entered into a long-term
lease of the real estate constituting the resort. The results of operations
of Wolf have not been reflected in the pro forma statements of operations
due to the immateriality of the activity. See "Description of The Canyons"
on the inside back cover page.
(o) Gives pro forma effect to the incremental interest expense related to the
New Credit Facility. Under the New Credit Facility, interest will be payable
(at the Company's option) at either the Alternate Base Rate or LIBOR plus
the Applicable Margin (as such terms are defined in the New Credit Facility)
determined quarterly through April 1998 and annually thereafter. The pro
forma calculation of interest expense in the accompanying pro forma
financial statements assumes the use of LIBOR plus the Applicable Margin,
which results in an effective interest rate of 8.45%. A 1/8% increase in the
assumed blended rate would increase pro forma interest expense by
approximately $165. Included in the accompanying pro forma financial data is
interest expense from the New Credit Facility of $5,482 for the year ended
July 27, 1997. The incremental interest expense is based on a net increase
in borrowings of $64,876. See "Description of Certain Indebtedness--The New
Credit Facility."
Historical interest expense related to the Discount Notes of $2,890 for the
year ended July 27, 1997 has been eliminated in the pro forma statement of
operations.
(p) The pro forma adjustment reflects the elimination of reimbursements paid to
the parent company of the Acquired Resorts for the guarantee of the Acquired
Resorts' debt obligations by the parent. These costs would not have been
incurred had the Acquired Resorts been subsidiaries of the Company for the
year ended July 27, 1997 nor will such payments be required by the Acquired
Resorts prospectively.
(q) Management has specifically identified certain costs which will be
eliminated in connection with the Acquisition. Insurance expense will be
reduced by $325 based on preliminary quotes received from the Company's
current insurance provider.
The Acquired Resorts have classified expenditures related to rental
equipment purchases and uniform purchases as operating expenses, which will
be capitalized and depreciated to be consistent with the Company's
historical treatment.
38
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
The Acquired Resorts have historically used several operating leases for
grooming equipment. New equipment will be purchased and depreciated over the
useful life of the equipment.
(r) Total purchase price allocated to Acquired Resorts is $158,628. An estimated
average useful life of these assets is estimated to be 12 years. Estimated
annual depreciation is $13,219. The depreciation previously recorded on the
Acquired Resorts has been eliminated.
(s) The unaudited pro forma combined financial data gives effect to the
anticipated issuance of 14,750,000 shares in the Offering and to the
anticipated issuance of 615,022 shares to the holders of the minority
interest pursuant to the ASC East Exchange Offer. In connection with the
anticipated issuance of these shares, par value has been increased by and
additional paid-in capital has been decreased by $154 to reflect the $.01
per share par value for the total Common Stock shares outstanding of
15,365,022. In addition, the unaudited pro forma combined financial data
gives effect to the adjustment of the par value pertaining to the
outstanding Class A Common Stock shares of 14,760,530. In connection with
the stock split of the Class A shares, an adjustment has been made in the
unaudited pro forma combined financial data to increase par value and
decrease additional paid-in capital by $138 to reflect total par value $.01
per share of $148.
(t) Pro forma net loss per weighted average common share outstanding was
calculated by dividing the pro forma net loss available to common
shareholders by the weighted average number of common shares outstanding,
giving effect to the stock split, the 622,038 options (the "Options")
granted to certain executive officers of the Company with an exercise price
below the estimated offering share price, the 615,022 shares expected to be
issued in the ASC East Exchange Offer, the conversion of the Canyons
Securities, and the 14,750,000 shares to be issued in the Offering. The net
loss available to common shareholders does not reflect the compensation
charge of $13,913 that the Company will record in fiscal 1998 pertaining to
the grant of the Options and the related income tax gross-up payable by the
Company. The weighted average number of common shares outstanding relating
to the Options and the Canyons Securities were determined by including all
potentially dilutive instruments granted or issued within one year prior to
the Offering, through the effective date of the Offering, at an exercise
price less than the initial public offering price, in accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 83, with
the dilutive effect measured using the treasury stock method. The weighted
average number of shares outstanding for the minority interest shares and
offering shares were considered to have been outstanding since the beginning
of the year. The primary and fully diluted calculations of pro forma net
loss per weighted average common share outstanding are the same, as
inclusion of all other potentially dilutive instruments in the pro forma
loss per share calculation would be anti-dilutive.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL INFORMATION
GENERAL
Since 1994, the Company's growth has been substantially as a result of
acquisitions. The Company acquired Attitash Bear Peak in 1994, Sugarbush in
1995, the S-K-I Ltd. resorts (Killington, Sugarloaf and Mount Snow/Haystack) in
1996 and The Canyons (formerly Wolf Mountain) in 1997. In August 1997, the
Company agreed to acquire the Steamboat and Heavenly ski resorts. The operations
of S-K-I Ltd. are only included in the Company's historical financial statements
for one month of fiscal 1996; accordingly, the Company believes that a
comparison of the pro forma results of operations for fiscal 1996 and fiscal
1997 is more meaningful to investors than a comparison of the actual results of
operations for the same period.
The following table sets forth the pro forma results of operations of the
Company as if the acquisitions of S-K-I Ltd. and the Acquired Resorts and all
related transactions had taken place at the beginning of fiscal 1996.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FISCAL 1996 FISCAL 1997
--------------------- ---------------------
% OF % OF
$ REVENUE $ REVENUE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Resort.................................................. $ 241,996 95.3% $ 253,397 96.8%
Real Estate............................................. 11,877 4.7 8,468 3.2
---------- --------- ---------- ---------
Total revenues...................................... 253,873 100.0 261,865 100.0
Operating Expenses:
Cost of resort operations............................... 151,595 59.7 157,744 60.2
Cost of real estate sold................................ 6,273 2.5 6,813 2.6
Marketing, general and administrative................... 37,302 14.7 39,464 15.1
Depreciation and amortization........................... 34,207 13.5 35,993 13.7
---------- --------- ---------- ---------
Total operating expenses............................ 229,377 90.4 240,014 91.7
---------- ----------
Income from operations.................................... 24,496 9.6 21,851 8.3
Commitment fee............................................ 1,447 .6 -- --
Interest expense.......................................... 26,002 10.2 27,327 10.4
Provision (benefit) for income taxes...................... (344) (.1) (2,300) (.9)
---------- --------- ---------- ---------
Net loss.................................................. $ (2,609) (1.0)% $ (3,176) (1.2)%
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
PRO FORMA FISCAL YEAR ENDED JULY 27, 1997 VS. PRO FORMA FISCAL YEAR ENDED JULY
28, 1996
Pro forma total revenues in fiscal 1997 were $261.9 million, an increase of
$8.0 million, or 3.2%, as compared to pro forma total revenues of $253.9 million
in fiscal 1996. Pro forma resort revenues in fiscal 1997 were $253.4 million, an
increase of $11.4 million, or 4.7%, as compared to pro forma resort revenues of
$242.0 million in fiscal 1996. The increase in pro forma resort revenues was due
primarily to a 1.5% increase in aggregate skier visits (to approximately 4.8
million from approximately 4.7 million) and a 3.2% increase in average resort
revenues per skier visit.
The pro forma resort revenues in fiscal 1997 of the Company's northeastern
resorts were $166.9 million, an increase of $5.2 million, or 3.2%, as compared
to pro forma resort revenues of $161.7 million in fiscal 1996. This increase was
due primarily to a 0.3% increase in skier visits and a 3.0% increase in resort
revenues per skier visit. The increase in resort revenues per skier visit was
attributable to increased ticket prices and yield management and increases in
non-ticket revenues per skier visit, offset, in part, by
40
<PAGE>
increased promotional activity. Notwithstanding an industry-wide 10.6% decrease
in skier visits in the Northeast, skier visits at the Company's Northeastern
resorts declined by only 1.4% on a same-resort basis and were further helped by
the November 1996 acquisition of Pico Mountain.
The pro forma resort revenues in fiscal 1997 of the Acquired Resorts were
$86.5 million, an increase of $6.2 million, or 7.7%, as compared to pro forma
resort revenues of $80.3 million in fiscal 1996. This increase was due primarily
to an 8.8% increase in skier visits at the Steamboat resort, offset, in part, by
a 3.1% decrease in skier visits at the Heavenly resort. Skier visits at Heavenly
were adversely impacted by the closure of U.S. Route 50, a major access road to
the resort, during the 1996-97 ski season for 45 days in December and January.
Changes in revenues per skier visit were immaterial during these periods at the
Acquired Resorts.
Pro forma real estate revenues in fiscal 1997 were $8.5 million, a decrease
of $3.4 million, or 28.6%, as compared to pro forma real estate revenues of
$11.9 million in fiscal 1996. This decrease was due primarily to the sell-out of
all available quartershare units at the Company's Sunday River quartershare
hotel in the fourth quarter of fiscal 1996, with no additional quartershare
units being available for sale until the Company's quartershare hotel at
Attitash Bear Peak was completed in the third quarter of fiscal 1997. During the
last four months of fiscal 1997, the Company closed $5.0 million in quartershare
unit sales at Attitash Bear Peak, and the Acquired Resorts had $1.9 million of
real estate revenues from the sale of miscellaneous undeveloped parcels of land.
Pro forma cost of resort operations in fiscal 1997 was $157.7 million, an
increase of $6.1 million, or 4.0%, as compared to pro forma cost of resort
operations of $151.6 million in fiscal 1996. The increase of 0.5% as a
percentage of revenue was primarily from increased snowmaking activity
necessitated by the adverse weather conditions in the Northeast during the
1996-97 ski season.
Pro forma cost of real estate sold in fiscal 1997 was $6.8 million, an
increase of $0.5 million, or 7.9%, as compared to pro forma cost of real estate
sold of $6.3 million in fiscal 1996. This increase was due primarily to
approximately $1.0 million of development costs expensed in fiscal 1997 relating
to projects that are currently under development and, consequently, did not
generate revenues.
Pro forma marketing, general and administrative expense in fiscal 1997 was
$39.5 million, an increase of $2.2 million, or 5.9%, as compared to pro forma
marketing, general and administrative expense of $37.3 million in fiscal 1996.
As a percentage of resort revenues, marketing, general and administrative
expense increased from 14.7% in fiscal 1996 to 15.1% in fiscal 1997. This
increase was due primarily to increased marketing activities at the Company's
resorts in the Northeast following the S-K-I Ltd. acquisition. In the first
quarter of fiscal 1998, the Company granted to certain executive officers and
other employees fully vested options to purchase 622,038 shares of Common Stock
at an exercise price of $2.00 per share. The Company also agreed to pay certain
tax liabilities which the recipients of the options expect to incur upon
exercise of the options. Because the $2.00 per share exercise price was below
the fair market value of a share of Common Stock on the date of grant, the
Company will recognize a one-time compensation charge of approximately $13.9
million in the first quarter of fiscal 1998. Such charge has not been reflected
in pro forma marketing, general and administrative expense in fiscal 1997 or
fiscal 1996. See "Pro Forma Financial Data."
Pro forma depreciation and amortization in fiscal 1997 was $36.0 million, an
increase of $1.8 million, or 5.3%, as compared to pro forma depreciation and
amortization of $34.2 million in fiscal 1996. This increase was due to the
extensive capital programs during the summer of 1996 and the depreciation
associated with these capital improvements.
Pro forma interest expense in fiscal 1997 was $27.3 million, an increase of
$1.2 million, or 4.6%, as compared to pro forma interest expense of $26.1 in
fiscal 1996. This increase was due primarily to expenditures related to capital
improvements.
41
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF THE COMPANY
THE COMPANY
The following selected historical financial data of the Company (except
other data) (i) as of and for the fiscal years ended July 30, 1995, July 28,
1996 and July 27, 1997 have been derived from the financial statements of the
Company audited by Price Waterhouse LLP, independent accountants and (ii) as of
and for each of the fiscal years ended July 25, 1993 and July 31, 1994 have been
derived from the financial statements of the Company audited by Berry, Dunn,
McNeil & Parker, independent accountants.
<TABLE>
<CAPTION>
HISTORICAL YEAR ENDED (1)
---------------------------------------------------------
JULY 25, JULY 31, JULY 30, JULY 28, JULY 27,
1993 1994 1995 1996 1997
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SKIER VISIT AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Resort........................................................... $ 23,645 $ 26,544 $ 46,794 $ 63,489 $ 166,923
Real estate...................................................... 6,103 6,682 7,953 9,933 8,468
----------- ----------- --------- --------- ---------
Total net revenues............................................. 29,748 33,226 54,747 73,422 175,391
----------- ----------- --------- --------- ---------
Operating expenses:
Resort........................................................... 14,705 15,787 29,725 41,799 109,774
Real estate...................................................... 3,245 3,179 3,994 5,844 6,813
Marketing, general and administrative(2)......................... 4,718 5,940 9,394 11,289 26,126
Depreciation and amortization.................................... 1,984 2,421 3,910 6,783 18,293
----------- ----------- --------- --------- ---------
Total operating expenses....................................... 24,652 27,327 47,023 65,715 161,006
----------- ----------- --------- --------- ---------
Income from operations............................................. 5,096 5,899 7,724 7,707 14,385
Other expenses:
Commitment fee................................................... -- -- -- 1,447 --
Interest expense................................................. 849 1,026 2,205 4,699 23,730
----------- ----------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes, minority
interest in loss of subsidiary and extraordinary gain from
insurance claim.................................................. 4,247 4,873 5,519 1,561 (9,345)
Provision (benefit) for income taxes............................... -- -- 400 3,906 (3,613)
Minority interest in loss of subsidiary............................ -- -- -- 108 250
----------- ----------- --------- --------- ---------
Income (loss) before extraordinary gain from insurance claim....... 4,247 4,873 5,119 (2,237) (5,482)
Extraordinary gain from insurance claim............................ 1,592 -- -- -- --
----------- ----------- --------- --------- ---------
Net income (loss).................................................. $ 5,839 $ 4,873 $ 5,119 $ (2,237) $ (5,482)
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
OTHER DATA:
Resort:
Skier visits (000s)(3)........................................... 525 528 1,060 1,290 3,025
Season pass holders (000s)....................................... 3.2 3.7 11.2 13.2 30.9
Resort revenues per skier visit.................................. $ 45.04 $ 50.26 $ 44.14 $ 49.20 $ 55.18
Resort EBITDA(4)(5).............................................. $ 4,222 $ 4,817 $ 7,675 $ 10,401 $ 31,023
Real estate:
Number of units sold............................................. 173 155 163 177 123
Number of units pre-sold(6)...................................... -- -- -- 109 605
Real Estate EBIT(5)(7)........................................... $ 2,858 $ 3,503 $ 3,959 $ 4,089 $ 1,655
STATEMENT OF CASH FLOWS DATA:
Cash flows from operations....................................... $ 2,667 $ 5,483 $ 12,593 $ 7,465 $ 7,344
Cash flows from investing activities............................. (4,432) (9,041) (13,843) (122,583) (14,626)
Cash flows from financing activities............................. 1,559 3,764 2,399 116,941 19,655
BALANCE SHEET DATA:
Total assets..................................................... $ 39,850 $ 51,784 $ 72,434 $ 298,732 $ 337,340
Long term debt, including current portion........................ 35,056 210,720 236,330
Mandatorily redeemable preferred stock........................... -- -- -- -- 16,821
Common shareholders' equity...................................... 23,167 26,212 30,502 21,903 15,101
</TABLE>
42
<PAGE>
- ------------------------
(1) The historical results of the Company reflect the results of operations of
the Attitash Bear Peak ski resort since its acquisition in July 1994, the
results of operations of the Sugarbush ski resort since October 1994, the
results of operations of the Mt. Cranmore ski resort from its acquisition in
June 1995 through its divestiture in November 1996, the results of
operations of S-K-I Ltd. since its acquisition in June 1996 and the results
of operations of Pico Mountain since its acquisition in November 1996.
(2) In the first quarter of fiscal 1998, the Company granted to certain
executive officers and other employees fully vested options to purchase
622,038 shares of Common Stock at an exercise price of $2.00 per share. The
Company also agreed to pay certain tax liabilities which the recipients of
the options expect to incur upon exercise of the options. Because the $2.00
per share exercise price was below the fair market value of a share of
Common Stock on the date of grant, the Company will recognize a one-time
compensation charge of approximately $13.9 million in the first quarter of
fiscal 1998.
(3) For the purposes of estimating skier visits, the Company assumes that a
season pass holder visits the Company's resorts a number of times that
approximates the average cost of a season pass divided by the average daily
lift ticket price.
(4) Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense.
(5) Resort EBITDA and Real Estate EBIT are not measurements calculated in
accordance with GAAP and should not be considered as alternatives to
operating or net income as an indicator of operating performance, cash flows
as a measure of liquidity or any other GAAP determined measurement. Certain
items excluded from Resort EBITDA and/or Real Estate EBIT, such as
depreciation, amortization and non-cash charges for stock compensation
awards and asset impairments are significant components in understanding and
assessing the Company's financial performance. Other companies may define
Resort EBITDA and Real Estate EBIT differently, and as a result, such
measures may not be comparable to the Company's Resort EBITDA and Real
Estate EBIT. The Company has included information concerning Resort EBITDA
and Real Estate EBIT because management believes they are indicative
measures of the Company's liquidity and financial position, and are
generally used by investors to evaluate companies in the resort industry.
(6) Pre-sold units represent quartershare and other residential units for which
the Company has a binding sales contract, subject to certain closing
conditions, and has received a 5% down payment on the unit from the
purchaser. Recognition of the revenue from such pre-sales is deferred until
the period in which such sales are closed.
(7) Real Estate EBIT represents revenues from real estate sales less cost of
real estate sold, including selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating to
property sold.
43
<PAGE>
SELECTED COMBINED FINANCIAL DATA
OF THE ACQUIRED RESORTS
<TABLE>
<CAPTION>
FISCAL
QUARTER
FISCAL YEAR ENDED
ENDED MAY 31, AUGUST 31,
--------------------------------------------------------------- -----------
1993 1994 1995 1996 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SKIER AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Ski operations.................................. $ 65,181 $ 62,700 $ 67,843 $ 64,967 $ 67,423 $ 1,440
Retail, ski rental and other.................... 18,229 19,334 20,724 19,765 21,643 3,960
----------- ----------- ----------- ----------- ----------- -----------
Total revenues.............................. 83,410 82,034 88,567 84,732 89,066 5,400
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Ski operations.................................. 32,590 33,543 34,682 34,033 36,712 3,959
Retail, ski rental and other.................... 12,188 13,017 14,033 13,341 14,427 3,493
Marketing, general, administrative and
other(2)...................................... 15,703 14,778 17,075 16,585 17,178 3,281
Writedown of assets(3).......................... -- -- -- -- 2,000 --
Depreciation and amortization................... 14,481 14,544 14,643 14,477 12,516 3,156
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 74,962 75,882 80,433 78,436 82,833 13,889
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)........................... $ 8,448 $ 6,152 $ 8,134 $ 6,296 $ 6,233 $ (8,489)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net loss.......................................... $ (3,906) $ (5,254) $ (3,906) $ (4,538) $ (3,406) $ (10,921)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
OPERATING DATA:(4)
Skier visits (000s)(4)............................ 1,867 1,750 1,858 1,732 1,796 --
Season pass holders (000s)(4)..................... 5.7 6.6 6.9 7.0 7.5 --
Total revenues per skier visit(4)................. $ 43.22 $ 45.23 $ 45.49 $ 47.46 $ 47.48 --
EBITDA(1)(2)(3)(4)................................ $ 25,929 $ 23,596 $ 26,078 $ 24,074 $ 24,150 --
Capital expenditures.............................. $ 11,998 $ 3,382 $ 6,925 $ 5,864 $ 5,344 $ 1,288
BALANCE SHEET DATA:
Total assets...................................... $ 188,513 $ 174,325 $ 166,610 $ 159,067 $ 149,444 $ 154,919
Long-term debt.................................... 160,910 153,675 147,185 142,146 135,413 136,769
Total shareholders' equity (deficit).............. 18,603 13,349 9,443 8,405 4,999 (2,516)
<CAPTION>
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Ski operations.................................. $ 1,778
Retail, ski rental and other.................... 3,157
-----------
Total revenues.............................. 4,935
-----------
Operating expenses:
Ski operations.................................. 4,247
Retail, ski rental and other.................... 2,828
Marketing, general, administrative and
other(2)...................................... 3,091
Writedown of assets(3).......................... --
Depreciation and amortization................... 2,491
-----------
Total operating expenses.................... 12,657
-----------
Operating income (loss)........................... $ (7,722)
-----------
-----------
Net loss.......................................... $ (10,206)
-----------
-----------
OPERATING DATA:(4)
Skier visits (000s)(4)............................ --
Season pass holders (000s)(4)..................... --
Total revenues per skier visit(4)................. --
EBITDA(1)(2)(3)(4)................................ --
Capital expenditures.............................. $ 2,241
BALANCE SHEET DATA:
Total assets...................................... $ 147,611
Long-term debt.................................... 131,508
Total shareholders' equity (deficit).............. (5,209)
</TABLE>
- ------------------------
(1) The statement of operations data include the results of Sabal Point Golf
Course in Orlando, Florida which the Company intends to sell following the
closing of the Acquisition. In fiscal 1997, the Sabal Point Golf Course
generated approximately $1.3 million in revenues. In the fiscal quarter
ended August 31, 1997, the Sabal Point Golf Course generated approximately
$0.5 million in revenues.
(2) The Acquired Resorts have historically reimbursed Kamori for certain
administrative services provided. Such reimbursements totalled approximately
$3.0 million, $2.9 million, $3.3 million, $3.3 million and $3.4 million,
respectively, for each of the years ended May 31, 1993 through May 31, 1997.
For each of the first fiscal quarters ended August 31, 1996 and August 31,
1997, such reimbursement to Kamori totalled approximately $0.5 million and
$0.5 million, respectively. Such amounts are included in marketing, general
and administrative expense in the accompanying selected combined financial
information, but have been excluded for purposes of calculating EBITDA
because such expenses will not be incurred by the Acquired Resorts following
the closing of the Acquisition.
(3) In 1997, the Acquired Resorts recorded a $2.0 million impairment loss
related to land, buildings and equipment of its golf resort to properly
state these fixed assets at estimated fair values. Such loss is excluded in
the calculation of EBITDA.
(4) Due to the seasonality of the business, skier visits, season pass holders,
total revenues per skier visit and EBITDA are not presented for the fiscal
quarters ended August 31, 1996 and August 31, 1997 because such data is not
meaningful to an understanding of the quarterly financial information.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS AND THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
GENERAL
The discussion and analysis below relates to (i) the historical financial
statements and results of operations of the Company, (ii) the historical
financial statements and results of operations of the Acquired Resorts and (iii)
the liquidity and capital resources of the Company after giving effect to the
consummation of the Transactions. The Company was formed in June 1997 pursuant
to the Formation. The historical financial statements of the Company for all
periods ending prior to the Formation are the financial statements of ASC East.
For periods ending subsequent to the Formation, the financial statements of the
Company include the accounts of ASC East and the Company's other operations. The
following discussion should be read in conjunction with the financial statements
and the notes thereto contained elsewhere in this Prospectus.
The Company has, over the past several years, undertaken a strategy to
differentiate its resorts from the competition by enhancing the quality and
scope of on-mountain facilities and services, including (i) improving lifts,
trail design, snowmaking, grooming and base facilities, (ii) increasing the
on-mountain bed base and (iii) marketing these facilities and services
aggressively, while maintaining ownership of all revenue sources connected with
the resorts, including retail sales, food and beverage concessions, lodging and
real estate development. This strategy has been coupled in the last three years
with growth through acquisitions, as reflected in the acquisitions of the
Attitash Bear Peak and Sugarbush resorts in 1994, the S-K-I Ltd. resorts in 1996
and the Steamboat and Heavenly ski resorts expected to be consummated in
November 1997, and subsequent or proposed capital expenditures at those resorts.
See "Business-- Existing Resorts" and "--Acquired Resorts." These efforts have
resulted in significant growth both in revenues and profitability.
Historically, both the Company and the Acquired Resorts have generated the
vast majority of their revenues in the second and third quarters of their
respective fiscal years, of which a significant portion is produced in two key
weeks--the Christmas and Presidents' Day vacation weeks (during which
approximately 23% of annual skier visits are generated). During the first and
fourth fiscal quarters, the Company and the Acquired Resorts experience
substantial reductions in utility expense due to the absence of snowmaking and
lift operation, while making significant expenditures for off-season
maintenance, expansion and capital improvement activities in preparation for the
ensuing ski season.
45
<PAGE>
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth, for the periods indicated, certain operating
data of the Company as a percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
<S> <C> <C> <C>
JULY JULY JULY
30, 28, 27,
1995 1996 1997
------- ------ ------
Revenues:
Resort.................................................................. 85.5% 86.5% 95.2%
Real estate............................................................. 14.5 13.5 4.8
------- ------ ------
Total revenues........................................................ 100.0 100.0 100.0
------- ------ ------
Operating expenses:
Cost of operations including wages, maintenance and supplies............ 54.3 56.9 62.6
Cost of real estate sold................................................ 7.3 8.0 3.9
Marketing, general and administrative................................... 17.2 15.4 14.9
Depreciation and amortization........................................... 7.1 9.2 10.4
------- ------ ------
Total operating expenses.............................................. 85.9 89.5 91.8
------- ------ ------
Income from operations.................................................... 14.1 10.5 8.2
Commitment fee............................................................ -- 2.0 --
Interest expense.......................................................... 4.0 6.4 13.5
------- ------ ------
Income (loss) before provision for income taxes and minority interest in
loss of subsidiary...................................................... 10.1 2.1 (5.3)
Provision (benefit) for income taxes...................................... 0.7 5.3 (2.1)
------- ------ ------
Income (loss) before minority interest in loss of subsidiary.............. 9.4 (3.2) (3.2)
Minority interest in loss of subsidiary................................... -- 0.2 0.1
------- ------ ------
Net income (loss)......................................................... 9.4% (3.0)% (3.1)%
------- ------ ------
------- ------ ------
</TABLE>
FISCAL YEAR ENDED JULY 27, 1997 COMPARED TO FISCAL YEAR ENDED JULY 28, 1996
Resort revenues in fiscal 1997 were $166.9 million, an increase of $103.4
million, or 162.8%, as compared to resort revenues of $63.5 million in fiscal
1996. This increase was due primarily to the addition of the S-K-I resorts in
June 1996, which accounted for $106.6 million, which was offset by $3.2 million
attributable to a decrease in revenues due to the divestiture of the Cranmore
ski resort and an increase in resort revenues at the Company's other resorts.
Revenues from real estate operations in fiscal 1997 were $8.5 million, a
decrease of $1.4 million, or 14.1%, as compared to revenues from real estate
operations of $9.9 million in fiscal 1996. This decrease was due primarily to
all quartershare units at the Summit Hotel at Sunday River being fully sold by
July 1996. The Company has completed construction of the Grand Summit Hotel at
the Attitash Bear Peak ski resort and began closing on quartershare unit sales
thereof at the Grand Summit Hotel on April 6, 1997. As of July 27, 1997, the
Grand Summit at Attitash Bear Peak had $5.0 million in quartershare unit sales.
Cost of resort operations in fiscal 1997 were $109.8 million, an increase of
$68.0 million, or 162.7%, as compared to cost of resort operations of $41.8
million in fiscal 1996. This increase was due primarily to the addition of the
S-K-I resorts.
Cost of real estate operations in fiscal 1997 were $6.8 million, an increase
of $1.0 million, or 17.2%, as compared to cost of real estate operations of $5.8
million in fiscal 1996. This increase was due to pre-construction activities on
the hotel projects that began construction in the fourth quarter of the year
ended July 27, 1997 and costs related to the sales of quartershares at the Grand
Summit at Attitash Bear Peak.
46
<PAGE>
Marketing, general and administrative expenses in fiscal 1997 were $26.1
million, an increase of $14.8 million, or 131.0%, as compared to marketing,
general and administrative expenses of $11.3 million in fiscal 1996. This
increase was due to the addition of the S-K-I resorts, which account for an
increase of $11.9 million. The remaining difference of $2.9 million is due to a
decrease in expense of $0.5 million due to the divestiture of the Cranmore ski
resort and an increase in expense of $3.4 million due to increased marketing
activity at the pre-merger resorts.
Depreciation and amortization expenses in fiscal 1997 were $18.3 million, an
increase of $11.5 million, or 169.1%, as compared to depreciation and
amortization expenses of $6.8 million in fiscal 1996. This increase was due
primarily to the addition of the S-K-I resorts, which account for an increase of
$10.2 million. The remainder of the increase results from capital improvements
and the amortization of goodwill and prepaid loan fees that did not exist prior
to the acquisition of the S-K-I resorts.
FISCAL YEAR ENDED JULY 28, 1996 COMPARED TO FISCAL YEAR ENDED JULY 30, 1995.
Resort revenues in fiscal 1996 were $63.5 million, an increase of $16.7
million, or 35.7%, as compared to resort revenues of $46.8 million in fiscal
1995. This increase was due to (i) $4.0 million attributable to the acquisition
of Mt. Cranmore in June 1995, (ii) an increase of approximately 20,000 skier
visits, or approximately 11%, at Attitash Bear Peak, (iii) an increase of
approximately 42,000 skier visits, or approximately 13%, at Sugarbush, (iv) an
increase in lift ticket prices, resulting in an increase in revenues per skier
visit from $41.89 in fiscal 1995 to $44.61 in fiscal 1996, (vi) an approximate
10% increase in season pass revenues, primarily due to the addition of a
multi-resort season pass, and (vii) $2.8 million attributable to the inclusion
of the S-K-I resorts for the final month of fiscal 1996.
Real estate revenues in fiscal 1996 were $9.9 million, an increase of $2.0
million, or 24.3%, as compared to real estate revenues of $7.9 million in fiscal
1995. This increase was due to increased sales of quartershare units at the
Summit Hotel at Sunday River and the sale of 16 additional townhouse units at
Sunday River in fiscal 1996 compared to fiscal 1995, as well as higher average
sales prices.
Cost of operations in fiscal 1996 were $41.8 million, an increase of $12.1
million, or 40.7%, as compared to cost of operations of $29.7 million in fiscal
1995. This increase was due to (i) $1.5 million attributable to the acquisition
of Mt. Cranmore, (ii) incremental costs resulting from the increased skier
visits, (iii) operating costs resulting from the increased snowmaking and lift
capacity and skiable terrain that resulted from the $22.2 million of capital
expenditures during fiscal 1996 and (iv) $2.9 million attributable to the
inclusion of the S-K-I resorts for the final month of fiscal 1996.
Cost of real estate sold in fiscal 1996 was $5.8 million, an increase of
$1.9 million, or 48.7%, as compared to cost of real estate sold of $3.9 million
in fiscal 1995. This increase was due to the increased real estate sales volume.
Marketing, general and administrative expense in fiscal 1996 were $11.3
million, an increase of $1.9 million, or 20.2%, as compared to marketing,
general and administrative expenses of $9.4 million in fiscal 1995. This
increase was due to (i) approximately $0.7 million attributable to the
acquisition of Mt. Cranmore, (ii) an extensive marketing campaign following the
significant improvements made at Sugarbush, (iii) expenses resulting from the
acquisition of Mt. Cranmore and Sugarbush and (iv) $0.9 million attributable to
the inclusion of the S-K-I resorts for the final month of fiscal 1996.
Depreciation and amortization in fiscal 1996 were $6.8 million, an increase
of $2.9 million, or 74.4%, as compared to depreciation and amortization of $3.9
million in fiscal 1995. This increase was due to depreciation resulting from (i)
the $24 million capital program completed prior to the 1995-96 ski season, (ii)
the acquisitions of Mt. Cranmore and Sugarbush and (iii) $0.9 million
attributable to the inclusion of S-K-I resort for the final month of fiscal
1996.
Interest expense in fiscal 1996 was $4.7 million, an increase of $2.5
million, or 113.6%, as compared to interest expenses of $2.2 million in fiscal
1995. This increase was due to (i) increased borrowings to support
47
<PAGE>
the Company's capital program, (ii) the acquisitions of Mt. Cranmore and
Sugarbush and (iii) $0.2 million attributable to the inclusion of the S-K-I
resorts for the final month of fiscal 1996.
Income tax expense in fiscal 1996 was $3.9 million, an increase of $3.5
million, or 875%, as compared to income tax expenses of $0.4 million in fiscal
1995. The majority of the increase in the Company's provision for income taxes
was attributable to the conversion of the former S corporations to C
corporations, offset by an $0.8 million benefit due to inclusion of the S-K-I
resorts for the final month of fiscal 1996.
RESULTS OF OPERATIONS OF THE ACQUIRED RESORTS
FISCAL YEAR ENDED MAY 31, 1997 COMPARED TO FISCAL YEAR ENDED MAY 31, 1996
Total revenues in fiscal 1997 were $89.1 million, an increase of $4.4
million, or 5.2%, as compared to total revenues of $84.7 million in fiscal 1996.
This increase was attributable primarily to an 8.4% increase in skier visits at
Steamboat, offset partially by a 3.1% decrease in skier visits at Heavenly.
Access to the Heavenly ski area was impeded for a portion of the 1996-97 ski
season due to the temporary closure of U.S. Highway 50, which leads into South
Lake Tahoe. Average revenue per skier visit remained relatively constant in
fiscal 1997 compared to fiscal 1996.
Cost of ski operations in fiscal 1997 were $36.7 million, an increase of
$2.7 million, or 7.9%, as compared to cost of ski operations of $34.0 million in
fiscal 1996. This increase was attributable primarily to higher variable costs
associated with the increase in skier visits at Steamboat, in addition to higher
snowgrooming and vehicle maintenance expenses at Heavenly. As a percentage of
ski revenues, cost of ski operations increased to 54% in fiscal 1997 from 52% in
fiscal 1996.
Retail and ski rental expenses in fiscal 1997 were $8.7 million, an increase
of $0.1 million, or 1.2%, as compared to retail and ski rental expenses of $8.6
million in fiscal 1996. Retail and ski rental expenses represented 73.3% of
related revenues in fiscal 1997 as compared to 76% in fiscal 1996.
Marketing, general, administrative and other costs in fiscal 1997 were $17.2
million, an increase of $0.6 million, or 3.5%, as compared to general,
administrative and marketing costs of $16.6 million in fiscal 1996. Included in
this expense item were fees paid to Kamori of $3.4 million in fiscal 1997 and
$3.3 million in fiscal 1996. Marketing, general, administrative and other
expense was 19.3% of revenue in fiscal 1997 as compared to 19.6% in fiscal 1996.
Interest expense in fiscal 1997 was $10.7 million, a decrease of $1.3
million, or 11.0%, as compared to interest expense of $12.0 million in fiscal
1996. This decrease was attributable primarily to lower long-term debt balances
due to principal payments and decreases in the average balances of seasonal
borrowings.
Net loss in fiscal 1997 was $3.4 million, a decrease of $1.1 million, or
24.4%, as compared to net loss of $4.5 million in fiscal 1996. This decrease was
attributable primarily to the decrease in interest expense of $1.2 million
discussed above.
FISCAL YEAR ENDED MAY 31, 1996 COMPARED TO FISCAL YEAR ENDED MAY 31, 1995
Total revenues in fiscal 1996 were $84.7 million, a decrease of $3.9
million, or 4.4%, as compared to total revenues of $88.6 million in fiscal 1995.
The decrease was attributable to a 15.3% decrease in skier visits at Heavenly,
which was caused by a year of drought in the Pacific West in fiscal 1996
following the record snowfall experienced at the resort in fiscal 1995.
Cost of ski operations in fiscal 1996, were $34.0 million, a decrease of
$0.7 million, or 2%, as compared to cost of ski operations of $34.7 million in
fiscal 1995. This decrease resulted from cost saving measures implemented at
Heavenly to account for the decrease in skier visits. As a percentage of ski
revenues, cost of ski operations increased to 52.4% in fiscal 1996 from 51.1% in
fiscal 1995.
48
<PAGE>
Retail and ski rental expenses in fiscal 1996 were $8.6 million, a decrease
of $0.2 million, or 2.3%, as compared to retail and ski rental expenses of $8.8
million in fiscal 1995. Retail and ski rental expenses represented 76.0% of
related revenues in fiscal 1996 as compared to 74.0% in fiscal 1995.
Marketing, general, administrative and other costs in fiscal 1996 were $16.6
million, as compared to marketing, general, administrative and other costs of
$17.1 million in fiscal 1995. Included in these costs were $3.3 million and $3.3
million in fiscal 1996 and fiscal 1995, respectively, of management and other
fees paid to Kamori.
Interest expense remained approximately the same in fiscal 1996 at $12.0
million, as compared to interest expense in fiscal 1995.
Net loss in fiscal 1996 was $4.5 million, an increase of $0.6 million, or
15.4%, as compared to net loss of $3.9 million in fiscal 1995. This increase was
attributable primarily to the decrease in skier visits at Heavenly, as discussed
above, offset by an income tax benefit recorded in fiscal 1996 compared to an
income tax provision recorded in fiscal 1995.
SELECTED QUARTERLY OPERATING RESULTS
The following table presents certain unaudited quarterly financial
information of the Company for the eight quarters ended July 27, 1997. In the
opinion of the Company's management, this information has been prepared on the
same basis as the Consolidated Financial Statements appearing elsewhere in this
Prospectus and includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial results set forth herein.
Results of operations for any previous quarters are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OCT. 28, JAN. 28, APR. 28, JULY 28, OCT. 27, JAN. 26, APR. 27, JUL. 27,
1995 1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Resort......................... $ 4,490 $ 26,451 $ 26,342 $ 6,206 $ 11,541 $ 64,533 $ 81,673 $ 9,176
Real estate.................... 387 4,307 4,788 451 1,569 1,740 2,674 2,485
----------- ----------- ----------- --------- --------- --------- --------- ---------
Total revenues................... 4,877 30,758 31,130 6,657 13,110 66,273 84,347 11,661
----------- ----------- ----------- --------- --------- --------- --------- ---------
Operating expenses:
Cost of resort operations...... 5,576 18,221 8,864 9,138 20,351 40,573 37,981 10,869
Cost of real estate sold....... -- -- 4,806 1,038 -- -- 2,167 1,933
Marketing, general and
administrative............... 2,537 2,927 4,919 906 5,405 7,096 9,097 4,528
Depreciation and
amortization................. 327 2,500 2,788 1,168 1,527 7,344 8,074 1,347
----------- ----------- ----------- --------- --------- --------- --------- ---------
Total operating expenses......... 8,440 23,648 21,377 12,250 27,283 55,013 57,320 21,390
----------- ----------- ----------- --------- --------- --------- --------- ---------
Income (loss) from operations.... $ (3,563) $ 7,110 $ 9,753 $ (5,593) $ (14,173) $ 11,260 $ 27,027 $ (9,729)
----------- ----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- ----------- --------- --------- --------- --------- ---------
</TABLE>
The business of the Company is highly seasonal, with the vast majority of
its annual revenues historically being generated in the second and third fiscal
quarters, of which a significant portion is produced in two key weeks--the
Christmas and Presidents' Day vacation weeks, during which over 23% of annual
skier visits are realized. Cash flow from operations in the first and fourth
quarters of the year typically will not be sufficient to cover fixed charges in
such quarters. See "Risk Factors--Seasonality; Fluctuations in Operating
Results; Dependence on Weather Conditions."
49
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Following the Transactions, the Company's primary liquidity needs will be to
fund capital expenditures, service indebtedness and support seasonal working
capital requirements. In connection with the Transactions, the Company expects
to enter into the New Credit Facility to obtain financing in an aggregate
principal amount of up to $215 million. See "Description of Certain
Indebtedness--The New Credit Facility." The New Credit Facility is expected to
be comprised of a combination of term loan facilities and revolving loan
facilities, of which approximately $75 million (up to $65 million of which will
be available upon consummation of the Offering) will be made available to ASC
East and its subsidiaries and $140 million will be made available to the Company
excluding ASC East and its subsidiaries. The Company has received a commitment
from a lender with respect to the New Credit Facility which is subject to
various closing conditions, including execution of definitive loan documents.
The Company's primary sources of liquidity will be cash flow from operations of
its subsidiaries and borrowings under the New Credit Facility, under which
approximately $62.3 million is expected to be available for future borrowing
after consummation of the Transactions, subject to compliance by the Company
with the provisions thereof. The 12% Note Indenture contains restrictive
covenants that, among other things, impose limitations on ASC East and its
subsidiaries' ability to pay dividends or make other distributions to the
Company. ASC East is currently prohibited from paying dividends or other
distributions to the Company under these provisions. See "Risk
Factors--Dependence on Highly Leveraged and Restricted Subsidiaries," "Use of
Proceeds" and "Description of Certain Indebtedness." The Company intends to use
borrowings under the New Credit Facility to meet seasonal fluctuations in
working capital requirements, primarily related to off-season operations and
maintenance activities in the Company's first and fourth fiscal quarters,
buildup of retail and other inventories prior to the start of the skiing season,
and to fund on-mountain capital expenditures.
As of July 27, 1997, the Company was in violation of certain financial
covenants under the Existing Credit Facility. Subsequent to year end, the
violations were waived by the lenders as of the balance sheet date and the
financial covenants with respect to which the Company was in default were
amended.
In fiscal 1997, cash provided from operating activities of $7.3 million was
attributable primarily to net losses of $5.5 million, offset primarily by
depreciation and amortization of $18.3 million, non-cash interest of $3.3
million, release of escrowed funds of $12.6 million and an increase in accounts
payable and other current liabilities of $6.8 million. Such cash flows from
operating activities were reduced by a net investment of approximately $22.0
million in real estate developed for resale, much of which is expected to be
completed and available for sale in fiscal 1998. In fiscal 1996, cash provided
by operating activities of $7.5 million was attributable to a net loss of $2.2
million plus depreciation and amortization of $6.8 million, the addback of a
$5.6 million non-cash tax charge related to the conversion from S corporation
status to C corporation status, reduced by a reduction in accounts payable and
other accrued liabilities of approximately $3.6 million. In fiscal 1995, cash
flow from operating activities of $12.6 million was generated by net income of
$5.1 million plus depreciation and amortization of $3.9 million and a $2.5
million increase in accounts payable and other accrued liabilities.
Over the last three years, the Company's cash flows from investing
activities have consisted primarily of payments for acquisitions, capital
expenditures and proceeds from the sale of businesses. In fiscal 1997, the
Company's net investments were $14.6 million, consisting primarily of purchases
of businesses of $7.0 million and capital expenditures of $23.7 million, net of
$15.0 million of proceeds from the sale of businesses and property and
equipment. In fiscal 1996, the Company invested an aggregate of $122.6 million
including $97.1 million to acquire businesses and $25.1 million of capital
expenditures. In fiscal 1995, the Company invested $13.8 million, including $1.8
million of acquisitions and $12.0 million of capital expenditures.
The Company generated cash from financing activities of $19.7 million in
fiscal 1997, consisting primarily of net receipts under borrowing agreements and
$16.4 million of net proceeds from the issuance of Series A Exchangeable
Preferred Stock. In fiscal 1996, cash provided by financing activities of $116.9
50
<PAGE>
million included $121.1 million of net proceeds from issuance of long-term
subordinated notes and debentures and $17.1 million of net revolving loan
borrowings, less $8.5 million of deferred financing costs, $13.6 million of
payments on long-term debt and a $3.2 million shareholder distribution. In
fiscal 1995, cash provided by financing activities of $2.4 million included $4.0
million of increases under lines of credit and revolving credit loans, net of
repayments of long-term debt of $0.8 million and a $0.9 million shareholder
distribution.
The Acquired Resorts' capital expenditures for the fiscal 1997 were $5.3
million. The Company's 1997 summer capital improvement budget for on-mountain
improvements at the Existing Resorts and the Acquired Resorts is approximately
$57.7 million. See "Business--Operating Strategy." Management plans to fund the
completion of these capital expenditures from proceeds of the Canyons
Securities, borrowings under the New Credit Facility and cash provided by
operations.
Management also plans to undertake hotel and condominium development and
construction activities in fiscal 1998 at The Canyons, Sunday River, Killington,
Mount Snow/Haystack, Steamboat, Sugarbush and Sugarloaf (see "Business--Real
Estate Development"), incurring total estimated costs of approximately $100
million. It is expected that these activities will be conducted through special
purpose subsidiaries with limited guarantees of associated indebtedness being
provided by the Company, to the extent permitted by the New Credit Facility and
the 12% Note Indenture. The Company's ability to guarantee the obligations of
unrestricted real estate development subsidiaries is limited under the New
Credit Facility to an aggregate amount of $25 million of indebtedness.
Consistent with the Company's historical real estate development practices, and
as required under the 12% Note Indenture, such development projects generally
must attain pre-construction sales (evidenced by executed purchase agreements
and security deposits from purchasers of 5% of the total purchase price) equal
to approximately 35% of total projected construction costs, in order for the
project to proceed. Liquidity may also be affected by the debt service
requirements associated with such borrowings, as well as any required equity
investments by the Company in such entities.
Management believes that there is a considerable degree of flexibility in
the timing (and, to a lesser degree, the scope) of its capital expenditure
program, and even greater flexibility as to its real estate development
objectives. While the Company's capital expenditure program is regarded by
management as important, both as to timing and scope, additional or subsequent
capital spending can be deferred, in some instances for substantial periods of
time, in order to address cash flow or other constraints. However, management
believes that, in light of current competitive conditions in the ski industry,
such initiatives cannot be deferred indefinitely or even for extended periods
without adverse effects on skier visits, revenues and profitability. With
respect to the Company's proposed real estate development program, management
believes that such efforts will enhance ski revenues and will contribute
independently to earnings, as has been the case historically at the Company's
resorts. Nonetheless, existing lodging facilities in the vicinity of each resort
are believed to be adequate to support current skier volumes, and a deferral or
curtailment of these development efforts, unlike the capital expenditure
program, is not regarded by management as likely to result in substantial
decreases in skier visits, revenues or profitability.
The Company's liquidity also will be affected by the indebtedness which will
be outstanding following the Transactions, including the indebtedness evidenced
by the 12% Note Indenture and the New Credit Facility. Such indebtedness
requires cash for debt service and imposes various restrictions on additional
indebtedness, capital expenditures, creation of liens, sales of assets,
permitted investments and mergers or other business reorganizations. See
"Description of Certain Indebtedness."
Management believes that the Company's cash flow from operations, combined
with borrowings available under the New Credit Facility and additional
borrowings to the extent permitted under the New Credit Facility and the 12%
Note Indenture, will be sufficient to enable the Company to meet all of its cash
requirements for the foreseeable future. The Company expects that independent
financing facilities must be established to carry out its real estate
development strategy. See "Risk Factors--Substantial Leverage and Financial
Risks," "--Real Estate Development" and "--Growth Through Resort Expansion."
51
<PAGE>
BUSINESS
THE COMPANY
Following the Acquisition, the Company will be the largest operator of
alpine resorts in the United States. The Company will own and operate nine ski
resorts, including two of the five largest resorts in the United States based on
1996-97 skier visits, with at least one resort in each major skiing market.
These nine resorts generated approximately 4.9 million skier visits,
representing approximately 9.4% of total skier visits in United States during
the 1996-97 ski season. The Company's existing resorts include Sunday River and
Sugarloaf in Maine; Attitash Bear Peak in New Hampshire; Killington, Mount
Snow/Haystack and Sugarbush in Vermont; and The Canyons, adjacent to Park City,
Utah. In August 1997, the Company entered into the Acquisition Agreement to
acquire (i) the Steamboat ski resort and 168 acres of land held for development
in Steamboat Springs, Colorado and (ii) the Heavenly ski resort near Lake Tahoe,
California. After giving pro forma effect to the Transactions, the Company's
total revenues, EBITDA and net loss to common shareholders for fiscal 1997 would
have been approximately $261.9 million, $57.8 million and $5.2 million,
respectively.
The Existing and Acquired Resorts include several of the top resorts in the
United States, including: (i) Steamboat, the number two overall ski resort in
the United States (number three in North America) as ranked in the September
1997 SNOW COUNTRY magazine survey and the fourth largest ski resort in the
United States with over 1.1 million skier visits in the 1996-97 ski season; (ii)
Killington, the fifth largest resort in the United States with over 1.0 million
skier visits in the 1996-97 ski season; (iii) the three largest resorts in the
Northeast (Killington, Sunday River and Mount Snow/Haystack) in the 1996-97 ski
season; (iv) Heavenly, the second largest resort in the Pacific West Region and
the 11th largest resort in the United States with approximately 700,000 skier
visits in the 1996-97 ski season; and (v) Sugarloaf, the number one resort in
the Northeast according to the September 1997 SNOW COUNTRY magazine survey.
In addition to operating alpine resorts, the Company develops mountainside
real estate which complements the expansion of its on-mountain operations. The
Company has created a unique interval ownership product, the Grand Summit Hotel,
in which individuals purchase quartershare interval interests while the Company
retains ownership of core hotel and commercial properties. The initial sale of
quartershare units typically generates a high profit margin, and the Company
derives a continuing revenue stream from operating the hotel's retail,
restaurant and conference facilities and from renting quartershare interval
interests when not in use by their owners. The Company also develops alpine
villages at prime locations within certain of its resorts designed to fit each
resort's individual characteristics. The Company's real estate development
strategy was developed and implemented at the Sunday River resort, where over
1,350 units of residential real estate (including condominiums, townhouses and
quartershares) have been developed and sold since 1983. A new Grand Summit Hotel
was recently completed at Attitash Bear Peak, one Grand Summit Hotel is
currently under construction at each of Killington, Sunday River and Mount
Snow/Haystack and a hotel at Sugarbush is near completion of the permitting
process. These hotels will have an aggregate of approximately 2,500 units, with
pre-construction sales contracts currently totaling over $45 million
(representing 845 units). In addition the Company has over 7,000 acres of real
estate available for future development at its resorts, providing the capacity
to support over 30,000 residential units during the next 15 to 20 years. The
Company also operates golf courses at its resorts and conducts other off-season
activities, which accounted for approximately 11% of the Company's resort
revenues for fiscal 1997.
The Company's primary strength is its ability to improve resort operations
by integrating investments in on-mountain capital improvements with the
development of mountainside real estate. Since 1994, the Company has increased
skier visits by 10.0% in the aggregate for the three resorts that it has owned
for multiple seasons. In addition, the Company has increased its market share of
skier visits in the northeastern United States from approximately 21.8% in the
1995-96 ski season to approximately 24.4% in the 1996-97 ski season (after
giving pro forma effect to its acquisition of the Killington, Mount Snow/
52
<PAGE>
Haystack and Sugarloaf ski resorts as if such acquisitions had occurred on July
30, 1995). Management believes that the Acquired Resorts will provide the
Company with several significant operating benefits, including: (i) enhanced
cross-marketing of its resorts on a national basis; (ii) purchasing and other
economies of scale; and (iii) implementation of the Company's operating
strategies across a more diversified resort base.
Set forth below is an organizational chart of the Company and its material
operating subsidiaries and the principal assets owned (giving effect to the
Acquisition) by each such entity:
[CHART]
ALPINE RESORT INDUSTRY
There are approximately 750 ski areas in North America. In the United
States, approximately 507 ski areas generated over 52 million skier visits
during the 1996-97 ski season. Since 1985, the ski resort industry has undergone
a period of consolidation and attrition resulting in a significant decline in
the total number of ski areas in North America. The number of ski resorts in the
United States has declined from approximately 735 in 1983 to approximately 507
in 1997, although the number of skier visits has remained relatively flat.
Despite the recent consolidation trend overall, ownership of the smaller
regional ski resorts remains highly fragmented. The Company believes that
technological advances and rising infrastructure costs are the primary reasons
for the ski resort industry consolidation, and that further consolidation is
likely as smaller regional resorts are acquired by larger resort operators with
more sophisticated management capabilities and increased availability of
capital. In addition, the ski resort industry is characterized by significant
barriers to entry because the number of attractive sites is limited, the costs
of resort development are high, and environmental regulations impose significant
restrictions on new development.
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<PAGE>
The following chart shows a comparison of the industry-wide skier visits
compared to the Company's skier visits in the U.S. regional ski markets during
the 1996-97 ski season:
<TABLE>
<CAPTION>
PERCENTAGE SKIER
1996-97 OF VISITS
TOTAL TOTAL AT COMPANY
SKIER SKIER COMPANY MARKET
GEOGRAPHIC REGION VISITS* VISITS RESORTS SHARE COMPANY RESORTS
- --------------------------- ------ ------- ----- ------- -----------------------------------
<S> <C> <C> <C> <C> <C>
(SKIER VISITS IN MILLIONS)
Northeast.................. 12.4 23.7% 3.0 24.2% Killington, Sunday River,
Mount Snow/Haystack, Sugarloaf,
Sugarbush, Attitash Bear Peak
Southeast.................. 4.2 8.0 -- -- --
Midwest.................... 7.1 13.5 -- -- --
Rocky Mountain............. 18.9 36.1 1.2 6.3 The Canyons, Steamboat
Pacific West............... 9.8 18.7 0.7 7.1 Heavenly
------ ------- ----- -------
U.S. Overall............. 52.4 100.0% 4.9 9.4%
------ ------- ----- -------
------ ------- ----- -------
</TABLE>
- ------------------------
(*) Source: Kottke National End of Season Survey 1996/97 Final Report.
United States ski resorts range from small operations which cater primarily
to day skiers from nearby population centers to larger resorts which attract
both day skiers and destination resort guests. Management believes that day
skiers focus primarily on the quality of the skier experience and travel time,
while destination travelers are attracted to the number and type of amenities
available and activities offered, as well as the perceived overall quality of
the vacation experience. Destination guests generate significantly higher resort
operating revenue per skier day than day skiers because of their additional
spending on lodging, food and other retail items over a multiple-day period.
Since 1985, the total number of skier visits has been relatively flat.
However, according to the National Ski Area Association, the number of skier
visits represented by snowboarders in the United States has increased from
approximately 6.4 million in the 1994-95 ski season to approximately 9.3 million
in the 1996-97 ski season, an increase of approximately 45.3%. Management
believes that snowboarding will continue to be an important source of lift
ticket, skier development, retail and rental revenue growth for the Company.
The Company believes that it is well-positioned to capitalize on certain
favorable recent trends and developments affecting the alpine resort industry in
the United States, including: (i) the 66.7 million members of the "baby boom"
generation that are now approaching the 40 to 59 year age group where
discretionary income, personal wealth and pursuit of leisure activities are
maximized (this group is estimated to grow by 16.7% over the next 23 years);
(ii) the "echo boom" generation (children of baby boomers) is emerging as a
significant economic force as they begin to enter the prime entry age for
skiing, snowboarding and other "on-snow" sports; (iii) advances in ski equipment
technology such as development of parabolic skis which facilitate learning and
make the sport easier to enjoy; (iv) the continued growth of snowboarding as a
significant and enduring segment of the industry, which is increasing youth
participation in alpine sports; and (v) a greater focus on leisure and fitness.
There can be no assurance, however, that such trends and developments will
continue to have a favorable impact on the ski industry.
54
<PAGE>
OPERATING STRATEGY
The Company believes that the following key operating strategies will allow
it to increase revenues and profitability by capitalizing on its position as a
leading mountain resort operator and real estate developer.
High Impact Capital Improvements
The Company attracts skiers to its resorts by creating a superior skiing
experience through high impact capital investments in on-mountain facilities.
The Company focuses its investments on increasing lift capacity, expanding
skiable terrain and snowmaking coverage, and developing other exciting alpine
attractions. For example, during the last two years the Company has (i) created
diverse skiing experiences such as the Oz bowl and the Jordan Bowl at Sunday
River, (ii) developed above tree-line snowfields at Sugarloaf, (iii) installed
heated eight-passenger high speed gondolas at Killington and The Canyons and
(iv) built one of the longest and fastest chairlifts in the world, which
interconnects Sugarbush's North and South mountains. Since 1994, when the
Company began implementing its acquisition strategy, the Company has
significantly increased lift capacity, skiable terrain and snowmaking coverage
at its resorts. The 1997 summer capital improvement budget for on-mountain
improvements totals over $57.7 million, approximately $18.2 million of which
will be invested at The Canyons and approximately $7.0 million of which will be
invested at the Acquired Resorts.
Integration of Investments in Resort Infrastructure and Real Estate
The Company develops mountainside real estate that complements its
investments in ski operations to enhance the overall attractiveness of its
resorts as vacation destinations. Management believes that this integrated
approach results in growth in overall skier visits, including multi-day visits,
while generating significant revenues from real estate sales and lodging.
Investment typically begins with on-mountain capital improvements such as the
creation of new lifts, trails, expanded snowmaking capability, additional
restaurants and improved ski schools. As resort attendance increases, the
Company develops mountainside real estate to provide accommodations for the
increased number of resort guests. The Company carefully manages the type and
timing of real estate development to achieve capital appreciation and high
occupancy of accommodations. The Company's integrated investment strategy was
developed and refined at its Sunday River resort, where it has sold over 1,350
units of residential real estate since 1983. During the same period, annual
skier visits at Sunday River increased from approximately 50,000 to over
550,000, representing an approximate 18% compound annual growth rate.
Mountainside Real Estate Development
The Company's real estate development strategy is designed to capitalize on
the 7,000 acres of developable land it will control at or near its resorts and
its 15 years of experience in real estate development. Including the Acquired
Resorts, the Company owns or has rights to land providing the capacity to
develop over 30,000 residential units.
The Company's resort real estate development strategy is comprised of three
distinct components (i) Grand Summit quartershare hotels, (ii) alpine village
development and (iii) discrete resort-specific projects. Residential units in
Grand Summit Hotels are sold in quartershare interval interests that allow each
of four quartershare unit owners to use the unit for 13 weeks divided evenly
over the year. The core commercial areas in the hotels are retained and operated
by the Company and include a lobby area, a sports club, retail shops,
restaurants and banquet and conference facilities. Unit owners may use the unit
during their allotted weeks or make the unit available for rental by the Company
under a management agreement that allows the Company to retain up to 45% of
rental revenues. In addition to its Grand Summit Hotels, the Company has
identified several areas for development of alpine villages unique to their
resort locations that consist of carefully planned communities integrated with
condominiums, luxury
55
<PAGE>
townhouses, single family luxury dwellings or lots and commercial properties.
Each of the Company's resorts also has the potential for additional real estate
development involving discrete projects tailored to the characteristics of the
particular resort.
Increase Revenues Per Skier
The Company seeks to increase revenues per skier by managing ticket yields
and expanding revenue sources at each resort. Management seeks to increase
non-lift ticket revenue sources by increasing point-of-sale locations and sales
volume through retail stores, food and beverage services, equipment rentals,
skier development, lodging and property management. In addition, management
believes that aggressive cross-selling of products and programs (such as the
Company's frequent skier and multi-resort programs) to resort guests increases
resort revenues and profitability. The Company believes it can increase ticket
yields by managing ticket discounts, closely aligning ticket programs to
specific market segments, offering multi-resort ticket products and introducing
a variety of programs that offer packages which include tickets with lodging and
other services available at its resorts. During the 1996-97 ski season, the
Company increased its average yield per skier visit by approximately 2.9% as
compared to the 1995-96 ski season. The Company intends to further increase
revenues by implementing a property management program at the Acquired Resorts.
In addition to its on-mountain activities, the Company is expanding its retail
operations by establishing retail stores in strategic high traffic and
recognized retail districts such as Freeport, Maine; North Conway, New
Hampshire; and South Lake Tahoe, Nevada, thereby strengthening the name and
image of the Company and its resorts.
Innovative Marketing Programs
The Company's marketing programs are designed to (i) establish a nationally
recognized high quality name and image, while promoting the unique
characteristics of its individual resorts, (ii) capitalize on cross-selling
opportunities and (iii) enhance customer loyalty. The Company engages in joint
marketing programs with nationally recognized commercial partners such as Mobil,
Budweiser, Pepsi/Mountain Dew, Visa, FILA and Rossignol. Management believes
these joint marketing programs create a high quality image and a strong market
presence on a regional and national basis. In addition, the Company utilizes
loyalty based incentive programs such as the Edge Card, a private label frequent
skier program in which participants receive credits towards lift tickets and
other products.
The Company utilizes a variety of marketing media including direct mail,
television and the Internet. Direct mail marketing efforts include the Company's
"SNO" magazine, which targets the 18 to 30 year age group and currently has a
circulation of over 300,000 copies per issue. Television marketing efforts
include targeted commercials and programming such as the MTV Winter Lodge, which
is hosted by MTV and targets teens and young adults. Internet marketing efforts
include a Company sponsored website at www.peaks.com featuring photographs and
detailed information about the Company's resorts and current skiing conditions.
The Company's aggregate marketing budget for fiscal 1998 is approximately $28
million, including the value of contributions from strategic commercial
marketing partners.
Capitalize on a Multi-Resort Network
The Company's network of resorts provides both geographic diversity and
significant operating benefits. The Company believes its geographic diversity
(i) reduces the risks associated with unfavorable weather conditions, (ii)
insulates the Company from economic slowdowns in any particular region, (iii)
increases the accessibility and visibility of the Company's network of resorts
to the overall North American skier population and (iv) enables the Company to
offer a wide range of mountain vacation alternatives.
The Company believes that its ownership of multiple resorts also provides
the opportunity to (i) create the industry's largest cross-marketing program,
(ii) achieve efficiencies and economies of scale in
56
<PAGE>
purchasing goods and services, (iii) strengthen the distribution network of
travel agents and tour operators by offering a range of mountain resort
alternatives, consistent service quality, convenient travel booking and
incentive packages, (iv) establish performance benchmarks for operations across
all of the Company's resorts, (v) utilize specialized individuals and
cross-resort teams at the corporate level as resources for the entire Company
and (vi) develop and implement consumer statistical and usage information and
technology systems for application across all of the Company's resorts.
Growth through Acquisitions
Since fiscal 1994, the Company has achieved substantial growth in its
business through acquisitions. The Company intends to consider future
acquisitions of large well-established destination resorts as well as smaller
"feeder" resorts. The Company focuses on acquiring larger resorts where it
believes it can improve profitability by implementing the Company's integrated
real estate development and on-mountain capital improvement strategy. The
Company also believes that by acquiring smaller regional resorts which have a
strong local following it can capitalize on a broader customer base to
cross-market its major destination resorts. The acquisition of less developed
resorts may also offer opportunities for expansion. The Company, however, is
effectively prohibited from acquiring additional resorts in New England as a
result of antitrust concerns.
Historically, the Company has financed resort acquisitions through private
and public offerings of debt securities. The Company expects to finance future
acquisitions through a combination of internally generated funds, bank
borrowings and public offerings or private placements of equity and/or debt
securities. Following the Transactions, the Company will be highly leveraged.
See "Risk Factors-- Substantial Leverage and Financial Risks," "--Growth Through
Acquisitions; Integration of Acquired Resorts; Ability to Finance Acquisitions"
and "Description of Indebtedness--The New Credit Facility."
Expand Golf and Convention Business
The Company is one of the largest owners and operators of resort golf
courses in New England and seeks to capitalize on this status to increase
off-season revenues. Sugarloaf, Killington, Mount Snow and Sugarbush all operate
championship resort golf courses. The Sugarloaf course, designed by Robert Trent
Jones Jr., is rated as one of the top 25 upscale courses in the country
according to the May 1996 GOLF DIGEST magazine survey and one of the top 25
public courses according to the May 1996 GOLF magazine survey. In addition, a
championship course designed by Robert Trent Jones, Jr. is currently under
construction at Sunday River. The Company also operates eight golf schools at
locations along the east coast from Florida to Maine. The Company's golf program
and other recreational activities draw off-season visitors to the Company's
resorts and support the Company's growing off-season convention business, as
well as its real estate development operations.
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<PAGE>
RESORTS
The following table summarizes certain key statistics of the Company's
resorts after giving effect to the Company's summer 1997 capital improvement
program:
<TABLE>
<CAPTION>
SNOWMAKING 1996-97
SKIABLE VERTICAL TOTAL COVERAGE SKIER
TERRAIN DROP LIFTS (% OF SKI VISITS
RESORT (YEAR ACQUIRED) (ACRES) (FEET) TRAILS (HIGH-SPEED) ACRES) LODGES (000S)
- ---------------------------------------- ------- ------- ------ ---------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Killington (1996)....................... 1,200 3,150 212 33(6) 59.8% 8 1,000
Sunday River (1980)..................... 654 2,340 126 17(4) 93.3 4 557
Mount Snow/Haystack (1996).............. 762 1,700 134 25(3) 66.0 5 560
Sugarloaf (1996)........................ 1,400 2,820 110 14(2) 35.0 1 336
Sugarbush (1995)........................ 432 2,650 112 18(4) 66.1 5 362
Attitash Bear Peak (1994)............... 273 1,750 60 11(1) 89.7 2 210
The Canyons (1997)...................... 2,200 2,580 63 9(4) 5.0 2 100
Steamboat (1997)........................ 1,879 3,668 135 21(4) 13.6 4 1,103
Heavenly (1997)......................... 4,800 3,500 82 27(5) 5.7 7 693
------- ------ ---------- ----- ---------
Total............................... 13,600 1,034 175(33) 38 4,921
------- ------ ---------- ----- ---------
------- ------ ---------- ----- ---------
</TABLE>
Since acquiring each of the Existing Resorts, the Company has committed its
resources to create a superior skiing experience by increasing lift capacity,
skiable terrain and snowmaking coverage. The following chart shows the
percentage increase in lift capacity, skiable terrain and snowmaking coverage
since the date of acquisition of each resort after giving effect to the
Company's summer 1997 capital improvement program:
<TABLE>
<CAPTION>
% INCREASE IN KEY OPERATING
CAPACITIES
FROM DATE OF RESORT ACQUISITION
---------------------------------
LIFT
CAPACITY
(SKIERS SKIABLE
PER TERRAIN SNOWMAKING
RESORT (YEAR ACQUIRED) HOUR) (ACRES) COVERAGE
- ------------------------------------------------------------- ------ ----- ------
<S> <C> <C> <C>
Killington (1996)(1)......................................... 11% 13% 1%
Sunday River (1980)(2)....................................... 33 23 26
Mount Snow/Haystack (1996)................................... 7 -- --
Sugarloaf (1996)............................................. 9 -- 4
Sugarbush (1995)............................................. 60 8 44
Attitash Bear Peak (1994).................................... 106 92 79
The Canyons (1997)........................................... 44 29 51
------ ----- ------
Weighted Average......................................... 24% 15% 15%
------ ----- ------
------ ----- ------
</TABLE>
- ------------------------------
(1) Includes Pico Mountain ski resort.
(2) Does not include capital improvements completed prior to 1994.
EXISTING RESORTS
KILLINGTON. Killington, located in central Vermont, is the largest ski
resort in the northeast and the fifth largest in the United States, with over
1.0 million skier visits in 1996-97. Killington is a seven-mountain resort
consisting of approximately 1,200 acres with 212 trails serviced by 33 lifts.
The resort has a 4,241 foot summit and a 3,150 foot vertical drop. The resort's
base facilities include eight full-service ski lodges, including one located at
the top of Killington Peak. In December 1996, the Company acquired the Pico
Mountain ski resort located adjacent to Killington and integrated the two
resorts. Management believes the size and diversity of skiable terrain at
Killington make it attractive to all levels of skiers and one of the most widely
recognized of the Company's resorts with regional, national and international
clientele.
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<PAGE>
The on-mountain accommodations at Killington consist of approximately 4,700
beds. The off-mountain bed base in the greater Sherburne, Vermont area is
approximately 12,000 beds. Killington also owns and operates 16 retail shops, 12
rental and repair shops, a travel and reservation agency and a cable television
station. At the base of Pico Mountain, the Company owns a well developed retail
village and a health club. Killington is a year-round resort offering complete
golf amenities including an 18-hole championship golf course, a golf school, a
pro shop, a driving range and a tennis school.
Notwithstanding that it is the largest ski resort in the Northeast, the
Company has identified Killington as one of its most underdeveloped resorts.
Since its acquisition in June 1996, the Company has invested $20.5 million in
capital improvements to update Killington's snowmaking, trail and lift systems,
and to develop base facilities and real estate potential at the base areas.
Major improvements and enhancements to the resort completed since June 1996
include (i) installation of two high speed quad lifts, (ii) installation of one
eight-passenger high-speed gondola to service the Peak Restaurant at the
Killington summit and to replace the old Killington Peak double chair and (iii)
construction of a new children's center and related base area improvements.
Management expects the gondola to increase summer revenues by attracting summer
tourists for sightseeing and dining.
The Company's three-year capital program for the 1998-01 ski seasons
includes the interconnection of lift and trail systems between the Killington
and Pico resorts. The interconnection of the two mountains will result in a 16%
increase in lift capacity and an additional 110 acres (9%) of skiable terrain.
Other improvements include connecting the resort to a nearby reservoir in 1998
through a 1.8 mile pipeline, which, when combined with other new water sources
accessed via the pipeline, will expand snowmaking capacity by approximately 62%.
SUNDAY RIVER. Sunday River, located in the western mountains of Maine and
approximately a three-hour drive from Boston, is New England's third largest ski
resort with over 550,000 skier visits in 1996-97. Extending over eight
interconnected mountain peaks, its facilities consist of approximately 654 acres
of skiable terrain and 126 trails serviced by 17 lifts. The resort has a 3,140
foot summit and a 2,340 foot vertical drop. The Company believes Sunday River
has one of the most modern lift systems in the Northeast. Sunday River has four
base lodges, one of which is located at the top of North Peak.
The on-mountain accommodations at Sunday River consist of approximately
5,400 beds including 714 condominium units and 648 quartershare units at the
Summit Hotel. The off-mountain bed base in greater Bethel, Maine totals
approximately 2,000 beds. The resort owns and operates five ski shops, five
full-service restaurants, four cafeteria-style restaurants and four bars. The
Company also owns and operates a 67-unit inn and manages the Summit Hotel and
approximately 714 condominium units. In addition, the Company is currently
constructing a 588-unit Grand Summit Hotel at Sunday River's Jordan Bowl which
is scheduled to open in December 1997.
Since 1981, the Company has continually invested in capital improvements at
Sunday River to expand and improve its on-mountain facilities and in real estate
development. The most recently completed improvements include the creation of
new skiing attractions at the Oz bowl and the Jordan Bowl which added
approximately 158 acres (32%) of skiable terrain. In addition, Sunday River's
1997 capital program includes (i) installation of a new high speed quad lift to
North Peak, (ii) complete renovation of its largest base lodge to improve skier
amenities and increase retail and food and beverage space and (iii) an upgrade
of other skier facilities located at the resort. In addition, the Company
recently completed preliminary construction of a three mile scenic access road
to the Jordan Bowl area and a Robert Trent Jones, Jr. championship golf course
is currently under construction. Management believes that Sunday River has
significant growth potential with over 325 acres of land at the base of the new
Jordan Bowl area which are planned for development of extensive base facilities
and a new Grand Summit Hotel. Additionally, there are over 4,000 acres of
undeveloped land owned by the Company and 3,000 acres for which the Company
holds purchase options that are suitable for development as skiable terrain.
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<PAGE>
MOUNT SNOW/HAYSTACK. Mount Snow, located in Brattleboro, Vermont, the
second largest ski resort in the Northeast with 560,000 skier visits in 1996-97,
is the southernmost of the Company's resorts. A large percentage of the skier
base for Mount Snow derives from Massachusetts, Connecticut and New York. The
resort consists of two mountains separated by approximately three miles, which
have been combined under single management. Its facilities consist of 134 trails
and approximately 762 acres of skiable terrain serviced by 25 lifts. The resort
has a 3,580 foot summit and a 1,700 foot vertical drop. The resort has five
full-service base lodges.
Mount Snow's on-mountain bed base currently consists of 1,280 beds. The
off-mountain bed base in the greater Dover, Vermont area has approximately 7,300
beds. The resort owns and operates eight retail shops, four rental and repair
shops, a pro shop, a country club and a nightclub. Mount Snow also headquarters
the Company-owned "Original Golf School," and operates an 18-hole golf course,
eight golf schools throughout the east coast, a mountain bike school, a 92-room
hotel and a low-voltage local television station.
Since its acquisition in June 1996, the Company has invested approximately
$11.0 million in capital improvements to the resort, including the installation
of two high speed quad chairlifts. The capital improvements for summer 1997
include $2.6 million for additional lift capacity and over $500,000 for
increased snowmaking capacity and base area improvements. The Company's
three-year capital program for the 1998-01 ski seasons includes four new high
speed detachable quad lifts, replacing older existing lifts. The Company plans
to expand Mount Snow's lodges to provide a new children's center, an expanded
nightclub and more retail, food and beverage and guest service space. The
Company also plans to expand snowmaking coverage, adding approximately 100 acres
of snow coverage (representing an increase of approximately 20%).
SUGARLOAF. Sugarloaf is located in Carrabassett Valley, Maine and was
ranked as the number one overall ski resort in the East by the September 1997
SNOW COUNTRY magazine survey. Sugarloaf is a single mountain with approximately
1,400 acres of terrain and 110 trails covering approximately 530 acres, of which
490 acres have snowmaking coverage serviced by 14 lifts. There are approximately
870 additional acres of off-trail skiable terrain. The mountain has a 4,237 foot
summit and a 2,820 foot vertical drop. Sugarloaf offers one of the largest
ski-in/ski-out base villages in the Northeast, containing numerous restaurants,
retail shops and an abundance of lodging. Sugarloaf is widely recognized for its
challenging terrain, including its snowfields, which represent the only
lift-serviced above-treeline skiing in the Northeast. As a destination resort,
Sugarloaf has a broad market, including areas as distant as New York, New
Jersey, Pennsylvania and Canada.
Sugarloaf operates a year-round conference center, a cross-country ski
facility and an 18-hole championship golf course designed by Robert Trent Jones,
Jr., which is rated by both GOLF DIGEST and GOLF magazines as one of the top 25
public courses in the United States. Sugarloaf's slope-side ski village consists
of its base lodge, two hotels, banquet facilities for up to 800 people, retail
stores, a rental and repair shop, a sports and fitness club, 870 condominium
units and rental homes, restaurants and an extensive recreational path network.
Improvements currently underway at Sugarloaf include a new high speed quad
chair to service lower mountain terrain and an additional fixed grip quad chair
accessing the snowfields.
SUGARBUSH. Sugarbush, located in Vermont's Mad River Valley, features the
three highest mountain peaks of any single resort in the East and was ranked as
the ninth most popular ski area in North America by SKIING magazine in September
1996. Extending over six mountain peaks, its facilities consist of 432 acres of
skiable terrain and 112 trails serviced by 18 lifts. The resort has a 4,135 foot
summit and a 2,650 foot vertical drop. The mountains are serviced by three base
lodges and two summit lodges.
The on-mountain accommodations at Sugarbush consist of approximately 2,200
beds. The off-mountain bed base within the Mad River Valley totals approximately
6,600 beds. The resort operates three
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ski shops, three full-service restaurants and four cafeteria-style restaurants.
The Company also owns and operates the 46-unit Sugarbush Inn, manages
approximately 200 condominium units, and owns and operates a championship golf
course as well as a sports center and a conference center.
Since the acquisition of Sugarbush by the Company in October 1995, the
Company has invested $19.5 million in capital improvements to expand and improve
its on-mountain facilities. The most recently completed improvements include
four high speed quad chairlifts, a 44% increase in snowmaking capacity, the
creation of new glade skiing terrain, and numerous base area improvements. In
addition, in 1997 expansions are scheduled to facilities at the base of Lincoln
Peak which house children's programs, rental and repair services and retail
outlets. As part of management's development plan, an 8,000 square foot addition
to the Gate House Base Lodge and a new full service 12,000 square foot
mid-mountain lodge for the top of the Gate House Express Chairlift are proposed
for 1998.
ATTITASH BEAR PEAK. Attitash Bear Peak, located in the Mount Washington
Valley, New Hampshire, is one of New Hampshire's largest ski resorts. Covering
two mountain peaks, its facilities consist of 273 acres of skiable terrain and
60 trails serviced by 11 lifts. The resort has a 2,350 foot summit and a 1,750
foot vertical drop. The resort benefits from its location in the heart of New
Hampshire ski country and its proximity to the Town of North Conway and the Mt.
Washington valley tourist area, and is widely recognized as a family-oriented
resort. The mountains are serviced by two base lodges.
The on-mountain accommodations of Attitash Bear Peak consist of
appromimately 1,700 beds. The off-mountain bed base in the Mt. Washington Valley
area totals approximately 16,000 beds. The resort operates two ski shops, two
full-service restaurants, three cafeteria-style restaurants and two bars.
Since its acquisition in July 1994, the Company has invested approximately
$10.0 million in capital improvements at Attitash Bear Peak. The most recently
completed improvements have been the development of the new Bear Peak area,
construction of a modern base lodge facility, installation of a new high speed
quad lift and trails. The summer 1997 capital program at Attitash Bear Peak
includes the addition of a triple-chair lift and increases in skiable terrain
and snowmaking. The resort's three-year capital improvement program includes
potential expansion into the Attitash bowl area and a proposed expansion into
the National Forest area adjacent to the existing resort (both of which require
the approval by the Forest Service), the installation of a high-speed
six-passenger lift and a high-speed quad lift. In addition, in fiscal 1998 the
Company expects to expand the children's center and to begin construction of a
new 18-hole golf course.
THE CANYONS. The Canyons, located in the Wasatch Mountains adjacent to Park
City, Utah, is primarily an undeveloped ski resort with significant potential
for future operational and real estate development. The resort generated
approximately 100,000 skier visits in the 1996-97 ski season. Currently, the
resort has approximately 1,700 acres of skiable terrain with an elevation of
9,380 feet and a 2,580 foot vertical drop. The area has two base lodges and two
additional on-mountain restaurants.
During the summer of 1997, the Company is investing approximately $18.2
million to develop and construct (i) an eight passenger high-speed gondola, (ii)
five new quad lifts and to increase skiable terrain to approximately 2,200 acres
at the resort, (iii) construction of a mid-mountain lodge which will begin
operation prior to the opening of the resort on December 20, 1997. Its new Red
Pine lodge will serve as the cornerstone of the Company's planned High Mountain
Meadows real estate development located on a plateau at an elevation of 8,000
feet.
Management believes the resort has significant growth potential due to its
proximity to Salt Lake City, its undeveloped skiable terrain and its real estate
development opportunities. The resort is located approximately 25 miles from
Salt Lake City and is accessed by a major state highway. Air transportation is
provided through the Salt Lake City airport, which is a major regional hub with
direct access from most major domestic airports. The Salt Lake City area has
been one of the fastest growing regions in the United
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<PAGE>
States over the past several years, and the Park City area has an active real
estate market undergoing rapid expansion.
The Utah Winter Sports Park, which is located immediately adjacent to the
resort, is scheduled to serve as the venue for the ski jumping, bobsled and luge
events in the 2002 Winter Olympic Games. Management believes the 2002 Olympic
Games will provide international exposure for the resort. The five-year capital
plan currently calls for substantial development of the resort to be completed
prior to the 2002 Olympic Games.
Management believes that when The Canyons is fully developed, the resort
could encompass over 7,200 acres of skiable terrain consisting of 14 mountain
peaks with a maximum elevation of 10,000 feet, a vertical drop of approximately
3,400 feet, 22 high speed quad ski lifts and an eight passenger high speed
gondola. In addition to the $18.2 million of capital improvements for the
1997-98 ski season, the Company estimates that it will need approximately $42.0
million for on-mountain capital improvements and approximately $150 million for
real estate development in order to fulfill its five-year development plan for
The Canyons. The Company plans to fund such capital improvements and real estate
development from operating cash flow, bank borrowings or debt and/or equity
offerings. See "Risk Factors--Substantial Leverage and Financial Risks" and
"Description of Indebtedness--The New Credit Facility."
ACQUIRED RESORTS
STEAMBOAT. Steamboat is one of the premier ski resorts in the United
States, ranked second overall by the September 1997 SNOW COUNTRY magazine survey
and fourth nationally in skier visits for the 1996-97 ski season. Located in
Steamboat Springs, Colorado and approximately three hours from Denver, Colorado,
Steamboat is recognized for its "champagne" powder snow and tree skiing. In the
1996-97 ski season, Steamboat skier visits increased by 8.4%, to 1.1 million,
from the 1995-96 ski season. U.S. Highway 40, a major east-west thoroughfare
connecting the cities of Denver and Salt Lake City, is located approximately one
mile west of the ski area. Steamboat is easily accessible by non-stop jet
service from nine major United States cities to the Hayden, Colorado airport, 22
miles from the resort. Numerous daily commuter flights from Denver are also
available. Steamboat has approximately 1,879 acres of skiable terrain which
consists of 135 trails serviced by 21 lifts.
Steamboat is making on-mountain improvements for the upcoming 1997-98 ski
season, including the addition of a high-speed quad chairlift, additional
snowmaking capacity and up to 260 acres of advanced/ expert terrain in the
Pioneer Ridge area. Lodge facilities are currently located in the base area and
at three other points on the mountain, Thunderhead, Four Points and Rendez Vous
Saddle. Steamboat operates or leases 15 retail shops, four equipment rental
shops and 17 food and beverage operations, having a total seating capacity of
approximately 2,734.
Steamboat's master plan calls for continued expansion to include Pioneer
Ridge which has been approved by the Forest Service, covering a total of 960
acres, which will involve the installation of two detachable chair lifts
servicing 27 open and gladed trails for intermediate and expert skiers.
Expansion of Pioneer Ridge, including snowmaking covering 66 acres, will be
phased in over three years. The new Morningside Park expansion was recently
completed and added one fixed grip chair lift servicing designated tree skiing
and open bowl skiing area for intermediate skiers. Because snowfall averages
more than 335 inches per year, the natural snowpack in Morningside Park is very
high due to snow blowing over a ridge and depositing in the bowl, making
snowmaking unnecessary in this area. Additionally, the resort has submitted an
application to the Forest Service for conceptual approval to develop
approximately 960 acres of contiguous forest lands. There can be no assurance,
however, that the Company's application will be approved. See "Risk
Factors--Real Estate Development" and "--Growth through Resort Expansion."
HEAVENLY. Located on the south shore of Lake Tahoe in the states of Nevada
and California, Heavenly consists of two peaks with a maximum elevation of
approximately 10,000 feet, a 3,500 foot vertical drop with approximately 4,800
acres of skiable terrain and 82 trails serviced by 27 lifts. Heavenly is
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the second largest resort in the Pacific West Region with approximately 700,000
skier visits for the 1996-97 ski season. Snowmaking covers over 268 acres of
skiable terrain, representing approximately 43% of the trails. Access to the
resort is primarily through the Reno Cannon International Airport and by
automobile via Route 50 from San Francisco and Sacramento, California. There are
three base lodges and four on-mountain lodge restaurants. There are no
residential units or tourist accommodation units adjacent to the ski resort;
however, there is a well developed 11,000 bed base in the greater South Lake
Tahoe area.
Heavenly's master plan was approved in 1996 and is being implemented by the
Company. The plan calls for the improvement and expansion of winter and summer
uses and support facilities at the resort. A six-person high-speed chairlift
known as the Tamarack Express is currently under construction. Associated with
the new lift will be three new ski runs, adding approximately 13 acres of new
terrain. Snowmaking capacity will also be added to an existing trail serviced by
the Tamarack Express. A primary objective of the plan is to refocus the primary
entrance to the ski resort from the three existing base lodges (California,
Stagecoach and Boulder) to the commercial core of South Lake Tahoe utilizing a
new high capacity gondola. The gondola has been designed for year round
sightseeing, while the top station will provide direct ski access to both the
Nevada and California sides via three new lifts.
Additional snowmaking coverage is contemplated which will increase existing
coverage from approximately 268 acres to approximately 500 acres. The master
plan provides for the construction of base facilities and new restaurants at Sky
Meadows, East Peak Lake and California base. The Company is also contemplating
an additional 1,852 food service seats through a new ski lodge at the top of the
gondola and modifications to Boulder Lodge. Other proposed improvements include
replacement of two existing maintenance facilities.
The master plan also provides for eight new lifts, including the gondola,
and the removal of the existing West Bowl lift. The master plan also provides
for the widening of some existing trails and construction of new trails, adding
approximately 117 acres of skiable terrain.
RESORT OPERATIONS
The Company's resort revenues are derived from a wide variety of sources
including lift ticket sales, food and beverage, retail sales including rental
and repair, skier development, lodging and property management, golf, other
summer activities and miscellaneous revenue sources. Lift ticket sales represent
the single largest source of resort revenues and represent approximately 46% of
total resort operations revenue for fiscal 1997.
The following chart reflects the Company's sources of resort revenues
(excluding the Acquired Resorts and The Canyons) across certain revenue
categories as well as the percentage of resort revenues constituted by each
category for fiscal 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 27, 1997
--------------------------------------------------------------------
<S> <C> <C>
REVENUE SEGMENT RESORT REVENUES PERCENTAGE OF RESORT REVENUES
- ----------------------------------------------- ------------------------------- -----------------------------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Lift tickets................................... $ 77.2 46%
Food and beverage.............................. 20.8 13
Retail sales................................... 19.9 12
Skier development.............................. 8.5 5
Lodging and property........................... 21.6 13
Golf, other summer activities, and
miscellaneous................................ 19.0 11
------- ---
Total revenues......................... $ 167.0 100%
------- ---
------- ---
</TABLE>
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LIFT TICKET SALES. The Company manages its lift ticket programs and
products so as to increase the Company's ticket yields. Lift tickets are sold to
customers in packages including accommodations in order to maximize occupancy.
In order to maximize skier visits during non-peak periods and to attract
specific market segments, the Company offers a wide variety of incentive-based
lift ticket programs. The Company manages its ticket yields during peak periods
so as to maximize aggregate lift ticket revenues. The Company's new Magnificent
7 lift ticket program offers a multi-day, multi-resort lift ticket package and
generated over $5 million in sales during the 1996-97 ski season.
FOOD AND BEVERAGE. Food and beverage sales provide significant revenues for
the Company. The Company owns and operates the food and beverage facilities at
its resorts, with the exception of the Sugarloaf resort, which is under a
long-term concession contract that pre-existed the Company's ownership. The
Company's food and beverage strategy is to provide a wide variety of
restaurants, bars, cafes, cafeterias and other food and beverage outlets. The
Company's control of its on-mountain and base area food and beverage facilities
allows it to capture a larger proportion of guest spending as well as to ensure
product and service quality. The Company currently owns and operates over 40
different food and beverage outlets and currently has five outlets being
expanded or constructed.
RETAIL SALES. Retail revenue aids in stabilizing the Company's daily and
weekly cash flows, as the Company's retail shops tend to have the strongest
sales on poor weather days. Across all of its resorts, the Company owns 28
retail shops and 18 ski rental shops. The large number of retail locations
operated by the Company allows it to improve margins through large quantity
purchase agreements and sponsorship relationships. On-mountain shops sell ski
accessories such as goggles, sunglasses, hats, gloves, skis, snowboards, boots
and larger soft goods such as jackets and snowsuits. In addition, all locations
offer the Company's own logo-wear which generally provides higher profit margins
than other retail products. In the non-winter seasons, the shops sell mountain
bikes, in-line skates, tennis equipment and warm weather apparel. In addition,
the Company plans to expand its retail operations, including expanding and
opening new off-site retail facilities in high traffic areas, such as stores on
the Killington Access Road and in the North Conway, New Hampshire retail
district, and a discount sporting goods chain with locations in Maine.
SKIER DEVELOPMENT. The Company has been an industry leader in the
development of learn to ski programs. Its Guaranteed Learn to Ski Program was
one of the first skier development programs to guaranty that a customer would
learn to ski in one day. The success of this program led to the development of
"Perfect Turn," which management believes was the first combined skier
development and marketing program in the ski industry. Perfect Turn ski
professionals receive specialized training in coaching, communication, skiing
and both selling related products and cross selling other resort goods and
services. Perfect Turn is currently licensed to five resorts in the United
States and Canada. The Company operates a hard goods marketing program at each
of its resorts designed to allow customers to test skis and snowboards with ski
professionals, purchase their equipment from those professionals and receive
ongoing product and technological support through Perfect Turn.
LODGING AND PROPERTY MANAGEMENT. The Company's lodging and property
management departments manage its own properties as well as properties owned by
third parties. Currently, the Company's lodging departments manage approximately
1,750 lodging units at the Existing Resorts. The lodging departments perform a
full complement of guest services including reservations, property management,
housekeeping and brokerage operations. Most resorts have a welcome center to
which newly arriving guests are directed. The center allocates accommodations
and provides guests with information on all of the resort's activities and
services. The Company's property management operation seeks to maximize the
synergies that exist between lodging and lift ticket promotions.
The Company's real estate development program is designed to ensure the
continued growth of its lodging operation. Typically, newly constructed
condominiums and townhomes are sold to owners who place the units into the
optional rental program managed by the Company. The resulting growth in
occupancy may increase skier visits and provide an additional source of fee
revenue for the Company.
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<PAGE>
MARKETING PROGRAMS
General. The Company's marketing programs are designed to (i) build a
nationally recognized high quality name and image while perpetuating the unique
image of its individual resorts, (ii) capitalize on opportunities to cross-sell
resorts and (iii) enhance customer loyalty. As part of its marketing strategy,
the Company engages in joint marketing programs with nationally recognized
commercial partners, such as Mobil, Budweiser, Pepsi/Mountain Dew, Visa, FILA
and Rossignol, whose target demographics complement those of the Company.
Management believes these joint marketing programs provide it with advantages in
creating a favorable image and market presence, both regionally and on a
national basis. In addition, the Company utilizes loyalty based incentive
programs such as its private label Edge Card, in which participants get credit
towards resort purchases.
PROGRAMS AND PROMOTIONS. The Company's strategy is to develop new and
innovative programs and promotions to increase skier visits, ticket yields,
spending per skier visit and Resort EBITDA. Management plans to focus the
1997-98 ski season programs primarily on ski weeks, fun centers and the
Company's new Edge Card. The fun center program develops activities targeted at
family participation in alpine sports. Fun center programs include sponsored
evening activities and non-skiing and snowboarding activities that enhance the
overall vacation experience, such as snow tubing, ice skating, luge, snowcat
rides, arcades and outdoor evening activities. The Company's Edge Card is a
private label frequent skier card through which participants gain credit toward
resort purchases. This card is the central focus of the Company's loyalty based
incentive programs, which it believes will help retain skiers in the Company's
resort network and expand the volume and scope of information available for
marketing purposes.
MEDIA STRATEGIES. The Company utilizes both traditional marketing media
such as advertisements in industry and lifestyle publications and an increasing
number of traditional marketing media. Advertisements also appear in
publications such as MEN'S JOURNAL, CONDE NAST TRAVELER, THE BOSTON GLOBE and
OUTSIDE magazines. The Company utilizes other marketing media such as direct
mail, television and the Company's Internet site at www.peaks.com.
PROMOTIONAL PARTNERS. The Company enhances its marketing budget through
forming promotional partnerships with major sponsors. Each of these sponsors is
selected because of similarity in demographic profile between its customer base
and that of the Company. Sponsors include Mobil, Budweiser, Pepsi/ Mountain Dew,
Visa, FILA and Rossignol. Working with its promotional partners, the Company
formulates television, radio and special event programs and activities that are
designed to appeal to the target demographic segment.
GROUP SALES. In addition to advertisements directed at the vacation guest,
the Company's marketing activities are focused on attracting ski groups,
corporate meetings and convention business. During the 1996-97 ski season, the
Company's Existing Resorts and the Acquired Resorts hosted over 1,000 groups.
The Company is able to attract new conference business due to its expertise in
providing professional planning services, recreational activities and high
quality dining and lodging facilities.
REAL ESTATE DEVELOPMENT
General. The Company has been developing alpine resort real estate for over
fifteen years as part of its integrated resort and real estate investment
strategy. Since 1983, the Company has sold over 1,350 units of residential real
estate at Sunday River (including condominiums, townhouses and quartershare
interval ownership interests). The three components of the Company's real estate
development strategy are (i) the Grand Summit quartershare hotel concept, (ii)
development of alpine villages, and (iii) resort-specific discrete projects. The
Company believes it has a significant real estate development pipeline over the
next 10 to 15 years.
According to industry sources, the interval ownership industry has grown at
a compound annual growth rate of approximately 18% from 1980 to 1994, with
interval ownership sales increasing from $490 million to $4.8 billion. According
to the American Resort Development Association ("ARDA"), the median age and
annual household income of an interval ownership buyer at the time of purchase
are 50
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years and $71,000, respectively. Industry statistics indicate that the interval
ownership concept has achieved low market penetration, with approximately 3%
penetration among households with income above $35,000 per year and 3.7%
penetration among households earning more than $50,000 per year.
The Company believes it has a significant competitive advantage over
traditional timeshare developers due to (i) its inventory of developable real
estate, (ii) the significant existing resort infrastructure in place, (iii) the
relative affluence of its resort guests and (iv) the market created by guest
visitation at its resorts. These factors lower land and marketing costs relative
to traditional time share developers allowing the sale of longer duration
intervals which differentiate the Grand Summit Hotel from traditional
timeshares.
The following table summarizes certain key statistics relating to each of
the Company's resort real estate holdings as of September 19, 1997 added since
the Company acquired each respective resort.
<TABLE>
<CAPTION>
RESIDENTIAL UNITS
-------------------------------------------------------
DEVELOPMENT
COMMENCEMENT RESERVED
DATES FOR
(FISCAL UNDER FUTURE
RESORT YEAR) SOLD DEVELOPMENT(1) PRE-SOLD DEVELOPMENT(2)
- ------------------------------ ------------ ----- ---------- ------ -----------
<S> <C> <C> <C> <C> <C>
Sunday River.................. 1982 1,362 892 256 4,894
Sugarbush..................... 1996 -- 420 170 2,150
Attitash Bear Peak............ 1996 124 880 3 219
Killington.................... 1997 -- 508 213 11,282
Mount Snow/Haystack........... 1997 -- 540 203 2,308
The Canyons................... 1997 -- 880 -- 5,992
Sugarloaf..................... 1998 -- 160 -- 1,820
Steamboat..................... 1998 -- 468 -- 3,005
Heavenly...................... 1998 -- 320 -- 30
----- ----- ------ -----------
Total......................... 1,486 5,068 845 31,700
----- ----- ------ -----------
----- ----- ------ -----------
<CAPTION>
COMMERCIAL SPACE (SQUARE FT)
--------------------------------------
RESERVED FOR
UNDER FUTURE
RESORT COMPLETED DEVELOPMENT(1) DEVELOPMENT(2)
- ------------------------------ --------- ----------- ------------
<S> <C> <C> <C>
Sunday River.................. 206,000 33,900 216,500
Sugarbush..................... 1,800 32,800 30,200
Attitash Bear Peak............ 40,800 -- 60,000
Killington.................... 17,000 38,300 349,400
Mount Snow/Haystack........... 2,200 43,000 169,600
The Canyons................... -- 14,900 406,100
Sugarloaf..................... -- -- 120,000
Steamboat..................... -- 30,000 203,300
Heavenly...................... -- -- 122,500
--------- ----------- ------------
Total......................... 267,800 192,900 1,677,600
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
- ------------------------
(1) Includes all units or commercial space currently under construction or in
the permitting process. Completed but unsold units, currently totalling 293,
are all located at Attitash Bear Peak. None of the other units identified in
the table as under development have been completed.
(2) Based on, among other things, the Company's capital and development plan for
the next 10 to 15 years, the Company's estimates for projected demand of
units and the availability of developable acreage. There can be no
assurance, however, that the Company will undertake or have adequate
financing to complete such development or that the Company will receive all
necessary licenses, permits and regulatory approvals. See "Risk
Factors--Real Estate Development."
GRAND SUMMIT HOTELS. The Grand Summit Hotel is a unique interval ownership
product which is based on the Company's successful Summit Hotel at its Sunday
River resort. Each hotel is a condominium consisting of both residential and
commercial units and includes: a three-level atrium lobby, two or more
restaurants, retail space, a grand ballroom, conference space, a health club
with an outdoor heated pool and other recreational amenities. The commercial
space is retained by the Company and used to operate the core hotel business,
while the residential units are sold in quartershare interests. Each
quartershare consists of a 13-week ownership interest spread evenly across the
year. At the Company's Sunday River Hotel, owners utilize the unit for an
average of approximately three weeks out of a possible 13 weeks. Weeks that are
not used by an owner are typically dedicated to the Company's optional rental
program for rental to a third party on terms allowing the Company to retain up
to 45% of gross rental revenue. Consequently, the Company benefits from revenue
generated by (i) the sale of units, (ii) the recurring revenues from lodging
rental revenue and (iii) other hotel and commercial operations.
Quartershare owners participate in Resort Condominium International ("RCI"),
the world's largest vacation interval exchange program. In a 1995 study
sponsored by the Alliance for Timeshare Excellence and ARDA, the "exchange
opportunity" was cited by purchasers of vacation intervals as one of the most
significant factors in determining whether to purchase a vacation interval.
Participation in the RCI program allows the Company's quartershare owners to
exchange their occupancy right for an occupancy right in one of approximately
3,000 participating resorts worldwide. Grand Summit Hotels are rated in
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RCI's highest exchange category, the Gold Crown Club, which permits the owner to
exchange their interest for an interval at RCI's finer properties.
The Company intends to operate an internal exchange program within its
expanding Grand Summit Hotel network. The Company expects that the opportunity
to exchange intervals at any of its resorts nationwide will enhance its loyalty
programs, cross-marketing of resorts and unit sales opportunities.
ALPINE VILLAGE DEVELOPMENT
The Company is currently in the planning and permitting stage of developing
alpine villages at The Canyons, Killington and Sunday River's Jordan Bowl. Each
village will be characterized by its proximity to resort facilities, ski in/ski
out access, dramatic landscape and resort specific design and architecture.
THE CANYONS. Two distinct areas at The Canyons are in the permitting
process for resort village development. One area consists of approximately 350
acres in the base area, 150 acres of which are controlled by the Company. The
second area is the Company's High Mountain Meadows development consisting of
approximately 120 acres located on a mid-mountain plateau at an elevation of
over 8,000 feet. The base area is under a long-term lease that provides an
option to purchase fee title to parcels within that area. The Company is
negotiating a similar arrangement with the owner of the mid-mountain plateau
area. The base area development is currently in the master planning process with
county authorities. The base village will be a mix of residential and commercial
space arranged in six neighborhoods designed to create an integrated base area
community, anchored by a Grand Summit Hotel. The master plan provides for the
integrated development of 150 acres of Company-controlled property, as well as
approximately 200 acres of surrounding property owned by unrelated third parties
who have elected to participate in the village development.
The High Mountain Meadows development presents an opportunity to develop a
mid-mountain base area surrounded by six of the resort's 14 mountain peaks. The
mid-mountain village will be accessed by a four-mile scenic drive and an
eight-passenger, high-speed heated gondola currently under construction. The
village will serve as the base for skiing the surrounding mountains, creating
access to an additional 2,000 vertical feet of skiable terrain. The primary
lodge, the Red Pine Lodge, is currently under construction at the mid-mountain
development and is expected to be completed for the 1997-98 ski season. The
Company proposes to commence construction of a Grand Summit Hotel in Summer
1998. The village will consist of approximately two million square feet of
compact, high density residential and commercial development. The development
will be principally a pedestrian village characterized by resort lodging, luxury
condominiums and ranches and mountain recreation properties.
The zoning for the base area and High Mountain Meadows development is being
revised in connection with a complete amendment of the county's general plan.
The proposed amendment would permit extensive development in each area. Adequate
sewer and water capacity are available in close proximity to the resort;
however, such capacity must be purchased from third party vendors and the
Company must construct the necessary infrastructure for transport to both
developments. See "Risk Factors--Required Development at The Canyons; Historical
Losses of Wolf."
KILLINGTON BASE AREA. In May 1997, the Company entered into an agreement
with the State of Vermont to exchange essential wildlife habitat owned by the
Company for approximately 1,050 acres of undeveloped land centrally located in
the base area. As part of the Company's proposed development plan for
Killington, this parcel will be combined with an existing 400 acre planned unit
development adjacent to Killington's golf facilities and the resort's primary
base area. The Company has retained Snow Engineering, an internationally
recognized resort and mountain planning firm, to assist in the master planning
of the village. The 400 acre planned unit development is specifically zoned for
commercial development. The village will integrate four "neighborhoods" into a
planned community containing a variety of real estate uses. The 1,050 acres to
be acquired from the State must be rezoned to accommodate the planned
development. The City of Rutland, Vermont and certain environmental groups
traditionally active in ski resort development have entered into a memorandum of
understanding designating the area as a growth zone to be utilized for
development.
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The Company believes that adequate water is available from nearby wells for
both projects. Sewer capacity will be provided through the Company's connection,
currently under construction, to a municipal sewer system with 600,000 gallons
per day excess capacity.
JORDAN BOWL AT SUNDAY RIVER. Jordan Village will be located on
approximately 1,100 acres of a 4,000 acre undeveloped parcel owned by the
Company at the western end of the existing resort and the center of the
Company's landholdings. The village will rest at the base of the Jordan Bowl,
one of the resort's most popular skiing areas. Development of Jordan Village
began with the construction of a scenic four-mile access road from the existing
resort center to the Jordan Village area and commencement of construction of a
ski-in/ski-out 220-unit Grand Summit Hotel, which is expected to be operational
during the 1997-98 ski season. Construction of a Robert Trent Jones, Jr.
championship golf course also began in Summer 1997.
The master plan for the area also contemplates a high density village
surrounded by neighborhoods consisting of luxury townhouses and detached single
family dwellings.
The Jordan Bowl area is zoned for village development. No density
restrictions apply to the area. The Company believes adequate water is available
for contemplated development and Sunday River's sewage treatment facility has
sufficient capacity to allow completion of the planned development of the
resort.
OTHER RESORT DEVELOPMENT
Each of the Company's resorts has the potential for additional real estate
development involving discrete projects tailored to the characteristics of the
particular resort. There can be no assurances, however, that the Company will
successfully pursue any of the development opportunities described below.
STEAMBOAT. The Company believes that the real estate development potential
at Steamboat is among the most significant of its resorts. The Company has
acquired 168 acres of real estate held for development at or near the base area.
Included in these properties are several locations the Company has targeted for
development, including (i) a 26 acre parcel centrally located in Steamboat's
Village Commercial Center, which is zoned for commercial development, (ii) a 47
acre site with potential ski-in/ski-out access located at Tennis Meadows, which
could support a Grand Summit Hotel and related development and (iii) a 20 acre
site zoned for over 275 units together with commercial development. The Company
is also a 50% partner in Country Club Highlands Partnership, a residential
development located at the Sheraton Golf Club consisting of 142 lots being built
in several phases, of which 49 lots and 38 townhouse units remain to be
developed.
SUGARLOAF. Development plans have begun for the expansion of an existing
hotel, a new Grand Summit Hotel, a high density condominium development and
commercial space as an expansion to the existing alpine village. There are
several planned developments including single family homes around the 18-hole
Robert Trent Jones, Jr. championship golf course. Sugarloaf has over 1,100 acres
of land held for development.
MOUNT SNOW/HAYSTACK. There are several undeveloped sites at Mount
Snow/Haystack with potential for future projects including renovation of the
current base lodge, a 21 acre parcel which could support up to 72 three-bedroom
units with direct ski lift access, and a two acre parcel for a convention
center. Mount Snow/Haystack also owns an 800 acre parcel slated for a proposed
golf course expansion, which could create the opportunity for substantial golf
course frontage real estate development. In addition, there are approximately 30
acres of developable land at the base of Haystack.
KILLINGTON. In addition to the development of Killington's alpine village
and Grand Summit Hotel, there are three distinct real estate parcels available
for development. At the base of the Skyeship Gondola, there is a 165 acre site
commercially zoned for a 150-room hotel and 40,000 square feet of commercial
real estate, or for up to 200 townhouse duplexes. At the Falls Brook area,
located at Bear Mountain, there are approximately 376 acres available for real
estate development. A chair lift and ski trails serve a major portion of the
site. In addition, an 11 acre parcel with several hundred feet of frontage on
U.S. Route 4 is zoned for single and multi-family dwellings, hotels, motels and
lodging, office, retail space and restaurants.
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SYSTEMS AND TECHNOLOGY
Information Systems. The Company's information systems are designed to
improve the ski experience through the development of more efficient guest
service products and programs. The Company is currently implementing a
comprehensive $3.2 million system and technology plan including (i) a radio
frequency lift ticket scanning system that provides more accurate tracking,
control and information on all ticket products, (ii) a direct-to-lift access
system that allows skiers to bypass the ticket window and proceed directly to
the lift with an individualized radio frequency card that directly debits their
credit or frequent-skier card, (iii) a resort-wide guest charging system
utilizing individualized credit cards that can be used to charge goods and
services at most of the Company's facilities, (iv) an integrated customer
database that tracks information regarding guest preferences and product
purchasing patterns, (v) an extensive data communications network linking most
point-of-sale locations through a central database, (vi) a central reservations
system for use in the resort's rental management business and (vii) a skier
development reservation and instructor scheduling system that simplifies the
booking process and allows for optimal utilization of instructors.
SNOWMAKING SYSTEMS AND TECHNOLOGY. The Company believes it operates the
largest consolidated snowmaking operation in existence. Including the 1997
expansion currently underway, it has approximately 3,000 acres of snowmaking
coverage. The Company's proprietary snowmaking software program enables it to
produce what management believes is the highest quality man-made snow in the
industry. The Company's snowmaking capability can be implemented at its western
resorts resulting in an extended season and reliable snow conditions and
consistent quality surfaces during unfavorable weather conditions.
All of the Company's snowmaking systems are operated via computer-based
control using industrial automation software and a variety of state of the art
hardware and instrumentations. The Company utilizes an efficient ground based,
tower based and fully automated snowgun nozzle technology and has developed
software for determining the optimal snowmaking nozzle setting at multiple
locations on the mountain. This system monitors the weather conditions and
system capacities and determines the proper operating water pressure for each
nozzle, eliminating guesswork and ensuring the ideal snow quality. The Company
refers to this ideal quality product as "Retail Snow," a high quality, durable
skiing surface with top to bottom consistency. All of the snowmaking systems are
networked to provide the ability to view information from multiple locations
within its resort network. Another unique feature of the Company's system is the
current display of trail status, lift status, weather conditions and other
various on mountain information at locations throughout each resort. Much of
this information will also be available on the world wide web at the Company's
and its individual resorts' web sites for the 1997-98 season.
LEASED PROPERTIES
The Company's operations are wholly dependent upon its ownership or control
over the real estate constituting each resort. The following summarizes
non-owned real estate critical to operations at each resort. Management believes
each of the following leases, permits or agreements is in full force and effect
and that the Company is entitled to the benefit of such agreements.
Sunday River leases approximately 1,500 acres, which constitute a
substantial portion of its skiable terrain, under a 50-year lease terminating on
October 14, 2030. The lease renews automatically thereafter on a year-to-year
basis unless terminated by either the lessor or lessee.
The Sugarbush resort uses approximately 1,915 acres pursuant to a special
use permit issued by United States Forest Service dated May 17, 1995. The permit
has a 40-year term expiring April 30, 2035. The special use permit has a renewal
option which provides that it may be renewed if the use of the property remains
compatible with the special use permit, the site is being used for the purposes
previously authorized, and the ski area has been continually operated and
maintained in accordance with all the provisions of the permit.
Mount Snow leases approximately 1,315 acres which constitute a substantial
portion of its skiable terrain. Of this total, 893 acres are occupied by Mount
Snow pursuant to a special use permit granted by the United States Forest
Service dated November 29, 1989. The permit has a 40-year term expiring December
31, 2029, which is subject to renewal at the option of Mount Snow if certain
renewal conditions
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are satisfied. Mount Snow also leases 252 acres, which constitute a portion of
its skiable terrain, from the Town of Wilmington, Vermont. The lease expires
November 15, 2030. There are no renewal options. In addition, Mount Snow leases
approximately 169 acres from Sargent Inc. pursuant to two separate leases
expiring September 30, 2018 and March 31, 2025, respectively. Each lease can be
renewed for an additional 30-year term. Mount Snow also has the option to
purchase the leased property and a right of first refusal in the event Sargent
Inc. receives a bona fide offer for the leased properties.
Attitash Bear Peak uses approximately 281 acres of its skiable terrain
pursuant to a special use permit issued by the United States Forest Service
dated July 19, 1994. The permit has a 40-year term expiring July 18, 2034, which
is renewable subject to certain conditions. In addition, Attitash Bear Peak
leases a portion of its parking facilities under a lease expiring December 31,
2003. Attitash Bear Peak has the option to purchase this leased property at any
time during the lease term.
Killington leases approximately 2,500 acres from the State of Vermont. A
substantial portion of that property constitutes skiable terrain. The initial
lease was for an initial 10-year term which commenced in 1960. The lease
contains nine 10-year renewal options. Killington exercised the renewal option
in 1970, 1980 and 1990. Assuming continued exercise of Killington's option, the
lease ultimately expires in the year 2060. The lease is subject to a buy-out
option retained by the State of Vermont, as landlord. At the conclusion of each
10-year term (or extended term) the State has the option to buy out the lease
for an amount equal to Killington's adjusted capital outlay plus 10% of the
gross receipts from the operation for the preceding three years. Adjusted
capital outlay means total capital expenditures extending back to the date of
origin of the lease depreciated at 1% per annum, except that non-operable assets
depreciate at 2% per annum. This buy-out option will next become exercisable in
the year 2000. Although the Company has not had confirmation from Vermont state
officials, it has no reason to believe that the State intends to exercise the
option at that time.
The Sugarloaf resort leases the Sugarloaf Golf Course from the Town of
Carrabassett Valley, Maine pursuant to a lease dated June 3, 1987. The lease
term expires December 2003. Sugarloaf has an option to renew the lease for an
additional 20-year term.
The Canyons leases approximately 2,100 acres, including most of the base
area and a substantial
portion of the skiable terrain, under a lease from Wolf Mountain Resorts, L.L.C.
The initial term of this lease is 50 years expiring July 2047, with an option to
extend for three additional terms of 50 years each (the "Wolf Lease"). The lease
provides an option to purchase (subject to certain reconveyance rights) those
portions of the leased property that are intended for residential or commercial
development at a cost of 11% of the full capitalized cost of such development.
The Wolf Lease includes a sublease of approximately 807 acres, which constitutes
the area for the planned mid-mountain village and a substantial portion of
skiable terrain, from the State of Utah School and Institutional Trust Land
Administration, which terminates January 1, 2027. The sublease is being
renegotiated as a direct lease extending its term to the year 2078 and provides
an option to purchase those portions of the mid-mountain village area that are
intended for real estate development at a cost of 25% of their fair market value
on an undeveloped basis. The Wolf Lease also includes a sublease of certain
skiable terrain owned by the Osguthorpe family. The Company has established
certain additional ski development rights under a direct agreement with the
Osguthorpe family. The ski development rights for approximately 3,000 acres of
skiable terrain targeted for development by the Company are contained in a
development agreement with Iron Mountain Associates, LLC, which agreement
effectively constitutes a lease of all skiable terrain for a term ending
September 13, 2094.
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Heavenly uses approximately 1,543 acres of its skiable terrain located in
California and Nevada pursuant to special use permit issued by the United States
Forest Service dated December 18, 1990. The permit expires on August 5, 2029.
Heavenly uses approximately 2,000 acres of additional skiable terrain in Nevada
pursuant to a special use permit dated December 18, 1990. The permit expires on
August 5, 2029.
Steamboat uses approximately 2,644 acres, a substantial portion of which is
skiable terrain, pursuant to a special use permit issued by the United States
Forest Service. The permit expires on August 31, 2029. Under Steamboat's
existing master plan, an additional 958 acres of contiguous National Forest
lands is expected to be added to the permitted area.
COMPETITION
The ski industry is highly competitive. The Company competes with mountain
resort areas in the United States, Canada and Europe. The Company also competes
with other recreation resorts, including warm weather resorts, for the vacation
guest. In order to cover the high fixed costs of operations associated with the
ski industry, the Company must maintain each of its regional, national and
international skier bases. The Company's prices are directly impacted by the
variety of alternatives presented to skiers in these markets. The most
significant competitors are resorts that are well capitalized, well managed and
have significant capital improvement and resort real estate development
programs.
The Company's resorts also face strong competition on a regional basis. With
approximately three million skier visits generated by its northeastern resorts,
competition in that region is an important consideration. The Company's
northeastern markets are the major population centers in the northeast,
particularly eastern Massachusetts, northern Connecticut, New York and northern
New Jersey. For example, skier origin data collected at Sunday River indicates
that approximately 43% of its weekend skiers reside in Massachusetts. Similar
data collected at Killington and Mount Snow indicate that approximately 23% and
35%, respectively, of their weekend skiers reside in New York, with high
concentrations from Massachusetts, Connecticut, New Jersey and Vermont. The
Colorado, Utah and California ski markets are also highly competitive.
EMPLOYEES AND LABOR RELATIONS
The Company employs approximately 6,300 employees at peak season and
approximately 1,200 persons full time. None of the Company's employees are
covered by any collective bargaining agreements. The Company believes it has
good relations with its employees.
GOVERNMENT REGULATION
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use environmental/health and safety,
water resources, air and water emissions, sewage disposal, and the use, storage,
discharge, emission and disposal of hazardous materials and hazardous and
nonhazardous wastes, and other environmental matters. While management believes
that the Company's resorts are currently in material compliance with all land
use and environmental laws, failure to comply with such laws could result in
costs to satisfy environmental compliance and/or remediation requirements or the
imposition of severe penalties or restrictions on operations by government
agencies or courts that could adversely affect operations. Phase I environmental
assessments have been completed on all nine resort properties. The reports
identified areas of potential environmental concern including the need to
upgrade existing underground storage tanks at several facilities and to
potentially remediate petroleum releases. In addition, the Phase I environmental
assessment for The Canyons indicated some soil contamination in areas where
underground storage tanks have been removed. At this point, the extent or
significance of the contamination at that site is unknown. The reports did not,
however, identify any environmental conditions or non-compliance at any of the
resorts, the remediation or correction of which management believes would have a
material adverse impact on the business or financial condition of the
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Company or results of operations or cash flows. The Killington resort has been
identified by the U.S. Environmental Protection Agency (the "EPA") as a
potentially responsible party at two sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or
"Superfund"). Killington has entered into a settlement agreement with the EPA at
one of the sites, the Solvents Recovery Service of New England Superfund site in
Southington, Connecticut. Killington recently rejected an offer to enter into a
de minimis settlement with the EPA for the other site, the PSC Resources
Superfund Site in Palmer, Massachusetts. The Company believes that its liability
for these Superfund sites, individually and in the aggregate, will not have a
material adverse effect on the business or financial condition of the Company or
results of operations or cash flows.
The Company believes it has all permits, licenses and approvals from
governmental authorities material to the operation of the resorts as currently
configured. The Company has not received any notice of material non-compliance
with permits, licenses or approvals necessary for the operation of any of its
properties.
The purchase of the Acquired Resorts is subject to the satisfaction of
certain covenants and conditions, including those related to environmental and
land-use development issues. The Company is not aware of any environmental
issues or conditions related to the Acquired Resorts which, individually or in
the aggregate, would have a material adverse effect on the business or financial
condition of the Company or results of operations or cash flow.
The capital programs at the resorts will require permits and approvals from
certain federal, state and local authorities. The Company's operations are
heavily dependent upon its continued ability, under applicable laws,
regulations, policies, permits, licenses or contractual arrangements, to have
access to adequate supplies of water with which to make snow and service the
other needs of its facilities, and otherwise to conduct its operations. There
can be no assurance that new applications of existing laws, regulations and
policies, or changes in such laws, regulations and policies will not occur in a
manner that would have a material adverse effect on the Company, or that
important permits, licenses or agreements will not be canceled, not renewed, or
renewed on terms no less favorable to the Company. Major expansions of any one
or more resorts could require the filing of an environmental impact statement
under environmental laws and applicable regulations if it is determined that the
expansion has a significant impact upon the environment and could require
numerous other federal, state and/or local approvals. Although the Company has
consistently been successful in implementing its capital expansion plans, no
assurance can be given that necessary permits and approvals will be obtained.
The Company's marketing and sales of interval ownership interests is subject
to extensive federal and state government regulation. See "Risk
Factors--Regulation of Marketing and Sales of Quartershares; Other Laws."
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
arising in the ordinary course of its business. The Company does not believe
that it is involved in any litigation that will, individually or in the
aggregate, have a material adverse effect on its financial condition or results
of operations or cash flows.
Each of the resort operating companies have pending and are regularly
subject to suits with respect to personal injury claims related principally to
skiing activities at such resort. Each of the operating companies maintains
liability insurance that the Company considers adequate to insure claims related
to usual and customary risks associated with the operation of a ski resort. The
Company operates a captive insurance company authorized under the laws of the
State of Vermont, which provides liability and workers' compensation coverage
for its resorts located in Vermont.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages and their
respective positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Leslie B. Otten...................................... 48 Director, President and Chief Executive Officer
Thomas M. Richardson................................. 44 Director, Senior Vice President, Chief Financial
Officer and Treasurer
Christopher E. Howard................................ 40 Director, Senior Vice President, Chief Administrative
Officer, General Counsel and Clerk
Burton R. Mills...................................... 44 Senior Vice President--Mountain Operations
G. Christopher Brink................................. 44 Senior Vice President--Marketing
Warren C. Cook....................................... 52 Senior Vice President--Resort Operations
W. Scott Oldakowski.................................. 34 Vice President--Real Estate Sales
Michael Meyers....................................... 44 Vice President--Real Estate Development
</TABLE>
Each officer serves at the discretion of the Board of Directors. Each
director holds office until his successor is duly elected and qualified or until
his resignation or removal. There are no family relationships among any of the
directors or executive officers of the Company. Following the consummation of
the Offering, the Company intends to appoint two independent directors.
LESLIE B. OTTEN, Director, President and Chief Executive Officer. In 1970,
Mr. Otten joined Sherburne Corporation, then the parent company of Sunday River,
Killington and Mount Snow. Mr. Otten became Assistant General Manager of Sunday
River in 1972 and became General Manager of Sunday River in 1974. He has been a
director and the President and Chief Executive Officer of the Company (or a
subsidiary of the Company) since 1980. Mr. Otten is currently a director and was
previously chairman of the Portland Museum of Art, the Maine Chamber and
Alliance, Maine Handicap Skiing, Gould Academy (a private secondary school) and
Project Opportunity (a higher education scholarship program).
THOMAS M. RICHARDSON, Director, Senior Vice President, Chief Financial
Officer and Treasurer. Mr. Richardson joined the Company in the spring of 1993
as Vice President of Finance and Base Operations and has served in his present
position since July 1996. From 1992 until joining the Company, he worked at Loon
Mountain Recreation Corporation (a ski resort operator) as Treasurer and
Director of Food, Beverage and Tickets. From 1983 to 1992, Mr. Richardson worked
at S-K-I Ltd. (an owner of ski resorts) as an Internal Auditor, Accounting
Manager and Division Controller at Killington. Mr. Richardson serves on the
Economic Committee of the National Ski Area Association.
CHRISTOPHER E. HOWARD, Director, Senior Vice President, Chief Administrative
Officer, General Counsel and Clerk. Mr. Howard joined the Company in 1996 after
serving as the Company's outside counsel. Prior to joining the Company, Mr.
Howard was a partner in the law firm of Pierce Atwood where he practiced in the
firm's corporate department since 1982.
BURTON R. MILLS, Senior Vice President--Mountain Operations. Mr. Mills has
spent his entire 22-year career with the Company (or its predecessor), serving
in his present capacity since July 1996. Prior thereto, he served as Vice
President of Mountain Operations.
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G. CHRISTOPHER BRINK, Senior Vice President--Marketing. Mr. Brink has been
with the Company since 1993 and in his present capacity since July 1996. Prior
to joining the Company, Mr. Brink served from 1991-1993 as a director of
off-site sale centers for Marriott Vacation Ownership, Inc.
WARREN C. COOK, Senior Vice President--Resort Operations. Mr. Cook joined
the Company in 1996 as Managing Director of Sugarloaf Mountain Corporation (a
subsidiary of the Company). Since January 1997 he has served in his present
capacity with the Company. From 1986 to 1996 he was chief executive officer and
general manager of Sugarloaf, USA (a ski resort operator).
W. SCOTT OLDAKOWSKI, Vice President--Real Estate Sales. Mr. Oldakowski
started working for the Company in 1991 as an independent consultant on the
Summit Hotel project before being hired as Director of Real Estate in 1993. He
became Vice President of Real Estate Sales for the Company in 1995. From 1986 to
1991, he served as Director of Sales and Marketing at multiple resorts for Dunes
Marketing Group, a resort development firm.
MICHAEL MEYERS, Vice President--Real Estate Development. Mr. Meyers joined
the Company in April 1995 and has led the master planning, permitting and
development of five hotels for Grand Summit Resort Properties, Inc., a
subsidiary of the Company. From 1989 to 1993, Mr. Meyers was a Vice President at
Stanmar Development, a real estate development firm. Immediately prior to
joining the Company, he was chief operating officer from 1993 to 1995 for
Massachusetts Industrial Finance Agency (a bond issuer for borrowers consisting
of commercial, industrial and charitable organizations or entities).
EMPLOYMENT AGREEMENTS
In August 1994, Warren Cook entered into an employment agreement with
Sugarloaf Mountain Corporation ("SMC"). The employment agreement provides that
Mr. Cook will act as President of SMC for a term of five years and a base salary
of $120,000 per year (subject to customary salary increases), plus an annual
bonus. In addition, under Mr. Cook's employment agreement, he is entitled to
participate in SMC's employee benefit plans. If Mr. Cook's employment is
terminated for any reason, other than Mr. Cook's gross mismanagement, he will be
entitled to a cash payment equal to the greater of 50% of the compensation he
would have received over the remaining term of the agreement or his annual
salary and bonus for the year in which the termination occurs.
In August 1996, Christopher Howard entered into an employment agreement with
ASC East. The employment agreement provides that Mr. Howard will act as Chief
Administrative Officer and General Counsel of ASC East for a base salary of
$150,000 per year (subject to salary increases based on inflation reflected in
the Consumer Price Index), plus an annual bonus equal to the greater of $50,000
or .1875% of the combined ski and lodging and real estate EBITDA of ASC East. In
addition, under Mr. Howard's employment agreement, he is entitled to participate
in ASC East's employee benefit plans. If Mr. Howard's employment is terminated
(i) involuntarily, he is entitled to receive his annual salary and bonus for the
year in which the termination occurs or (ii) in connection with a sale of ASC
East, he is entitled to receive two times his annual base salary and bonus for
the year in which the sale occurs.
BOARD COMMITTEES
Upon the appointment of the independent directors, the Board of Directors
intends to establish a Compensation Committee, an Audit Committee and an Options
Committee. The Compensation Committee, in conjunction with the entire Board of
Directors, will make recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company. The Audit
Committee, in conjunction with the entire Board of Directors, will review the
results and scope of the audit and other services provided by the Company's
independent public accountant and will be comprised solely of the Company's
independent directors. The Options Committee will administer and interpret the
Stock Option Plan.
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DIRECTOR COMPENSATION
The Company will reimburse each member of the Board of Directors for
expenses incurred in connection with attending Board and committee meetings.
Directors will receive $5,000 for attendance at each meeting of the Board,
unless attendance is via telephone. The Company will grant options to purchase
2,500 shares of Common Stock to non-employee directors upon their election and
re-election to the Board of Directors. The stock options will have a term of 10
years and the option price will be no less than the fair market value as of the
date of the grant.
EXECUTIVE COMPENSATION
The following table shows remuneration paid or accrued by the Company during
the fiscal year ended July 27, 1997 to the Chief Executive Officer and to each
of the other four most highly compensated executive officers of the Company
(together, the "Named Executive Officers") for services in all capacities while
they were employees of the Company, and the capacities in which the services
were rendered.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
SECURITIES UNDERLYING
ANNUAL COMPENSATION OPTIONS TO
PURCHASE COMMON STOCK
--------------------- OR CLASS A ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMMON STOCK COMPENSATION
- ---------------------------------------------- ----------- ---------- --------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
Leslie B. Otten............................... 1997 $ 350,000 $ -- -- $ --
President and Chief Executive Officer
Thomas M. Richardson.......................... 1997 170,000 -- -- --
Senior Vice President, Chief Financial
Officer and Treasurer
Warren C. Cook................................ 1997 133,770 -- -- --
Senior Vice President-Resort Operations
Burton R. Mills............................... 1997 170,000 -- -- --
Senior Vice President--Mountain Operations
G. Christopher Brink.......................... 1997 170,000 -- -- --
Senior Vice President--Marketing
</TABLE>
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<PAGE>
STOCK OPTION PLAN
Under the Company's Stock Option Plan, 5,688,699 shares of Common Stock are
reserved for issuance upon the exercise of stock options. The Stock Option Plan
is designed to attract, retain and motivate directors and key employees. The
Options Committee of the Board of Directors of the Company (the "Options
Committee") will administer and interpret the Stock Option Plan. The Company
intends to administer the Stock Option Plan in compliance with the requirements
of Section 162(m) of the Internal Revenue Code of 1986, as amended, with the
intended result that certain amounts paid which are taxable as income to holders
of stock options granted pursuant to such Stock Option Plan will be deductible
by the Company for federal income tax purposes.
Both incentive stock options and non-qualified stock options may be granted
under the Stock Option Plan on such terms and at such prices as determined by
the Options Committee pursuant to the requirements of applicable law. The per
share exercise price of incentive stock options may not be less than the fair
market value of the Common Stock on the date of grant. Future grants of stock
options are expected to have an exercise price equal to the fair market value of
the Common Stock on the date of grant. Each option is for a term of not less
than five years or more than 10 years, as determined by the Options Committee.
Options granted under the Stock Option Plan are not transferable other than by
will or by the laws of descent and distribution.
The Company has granted options to purchase an aggregate of 2,475,235 shares
of the Common Stock with exercise prices ranging from $2.00 per share to the
offering price of the Common Stock per share.
The Stock Option Plan provides that all of an employee's options will become
exercisable in full immediately upon termination of employment because of death
or permanent disability, and provides that the Options Committee in its
discretion may permit accelerated exercisability upon an employee's early
retirement (at age 55 or over or after five years of employment).
In the event of a "change in control" (as defined in the Stock Option Plan)
all outstanding options will be exercisable in full for 30 days prior to such
event and will terminate upon consummation of such event, unless assumed or
replaced by other options in connection with such event.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options to the Named
Executive Officers as of the date hereof.
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF TOTAL VALUE OF UNEXERCISED
OF COMMON OPTIONS GRANTED IN-THE- MONEY OPTIONS
STOCK UNDERLYING TO AT JULY 27, 1997
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ---------------------------- ------------------ --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Leslie B. Otten............. 1,853,197 shares 74.9% $ 18.50 08/01/07 -- --
Thomas M. Richardson........ 100,334 shares 4.1% $ 2.00 08/01/07 $ 2,895,568 $ 4,686,498
Burton R. Mills............. 80,243 shares 3.2% $ 2.00 08/01/07 $ 2,315,756 $ 3,748,068
G. Christopher Brink........ 80,243 shares 3.2% $ 2.00 08/01/07 $ 2,315,756 $ 3,748,068
Warren C. Cook.............. 40,121 shares 1.6% $ 2.00 08/01/07 $ 1,157,863 $ 1,874,010
</TABLE>
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, Sunday River Skiway Corporation, a subsidiary of the Company
("SRSC"), issued an unsecured demand note to Mr. Otten obligating SRSC to pay to
Mr. Otten a total of $5.2 million. Interest on the note is calculated at 5.4%
per annum. The note was issued to Mr. Otten for an amount equal to the income
taxes to be paid by him in 1996 and 1997 with respect to SRSC's income as an S
corporation which was converted to a C corporation. The remaining principal
amount of such note as of September 1, 1997 was approximately $1.9 million.
Christine Otten, Mr. Otten's spouse, is employed by the Company as its
director of retail buying and is principally involved in its retail sales
activities. During fiscal years 1995, 1996 and 1997, Ms. Otten received total
compensation of $53,584, $54,577 and $51,600, respectively.
Western Maine Leasing Co., a corporation wholly owned by Mr. Otten,
presently leases items of heavy equipment to Sunday River under short-term
leases on terms believed by management to be comparable to those that could be
obtained by Sunday River from unaffiliated lessors of such equipment. In fiscal
1995, 1996 and 1997, payments under such leases totaled $34,000, $36,200 and
$36,700, respectively.
The Company provides lodging management services for Ski Dorm, Inc., a
corporation owned by Mr. Otten and his mother, which owns a ski dorm located
near the Sunday River resort, on terms believed by management to be comparable
to those that would be offered by the Company to unaffiliated entities. In
fiscal 1995, 1996 and 1997, payments by Ski Dorm, Inc. to Sunday River totaled
$83,000, $90,000 and $87,000, respectively. In addition, Ski Dorm, Inc. issued a
promissory note in 1995 in the principal amount of $265,000, of which $250,000
was outstanding at July 27, 1997. Such note is secured by a mortgage on land and
a building. Interest on the note is charged at the prime rate plus 1- 1/2% and
principal and any accrued interest are due in December 1999.
Sunday River Land Holdings, Inc., a company wholly owned by Mr. Otten,
leases the real estate upon which the Sunday River snow-making ponds are
located. The lease has a term of 30 years and rent at the rate of $100,000 per
year, subject to a Consumer Price Index inflation adjustment.
The Principal Shareholder intends to borrow funds to purchase Common Stock
in the Concurrent Offering pursuant to a loan agreement with a financial
institution and will pledge shares of Common Stock and Class A Common Stock to
secure the loan. In connection with the loan, the Company will enter into a
registration rights agreement containing customary provisons with the lender
pursuant to which the lender will have the right to require the Company to
register the shares pledged by the Principal Shareholder to secure the loan.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock and Class A Common as of September 1,
1997, and as adjusted to reflect the sale of the shares offered hereby (i) by
each person or entity known by the Company to own beneficially more than 5% of
the Company's capital stock, (ii) by each director of the Company, (iii) by each
of the Named Executive Officers and (iv) by all directors and executive officers
of the Company as a group. Except as indicated below, each person or entity
listed below maintains a mailing address c/o American Skiing Company, P.O. Box
450, Sunday River Access Road, Bethel, Maine 04217, and has sole voting and
investment power over the shares of Common Stock shown as beneficially owned,
except to the extent authority is shared by spouses under applicable law. The
following table assumes the consummation of the ASC East Exchange Offer and the
conversion of the 10 1/2% Convertible Preferred Stock into 2,110,518 shares of
Common Stock after the Offering and that all 14,760,530 shares of Class A Common
Stock outstanding after the Offering are outstanding shares of Common Stock
before the Offering.
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK CLASS A COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING AFTER OFFERING AFTER OFFERING
DIRECTORS, NAMED EXECUTIVE ----------------------- ------------------------- ---------------------------
OFFICERS AND FIVE PERCENT OF PERCENT OF PERCENT OF
PERCENT SHAREHOLDERS SHARES CLASS SHARES CLASS SHARES CLASS
- ------------------------------- ---------- ----------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie B. Otten(1)............. 16,613,727 100.0% 2,664,008 13.8% 14,760,530 100%
Thomas M. Richardson(2)........ 100,334 0.7 100,334 * -- --
Christopher E. Howard(2)....... 150,493 1.0 150,493 * -- --
Burton R. Mills(2)............. 80,243 0.5 80,243 * -- --
G. Christopher Brink(2)........ 80,243 0.5 80,243 * -- --
Warren C. Cook(2).............. 40,121 0.3 40,121 * -- --
Madeleine LLC(3)
c/o Cerberus
450 Park Ave.
New York, NY
10022........................ -- -- 2,110,518 12.1% -- --
Directors and Executive
Officers as a Group
(8 persons)(4)............... 17,085,227 100.0% 3,135,508 17.7% 14,760,530 100%
<CAPTION>
PERCENT OF
CLASS A COMMON
STOCK AND COMMON
DIRECTORS, NAMED EXECUTIVE STOCK BENEFICIALLY
OFFICERS AND FIVE OWNED AFTER
PERCENT SHAREHOLDERS OFFERING
- ------------------------------- -------------------
<S> <C>
Leslie B. Otten(1)............. 51.1%
Thomas M. Richardson(2)........ *
Christopher E. Howard(2)....... *
Burton R. Mills(2)............. *
G. Christopher Brink(2)........ *
Warren C. Cook(2).............. *
Madeleine LLC(3)
c/o Cerberus
450 Park Ave.
New York, NY
10022........................ 6.5%
Directors and Executive
Officers as a Group
(8 persons)(4)............... 51.8%
</TABLE>
- ------------------------------
* Less than one percent.
(1) Includes 1,853,197 shares of Common Stock issuable under exercisable options
granted under the Stock Option Plan and 810,811 shares of Common Stock to be
issued in the Concurrent Offering.
(2) All shares of Common Stock beneficially owned by such person are issuable
under exercisable options granted under the Stock Option Plan.
(3) Includes 2,110,518 shares of Common Stock issuable upon the conversion of
such holder's shares of 10 1/2% Convertible Preferred Stock. Does not
include up to 1,433,145 additional shares of Common Stock issuable upon
conversion of the Company's 10 1/2% Convertible Preferred Stock as a result
of the accrual of cumulative dividends thereon.
(4) Includes 2,324,697 shares of Common Stock issuable under exercisable options
granted under the Stock Option Plan.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of the material terms of each instrument
governing the Company's indebtedness.
THE NEW CREDIT FACILITY
On October 8, 1997, the Company entered into a commitment letter (the
"Commitment Letter") with respect to the New Credit Facility. The Commitment
Letter contemplates credit facilities providing for borrowings in an aggregate
amount of up to $215 million. Amounts borrowed under the New Credit Facility are
expected to be available (i) to finance the Acquisition, (ii) to repay
approximately $60 million of indebtedness of ASC East under the Existing Credit
Facility, (iii) to repay approximately $12 million of indebtedness of the
Company and its subsidiaries, (iv) to pay certain fees and expenses relating to
the Acquisition and (v) for ongoing general corporate purposes and capital
expenditures. The New Credit Facility is expected to be divided into two
sub-facilities, $75 million of which (up to $65 million of which will be
available upon consummation of the Offering) is expected to be available for
borrowings by ASC East and its subsidiaries (the "East Facility") and $140
million of which is expected to be available for borrowings by the Company
excluding ASC East and its subsidiaries (the "West Facility"). The East Facility
is expected to consist of a six-year revolving credit facility in the amount of
$45 million and an eight-year term facility in the amount of $30 million. The
West Facility is expected to consist of a six-year revolving facility in the
amount of $65 million and an eight-year term facility in the amount of $75
million. The revolving facilities are subject to annual 30-day clean down
requirements to an outstanding balance of not more than $10 million for the East
Facility and not more than $35 million for the West Facility. The maximum
availability under the revolving facilities will reduce over the term of the New
Credit Facility by certain prescribed amounts. The term facilities amortize at a
rate of approximately 1.0% of the principal amount for the first six years with
the remaining portion of the principal due in two substantially equal
installments in years seven and eight. At the Company's option, interest will be
payable at an alternate base rate or LIBOR, in each case, plus an applicable
margin that is dependent upon the ratio of the Company's total debt to EBITDA
(as defined in the New Credit Facility).
The New Credit Facility is expected to require mandatory prepayments with
the net proceeds of any asset sales and new debt and/or equity offerings of the
Company. Beginning in July 1999, the New Credit Facility is expected to require
mandatory prepayments of 50% of excess cash flows during any period in which the
ratio of the Company's total senior debt to EBITDA exceeds 3.50 to 1. In no
event, however, will such mandatory prepayments reduce either revolving facility
commitment below $35 million.
The East Facility is expected to be secured by substantially all the assets
of ASC East and its subsidiaries, except Grand Summit Resort Properties, Inc.,
which is not a borrower under the New Credit Facility. The West Facility is
expected to be secured by substantially all the assets of the Company and its
subsidiaries, except ASC East and its subsidiaries.
The New Credit Facility is expected to contain various covenants that limit,
among other things, subject to certain exceptions, indebtedness, liens,
transactions with affiliates, restricted payments and investments, mergers,
consolidations and dissolutions, sales of assets, dividends and distributions
and certain other business activities. In addition, the New Credit Facility is
expected to contain financial covenants customary for this type of senior credit
facility, including maintenance of customary financial ratios. Compliance with
financial covenants will be determined on a consolidated basis notwithstanding
the bifurcation of the New Credit Facility into the East Facility and the West
Facility, with the exception of a leverage test.
THE 12% NOTES
ASC East has outstanding $120 million aggregate principal amount of 12%
Notes which bear interest at a rate of 12% per annum, payable semi-annually in
arrears on each January 15 and July 15. The 12%
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<PAGE>
Notes mature on July 15, 2006. The 12% Notes represent senior subordinated
unsecured obligations of ASC East. ASC East's payment obligations under the 12%
Notes are guaranteed on a subordinated basis by substantially all of ASC East's
subsidiaries.
The 12% Notes may not be redeemed at the option of ASC East prior to July
15, 2001, except that prior to July 15, 1999 ASC East may redeem up to 25% of
the 12% Notes at a redemption price of 112% of the principal amount thereof,
plus accrued and unpaid interest, if any, with the net proceeds of a public or
private sale of common stock of ASC East. At any time on or after July 15, 2001,
the 12% Notes may be redeemed at the option of ASC East, in whole or in part, at
a premium declining ratably to par on July 15, 2005.
The 12% Note Indenture provides that in the event of a Change of Control,
ASC East is required to make an offer to purchase in cash all or any part of
outstanding 12% Notes at a price of 101% of the aggregate principal amount
thereof. Consummation of the Offering will constitute a Change in Control under
the 12% Note Indenture. See "The Transactions--Consent Solicitation" and "Risk
Factors-- Immediate and Substantial Debt Obligations Upon Consummation of the
Offering."
The 12% Note Indenture contains restrictive covenants that, among other
things, impose limitations on the ability of ASC East and certain of its
subsidiaries to (i) to incur additional indebtedness, (ii) merge, consolidate or
sell or dispose of all or substantially all of its assets, (iii) issue certain
preferred stock, pay dividends or make other distributions on account of ASC
East's equity interests, repurchase equity interests or subordinated
indebtedness, and make certain other Restricted Investments (as defined in the
12% Note Indenture), (iv) create certain liens, (v) enter into transactions with
affiliates and (vi) sell assets.
Such covenants prohibit ASC East and its subsidiaries from paying any
dividends or other distributions to the Company except for limited payments
permitted upon ASC East's meeting certain financial thresholds. ASC East is not
currently eligible to pay any dividends or distributions to the parent company
under these provisions. In addition, ASC East and its subsidiaries are
prohibited from entering into any transaction with the Company or its other
direct or indirect subsidiaries, except under certain conditions.
EXCHANGEABLE NOTES
Pursuant to the Securities Purchase Agreement, the Company issued $17.5
million aggregate principal amount of its Exchangeable Notes in a private
offering to an institutional investor. The Exchangeable Notes bear interest at a
rate of 14% per annum and mature on July 28, 2002. Interest on the Exchangeable
Notes is payable in cash or additional Exchangeable Notes, at the option of the
Company. The Company intends to offer to exchange all of the Exchangeable Notes
plus accrued interest thereon for shares of 10 1/2% Convertible Preferred Stock.
See "The Transactions--Exchange Offers." Upon consummation of the Offering, the
10 1/2% Convertible Preferred Stock will be convertible into an aggregate of
1,055,259 shares of Common Stock at the option of the holder thereof. If the
holder of Exchangeable Notes does not exchange such securities for 10 1/2%
Convertible Preferred Stock issued in exchange for the Exchangeable Notes,
consummation of the Offering will trigger a Change of Control under the
Securities Purchase Agreement. In such event, the Securities Purchase Agreement
requires that the Company offer to purchase the Exchangeable Notes for cash at a
redemption price of 105.3% of the principal and liquidation amount outstanding
on the date of redemption. See "The Transactions--Exchange Offers," and
"Description of Capital Stock--10 1/2% Convertible Preferred Stock."
THE CANYONS SELLER NOTE
In connection with the acquisition of The Canyons on July 3, 1997, ASC Utah
executed a promissory note payable to Wolf Mountain Resorts, L.C. (the "Seller")
in an aggregate principal amount of $6.5 million (the "Canyons Seller Note").
Interest on the Canyons Seller Note accrues at the rate of 12% per annum and is
payable monthly in arrears. The principal is payable in two installments, $4.2
million upon
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<PAGE>
the closing of the Offering and $2.3 million on January 31, 1998. The Company
has guaranteed the payment of the Canyons Seller Note.
TEXTRON FINANCING
On August 1, 1997, Grand Summit Resort Properties, Inc. ("GSRP"), a
subsidiary of the Company, entered into a construction loan facility (the
"Construction Loan Facility") with Textron Financial Corporation, as agent and
co-lender, and Green Tree Financial Servicing Corporation, as co-lender
(together, the "Lenders") to develop Grand Summit Hotels. Pursuant to the terms
of the Construction Loan Facility, the Lenders have agreed to make available to
GSRP, under certain circumstances, up to $55 million to develop Grand Summit
Hotels at Sunday River, Killington and Mount Snow/Haystack, and to refinance an
existing $3.9 million facility used to finance construction of the Attitash
Grand Summit Hotel. After an initial advance to refinance the Attitash Grand
Summit Hotel facility and to finance certain pre-construction costs, the loan is
to be funded in a series of advances through August 1999 as construction costs
are incurred. Each advance is subject to certain conditions, including GSRP
obtaining certain levels of preconstruction sales. Interest on the loan will
accrue at the prime rate established by Chase Manhattan Bank as of the first day
of each month, plus 1.5%, but will not accrue at less than 9.25% per annum. The
loan will be secured by (i) a first mortgage on the hotel resort properties,
(ii) any interests that the Company may have in purchased quartershare units,
including sales contracts, and (iii) other security interests granted by GSRP,
each on a cross-collateralized basis. The loan is non-recourse to the Company
and its other subsidiaries. Interest on the loan is due and payable monthly in
arrears, however, GSRP may take interest advances to pay such interest.
Principal will be repaid on the following basis: (i) as quartershare sales close
at the Attitash project, an amount equal to 85% of the sales proceeds payable in
connection with the sale, (ii) as quartershare sales close at The Jordan Bowl,
Killington and Mount Snow/ Haystack projects, an amount equal to 80% of the
sales proceeds payable in connection with the sale, (iii) an amount equal to the
rental payments received by GSRP from ASC East subsidiary for the lease of the
Grand Summit Hotels (aggregating $193,000 per month) and (iv) other amounts upon
the aggregate of original or outstanding advances exceeding certain construction
costs and quartershare sales levels; provided, however, that the Construction
Loan Facility will mature at the end of December 2000. The loan contains various
covenants that limit GSRP, subject to certain exceptions, with respect to
indebtedness, liens, sales of assets, consolidations or mergers, distributions,
transactions with affiliates and certain other business activities.
OTHER INDEBTEDNESS
In addition to the indebtedness described above, certain of the Company's
subsidiaries have other outstanding debt obligations pursuant to certain
promissory notes, bonds, capital leases and other instruments. A brief
description of certain material debt obligations is set forth below.
The Company's Killington, Ltd. subsidiary is an obligor under certain
subordinated debentures in multiple series due in various principal amounts from
1999 through 2016, with interest rates of 6% or 8%. The aggregate balance of the
subordinated debentures, as of July 27, 1997, was approximately $11.0 million.
The subordinated debentures contain certain covenants that limit, subject to
certain exceptions, the ability of Killington, Ltd. to incur indebtedness and to
make dividends and distributions.
The Company's Sugarbush Resort Holdings, Inc. subsidiary is an obligor under
a promissory note issued to Snowridge, Inc. with an outstanding balance as of
July 27, 1997 of approximately $5.1 million and an interest rate of 6.25%. The
outstanding principal balance of $5.1 million and all accrued and unpaid
interest outstanding is due on December 31, 1999. The note is collateralized by
certain assets of Sugarbush. As a result of the Offering, the holders of the
note may accelerate the maturity of the note. In such an event, the Company
intends to repay the note with the proceeds of the Offering. See "Use of
Proceeds."
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<PAGE>
The Company's Mountain Wastewater Treatment, Inc. subsidiary is an obligor
under a promissory note issued to LHC Corporation due June 1, 2003, with an
outstanding balance as of July 27, 1997 of approximately $2.2 million. Interest
on the promissory note is payable at a rate equal to the lesser of (a) 9% per
annum or (b) the prime lending rate announced by The First National Bank of
Boston. Annual principal payments of $154,123 are due on each June 1 beginning
on June 1, 1997. The note is collateralized by a pledge of certain capital stock
and by a letter of credit. As a result of the Offering, the holders of the note
may accelerate the maturity of the note. In such an event, the Company intends
to repay the note with the proceeds of the Offering. See "Use of Proceeds."
DESCRIPTION OF CAPITAL STOCK
The following summarizes the material terms of the capital stock of the
Company.
GENERAL
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, par value $.01 per
share, 15,365,022 of which will be issued and outstanding (assuming no exercise
of outstanding stock options and no conversion of the 10 1/2% Convertible
Preferred Stock into Common Stock), 15,000,000 shares of Class A Common Stock,
par value $.01 per share, 14,760,530 of which will be issued and outstanding,
70,179 shares of Series A Exchangeable Preferred Stock, having a liquidation
preference of $1,000 per share (the "Series A Exchangeable Preferred Stock"), no
shares of which will be outstanding, 40,000 shares of 10 1/2% Convertible
Preferred Stock, having a liquidation preference of $1,000 per share,
approximately 37,100 shares of which will be outstanding, and 389,821 shares of
undesignated Preferred Stock, par value $.01 per share, none of which will be
outstanding.
COMMON STOCK
The issued and outstanding shares of Common Stock and Class A Common Stock
are, and the shares of Common Stock being offered will be, upon payment
therefor, validly issued, fully paid and nonassessable. The rights of holders of
Class A Common Stock and Common Stock are identical, except that, while any
Class A Common Stock is outstanding, holders of Class A Common Stock elect a
class of directors that constitutes two-thirds of the Board of Directors and
holders of Common Stock elect a class of directors constituting one-third of the
Board of Directors. The Class A Common Stock is convertible into Common Stock
(i) at the option of the holder, (ii) automatically upon transfer to any person
who is not an affiliate of Leslie B. Otten and (iii) automatically if the number
of shares of Class A Common Stock outstanding at any time represent less than
20% of the combined voting power of Common Stock and Class A Common Stock
outstanding at such time. The Common Stock is not convertible. Subject to the
prior rights of the holders of any preferred stock, the holders of outstanding
shares of Common Stock and Class A Common Stock are entitled to received
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. See "Dividend
Policy." The shares of Common Stock and Class A Common Stock will have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock and Class A Common Stock are entitled to receive on a pro rata
basis the assets of the Company which are legally available for distribution,
after payment of all debts and other liabilities and subject to the prior rights
of any holders of preferred stock then outstanding. Each outstanding share of
Common Stock and Class A Common Stock is entitled to one vote on all matters
submitted to a vote of shareholders.
Under Maine law, the holders of any class of capital stock of a corporation,
including holders of Common Stock, Class A Common Stock and 10 1/2% Convertible
Preferred Stock, will be entitled to vote as a separate class on amendments to
the Company's Articles of Incorporation that affect the relative rights of such
class of capital stock. Thus, the holders of Common Stock are entitled to vote
as a class with
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<PAGE>
respect to, among other things, (i) changes in the designations, preferences,
limitations and relative rights of the Common Stock, (ii) changes in the
aggregate number of authorized shares or par value of the Common Stock, (iii)
exchanges, reclassifications or cancellations of the Common Stock into a
different number or class, and (iv) the creation of new classes of shares having
rights and preferences prior and superior to the rights of the Common Stock (or
an increase in the rights and preferences of any such prior and superior other
class). The holders of Common Stock will be entitled to vote as a class on any
merger in which the Company would be a party if the plan of merger contains
provisions affecting the rights of the Common Stock which, if included in an
amendment to the Company's Articles of Incorporation, would require a vote of
the holders of the Common Stock as a separate class, including a proposed
exchange or reclassification of the Common Stock. In these circumstances the
holders of the Class A Common Stock would not be able to determine the outcome
of the shareholder vote. On all other matters, except for the election of
directors, holders of Common Stock, Class A Common Stock and 10 1/2% Convertible
Preferred Stock will vote together as a single class.
PREFERRED STOCK
The Company's Board of Directors may, from time to time, without further
action by the Company's shareholders direct the issuance of shares of preferred
stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each such series. Satisfaction of any dividend
preferences of outstanding shares of preferred stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock and Class
A Common Stock. Holders of shares of preferred stock may be entitled to receive
a preference payment in the event of any liquidation, dissolution or winding-up
of the Company before any payment is made to the holders of shares of Common
Stock and Class A Common Stock. Under certain circumstances, the issuance of
shares of preferred stock may render more difficult or tend to discourage a
merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of the Company's securities or the removal of incumbent
management. The Board of Directors of the Company, without shareholder approval,
may issue shares of preferred stock with voting and conversion rights which
could adversely affect the holders of shares of Common Stock and Class A Common
Stock.
SERIES A EXCHANGEABLE PREFERRED STOCK
Pursuant to the Securities Purchase Agreement, the Company issued 17,500
shares of its Series A Exchangeable Preferred Stock in a private offering to an
institutional investor. The liquidation preference is $1,000 per share and
cumulative dividends on the Series A Exchangeable Preferred Stock are payable,
at the option of the Company, in cash or in additional shares of Series A
Exchangeable Preferred Stock at a rate of 14% per annum. The Company is required
to redeem all shares of Series A Exchangeable Preferred Stock outstanding on
July 15, 2002. The Company intends to offer to exchange all of the Series A
Exchangeable Preferred Stock, plus accrued dividends, for shares of 10 1/2%
Convertible Preferred Stock. If the holder of Series A Exchangeable Preferred
Stock does not elect to exchange such securities for 10 1/2% Convertible
Preferred Stock or Common Stock, consummation of the Offering will trigger a
Change of Control (as defined under the Securities Purchase Agreement). In such
event, the Securities Purchase Agreement requires that the Company offer to
purchase the Series A Exchangeable Preferred Stock for cash at a redemption
price of 105.3% of the liquidation preference of such shares on the date of
redemption. See "The Transactions--Exchange Offers."
10 1/2% CONVERTIBLE PREFERRED STOCK
At the time of the Offering, the Company will have authorized 40,000 shares
of 10 1/2% Convertible Preferred Stock. The initial liquidation preference of
the 10 1/2% Convertible Preferred Stock is $1,000 per share and cumulative
dividends are payable in cash on the fifth anniversary of the date of issuance
or earlier at the Company's option at a rate of 10 1/2% per annum, compounded
quarterly. The amount of
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accrued but unpaid dividends will be added to the liquidation preference per
share of 10 1/2% Convertible Preferred Stock. The terms of the 10 1/2%
Convertible Preferred Stock prohibit the Company from paying cash dividends on
the Common Stock or Class A Common Stock unless all accrued dividends on the
10 1/2% Convertible Preferred Stock have been paid. In addition, the Company may
not redeem any shares of Common Stock or Class A Common Stock so long as any
10 1/2% Convertible Preferred Stock remains outstanding.
Each share of 10 1/2% Convertible Preferred Stock is convertible at any
time, at the holder's option, into a number of shares of Common Stock initially
equal to the liquidation preference per share of 10 1/2% Convertible Preferred
Stock divided by the price per share of Common Stock offered to the public in
the Offering discounted by 5%, subject to antidilution adjustments for certain
events, including (i) stock splits, stock dividends or combinations of Common
Stock into a smaller number of shares, (ii) issuances of, or rights to acquire,
Common Stock to the holders of Common Stock at less than fair market value and
(iii) distributions of cash or property to holders of Common Stock. Upon
consummation of the Transactions, there will be outstanding approximately $37.1
million liquidation preference of 10 1/2% Convertible Preferred Stock which,
assuming a price to the public of $18.50 per share, will be convertible into
2,110,518 shares of Common Stock. Assuming the 10 1/2% Convertible Preferred
Stock remains outstanding until its maturity in 2002 and no dividends are paid
prior to maturity, it will have a final liquidation preference of approximately
$62.3 million and will be convertible into 3,543,663 shares of Common Stock.
The Company may, at its option, on the first day of any calendar quarter
commencing January 1, 1998, exchange the shares of 10 1/2% Convertible Preferred
Stock, in whole but not in part for 10 1/2% Convertible Subordinated Debentures
due five years from the date of issuance of the 10 1/2% Convertible Preferred
Stock in a principal amount equal to $1,000 for each share of 10 1/2%
Convertible Preferred Stock, plus cash (or, at the option of the Company, in
additional 10 1/2% Convertible Subordinated Debentures) in an amount equal to
all accrued but unpaid dividends. The 10 1/2% Convertible Subordinated
Debentures will bear interest at a rate of 10 1/2% per annum payable in cash
quarterly in arrears (or, at the option of the Company, accruing and compounding
quarterly). The terms of the 10 1/2% Convertible Subordinated Debentures as to
conversion and redemption are substantially similar to those contained in the
10 1/2% Convertible Preferred Stock.
If such shares are not previously converted into Common Stock, the Company
is required to redeem all outstanding shares of 10 1/2% Convertible Preferred
Stock on the fifth anniversary of the date of issuance thereof at a price equal
to $1,000 per share plus any accrued and unpaid dividends thereon as of the date
of redemption (the "Redemption Price"). In addition, the Company may, at its
option, redeem the outstanding shares of 10 1/2% Convertible Preferred Stock at
any time, at the Redemption Price, provided that the closing price of the Common
Stock exceeds 140% of the price per share offered to the public in the Offering.
The holders of 10 1/2% Convertible Preferred Stock have the right to vote on
an as-converted basis with the holders of the Common Stock except that the
holders have no voting rights with respect to the election of directors, other
than upon the occurrence of certain defaults by the Company (including
non-payment of dividends when due, failure to redeem the 10 1/2% Convertible
Preferred Stock as may be required, and defaults under any other indebtedness of
the Company in excess of $5.0 million). Upon such a default, the Board of
Directors will be increased by two members and the holders of 10 1/2%
Convertible Preferred Stock will have the right to elect the two additional
directors. The holders of the 10 1/2% Convertible Preferred Stock will also have
the right to vote as a class on amendments to the Company's Articles of
Incorporation and certain other matters that affect the relative rights of such
holders.
Pursuant to a registration rights agreement between the Company and the
holder of the Exchangeable Notes and the Series A Exchangeable Preferred Stock,
the Company will be required, following the Offering at the option of the
holder, and subject to the holder's 180 day lock-up agreement,
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to register the shares of 10 1/2% Convertible Preferred Stock or the shares of
Common Stock into which such securities are convertible pursuant to a shelf
registration statement and to maintain such registration statement in effect
until the securities are sold or become freely tradeable pursuant to Rule 144
under the Securities Act. The Company will be required to pay a fee at a rate of
three percent (3%) per annum with respect to any period such registration
statement is not effective and such holder holds registrable securities. The
Company has agreed to pay all expenses relating to such registration, including
underwriting discounts and commissions payable in connection with any
distribution of the registrable securities pursuant to the agreement and to
indemnify the holders against certain liabilities in connection with registered
offerings under the agreement.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND
MAINE LAW
ARTICLES OF INCORPORATION AND BYLAWS. The Company's Articles of
Incorporation contain, among other things, provisions authorizing the issuance
of "blank check" preferred stock, 10 1/2% Convertible Preferred Stock with
rights to elect two directors upon the occurrence of certain events and two
classes of common stock. These provisions could delay, deter or prevent a
merger, consolidation, tender offer or other business combination or change of
control involving the Company. See "Risk Factors--Potential Anti-Takeover
Provisions."
The Bylaws provide that any action required or permitted to be taken by the
shareholders of the Company at an annual meeting or special meeting of
shareholders may only be taken if it is properly brought before such meeting.
Under the Bylaws, in order for any matter to be considered "properly brought"
before a meeting, a shareholder must comply with certain requirements regarding
advance notice to the Company. The foregoing provisions could have the effect of
delaying until the next shareholders' meeting, shareholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company. See "Risk Factors--Potential Anti-Takeover Provisions."
The Company is subject to certain provisions under the MBCA relating to the
personal liability of directors. The MBCA provides that a director shall not be
liable for monetary damages for a breach of fiduciary duty unless the director
is found not to have acted honestly or in the reasonable belief that the action
was in or not opposed to the best interests of the Company or its shareholders.
Further, the Bylaws provide in all cases that the Company shall indemnify the
Company's directors and officers to the fullest extent permitted by the MBCA.
The Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.
MAINE ANTITAKEOVER STATUTE. The Company is subject to the provisions of
Section 611-A of the MBCA (the "Antitakeover Law"). The Antitakeover Law
prohibits a Maine corporation from engaging in a "business combination" with an
"interested shareholder" for a period of five years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes generally, mergers, asset sales, certain types of stock
issuances, and other transactions resulting in a disproportionate financial
benefit to the interested shareholder. Subject to certain exceptions, an
"interested shareholder" is a person who owns, or within the preceding five
years owned, 25% or more of the corporation's voting stock. See "Risk
Factors--Potential Anti-Takeover Provisions."
The MBCA provides generally that an amendment of a corporation's articles of
incorporation must be adopted by the board of directors and approved by an
affirmative vote of a majority of the shares entitled to vote on any matter. The
MBCA provides generally that bylaws may be amended by a majority vote of the
board of directors or the shareholders. The MBCA provides, however, that any
Bylaws adopted or amended by the shareholders of the Company may not be amended
or repealed by the board of directors for two years thereafter.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
L.P.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding
18,097,578 shares of Common Stock (excluding all shares issuable upon the
exercise of options which are exercisable at a price per share equal to the
Public Offering price and assuming no exercise of the Underwriters'
over-allotment option and no conversion of the Class A Common Stock into Common
Stock) and 14,760,530 shares of Class A Common Stock. All of the shares of
Common Stock sold in the Public Offering will be freely tradeable under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined under the Securities Act. Upon the expiration of lock-up agreements
between the Company, certain shareholders of the Company, the executive officers
and directors of the Company and the Underwriters, which will occur 180 days (or
90 days with respect to shares purchased by the Principal Shareholder in the
Concurrent Offering) after the consummation of the Offering (the "Closing Date")
and exercise of all options granted under the Stock Option Plan, 4,585,753
shares of Common Stock and 14,760,530 shares of Class A Common Stock will become
eligible for sale, subject to compliance with Rule 144 of the Securities Act as
described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Common Stock for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then outstanding (approximately 181,000 shares immediately after
the Offering) or (ii) the average weekly trading volume of the Common Stock on
the New York Stock Exchange during the four calendar weeks immediately preceding
the date on which the notice of sale is filed with the Securities and Exchange
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the three months immediately preceding the sale and who has beneficially owned
Restricted Shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations and requirements
described above.
Certain shareholders of the Company and the executive officers and directors
of the Company have agreed with the Underwriters that until 180 days (or 90 days
with respect to shares purchased by the Principal Shareholder in the Concurrent
Offering) after the Closing Date not to directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase or grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock (including Class A Common Stock), or enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of the Common Stock, or cause a registration
statement covering any shares of Common Stock to be filed, without the prior
written consent of DLJ, subject to certain exceptions including pursuant to a
foreclosure by a lender on a loan to the Principal Shareholder for shares of
Class A Common Stock and/or Common Stock will be pledged as collateral. The
Company has also agreed not to directly or indirectly, offer, sell, pledge,
contract to sell, sell any option or contract to purchase or grant any option,
right or warrant to purchase or otherwise transfer or dispose of any Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (including Class A Common Stock and 10 1/2% Convertible Preferred
Stock), or enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the ownership of the Common
Stock or cause a registration statement covering any shares of Common Stock to
be filed, for a period of 180 days after the Closing Date, without the prior
written consent of DLJ, subject to certain limited exceptions including issuance
of up to 3,213,464 shares of Common Stock under the Stock Option Plan. The
lock-up agreements may be released at any time as to all or any portion of the
shares subject to such agreements at the sole discretion of DLJ. See "Risk
Factors--Shares Eligible for Future Sale."
The holder of the Company's Exchangeable Notes and the Series A Exchangeable
Preferred Stock has certain rights to require the Company to register shares of
10 1/2% Convertible Preferred Stock and Common Stock issuable upon the exchange
or conversion of such securities. See "Description of Capital Stock--10 1/2%
Convertible Preferred Stock."
The Principal Shareholder intends to borrow funds to purchase Common Stock
in the Concurrent Offering pursuant to a loan agreement with a financial
institution and will pledge shares of Common Stock and Class A Common Stock to
secure the loan. In connection with the loan, the Company will enter into a
registration rights agreement containing customary provisons with the lender
pursuant to which the lender will have the right to require the Company to
register the shares pledged by the Principal Shareholder to secure the loan.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person who is not a "U.S. person" (a "Non-U.S. Holder"). For this
purpose, a "U.S. person" is any person who is, for United States federal income
tax purposes, (i) a citizen or resident of the United States, (ii) a corporation
or partnership created or organized in or under the laws of the United States or
of any State,(iii) an estate the income of which is subject to U.S. federal
income tax, regardless of its source, or (iv) a trust if (a) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (b) one or more United States fiduciaries have the authority to
control all substantial decisions of the trust. This discussion does not address
all aspects of United States federal income and estate taxes and does not deal
with foreign, state and local consequences that may be relevant to such Non-U.S.
Holders in light of their personal circumstances. Furthermore, this discussion
is based on provisions of the United States Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change (possibly with retroactive effect).
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States on at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens and, thus, are not Non-U.S.
Holders for purposes of this discussion.
THIS DISCUSSION IS FOR GENERAL INFORMATION PURPOSES ONLY. EACH PROSPECTIVE
PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO
CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF
ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of United States federal income tax either at a rate of
30% of the gross amount of the dividends or at such lower rate as may be
specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business by the Non-U.S.
Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-U.S. Holder,
are not subject to the withholding tax (provided the Non-U.S. Holder files
appropriate documentation, including, under current law, Form 4224, with the
payor of the dividend), but instead are subject to United States federal income
tax on a net income basis at applicable graduated individual or corporate rates.
Any such effectively connected dividends received by a Non-U.S. Holder that is a
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
In order to claim the benefit of an applicable tax treaty, a Non-U.S. Holder
of Common Stock may have to file with the Company or its dividend paying agent
an exemption or reduced treaty rate certificate or letter in accordance with the
terms of the treaty. Under current law, dividends paid to an address outside the
United States are presumed to be paid to a resident of such country (unless the
payor has knowledge to the contrary) for purposes of the withholding discussed
above and for purposes of determining the applicability of a tax treaty rate.
However, under proposed Treasury regulations not
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currently in effect, in the case of dividends paid after December 31, 1997
(December 31, 1999 in the case of dividends paid to accounts in existence on or
before the date that is 60 days after the proposed regulations are published as
final regulations), a Non-U.S. Holder of Common stock who wishes to claim the
benefit of an applicable treaty rate would be required to satisfy applicable
certification and other requirements either directly or through an intermediary.
In addition, backup withholdings, as discussed below, may apply in certain
circumstances if applicable certification and other requirements are not met.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax or withholding on gains recognized upon the sale or other disposition
of Common Stock unless: (i) such gain is effectively connected with the conduct
in the United States of a trade or business of the Non-U.S. Holder, or if a tax
treaty applies, the gain is attributable to a United States permanent
establishment (in either case, the branch profits tax also may apply if the
Non-U.S. Holder is a corporation); (ii) in the case of a Non-U.S. Holder who is
a non-resident alien individual and holds the Common Stock as a capital asset,
such individual is present in the United States for 183 or more days in the
taxable year of disposition and certain other conditions are met; or (iii) the
Common Stock constitutes a United States real property interest by reason of the
Company's status as a "United States real property holding corporation"
("USRPHC") for federal income tax purposes at any time within the shorter of the
five-year period preceding such disposition or such Non-U.S. Holder's holding
period for such Common Stock. If a Non-U.S. Holder falls under clause (i) or
(iii) above, the holder will be taxed on the net gain derived from the sale
under the graduated United States federal income tax rates that are applicable
to United States citizens, resident aliens and domestic corporations, as the
case may be, and may be subject to withholding under certain circumstances (and,
with respect to corporate Non-U.S. Holders, may also be subject to the branch
profits tax described above.) If an individual Non-U.S. Holder falls under
clause (ii) above, the holder generally will be subject to United States federal
income tax at a rate of 30% on the gain derived from the sale and may be subject
to withholding under certain circumstances.
The Company will qualify as a USRPHC if the fair market value of its United
States real property interests equals 50 percent or more of the aggregate fair
market value of the Company's worldwide real property interests and any other
assets of the Company used or held for use in a trade or business. If the Common
Stock is regularly traded on an established securities market, however, it will
be treated as a United States real property interest only in the case of a
Non-U.S. Holder who owns 5 percent or more of the value of the outstanding
Common Stock during the five-year period preceding the holder's disposition of
such Common Stock or, if shorter, the Non-U.S. Holder's holding period for such
Common Stock. Generally, if the Company constitutes a USRPHC, gain realized from
the disposition of Common Stock by a Non-U.S. Holder will be subject to United
States withholding tax equal to 10 percent of the amount realized on the sale.
However, gain realized by a Non-U.S. Holder will not be subject to withholding
so long as during the calendar year in which the disposition occurs the Common
Stock of the Company is regularly traded on an established securities market.
Upon consummation of the Offering, the Company believes that the Common Stock
will be regularly traded on an established securities market.
FEDERAL ESTATE TAX
Common Stock held by an individual who is not a citizen or resident (as
specifically defined for United States federal estate tax purposes) of the
United States at the time of death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
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INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
United States backup withholding tax is imposed at the rate of 31% on
certain payments to persons not otherwise exempt that fail to furnish certain
identifying information to the payor. Under current law, backup withholdings
generally will not apply to dividends paid to a Non-U.S. Holder at an address
outside the United States (unless the payer has knowledge that the payee is a
U.S. person), but generally will apply to dividends paid on Common Stock at
addresses inside the United States to Non-U.S. Holders that fail to provide
certain identifying information in the manner required. However, under proposed
Treasury regulations not currently in effect, in the case of dividends paid
after December 31, 1997 (December 31, 1999 in the case of dividends paid to
accounts in existence on or before the date that is 60 days after the proposed
regulations are published as final regulations), a Non-U.S. Holder generally
would be subject to backup withholding at a 31% rate, unless certain
certification procedures, (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary or a Non-U.S.
Holder otherwise establishes an exemption from backup withholding.
Payment of the proceeds of a sale of Common Stock or through a United States
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payor with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
Common Stock by or through a non-United States office of a non-United States
broker. If, however, such broker is, for United States federal income tax
purposes a U.S. person, a controlled foreign corporation, or a non-United States
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, such payments will be
subject to information reporting, but not backup withholding, unless (i) such
broker has documentary evidence in its records that the beneficial owner is a
Non-U.S. Holder and certain other conditions are met, or (ii) the beneficial
owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided that required information is furnished in a timely manner to
the IRS.
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UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below, for whom
DLJ, Furman Selz LLC ("Furman"), Morgan Stanley & Co. Incorporated and Schroder
& Co. Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase the number of shares of Common Stock from the Company set
forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............................................
Furman Selz LLC................................................................................
Morgan Stanley & Co. Incorporated..............................................................
Schroder & Co. Inc.............................................................................
-----------------
Total..................................................................................
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
to exceed $ per share. The Underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per share to any other Underwriter
and certain other dealers.
At the request of the Company, approximately 10% of the shares offered
hereby have been reserved for sale at the public offering price to certain
employees of the Company and other persons designated by the Company. The
maximum investment of any such person may be limited by the Company in its sole
discretion. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby. This
program will be administered by DLJ.
The Company has granted to the Underwriters an option to purchase up to
2,090,878 additional shares of Common Stock at the initial public offering price
less underwriting discounts and commissions solely to cover over-allotments.
Such option may be exercised in whole or in part from time to time during the
30-day period after the date of this Prospectus. To the extent that the
Underwriters exercise such
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option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company, certain shareholders of the Company and the executive officers
and directors of the Company have agreed not to directly or indirectly offer,
pledge, sell, contract to sell, sell any option or contract to purchase or grant
any option, right or warrant to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of such Common Stock, or to cause a registration statement covering
any shares of Common Stock to be filed, for 180 days (or 90 days with respect to
shares purchased by the Principal Shareholder in the Concurrent Offering) after
the closing of the Offering without the prior written consent of DLJ, subject to
certain limited exceptions, and provided that the Company may issue shares of
Common Stock upon vesting of rights under the Stock Option Plan. See "Shares
Eligible for Future Sale."
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial price
to the public include the history of and the prospects for the industry in which
the Company competes, the ability of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company, the prospects for future earnings of the Company, the general condition
of the securities markets at the time of the Offering and the recent market
prices of securities of generally comparable companies. The Company has been
approved for listing of the Common Stock on the New York Stock Exchange.
The Underwriters do not intend to make sales to accounts over which they
exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may over-allot the Offering, creating a syndicate
short position. Underwriters may bid for and purchase shares of Common Stock in
the open market to cover syndicate short positions. In addition, the
Underwriters may bid for and purchase shares of Common Stock in the open market
to stabilize the price of the Common Stock. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
In addition to the shares of Common Stock to be sold to the Underwriters in
the Public Offering, the Company is offering a portion of the 14,750,000 shares
of Common Stock offered hereby directly to the Principal Shareholder in the
Concurrent Offering. See "Concurrent Offering."
DLJ has provided financial advisory services to the Company in connection
with the Transactions and has acted as solicitation agent in connection with the
Consent Solicitation for which DLJ will receive customary fees.
Furman has provided financial advisory services to the Company in connection
with the Transactions for which Furman will receive customary fees.
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ING (U.S.) Capital Corporation ("ING"), an affiliate of Furman, intends to
provide a loan to the Principal Shareholder, the proceeds of which may be used
by the Principal Shareholder to purchase Common Stock in the Concurrent
Offering. Borrowings under the loan will be secured by a pledge of certain of
the Principal Shareholder's shares of Common Stock and Class A Common Stock. ING
will receive customary fees in connection with the loan.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered by
the Company hereby will be passed upon for the Company by LeBoeuf, Lamb, Greene
& MacRae, L.L.P, a limited liability partnership including professional
corporations, Hartford, Connecticut and Pierce Atwood, Portland, Maine. Certain
legal matters will be passed upon for the Underwriters by Latham & Watkins, New
York, New York.
EXPERTS
The consolidated balance sheet of American Skiing Company as of July 28,
1996 and July 27, 1997 and the consolidated statements of operations, of changes
in shareholders' equity, and of cash flows of the Company for the three years
ended July 27, 1997 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated balance sheet of S-K-I Ltd. as of July 31, 1994 and 1995,
and the consolidated statements of income, of changes in shareholders' equity
and of cash flows of S-K-I Ltd. for each of the three years in the period ended
July 31, 1995 included in this Prospectus have been so included in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The combined balance sheets of the Kamori Combined Entities as of May 31,
1996 and 1997 and the combined statements of operations, stockholders' equity
and cash flows of the Kamori Combined Entities for each of the three years in
the period ended May 31, 1997 included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits, schedules and supplements thereto) on Form S-1 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's web site is http://www.sec.gov. The Company
intends to furnish its shareholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by its
independent accountants and with quarterly reports for the first three quarters
of each fiscal year containing unaudited summary financial information.
92
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMERICAN SKIING COMPANY
Report of Independent Accountants--July 28, 1996 and July 27, 1997 and for the three years in the period
ended July 27, 1997.................................................................................... F-2
Consolidated Balance Sheet--July 28, 1996 and July 27, 1997.............................................. F-3
Consolidated Statement of Operations--For the years ended July 30, 1995, July 28, 1996 and July 27,
1997................................................................................................... F-4
Consolidated Statement of Changes in Shareholders' Equity--For the years ended July 30, 1995, July 28,
1996 and July 27, 1997................................................................................. F-5
Consolidated Statement of Cash Flows--For the years ended July 30, 1995, July 28, 1996 and July 27,
1997................................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
S-K-I LTD.
Report of Independent Accountants........................................................................ F-29
Consolidated Balance Sheet--July 31, 1994 and 1995....................................................... F-30
Consolidated Statement of Income--For the years ended July 31, 1993, 1994, and 1995...................... F-31
Consolidated Statement of Changes in Stockholders' Equity--For the three years ended July 31, 1995....... F-32
Consolidated Statement of Cash Flows--For the years ended July 31, 1993, 1994, and 1995.................. F-33
Notes to Consolidated Financial Statements............................................................... F-34
Consolidated Balance Sheet--April 28, 1996 (unaudited)................................................... F-43
Consolidated Statement of Income--For the nine months ended April 30, 1995 and April 28, 1996
(unaudited)............................................................................................ F-44
Consolidated Statement of Cash Flows--For the nine months ended April 30, 1995 and April 28, 1996
(unaudited)............................................................................................ F-45
Notes to (Unaudited) Condensed Consolidated Financial Statements......................................... F-46
KAMORI COMBINED ENTITIES
Report of Independent Public Accountants................................................................. F-49
Combined Balance Sheets as of May 31, 1996 and 1997...................................................... F-50
Combined Statements of Operations for the years ended May 31, 1995, 1996 and 1997........................ F-51
Combined Statements of Stockholders' Equity for the years ended May 31, 1995,
1996 and 1997.......................................................................................... F-52
Combined Statements of Cash Flows for the years ended May 31, 1995, 1996 and 1997........................ F-53
Notes to Combined Financial Statements................................................................... F-55
Condensed Combined Balance Sheets as of August 31, 1996 and 1997 (unaudited)............................. F-68
Condensed Combined Statement of Operations for the three months ended
August 31, 1996 and 1997 (unaudited)................................................................... F-70
Condensed Combined Statements of Cash Flows for the three months ended
August 31, 1996 and 1997 (unaudited)................................................................... F-71
Notes to Condensed Combined Financial Statements as of August 31, 1996 and 1997 (unaudited).............. F-72
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of American Skiing Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
American Skiing Company and its subsidiaries at July 28, 1996 and July 27, 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended July 27, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, MA
September 19, 1997, except as to Note 16 which
is as of October 10, 1997
F-2
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................... $ 3,185 $ 15,558
Restricted cash..................................................................... 902 2,812
Investments held in escrow.......................................................... 14,497 --
Accounts receivable................................................................. 2,458 3,801
Inventory........................................................................... 5,025 7,282
Prepaid expenses.................................................................... 3,371 1,579
Deferred financing costs............................................................ 1,056 1,338
Real estate developed for sale...................................................... 1,331 537
Assets held for sale................................................................ 14,921 --
Deferred tax assets................................................................. 588 422
------------ ------------
Total current assets.............................................................. 47,334 33,329
Property and equipment, net........................................................... 227,470 252,346
Goodwill.............................................................................. 6,540 10,664
Deferred financing costs.............................................................. 7,911 8,093
Long-term investments................................................................. 4,343 3,507
Other assets.......................................................................... 3,378 6,398
Real estate developed for sale........................................................ -- 23,003
Assets held for sale.................................................................. 1,756 --
------------ ------------
Total assets...................................................................... $ 298,732 $ 337,340
------------ ------------
------------ ------------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit and current portion of long-term debt................................ $ 22,893 $ 39,748
Accounts payable and other current liabilities...................................... 17,403 25,738
Deposits and deferred revenue....................................................... 3,541 4,379
Demand note, shareholder............................................................ 5,200 1,933
------------ ------------
Total current liabilities......................................................... 49,037 71,798
Long-term debt, excluding current portion............................................. 41,035 46,833
Subordinated notes and debentures..................................................... 146,792 149,749
Other long-term liabilities........................................................... 6,778 7,898
Minority interest in subsidiary....................................................... 2,492 626
Deferred income taxes................................................................. 30,695 28,514
------------ ------------
Total liabilities................................................................. 276,829 305,418
Commitments, lease contingencies and contingent liabilities
Mandatorily redeemable preferred stock; Series A, par value $1,000 per share, 200,000
shares authorized; 17,500 shares issued and outstanding; net of unaccreted issuance
costs and including accretion of discount and cumulative dividends in arrears
(redemption value of $18,537)....................................................... -- 16,821
SHAREHOLDERS' EQUITY
Common stock, Class A, par value of $.01 per share; 15,000,000 shares authorized;
14,760,530 issued and outstanding................................................... -- 10
Common stock, par value of $.01 per share; 1,000,000 shares authorized; 978,300 shares
issued and outstanding.............................................................. 10 --
Additional paid-in capital............................................................ 3,762 2,786
Retained earnings..................................................................... 18,131 12,305
------------ ------------
Total shareholders' equity........................................................ 21,903 15,101
------------ ------------
Total liabilities, mandatorily redeemable preferred stock and shareholders'
equity............................................................................ $ 298,732 $ 337,340
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
--------- ----------- -------------
<S> <C> <C> <C>
Net revenues:
Resort................................................................... $ 46,794 $ 63,489 $ 166,923
Real estate.............................................................. 7,953 9,933 8,468
--------- ----------- -------------
Total net revenues..................................................... 54,747 73,422 175,391
--------- ----------- -------------
Operating expenses:
Resort................................................................... 29,725 41,799 109,774
Real estate.............................................................. 3,994 5,844 6,813
Marketing, general and administrative.................................... 9,394 11,289 26,126
Depreciation and amortization............................................ 3,910 6,783 18,293
--------- ----------- -------------
Total operating expenses............................................... 47,023 65,715 161,006
--------- ----------- -------------
Income from operations..................................................... 7,724 7,707 14,385
--------- ----------- -------------
Other expenses:
Commitment fee........................................................... -- 1,447 --
Interest expense......................................................... 2,205 4,699 23,730
--------- ----------- -------------
Income (loss) before provision (benefit) for income taxes and minority
interest in loss of subsidiary........................................... 5,519 1,561 (9,345)
Provision (benefit) for income taxes....................................... 400 3,906 (3,613)
Minority interest in loss of subsidiary.................................... -- 108 (250)
--------- ----------- -------------
Net income (loss).......................................................... 5,119 (2,237) (5,482)
Accretion of discount and issuance costs and dividends accrued on
mandatorily redeemable preferred stock................................... -- -- 444
--------- ----------- -------------
Net income (loss) available to common shareholders......................... $ 5,119 $ (2,237) $ (5,926)
--------- ----------- -------------
--------- ----------- -------------
Pro forma net loss per weighted average common share outstanding........... $ (.38)
-------------
-------------
Pro forma weighted average common shares outstanding....................... 15,415,591
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK ADDITIONAL
------------------------ ------------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ----------- ------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994............. 116,737 $ 116 -- -- $ 1,635 $ 24,461 $ 26,212
Net income......................... -- -- -- -- -- 5,119 5,119
Distributions to Principal
Shareholder...................... -- -- -- -- -- (854) (854)
Contributions...................... -- -- -- -- 25 -- 25
----------- ----- ------------ ----- ----------- --------- ---------
Balance at July 30, 1995............. 116,737 116 -- -- 1,660 28,726 30,502
Net loss........................... -- -- -- -- -- (2,237) (2,237)
Distributions to Principal
Shareholder...................... -- -- -- -- -- (8,358) (8,358)
Contributions...................... -- -- -- -- 1,020 -- 1,020
Conversion of affiliate company
common stock to ASC common
stock............................ 822,431 (106) -- -- 106 -- --
Issuance of shares of common
stock............................ 39,132 -- -- -- 976 -- 976
----------- ----- ------------ ----- ----------- --------- ---------
Balance at July 28, 1996............. 978,300 10 -- -- 3,762 18,131 21,903
Exchange of the Principal
Shareholder's 96% interest in ASC
East for 100% of the Common Stock
of the Company................... (939,168) (10) -- -- -- -- (10)
Restatement of beginning of the
year retained earnings for the
establishment of the 4% minority
interest in ASC East and share of
earnings since inception......... (39,132) -- -- -- (976) 100 (876)
Issuance of Common Stock of the
Company to the Principal
Shareholder...................... 1,000,000 10 -- -- -- -- 10
Conversion of Common Stock to Class
A Common Stock................... (1,000,000) (10) 1,000,000 10 -- -- --
Stock split in October 1997,
accounted for retroactively...... -- -- 13,760,530 -- -- -- --
Accretion of discount and issuance
costs and dividends accrued on
mandatorily redeemable preferred
stock............................ -- -- -- -- -- (444) (444)
Net loss........................... -- -- -- -- -- (5,482) (5,482)
----------- ----- ------------ ----- ----------- --------- ---------
Balance at July 27, 1997............. -- $ -- 14,760,530 $ 10 $ 2,786 $ 12,305 $ 15,101
----------- ----- ------------ ----- ----------- --------- ---------
----------- ----- ------------ ----- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 5,119 $ (2,237) $ (5,482)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Minority interest in net loss of subsidiary............................ -- (108) (250)
Depreciation and amortization.......................................... 3,910 6,783 18,293
Amortization of discount on subordinated notes and debentures and other
liabilities.......................................................... -- 435 3,300
Income tax expense on conversion of S corporations to C corporations... -- 5,552 --
Deferred income taxes, net............................................. (488) (1,940) (3,332)
Decrease (increase) in assets:
Restricted cash and investments held in escrow..................... -- -- 12,587
Accounts receivable................................................ (684) 481 (1,343)
Inventory.......................................................... (876) (373) (2,257)
Prepaid expenses................................................... (324) (648) 1,792
Real estate developed for sale..................................... 3,377 2,523 (21,976)
Other assets....................................................... 54 (836) (872)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities..................... 2,460 (3,601) 6,794
Other liabilities.................................................. -- 490 (1,304)
Deposits and deferred revenue...................................... 45 944 838
---------- ----------- ----------
Net cash provided by operating activities.............................. 12,593 7,465 6,788
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of businesses, net of cash acquired................. (1,819) (97,079) (6,959)
Long-term investments...................................................... -- (450) 836
Capital expenditures....................................................... (12,024) (25,054) (23,267)
Proceeds from sale of property and equipment............................... -- -- 2,626
Cash payments on note receivable........................................... 250
Proceeds from sale of businesses........................................... -- -- 14,408
Other...................................................................... -- -- (1,964)
---------- ----------- ----------
Net cash used in investing activities.................................. $ (13,843) $ (122,583) $ (14,070)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
F-6
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS) (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from senior credit facility................................... $ -- $ 40,301 $ 14,766
Net proceeds from (payments of) line of credit............................. 2,820 (5,776) --
Net proceeds from (payments of) revolving credit loan...................... 1,150 (17,101) --
Proceeds from subordinated notes and debentures, net of investments held in
escrow................................................................... -- 121,126 --
Deferred financing costs................................................... -- (8,485) (1,567)
Proceeds from long-term debt............................................... 84 1,819 7,828
Payments of long-term debt................................................. (765) (13,625) (14,482)
Payments on Demand note, Shareholder....................................... -- -- (3,267)
Advances to Shareholder.................................................... (61) (156) --
Distributions to Shareholder............................................... (854) (3,158) --
Proceeds from issuance of mandatorily redeemable
preferred stock, net of issuance costs................................... -- -- 16,377
Capital contribution....................................................... 25 1,020 --
Issuance of shares of common stock......................................... -- 976 --
---------- ----------- ----------
Net cash provided by financing activities.............................. 2,399 116,941 19,655
---------- ----------- ----------
Net increase in cash and cash equivalents.............................. 1,149 1,823 12,373
Cash and cash equivalents, beginning of year................................. 213 1,362 3,185
---------- ----------- ----------
Cash and cash equivalents, end of year....................................... $ 1,362 $ 3,185 $ 15,558
---------- ----------- ----------
---------- ----------- ----------
Cash paid for interest....................................................... $ 1,056 $ 2,408 $ 20,998
Cash paid (refunded) for income taxes........................................ $ -- $ 15 $ (1,492)
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Property acquired under capitalized leases................................. $ 1,050 $ 435 $ 7,824
Liabilities assumed associated with purchased companies.................... $ 9,254 $ 58,497 $ 1,826
Deferred tax liability associated with purchased companies................. $ -- $ 28,372 $ --
Purchase price adjustments................................................. $ -- $ -- $ 1,541
Purchase price adjustments related to deferred taxes....................... $ -- $ -- $ 1,317
Note payable issued for distribution to Shareholder........................ $ -- $ 5,200 $ --
Note payable issued for purchase of a business............................. $ -- $ -- $ 6,500
Note receivable received for sale of businesses............................ $ -- $ -- $ 2,750
Recording of minority interest............................................. $ -- $ -- $ 626
Accretion of discount and issuance costs and dividends accrued on
mandatorily redeemable preferred stock................................... $ -- $ -- $ 444
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
American Skiing Company ("ASC") is organized as a holding company and
operates through various subsidiaries. ASC and its subsidiaries (collectively,
the "Company") operate primarily in a single business segment, which is the
operation and development of ski resorts.
ASC was originally formed on December 7, 1995. Through June 17, 1997,
American Skiing Company was a holding company and operated through various
subsidiaries. ASC Holdings, Inc. ("ASCH") was formed on June 17, 1997, when Les
Otten (the 'Principal Shareholder') exchanged his 96% ownership interest in ASC
for 100% of the common stock of ASCH. In conjunction with the formation of ASCH,
the Company changed the name of ASC to ASC East, Inc. ("ASC East") and recorded
the 4% minority interest in ASC East. The minority interest in ASC East of
$626,000 at July 27, 1997 is comprised of the fair market value of the stock
when issued to the minority shareholders of $976,000, less the minority interest
in the fiscal 1996 and 1997 losses of $100,000 and $250,000, respectively. On
September 4, 1997, ASCH changed its name to American Skiing Company. In October,
1997, the Company approved an increase in authorized shares of Common Stock, a
new issue of Class A Common Stock and a 14.76 for 1 stock split of shares of
Common Stock for shares of Class A Common Stock (Note 16).
For periods prior to June 17, 1997, the term 'Company' refers to ASC East
and its subsidiaries, and after such date, to American Skiing Company (formerly
ASCH) and its subsidiaries (including ASC East). In conjunction with the
formation of ASCH, the Company formed ASC Utah, a wholly-owned subsidiary, for
the purpose of acquiring The Canyons resort, including the Wolf Mountain ski
area in Utah. In August 1997, the Company formed ASC West for the purpose of the
anticipated acquisition of the Steamboat ski resort in Colorado and the Heavenly
Ski Resort in California.
Prior to June 28, 1996, the Company was a combined group of separate
entities which were wholly-owned by the Principal Shareholder. The outstanding
number of shares at July 30, 1995 of 116,737 represented the total outstanding
shares of the companies within the combined group. On June 28, 1996, the
Principal Shareholder exchanged all the outstanding shares of the combined group
for 939,168 shares of ASC common stock. Contemporaneously with the exchange, ASC
East purchased all the outstanding shares of common stock of S-K-I Limited, Inc.
('S-K-I') for $18.00 per share. Upon the acquisition of S-K-I, the companies
from the combined group and the S-K-I companies were formed into a consolidated
entity. In conjunction with the exchange and the acquisition of S-K-I, ASC East
issued 39,132 shares of common stock, representing a 4% minority interest in ASC
East, to an institutional investor in a private offering. The fair market value
of the common stock was $976,000 at the date of issuance and was recorded as
additional paid-in capital.
The Company owns and operates resort facilities, real estate development
companies, golf courses, ski and golf schools, retail shops and other related
companies at the following resorts:
<TABLE>
<CAPTION>
<S> <C>
VERMONT MAINE
Killington Resort Sunday River Ski Resort
Pico Ski Resort Sugarloaf Resort
Mount Snow/Haystack Resort NEW HAMPSHIRE
Sugarbush Resort Attitash Bear Peak Ski Resort
UTAH
The Canyons Resort (Wolf Mountain ski area)
</TABLE>
F-8
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
American Skiing Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
FISCAL YEAR
The Company's fiscal year is a fifty-two week or fifty-three week period
ending on the last Sunday of July. The periods for 1995, 1996 and 1997 consisted
of fifty-two weeks.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash represents amounts held in escrow for the buyers of
properties developed for sale. The cash will be available to the Company when
the properties are sold.
INVESTMENTS HELD IN ESCROW
Investments held in escrow at July 28, 1996 consisted of U. S. Treasury
Notes, the proceeds from the redemption of which were used for payment of
interest on the Subordinated Notes. These Treasury Notes were carried at cost
which approximated the quoted market values at July 28, 1996. At July 27, 1997,
the Company is no longer required to hold cash in escrow for payment of interest
on the Subordinated Notes.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist primarily of retail goods, food and beverage products and mountain
operating supplies.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated by the
straight-line method over the assets' estimated useful lives which generally
range from 9 to 40 years for buildings, 3 to 12 years for machinery and
equipment and 10 to 50 years for leasehold improvements, lifts, lift lines and
trails. Assets under capital lease are amortized over the shorter of their
useful lives or the respective lease lives.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
the net assets (including tax attributes) of companies acquired in purchase
transactions. Goodwill is being amortized using the straight-line method over 40
years. Goodwill is recorded net of accumulated amortization in the accompanying
consolidated balance sheet.
F-9
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Costs incurred in connection with the issuance of debt are included in
deferred financing costs, net of accumulated amortization. Amortization is
calculated using the straight-line method over the respective original lives of
the applicable issues and is included in depreciation and amortization in the
accompanying consolidated statement of operations. Amortization calculated using
the straight-line method is not materially different from amortization that
would have resulted from using the interest method.
LONG-TERM INVESTMENTS
Long-term investments are comprised of U.S. Government and Agency
obligations and corporate obligations. It is management's intent to hold these
securities until maturity. These securities are carried at amortized cost, which
approximates quoted market values at July 28, 1996 and July 27, 1997.
LONG-LIVED ASSETS
Effective July 29, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). In accordance
with SFAS 121, whenever events or circumstances indicate that the carrying value
of the long-lived assets, identifiable intangibles and real estate developed for
sale may not be recoverable, impairment losses are recorded and the related
assets are adjusted to their estimated fair market value, less selling costs. As
of July 27, 1997, management believes that there has not been any impairment of
the Company's long-lived assets, identifiable intangibles or real estate
developed for sale.
REVENUE RECOGNITION
Resort revenues include sales of lift tickets, tuition from ski schools,
sales from restaurants, bars and retail shops, and real estate rentals. These
revenues are recognized as the services are performed. Real estate revenues are
recognized when title has been transferred. Deposits from buyers of real estate
are recorded as deposits and deferred revenue in the accompanying balance sheet
until the revenue is recognized and the amount is applied to the selling price.
Original acquisition costs, direct construction and development costs,
interest incurred on costs related to land under development, and other related
costs (engineering, surveying, landscaping, etc.) are recorded in the
accompanying consolidated balance sheet as real estate developed for sale.
INTEREST
Interest is expensed as incurred except when it is capitalized in
conjunction with major capital additions and development of real estate for
sale. The amounts of interest capitalized are determined by applying current
interest rates to the funds required to finance the construction. During 1995,
1996 and 1997, the Company incurred total interest cost of $2.4 million, $5.1
million and $24.3 million, respectively, of which $224,000, $444,000 and
$575,000, respectively, has been capitalized to property and equipment and real
estate developed for sale.
F-10
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE BENEFITS
In August 1997, the Company established the ASC 401(k) Retirement Plan
pursuant to Section 401(k) of the Internal Revenue Code which allows all
eligible employees to defer up to 15% of their income. The Company's match of
participants' contributions is discretionary. As of July 27, 1997, the Company
maintained two profit sharing and two savings plans pursuant to Section 401(k)
of the Internal Revenue Code. There were no contributions to the profit sharing
plans for 1995, 1996 and 1997. Contributions to the savings plans for 1995, 1996
and 1997 totaled $107,000, $87,000 and $301,000, respectively. These four plans
were rolled into the ASC 401(k) Retirement Plan subsequent to year end.
ADVERTISING COSTS
Advertising costs are expensed the first time the advertising takes place.
At July 28, 1996 and July 27, 1997, advertising costs of $282,000 and $384,000,
respectively, were recorded as current assets in the accompanying consolidated
balance sheet. Advertising expense for the years ended July 30, 1995, July 28,
1996 and July 27, 1997 was $4.5 million, $5.7 million and $5.2 million,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts and disclosures reported in the accompanying
consolidated financial statements. Actual results could differ from those
estimates.
SEASONALITY
The occurrence of adverse weather conditions during key periods of the ski
season could adversely affect the Company's operating results. In addition, the
Company's revenues are highly seasonal in nature, with the majority of its
revenues historically being generated in the second and third fiscal quarters,
of which a significant portion is produced in two key weeks--the Christmas and
Presidents' Day vacation weeks.
EARNINGS PER SHARE
Given the capital structure of the Company, historical earnings per share
information is not considered meaningful or relevant and, therefore, has not
been presented in the accompanying financial statements.
Unaudited pro forma net loss per weighted average common share outstanding
was calculated by dividing the net loss available to common shareholders by the
weighted average number of common shares outstanding, giving effect to the stock
split (Note 16), the 622,038 options (the "Options") granted to certain
executive officers of the Company with an exercise price below the estimated
Offering share price (Note 16) and the Securities (Note 13). The net loss
available to common shareholders does not reflect the compensation charge of
$13.9 million that the Company will record in fiscal 1998 pertaining to the
grant of the Options and the related income tax gross-up payable by the Company.
The weighted average number of common shares relating to the Options and the
Securities were determined by including all potentially dilutive instruments
granted or issued within one year prior to an initial public offering, through
the effective date of the offering, at an exercise price less than the initial
public offering price, in accordance
F-11
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with the Securities and Exchange Commission Staff Accounting Bulletin No. 83,
with the dilutive effect measured using the treasury stock method. The primary
and fully diluted calculations of pro forma net loss per weighted average common
share are the same, as inclusion of all other potentially dilutive instruments
in the loss per share calculation would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
This pronouncement will be effective for the Company's year ended July 28, 1998
financial statements. SFAS 128 will supersede the pronouncement of the
Accounting Principles Board Opinion No. 15. The statement eliminates the
calculation of primary earnings per share and requires the disclosure of Basic
Earnings Per Share and Diluted Earnings Per Share (formerly referred to as fully
diluted earnings per share), if applicable. As the Company has recorded net
losses for the years ended July 28, 1996 and July 27, 1997, any common stock
equivalents would be antidilutive; therefore, primary earnings per share as
presented on the consolidated statements of operations is equivalent to Basic
Earnings Per Share and Diluted Earnings Per Share under SFAS 128.
STOCK COMPENSATION
The Company's stock option plan is accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, ("SFAS 123"), "Accounting for
Stock-Based Compensation" (Note 16).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts for cash and cash equivalents, restricted cash,
accounts receivable and accounts payable and other current liabilities
approximate fair value due to the short-term nature of these financial
instruments. The fair values of amounts outstanding under the Company's Senior
Credit Facility and certain other debt instruments approximates their book
values in all material respects, as determined by discounting future cash flows
at current market interest rates as of July 27, 1997. The fair value of the
Company's Senior Subordinated Notes has been estimated using quoted market
values. The fair value of the Company's Subordinated Discount Notes and the
subordinated debentures of Killington Ltd. have been estimated using discounted
cash flow analyses based on current borrowing rates for debt with similar
maturities and ratings.
The estimated fair values of the Senior Subordinated Notes, the Subordinated
Discount Notes and the subordinated debentures of Killington Ltd. at July 27,
1997 are presented below (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
12% Senior Subordinated Notes due 2006................................ $ 116,678 $ 127,400
13.75% Subordinated Discount Notes due 2007........................... 22,121 22,121
Subordinated debentures of Killington Ltd............................. 10,950 9,286
---------- ----------
$ 149,749 $ 158,807
---------- ----------
---------- ----------
</TABLE>
F-12
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement and tax bases of assets
and liabilities, utilizing currently enacted tax rates. The effect of any future
change in tax rates is recognized in the period in which the change occurs.
As described in Note 13, certain of the Company's subsidiaries had
previously elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code of 1986, as amended, with income or loss and credits
passed through to the shareholder. Concurrent with the acquisition of S-K-I, the
subsidiaries' election to be treated as S corporations terminated.
3. BUSINESS ACQUISITIONS AND DIVESTMENTS
On June 28, 1996, the Company acquired S-K-I (the "Acquisition") for a total
purchase price, including direct costs, of $104.6 million including liabilities
assumed (excluding deferred taxes) of $58.5 million for all of the shares
outstanding of S-K-I common stock. Pursuant to the transaction, S-K-I became a
wholly-owned subsidiary of the Company. The acquisition was accounted for using
the purchase accounting method. The consolidated financial statements contained
herein reflect the results of operations of the acquired S-K-I entities
subsequent to June 28, 1996 and include the balance sheet accounts of the
acquired S-K-I entities at July 28, 1996 and July 27, 1997.
The purchase price was allocated to the fair values of S-K-I's assets and
liabilities at the date of acquisition as follows (in thousands):
<TABLE>
<CAPTION>
FAIR VALUE OF
NET ASSETS
ACQUIRED
------------------
<S> <C>
Cash...................................................................... $ 7,540
Accounts receivable, net.................................................. 1,625
Inventory................................................................. 3,271
Prepaid expenses.......................................................... 2,153
Property and equipment, net............................................... 163,745
Long-term investments..................................................... 3,893
Goodwill.................................................................. 6,554
Other assets.............................................................. 2,156
--------
Total assets.......................................................... 190,937
--------
Accounts payable and accrued expenses..................................... (16,567)
Other liabilities......................................................... (5,301)
Minority interest......................................................... (2,600)
Debt acquired............................................................. (34,029)
Deferred income taxes..................................................... (27,820)
--------
Total liabilities..................................................... (86,317)
--------
Total................................................................. $ 104,620
--------
--------
</TABLE>
F-13
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS ACQUISITIONS AND DIVESTMENTS (CONTINUED)
During fiscal 1997, the Company recorded purchase price adjustments totaling
$4.3 million pertaining to the Acquisition.
Amortization of goodwill charged to depreciation and amortization amounted
to $14,000 and $217,000 for 1996 and 1997, respectively. Accumulated
amortization of goodwill amounted to $14,000 and $231,000 at July 28, 1996 and
July 27, 1997, respectively.
Pursuant to a consent decree with the U.S. Department of Justice in
connection with the Acquisition, the Company sold the assets constituting the
Mt. Cranmore and Waterville Valley resorts for $17.2 million on November 27,
1996. The assets held for sale of the Mt. Cranmore resort included in the
accompanying consolidated balance sheet as of July 28, 1996 are approximately
$4.4 million and the net income for the year ended July 28, 1996 of the Mt.
Cranmore resort included in the accompanying consolidated statement of
operations is approximately $251,000. The assets held for sale of the Waterville
resort included in the accompanying consolidated balance sheet as of July 28,
1996 are approximately $12.3 million.
In November 1996, the Company purchased the Pico Ski Resort for a total
purchase price of $5.0 million. The purchase price includes a cash payment of
$3.4 million and assumed liabilities of $1.6 million. In July 1997, the Company
purchased The Canyons, including the Wolf Mountain ski area, for a total
purchase price of $8.3 million. The purchase price includes a cash payment of
$1.6 million, assumed liabilities of $200,000 and the issuance of a note payable
in the amount of $6.5 million.
On August 30, 1996, the Company purchased the remaining 49% minority
interest in Sugarloaf, with a carrying amount of $2.5 million, for $2.0 million
cash. In connection with the purchase, the Company recorded a liability in the
amount of $492,000 to provide for contingent consideration that may be paid
pursuant to the purchase agreement. The liability is included in other long-term
liabilities in the accompanying consolidated balance sheet at July 27, 1997.
Contemporaneously with the purchase of Sugarloaf, the Company paid certain debt
in advance of its maturity and incurred a prepayment penalty of $600,000. The
prepayment penalty is recorded in interest expense in the accompanying
consolidated statement of operations for the year ended July 27, 1997.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of S-K-I, the divestitures of Mt. Cranmore
and Waterville Valley, the purchase of the minority interest of Sugarloaf, and
the termination of S corporation status of the S corporations (which reflects
the estimated results of operations as if Sunday River Skiway Corporation
("SRSC"), Sunday River Ltd. ("SRL"), Perfect Turn, Inc. ("PT") and Sunday River
Transportation Co. ("SRTC"), wholly-owned subsidiaries of the Company, had been
subject to corporate income taxes) had occurred on July 31, 1995 and July 29,
1996 (in thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 30, JULY 28,
1995 1996
----------- -----------
<S> <C> <C>
Revenues............................................................. $ 149,031 $ 171,666
Net loss............................................................. $ (8,133) $ (3,785)
Net loss per share................................................... -- $ (3.87)
</TABLE>
The pro forma financial information is not intended to be indicative of the
results of operations that actually would have occurred had the transactions
taken place at the beginning of the years presented or of future results of
operations.
F-14
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REAL ESTATE OPERATIONS
In addition to its resort operations, the Company engages in various real
estate activities including rental services and the development of real estate
for sale. During development, real estate taxes, insurance, interest, planning
and permitting costs are capitalized. Profit is recognized from the sale of such
property at the time of closing, when the Company has no ongoing involvement in
the specific property sold. The carrying value of the property developed for
sale is reduced to net realizable value if the asset carrying value is
determined not to be recoverable through expected undiscounted future cash
flows.
Properties developed for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 27,
JULY 28, 1996 1997
------------- ------------
<S> <C> <C>
Summit hotel completed units and hotels under development............................. $ 36 $ 22,685
Locke mountain........................................................................ 603 --
Other................................................................................. 692 855
------ ------------
$ 1,331 $ 23,540
------ ------------
------ ------------
</TABLE>
F-15
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
The following reflects the combination of both owned property and equipment
as well as assets acquired pursuant to capital leases (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
---------- ----------
<S> <C> <C>
Buildings and grounds................................................. $ 62,301 $ 69,635
Machinery and equipment............................................... 53,422 61,218
Lifts and lift lines.................................................. 56,370 60,769
Trails................................................................ 11,064 11,667
Land improvements..................................................... 10,819 18,096
---------- ----------
193,976 221,385
Less--accumulated depreciation and amortization....................... 20,737 36,940
---------- ----------
173,239 184,445
Land.................................................................. 50,685 49,160
Construction-in-process............................................... 3,546 18,741
---------- ----------
Net property and equipment............................................ $ 227,470 $ 252,346
---------- ----------
---------- ----------
</TABLE>
Property and equipment includes approximately $3.5 million and $10.7 million
of machinery and equipment held under capital leases at July 28, 1996 and July
27, 1997, respectively. Related accumulated amortization at July 28, 1996 and
July 27, 1997 on property and equipment under capital leases was approximately
$1.0 million and $2.3 million, respectively. Amortization expense for property
and equipment under capital leases and included in depreciation expense was
approximately $406,000, $493,000 and $1.6 million for 1995, 1996 and 1997,
respectively. Depreciation expense was $3.8 million, $6.7 million and $16.6
million for 1995, 1996 and 1997, respectively.
6. NOTE RECEIVABLE
In connection with the sale of Mt. Cranmore and Waterville Valley in
November 1996, the Company received a promissory note in the amount of $2.8
million. Interest on the note is charged at a rate of 12% per annum and is
payable semi-annually on December 31 and June 30. The note shall be paid in
annual installments of $250,000, $100,000, $150,000, $200,000, $250,000,
$300,000 and $350,000 beginning in January 1997 through January 2003, with the
remaining balance to be paid in June 2004. The balance of the note at July 27,
1997 of $2.5 million is included in other assets in the accompanying
consolidated balance sheet.
7. NOTE RECEIVABLE, AFFILIATE
The note receivable in the amount of $265,000 at July 28, 1996 and $250,000
at July 27, 1997 is from Ski Dorms, Inc., a company which is principally owned
by the Principal Shareholder of the Company, and is secured by a mortgage on
land and building. Interest is charged at Fleet National Bank's prime rate plus
1 1/2% and principal and any unpaid interest are due in December, 1999. Accrued
interest receivable on this note at July 28, 1996 and July 27, 1997 was $179,000
and $10,000, respectively. The balance of the note and the accrued interest
receivable are included in other assets.
F-16
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEMAND NOTE, SHAREHOLDER
In June 1996, prior to the Acquisition, Sunday River, now a wholly-owned
subsidiary of ASC East, delivered to the Shareholder a demand note in the
principal amount of $5.2 million for the amount expected to become payable by
the Principal Shareholder in 1996 and 1997 for income taxes with respect to
Sunday River's income as an S corporation through the date of the Acquisition.
The demand note is unsecured and bears interest at 5.4% per annum, the
applicable federal rate in effect at the time of issuance.
9. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
--------- ---------
<S> <C> <C> <C>
Senior Credit Facility (see Note 11)..................................................... $ 40,301 $ 55,067
Subordinated debentures issued to the former shareholders of Mt. Attitash Lift
Corporation by L.B.O. Holding, Inc. ("LBO"), with an original face value of $2,151 (a
discount has been reflected based on the Company's incremental borrowing rate at the date
of issuance). The initial coupon rate is 6% per annum, to be adjusted annually based on
the revenues of LBO, as defined in the agreement. Interest is payable annually on May 1,
beginning in 1995. LBO may prepay the outstanding principal balance from time to time.
Any prepayment prior to April 30, 1999 is subject to a discount, as described in the
agreement. Holders of the debentures have certain redemption rights prior to May 1 of
each year, subject to limitation and discount as described in the agreement.............. 1,709 1,777
Promissory note issued to Snowridge, Inc. by Sugarbush Resort Holdings, Inc.
("Sugarbush") with a face value of $6,120 (a discount has been reflected based on an
imputed interest rate of 9.5%) and an interest rate of 6.25%. Interest is payable
quarterly beginning June 30, 1995. A principal payment of $620 was made on November 1,
1995 and the remaining principal and accrued interest outstanding are due on December 31,
1999. The note is collateralized by certain assets (as defined in the loan agreement) of
Sugarbush................................................................................ 4,984 5,128
Promissory note in the amount of $2,311 issued to LHC Corporation (an affiliate of
Snowridge, Inc.) by Mountain Waste Water Co. ("MWWC", a wholly-owned company of
Sugarbush), which is secured by the stock of MWWC and Mountain Water Company (a
wholly-owned company of Sugarbush) as well as letters of credit in the amount of $100.
The note bears interest at 9% or prime plus 1%, which is due June 1 of each year
beginning in 1995. Principal payments of $154 are due each June 1, beginning in 1997,
with the balance due on June 1, 2003..................................................... 2,311 2,158
Vermont Industrial Development Bonds, fluctuating interest rates, 1996- 3.56% to 4.83%;
1997- 4.03% to 4.50% due in varying installments through 1999, secured by certain
machinery and equipment and real estate.................................................. 2,695 1,005
Town of Carrabassett Valley, Maine, $3,700 term loan due August 27, 2013 in serial
maturities, interest at rates ranging from 5.0% to 8.5%, secured by first mortgages on
property, plant and equipment............................................................ 3,515 --
</TABLE>
F-17
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C>
9. LONG-TERM DEBT (CONTINUED)
<CAPTION>
JULY 28, JULY 27,
1996 1997
--------- ---------
<S> <C> <C> <C>
First National Bank of Boston, $1,600 revolving loan due August 31, 1996 interest at the
bank's prime plus .5% (8.75%) at July 28, 1996........................................... 1,600 --
Note payable to Wolf Mountain Resorts, L.L.C. in an aggregate principal amount of $6.5
million to finance the acquisition of The Canyons resort and Wolf Mountain Ski area. The
note bears interest at a rate of 12% per annum which is payable monthly. The principal is
payable in installments of $4.2 million upon the effective date of the offering for sale
of the Company's Common Stock to the public and $2.3 million in January 1998............. -- 6,500
Note payable by Grand Summit Resort Properties, Inc. (a wholly-owned subsidiary of the
Company) to Key Bank in the amount of $8.5 million to finance the acquisition of land for
a hotel at the Attitash Bear Peak resort. The note matures on July 26, 1998.............. -- 4,250
OTHER
Obligations under capital leases......................................................... 1,301 7,840
Other notes payable...................................................................... 5,512 2,856
--------- ---------
63,928 86,581
Less: current portion.................................................................... 22,893 39,748
--------- ---------
Long-term debt, excluding current portion................................................ $ 41,035 $ 46,833
--------- ---------
--------- ---------
</TABLE>
The carrying values of the above debt instruments approximate their
respective fair values in all material respects, determined by discounting
future cash flows at current market interest rates as of July 27, 1997.
The non-current portion of long-term debt matures as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 33,055
2000............................................................................... 7,576
2001............................................................................... 1,675
2002............................................................................... 3,527
2003 and thereafter................................................................ 2,975
Interest related to capitalized leases............................................. (1,263)
Debt discount...................................................................... (712)
---------
$ 46,833
---------
---------
</TABLE>
At July 27, 1997, the Company had letters of credit outstanding totaling
$3.0 million.
F-18
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBORDINATED NOTES AND DEBENTURES
On June 25, 1996, in connection with the Acquisition, ASC East issued $120.0
million of 12% Senior Subordinated Notes (the "Notes") and 39,132 units
consisting of $39.1 million of 13.75% Subordinated Discount Notes (the
"Subordinated Notes") and 39,132 shares of common stock in a private placement.
The Notes and Subordinated Notes are general unsecured obligations of ASC East,
subordinated in right of payment to all existing and future debt of ASC East,
including all borrowings of the Company under the Senior Credit Facility. The
Notes and Subordinated Notes mature July 15, 2006 and January 15, 2007,
respectively, and will be redeemable at the option of ASC East, in whole or in
part, at any time after July 15, 2001. ASC East incurred deferred financing
costs totaling $7.9 million in connection with the issuance of the Notes and
Subordinated Notes which are recorded as assets, net of accumulated
amortization, in the accompanying consolidated balance sheet. Amortization
expense included in the accompanying consolidated statement of operations for
the years ended July 28, 1996 and July 27, 1997 amounted to $58,000 and
$781,000, respectively. Pursuant to a registration rights agreement, ASC East
filed a registration statement with respect to an offer to exchange the Notes
and Subordinated Notes for a new issue of notes of ASC East registered under the
Securities Act of 1933, with identical terms. The registration statement became
effective in November 1996.
The Notes were issued with an original issue discount of $3.4 million and,
as a result, the effective interest rate exceeds the stated interest rate.
Interest on the Notes is payable semi-annually on January 15 and July 15 of each
year, commencing on January 15, 1997. Interest expense on the Notes amounted to
$1.1 million and $14.6 million in 1996 and 1997, respectively.
Upon issuance of the Notes, a portion of the proceeds were required to be
invested into a segregated pledge account (the "Pledge Account") to secure the
payment of the first year's interest on the Notes. At July 28, 1996, the balance
in the Pledge Account was $14,497 and was invested in U.S. Treasury obligations.
Following the July 15, 1997 interest payment, the amount remaining in the Pledge
Account was not material and was released to ASC East. The balance in the Pledge
Account at July 28, 1996 is reflected in Investments held in escrow in the
accompanying consolidated balance sheet.
The Subordinated Notes were issued with an original issue discount of $19.0
million. Interest on the Subordinated Notes will not accrue prior to July 15,
2001; thereafter, interest will accrue at the rate of 13.75% per annum and will
be payable semi-annually on January 15 and July 15 of each year, commencing on
January 15, 2002. Interest expense on the Subordinated Notes amounted to
$206,000 and $2.9 million in 1996 and 1997, respectively. The shares of common
stock issued with the Subordinated Notes represent 4% of the total common stock
outstanding of ASC East and were valued at $976,000 as of June 28, 1996.
F-19
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBORDINATED NOTES AND DEBENTURES (CONTINUED)
Subordinated debentures of Killington, Ltd. (a wholly-owned subsidiary of
the Company) amounted to $10,950,000 at July 27, 1997 and are due as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR INTEREST AMOUNT
- ------------------------------------------------------ ------------- ---------
<S> <C> <C>
1999.................................................. 6% $ 455
2000.................................................. 6% 673
2001.................................................. 8% 525
2002.................................................. 8% 549
2003.................................................. 8% 1,074
2004.................................................. 8% 1,466
2010.................................................. 8% 1,292
2012.................................................. 6% 1,155
2013.................................................. 6% 1,065
2015.................................................. 6% 1,500
2016.................................................. 6% 1,196
---------
$ 10,950
---------
---------
</TABLE>
11. SENIOR CREDIT FACILITY
On June 25, 1996, ASC East entered into the Senior Credit Facility (the
"Facility") with Fleet National Bank ("Fleet"). The Facility provides for a
$65.0 million revolving line of credit (which includes a $3.5 million
sub-facility for letters of credit). The ASC East obligations under the Facility
are guaranteed by substantially all of the assets of ASC East. Under the
Facility, ASC East may enter into LIBOR contracts which provide for a fixed rate
of interest on certain borrowings for a period of time not to exceed 90 days. At
July 28, 1996 and July 27, 1997, ASC East had outstanding borrowings of $37.0
million and $53.0 million, respectively under LIBOR contracts which bear
interest at a rate of 7.94% per annum at July 28, 1996 and at rates ranging from
8.17% to 8.19%, per annum at July 27, 1997. The balance of the borrowings
outstanding at July 28, 1996 and July 27, 1997 of $3.3 million and $2.1 million,
respectively, bear interest at Fleet's LIBOR rate plus 1.5% to 2.5% per annum
(9.75% and 10.0% at July 28, 1996 and July 27, 1997, respectively).
ASC East is required to pay a commitment fee of 0.5% per annum on unused
availability under the credit facility. Amounts available for borrowing under
the Facility will incrementally decline to $50.0 million over the period ending
July 1, 2000, and the Facility will mature on or about December 31, 2001. ASC
East is required to pay down the amounts outstanding each year, commencing in
1996, for a 45-day period which must include March 31, to an amount declining
from $25.0 million in 1997 to $10.0 million in 2000 and 2001. In establishing
the Facility, ASC East incurred deferred financing costs totaling $1.5 million
which are recorded as assets, net of accumulated amortization, in the
accompanying consolidated balance sheet. Amortization expense included in the
accompanying consolidated statement of operations for the years ended July 28,
1996 and July 27, 1997 amounted to $23,000 and $322,000, respectively.
F-20
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SENIOR CREDIT FACILITY (CONTINUED)
As of July 27, 1997, the Company was in violation of certain financial
covenants under the Facility. Subsequent to year end, the violations were waived
by Fleet as of the balance sheet date and the financial covenants with respect
to which the Company was in default were amended. Subsequent to year end, the
Company received a signed commitment from a lender for a new financing
arrangement to refinance the Facility and, therefore, the amounts due under the
Facility beyond one year from the balance sheet date have been classified as
long term (Note 16).
12. INCOME TAXES
Prior to June 28, 1996, certain companies comprising ASC Holdings, Inc.,
SRSC, SRL, PT and SRTC (the "S Corporations") had elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986, as amended.
Accordingly, no income tax provision or liability has been made for these
companies for the year ended July 30, 1995 and the period from July 31, 1995 to
June 28, 1996. For federal and state income tax purposes, taxable income, losses
and tax credits are passed through to the Shareholder, who is individually
responsible for reporting his share of such items. The Company distributed to
the Shareholder amounts sufficient to pay his personal income taxes based on the
S Corporations' earnings.
In conjunction with the Acquisition, the S Corporations changed from S
corporation status to C corporation status. As a result, the income or loss of
the S Corporations subsequent to June 28, 1996 will be subject to corporate
income tax. The income tax provision described below for the years ended July
28, 1996 and July 27, 1997 includes the income taxes related to the S
Corporations since June 28, 1996.
At the time of conversion of the S Corporations to C corporation status, a
net deferred tax liability of $5.6 million was recorded through the income tax
provision. This deferred tax liability was primarily comprised of the tax effect
of the cumulative book and tax basis differences of property and equipment at
the time of conversion.
The provision (benefit) for income taxes charged to continuing operations
was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JULY 28, JULY 27,
JULY 30, 1995 1996 1997
--------------- ------------ ------------
<S> <C> <C> <C>
Current tax expense
Federal.............................................................. $ 248 $ -- $ --
State................................................................ 55 -- --
----- ------------ ------------
303 -- --
----- ------------ ------------
Deferred tax expense
Federal.............................................................. 77 (1,330) (2,815)
State................................................................ 20 (316) (798)
----- ------------ ------------
97 (1,646) (3,613)
----- ------------ ------------
Change in tax status from S Corporation to C Corporation............... -- 5,552 --
----- ------------ ------------
Total provision (benefit).............................................. $ 400 $ 3,906 $ (3,613)
----- ------------ ------------
----- ------------ ------------
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Under SFAS 109, the benefit
associated with future deductible temporary differences and operating loss or
credit carryforwards is recognized if it is more likely than not that a benefit
will be realized. Deferred tax expense (benefit) represents the change in the
net deferred tax asset or liability balance.
F-21
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following at July 28,
1996 and July 27, 1997 (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
---------- ----------
<S> <C> <C>
Property and equipment basis differential................................................ $ 36,917 $ 40,040
Other.................................................................................... 753 907
---------- ----------
Gross deferred tax liabilities........................................................... 37,670 40,947
---------- ----------
Tax loss and credit carryforwards........................................................ (11,414) (16,766)
Capitalized cost......................................................................... (1,473) (543)
Other.................................................................................... (1,764) (1,589)
Original issue discount on Subordinated Notes............................................ -- (1,212)
---------- ----------
Gross deferred tax assets................................................................ (14,651) (20,110)
---------- ----------
Valuation allowance...................................................................... 7,369 7,255
---------- ----------
30,388 28,092
---------- ----------
Less: Net deferred tax liability related to assets held for sale......................... 281 --
---------- ----------
$ 30,107 $ 28,092
---------- ----------
---------- ----------
</TABLE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
of 35% to income (loss) before provision (benefit) for income taxes and minority
interest in loss of subsidiary as a result of the following differences (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory U.S. tax rates................... $ 1,932 $ 546 $ (3,271)
Increase (decrease) in rates resulting from:
Change in tax status from S Corporation to C Corporation..................... -- 5,552 --
Income from S Corporations not taxable for corporate income tax purposes..... (1,679) (2,371) --
State taxes, net............................................................. 115 -- (798)
Change in valuation allowance................................................ -- -- 71
Nondeductible items.......................................................... 32 41 243
Other........................................................................ -- 138 142
--------- --------- ---------
Income tax provision (benefit) at the effective tax rates........................ $ 400 $ 3,906 $ (3,613)
--------- --------- ---------
--------- --------- ---------
</TABLE>
At July 27, 1997, the Company has federal net operating loss ("NOL")
carryforwards of approximately $40.7 million which expire in varying amounts
through the year 2011. Under Section 382 of the Internal Revenue Code, future
use of NOL carryforwards generated prior to a change in ownership, as defined,
may be significantly limited. Approximately $16.0 million and $3.3 million of
Sugarloaf and LBO Holding, Inc's ("LBO"), a wholly-owned subsidiary of ASC East,
federal NOL carryforwards, respectively, are subject to an annual limitation of
$110,000 and $185,000, respectively, of the amount of their separate
F-22
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
company taxable income that may be reduced by such carryforwards. Approximately
$178,000 and $168,000 of Sugarloaf and LBO's investment tax credit
carryforwards, respectively, are also subject to the annual limitation under
Section 382 of the amount of their tax that may be offset by such carryforwards.
The tax credit carryforwards expire in varying amounts through the year 2001.
Subsequent changes in ownership could further affect the limitations in future
years.
In addition to the limitations under Section 382, approximately $23.0
million of the federal NOL carryforwards are from the separate return years of
Sugarloaf ($16.0 million), LBO ($5.1 million) and Sugarbush ($1.9 million), and
may only be used to offset each company's contribution to consolidated taxable
income in future years.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
believes that the valuation allowance of $7.3 million is appropriate because,
due to the change of ownership annual limitations, realization of the benefit of
the majority of the tax benefits of the Sugarloaf net operating loss, (some
portion of the LBO net operating loss and investment tax carryforwards) and all
investment tax credit carryforwards is not more likely than not.
13. MANDATORILY REDEEMABLE SECURITIES
Pursuant to a Securities Purchase Agreement (the "Agreement") dated July 2,
1997 (as amended July 16, 1997), the Company issued 17,500 shares of its Series
A Exchangeable Preferred Stock (the "Preferred Stock") in a private offering to
an institutional investor. The Company incurred $1.1 million in expenses in
connection with the issuance of the Preferred Stock. These amounts have been
recorded as a reduction of the carrying value of the mandatorily redeemable
preferred stock in the accompanying consolidated balance sheet at July 27, 1997.
The liquidation preference is $1,000 per share and cumulative dividends on the
Preferred Stock are payable, at the option of the Company, in cash or in
additional shares of Preferred Stock at a rate of 14% per annum. The Company is
required to redeem all shares of the Preferred Stock outstanding on July 15,
2002. The Company intends to offer to exchange all or any part of the Preferred
Stock for shares of the Company's common stock (the "Common Stock") or shares of
the Company's 10 1/2% Convertible Preferred Stock. Upon completion of the
anticipated initial offering of the Company's common stock to the public (the
"Offering"), each share of the 10 1/2% Convertible Preferred Stock will be
convertible into shares of Common Stock at a 5% discount from the Offering share
price. The 5% discount from the Offering share price is being accreted from the
time of the issuance of the Preferred Stock to the date of first permitted
conversion, which is the date of the Offering. In the event the Offering is not
consummated within one year from the date of the issuance of the Preferred
Stock, the discount from the Offering share price increases annually from 5% for
the period through July 1998 up to 25% for the period through July 2002. If the
holder of the Preferred Stock does not elect to exchange such securities for
10 1/2% Convertible Preferred Stock or Common Stock, consummation of the
Offering will trigger a Change in Control as defined under the Agreement. In
such event, the Agreement requires that the Company offer to purchase the
Preferred Stock for cash at a redemption price of 105.3% of the liquidation
preference of such shares at the date of redemption. On the date of the
Offering, the face value of the Preferred Stock plus fully accreted discount of
5% equals the redemption price. In the event of a default as defined in the
Agreement, there shall be a mandatory redemption of the Preferred Stock from
funds legally available to the Company unless the holders of the Preferred Stock
elect instead to have visitation rights with respect to meetings of the
Company's board of directors and meetings of the Company's management
committees. At July 27, 1997, the carrying amount of the Preferred Stock is
$16.8 million which is comprised of the original liquidation preference of $17.5
million less unaccreted issuance
F-23
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MANDATORILY REDEEMABLE SECURITIES (CONTINUED)
costs of $922,000 plus accrued dividends and accretion of the discount of
$109,000 and $134,000, respectively.
Pursuant to the Agreement, the Company issued on July 28, 1997 $17.5 million
aggregate principal amount of its 14% Senior Exchangeable Notes Due 2002 (the
"Notes") in a private offering to an institutional investor. The Company
incurred deferred financing costs totaling $1.1 million prior to year end in
connection with the issuance of the Notes. These costs have been recorded as an
asset in the accompanying consolidated balance sheet at July 27, 1997. The
proceeds from the notes were received on July 30, 1997 and, therefore, the cash
and notes have not been reflected in the balance sheet at July 27, 1997. The
Notes bear interest at a rate of 14% per annum and mature on July 28, 2002.
Interest on the Notes is payable in cash or additional Notes, at the option of
the Company. The Company intends to offer to exchange all of the Notes for
shares of Common Stock or shares of 10 1/2% Convertible Preferred Stock with an
aggregate liquidation preference of $17.5 million. Upon completion of the
Offering, each share of 10 1/2% Convertible Preferred Stock will be convertible
into shares of Common Stock. If the holders of Notes do not elect to exchange
such securities for 10 1/2% Convertible Preferred Stock or Common Stock,
consummation of the Offering will trigger a Change of Control (as defined) under
the Agreement. In such event, the Agreement requires that the Company offer to
purchase the Notes for cash at a redemption price of 105.3% of the principal
amount outstanding on the date of redemption.
The holder of the Preferred Stock and the Notes (collectively, the
"Securities") has indicated its intention to exchange the Securities for the
Company's 10 1/2% Convertible Preferred Stock upon consummation of the Offering
(Note 16).
14. RELATED PARTY TRANSACTIONS
Sunday River Skiway Corporation has guaranteed amounts outstanding under
subordinated debentures due in 2002 that were issued by LBO Holdings, Inc., as
part of the acquisition of Mt. Attitash Lift Corporation. Payments under the
guarantee are subordinated to all secured indebtedness of Sunday River Skiway
Corporation to any bank, thrift institution or other institutional lender.
15. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES
The Company leases certain land and facilities used in the operations of its
resorts under several operating lease arrangements. These lease arrangements
expire at various times from the year 2010 through the year 2060. Lease payments
are generally based on a percentage of revenues. Total rent expense under these
operating leases as recorded in resort operating expenses in the accompanying
consolidated statement of operations for 1995, 1996 and 1997 were $619,000,
$744,000 and $2.2 million, respectively.
Significant portions of the land underlying certain of the Company's ski
resorts are leased or subleased by the Company or used pursuant to renewable
permits or licenses. If any such lease, sublease, permit or license were to be
terminated or not renewed upon expiration, or renewed on terms materially less
favorable to the Company, the Company's ability to possess and use the land
subject thereto and any improvements thereon would be adversely affected,
perhaps making it impossible for the Company to operate the affected resort. A
substantial portion of the land constituting skiable terrain at the Attitash
Bear Peak Ski Resort, Sugarbush Resort and Mount Snow/Haystack Resort is located
on federal land that is used under the terms of the permits with the United
States Forest Service (the "Forest Service"). Generally, under the terms of such
permits, the Forest Service has the right to review and comment on the location,
design and construction of improvements in the permit area and on many
operational matters.
F-24
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES (CONTINUED)
The permits can be terminated or modified by the Forest Service to serve the
public interest. A termination or modification of any of the Company's permits
could have a material adverse effect on the results of operations of the
Company. The Company does not anticipate any limitations, modifications, or
non-renewals which would adversely affect the Company's operations.
In connection with the purchase of The Canyons, the Company entered into an
operating lease arrangement for the lease of certain land at the Wolf Mountain
Ski area to be used in the operation of the resort and for future real estate
development. The arrangement provides for an initial lease term of 50 years,
with the option to extend for three additional 50 year periods for an extension
fee of $1.0 million for each extension period. Lease payments are based on a
percentage of resort net revenues. The arrangement also provides for additional
one-time payments ranging from $250,000 to $2.0 million upon achievement of
annual skier visit levels ranging from 100,000 to 1,000,000. Under the
arrangement, the Company has the option to purchase parcels of land covered
under the operating lease for real estate development. Payments to exercise the
option total $14.6 million and are payable monthly, at the option of the
Company, in varying amounts through July 2001. The Company is not required to
make the option payments in order to develop and sell real estate on the land
covered under the lease. No option payments were made and no lease expense was
incurred under this arrangement as of and for the year ended July 27, 1997.
In addition to the leases described above, the Company is committed under
several operating and capital leases for various equipment. Rent expense under
all operating leases was $1.0 million, $994,000 and $4.2 million for the years
ended 1995, 1996 and 1997, respectively.
Future minimum lease payments for lease obligations at July 27, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1998.................................................................................... $ 2,564 $ 4,136
1999.................................................................................... 1,786 3,869
2000.................................................................................... 1,488 1,530
2001.................................................................................... 1,295 963
2002.................................................................................... 2,585 4,973
--------- -----------
Total payments...................................................................... 9,718 $ 15,471
-----------
-----------
Less interest....................................................................... (1,878)
---------
Present value of net minimum payments............................................... 7,840
Less current portion................................................................ 1,876
---------
Long-term obligations............................................................... $ 5,964
---------
---------
</TABLE>
Certain claims, suits and complaints associated with the ordinary course of
business are pending or may arise against the Company, including all of its
direct and indirect subsidiaries. In the opinion of management, all matters are
adequately covered by insurance or, if not covered, are without merit or are of
such kind, or involve such amounts as would not have a material effect on the
financial position, results of operations and cash flows of the Company if
disposed of unfavorably.
F-25
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS
ACQUISITIONS
On August 1, 1997, the Company entered into an agreement to purchase the
Steamboat and Heavenly resorts (the "Purchase"). As part of the Purchase, the
Company agreed to acquire the Sabal Point Golf Course in Orlando, Florida and a
residence in Denver, Colorado, both of which the Company intends to sell
following the closing of the Purchase. The aggregate consideration to be paid by
the Company for the Purchase is approximately $290.0 million. The Purchase is
subject to the satisfaction of certain covenants and conditions and there can be
no assurance that the Purchase will be consummated.
INITIAL PUBLIC OFFERING OF COMMON STOCK
In August 1997, the Company filed a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission on Form S-1
for the purpose of registering its common stock for the initial offering for
sale to the public (the "Offering") at an estimated price of $18.50 per share
for a proposed maximum aggregate offering price of $339.3 million. The number of
shares to be sold and the price of those shares has not been determined. The
anticipated effective date of the Offering is November 1997.
Consummation of the Offering may trigger a Change of Control (as defined)
under the indenture (the "12% Note Indenture") relating to the Notes. The 12%
Note Indenture provides that upon the occurrence of a Change of Control, the
Company will be required to make an offer to repurchase the Notes at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of repurchase (the "Change of Control Offer"). The Company
is not able to determine at this time whether or not any or all holders of the
Notes will accept the Change of Control Offer. If all outstanding Notes are
tendered, the amount of funds necessary to consummate the Change of Control
Offer would be $121.2 million plus the amount of all accrued and unpaid
interest. The Company is currently negotiating a standby credit facility for up
to $125.0 million to fund the repurchase of the Notes in the event that any or
all of the Notes are tendered to the Company for repurchase.
ADDITIONAL FINANCING
In August 1997, the Company entered into a Loan and Security Agreement with
a lender to provide financing for the real estate construction activities of
Grand Summit Resort Properties, Inc., a wholly-owned subsidiary. The Loan and
Security Agreement provides for advances up to $55.0 million which bear interest
at a rate equal to the greater of 9.25% or the sum of the bank's prime rate plus
1.5%. All borrowings under the Loan and Security Agreement are collateralized by
substantially all assets of the Grand Summit Resort Properties, Inc.
NEW CREDIT FACILITY
On October 8, 1997, the Company entered into a commitment letter (the
"Commitment Letter") with respect to the New Credit Facility. The Commitment
Letter contemplates credit facilities providing for borrowings in an aggregate
amount of up to $215 million. Amounts borrowed under the New Credit Facility are
expected to be available (i) to finance the Acquisition, (ii) to repay
approximately $60 million of indebtedness of ASC East under the Existing Credit
Facility, (iii) to repay approximately $12 million of indebtedness of the
Company and its subsidiaries, (iv) to pay certain fees and expenses relating to
the Acquisition and (v) for ongoing general corporate purposes and capital
expenditures. The New Credit Facility is expected to be divided into two
sub-facilities, $75 million of which is expected to be available for borrowings
by ASC East and its subsidiaries (the "East Facility") and $140 million of which
is expected to be available for borrowings by the Company excluding ASC East and
its subsidiaries (the "West Facility").
F-26
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
The East Facility is expected to consist of a six-year revolving credit facility
in the amount of $45 million and an eight-year term facility in the amount of
$30 million. The West Facility is expected to consist of a six-year revolving
facility in the amount of $65 million and an eight-year term facility in the
amount of $75 million. The revolving facilities are subject to annual 30-day
clean down requirements to an outstanding balance of not more than $10 million
for the East Facility and not more than $35 million for the West Facility. The
maximum availability under the revolving facilities will reduce over the term of
the New Credit Facility by certain prescribed amounts. The term facilities
amortize at a rate of approximately 1.0% of the principal amount for the first
six years with the remaining portion of the principal due in two substantially
equal installments in years seven and eight. At the Company's option, interest
will be payable at an alternate base rate or LIBOR, in each case, plus an
applicable margin that is dependent upon the ratio of the Company's total debt
to EBITDA (as defined in the New Credit Facility).
The New Credit Facility is expected to require mandatory prepayments with
the net proceeds of any asset sales and new debt and/or equity offerings of the
Company. Beginning in July 1999, the New Credit Facility is expected to require
mandatory prepayments of 50% of excess cash flows during any period in which the
ratio of the Company's total senior debt to EBITDA exceeds 3.50 to 1. In no
event, however, will such mandatory prepayments reduce either revolving facility
commitment below $35 million.
The East Facility is expected to be secured by substantially all the assets
of ASC East and its subsidiaries, except Grand Summit Resort Properties, Inc.,
which is not a borrower under the New Credit Facility. The West Facility is
expected to be secured by substantially all the assets of the Company and its
subsidiaries, except ASC East and its subsidiaries.
The New Credit Facility is expected to contain various covenants that limit,
among other things, subject to certain exceptions, indebtedness, liens,
transactions with affiliates, restricted payments and investments, mergers,
consolidations and dissolutions, sales of assets, dividends and distributions
and certain other business activities. In addition, the New Credit Facility is
expected to contain financial covenants customary for this type of senior credit
facility including maintenance of customary financial ratios. Compliance with
financial covenants will be determined on a consolidated basis notwithstanding
the bifurcation of the New Credit Facility into the East Facility and the West
Facility, with the exception of a leverage test.
CONVERTIBLE DEBT
On July 28, 1997, the Company issued $17.5 million aggregate principal
amount of its 14% Senior Exchangeable Notes due 2002 in a private offering to an
institutional investor (Note 13).
REDEMPTION OF SUBORDINATED NOTES
A portion of the proceeds from the new credit facility will be used to make
an approximate $27.7 million investment in ASC East to fund the redemption of
all outstanding Subordinated Notes. The indenture relating to the Subordinated
Notes provides for a redemption price equal to 113.75% of the carrying value of
the Subordinated Notes on the redemption date. The Company expects to record a
pretax loss of approximately $4.3 million related to the repayment of the
Subordinated Notes.
STOCK OPTION PLAN
Effective August 1, 1997, the Company established the American Skiing
Company Stock Option Plan (the "Plan") to provide for the grant of incentive
stock options and nonqualified stock options for the purchase of up to an
aggregate of 5,688,699 shares of the Company's common stock by officers and
management employees of the Company and its subsidiaries and other key persons
(eligible for
F-27
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
nonqualified stock options only) as designated by the Options Committee. The
Options Committee, which is appointed by the Board of Directors of the Company,
is responsible for the Plan's administration. The Options Committee determines
the term of each option, option exercise price, number of shares for which each
option is granted and the rate at which each option is exerciseable. Options
granted under the Plan generally expire ten years from the date of grant and
vest either immediately or over a five-year term.
Incentive stock options shall not have an exercise price less than the fair
market value of the common stock at the date of grant. Nonqualified stock
options may be granted at an exercise price as determined by the Options
Committee.
No persons shall be granted an incentive stock option, if at the time of
grant, such person owns, directly or indirectly, stock possessing more than 10%
of the total combined voting power of the Company unless the option price is at
least 110% of the fair market value of the common stock.
Subsequent to July 27, 1997, the Company will grant to the Principal
Shareholder options to purchase approximately 1,853,000 shares of common stock
at an exercise price equal to the fair market value of the common stock at the
date of grant (i.e., the Offering price). Additionally, the Company will grant
to certain key management employees options to purchase approximately 622,000
shares of Common Stock at an exercise price of $2.00 per share. The difference
between the fair market value at the date of grant and the $2.00 exercise price,
as well as the amount paid to such key management employees by the Company for
reimbursement for personal income taxes, will be recorded as compensation
expense upon consummation of the Offering.
In addition, options to purchase 108,108 shares of Common Stock will be
granted to certain employees of the Company at an exercise price equal to the
fair market value at the date of grant.
STOCK SPLIT
On October 10, 1997, the Board of Directors approved (i) an increase in
authorized shares of Common Stock to 100,000,000, (ii) the creation of Class A
Common Stock with authorized shares totaling 15,000,000 and (iii) a 14.76 for 1
stock split of shares of Common Stock for shares of Class A Common Stock. The
stock split has been given retroactive effect in the accompanying financial
statements as of the balance sheet date. The rights and preferences of holders
of Common Stock and Class A Common Stock are identical, except that holders of
Class A Common Stock will elect a class of directors that constitutes two-thirds
of the Board of Directors and holders of Common Stock will elect a class of
directors that constitutes one-third of the Board of Directors. Each share of
Class A Common Stock will be convertible into one share of Common Stock (A) at
the option of the holder at any time, (B) automatically upon transfer to any
person that is not an affiliate of the Principal Shareholder and (C)
automatically if, at any time, the number of shares of Class A Common Stock
outstanding represent less that 20% of outstanding shares of Common Stock and
Class A Common Stock. Upon completion of the Offering, the Principal Shareholder
will hold 100% of the Class A Common Stock, representing approximately 42.4% of
the combined voting power of all outstanding shares of Common Stock and Class A
Common Stock.
17. GUARANTORS OF DEBT
The Notes and Subordinated Notes are fully and unconditionally guaranteed by
the Company and all of its subsidiaries with the exception of Grand Summit
Resort Properties, Inc., Ski Insurance Company, Killington West Ltd, Mountain
Water Company, and Club Sugarbush, Inc., (the "Non-Guarantors"). Prior to the
Acquisition and issuance of the Notes and Subordinated Notes on June 28, 1996,
the bank loan agreements were collateralized by virtually all of the assets of
the companies comprising the Company. The guarantor subsidiaries are
wholly-owned subsidiaries of the Company and the guarantees are full,
unconditional, and joint and several.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of
Directors of S-K-I Ltd.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
S-K-I Ltd. and its subsidiaries at July 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
August 31, 1995
F-29
<PAGE>
S-K-I LTD.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments (at cost, which approximates market value).......... $2,704,302 $2,790,645
Accounts receivable, net (Note 1)................................................... 1,423,430 2,677,434
Notes receivable.................................................................... 371,739 244,775
Inventories......................................................................... 3,472,492 3,955,722
Prepaid expenses.................................................................... 1,456,222 1,360,460
------------ ------------
TOTAL CURRENT ASSETS.............................................................. 9,428,185 11,029,036
------------ ------------
Property and equipment, at cost:
Buildings and grounds............................................................... 32,730,561 41,557,838
Machinery and equipment............................................................. 71,690,813 73,123,058
Leasehold improvements.............................................................. 39,066,623 48,082,570
Lifts, liftlines and trails on corporate property................................... 16,162,939 33,787,212
------------ ------------
159,650,936 196,550,678
Less--accumulated depreciation and amortization....................................... 86,638,454 89,929,914
------------ ------------
73,012,482 106,620,764
Construction in progress.............................................................. 8,996,570 1,684,442
Land and development costs............................................................ 12,762,352 13,469,642
------------ ------------
NET PROPERTY AND EQUIPMENT........................................................ 94,771,404 121,774,848
------------ ------------
Long-term investments (Note 1)........................................................ 464,663 1,628,477
Other assets (Note 1)................................................................. 2,125,756 2,289,152
------------ ------------
TOTAL ASSETS...................................................................... 1$06,790,008 1$36,721,513
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and subordinated debentures (Note 3).............. $ 955,746 $3,858,184
Accounts payable.................................................................... 1,741,131 1,617,621
Income taxes payable (Note 5)....................................................... 257,684 272,252
Accrued lease payments--Vermont (Note 4)............................................ 1,171,865 1,039,366
Accrued wages, profit sharing and incentive compensation (Note 8)................... 464,907 529,874
Deposits and other unearned revenue................................................. 695,328 1,706,017
Other accrued expenses (Note 1)..................................................... 4,184,664 5,157,743
------------ ------------
TOTAL CURRENT LIABILITIES......................................................... 9,471,325 14,181,057
Long-term debt (Note 3)............................................................... 17,766,857 38,790,032
Subordinated debentures (Note 3)...................................................... 11,400,000 11,400,000
Deferred income taxes (Note 5)........................................................ 7,478,492 8,479,956
Other long-term liabilities (Note 1).................................................. 3,487,042 4,432,027
Minority interest..................................................................... -- 1,876,188
------------ ------------
TOTAL LIABILITIES................................................................. 49,603,716 79,159,260
------------ ------------
Commitments (Notes 3 and 4)
Stockholders' equity (Notes 3, 6 and 7):
Common stock $.10 par value (12,500,000 shares authorized,
5,785,932 shares in 1995, 5,781,432 shares in 1994)............................... 578,144 578,594
Paid-in capital....................................................................... 6,577,440 6,617,551
Retained earnings..................................................................... 50,030,708 50,366,108
------------ ------------
TOTAL STOCKHOLDERS' EQUITY........................................................ 57,186,292 57,562,253
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................ 1$06,790,008 1$36,721,513
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
S-K-I LTD
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-------------------------------------------
<S> <C> <C> <C>
1993 1994 1995
------------- ------------- -------------
Revenues (Note 1):
Resort services................................................... $ 60,441,799 $ 62,532,813 $ 74,252,723
Sale of goods..................................................... 19,832,479 21,008,869 23,648,797
Rental and other income........................................... 16,434,113 15,365,537 16,058,192
------------- ------------- -------------
96,708,391 98,907,219 113,959,712
------------- ------------- -------------
Expenses:
Cost of operations including wages, maintenance and supplies:
Resort services................................................... 21,070,994 22,483,982 29,611,497
Sale of goods..................................................... 11,658,737 12,729,442 15,146,037
Rental and other expense.......................................... 7,173,101 7,346,163 6,799,809
Other taxes....................................................... 7,632,343 8,015,487 8,599,706
Utilities......................................................... 6,655,016 6,044,889 8,070,911
Insurance......................................................... 5,115,333 5,518,243 6,634,837
Selling, general and administrative expenses...................... 16,871,496 15,298,138 19,494,655
Interest.......................................................... 2,228,385 2,214,309 3,818,893
Depreciation and amortization (Note 1)............................ 10,941,869 11,440,122 14,055,796
------------- ------------- -------------
89,347,274 91,090,775 112,232,141
------------- ------------- -------------
Income before income taxes and minority interest.................... 7,361,117 7,816,444 1,727,571
Income taxes (Note 5)............................................... 2,952,310 3,169,956 997,123
------------- ------------- -------------
Net income before minority interest................................. 4,408,807 4,646,488 730,448
------------- ------------- -------------
Minority interest in loss of subsidiary............................. -- -- 298,949
------------- ------------- -------------
Net Income.......................................................... $ 4,408,807 $ 4,646,488 $ 1,029,397
------------- ------------- -------------
------------- ------------- -------------
Net income per common and common equivalent share: 5,783,480 in
1995, 5,764,663 in 1994, 5,728,908 in 1993 (Note 6)............... $ 0.77 $ 0.81 $ 0.18
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1992.................... 5,724,856 $ 572,486 $ 6,433,263 $ 42,183,973 $ 49,189,722
Common stock options exercised.......... 6,251 625 20,751 21,376
Net income.............................. 4,408,807 4,408,807
Dividends ($.10 per share).............. (573,015) (573,015)
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1993.................... 5,731,107 573,111 6,454,014 46,019,765 53,046,890
Common stock options exercised.......... 50,325 5,033 123,426 128,459
Net income.............................. 4,646,488 4,646,488
Dividends ($.11 per share).............. (635,545) (635,545)
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1994.................... 5,781,432 578,144 6,577,440 50,030,708 57,186,292
Common stock options exercised.......... 4,500 450 40,111 40,561
Net income.............................. 1,029,397 1,029,397
Dividends ($.12 per share).............. (693,997) (693,997)
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1995.................... 5,785,932 $ 578,594 $ 6,617,551 $ 50,366,108 $ 57,562,253
---------- ---------- ------------ ------------- -------------
---------- ---------- ------------ ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
<S> <C> <C> <C>
1993 1994 1995
------------- ------------- -------------
Cash flows from operating activities:
Net income......................................................... $ 4,408,807 $ 4,646,488 $ 1,029,397
Non-cash items included in net income:
Depreciation and amortization...................................... 10,941,869 11,440,122 14,055,796
Deferred income taxes.............................................. 613,451 154,084 1,001,464
Minority interest in net income of subsidiary...................... -- -- (298,949)
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES BEFORE CHANGES IN ASSETS AND
LIABILITIES........................................................ 15,964,127 16,240,694 15,787,708
------------- ------------- -------------
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......................... 398,318 (429,547) (1,027,240)
Decrease (increase) in notes receivable............................ (9,458) 363,442 126,964
(Increase) in inventories.......................................... (154,437) (214,208) (33,885)
Decrease (increase) in non-current note receivable................. (1,847,480) 303,976 3,615
Decrease (increase) in prepaid expenses............................ (537,397) (543,475) 573,785
(Decrease) increase in accounts payable............................ (1,191,930) 974,380 (776,700)
Increase (decrease) in income taxes payable........................ (124,032) (63,132) 10,238
(Decrease) increase in accrued lease payments-Vermont.............. 120,378 49,837 (132,499)
Increase (decrease) in accrued wages, profit sharing and incentive
compensation..................................................... 517,897 (608,404) 64,967
Increase (decrease) in deposits and other unearned revenue......... (118,908) 186,707 264,499
(Decrease) increase in other accrued expenses...................... 585,544 761,857 (858,029)
Increase (decrease) in other long-term liabilities................. (128,174) 441,669 944,985
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................ 13,474,448 17,463,796 14,948,408
------------- ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment................................ (12,306,683) (22,682,582) (19,479,985)
Net book value of property and equipment sold...................... 79,036 178,177 2,377,685
Purchase of long-term investments.................................. -- (464,663) (1,163,814)
Business acquired less cash on hand from business acquired......... -- -- (12,552,020)
Other, net......................................................... 47,136 (138,772) (106,561)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES................................ (12,180,511) (23,107,840) (30,924,695)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt--and subordinated
debentures....................................................... 12,123,500 592,804 --
Net proceeds from revolving credit agreement....................... -- 2,000,000 15,500,000
Reductions in long-term debt and subordinated debentures........... (10,807,391) (952,052) (2,279,178)
Increase in current portion of long-term debt and subordinated
debentures....................................................... 77,391 129,451 2,902,438
Proceeds from issuance of common stock............................. 21,376 128,459 40,563
Payment of dividends............................................... (573,015) (635,545) (693,997)
Other.............................................................. 125,910 177,648 --
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................ 967,771 847,961 16,062,630
------------- ------------- -------------
Net increase (decrease) in cash and short-term investments......... 2,261,708 (4,796,083) 86,343
Cash and short-term investments at beginning of year................. 5,238,677 7,500,385 2,704,302
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR....................... $ 7,500,385 $ 2,704,302 $ 2,790,645
------------- ------------- -------------
------------- ------------- -------------
Interest paid........................................................ $ 2,443,456 $ 2,124,392 $ 3,096,486
Taxes paid, net of refunds........................................... $ 2,438,100 $ 3,636,581 $ 1,060,150
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated statements include the accounts of S-K-I Ltd. and its
subsidiaries, the most significant of which include Killington Ltd., Mount Snow
Ltd., Bear Mountain Ltd., Waterville Valley Ski Area Ltd., Sugarloaf Mountain
Corporation and Ski Insurance Company, collectively referred to as S-K-I. All
subsidiaries are wholly-owned, except for Sugarloaf Mountain Corporation which
is 51% owned. Sugarloaf's results since acquisition are consolidated in the
accompanying financial statements. All significant intercompany transactions
have been eliminated in consolidation.
In the consolidated statement of income, revenues from the sale of lift
tickets, ski schools, repair shops, golf and tennis fees have been included
under the heading of Resort services. Revenues from the sale from restaurants,
bars, retail shops and personal property have been included under the heading
Sale of goods. Revenues from ski, locker and real estate rentals, as well as
sales of real property have been included under the heading of Rental and other
income. Related costs, including property costs, are included in the respective
Cost of operations categories.
For financial reporting purposes, S-K-I provides for depreciation and
amortization of property, equipment and capital leases by the straight-line
method over estimated useful lives of the assets which generally range from 10
to 30 years for buildings, 3 to 20 years for machinery and equipment and 3 to 50
years for leasehold improvements, lifts, liftlines and trails. Accelerated cost
recovery and accelerated depreciation methods are used for tax purposes.
Management's intentions are to hold marketable securities, consisting of
U.S. Government and Agency obligations and corporate obligations, until
maturity, which does not exceed three years. These securities are carried at net
amortized cost, which approximates quoted market values at July 31, 1995 and
1994.
As part of its cash management policy, S-K-I invests cash in excess of
immediate requirements in highly liquid short-term investments having original
maturities of three months or less. Such investments are intended to minimize
exposure to principal fluctuation.
Profit on the sales of real estate are recognized in accordance with
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 66 "Accounting for the Sales of Real Estate". Revenues recognized
amounted to $8,000, $-0-, and $1,857,954, in 1995, 1994, and 1993, respectively.
Included in other assets at July 31, 1995 is a note receivable of $1,531,298,
relating to a sale of real estate. The note bears interest at the prime rate
plus 1.875%, payable in monthly installments through year 2007. The maturities
are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 10,141
1997............................................................ 11,300
1998............................................................ 12,592
1999............................................................ 14,033
2000............................................................ 15,636
2001 and thereafter............................................. 1,467,596
---------
$1,531,298
---------
---------
</TABLE>
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Allowances for doubtful accounts of $1,402 and $38,702 have been applied as
a reduction of current accounts receivable at July 31, 1994 and 1995,
respectively.
F-34
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision is made for the estimated costs under the deductible portion of
S-K-I's insurance policies, primarily general liability and workers'
compensation. The balance of such reserves at July 31, 1994 and 1995 were
$4,707,558 and $5,765,878, respectively. Of such amounts, $3,487,042 and
$4,454,728 are included in other long-term liabilities at July 31, 1994 and
1995, respectively, with the remaining balance included in other accrued
expenses. In fiscal 1993, S-K-I formed a wholly-owned Vermont captive insurance
company, Ski Insurance Company, to manage a portion of its insurance costs.
Advertising costs are expensed the first time the advertising takes place.
The total amount charged to advertising expense for the year ended July 31,
1995, 1994 and 1993 was $9,249,984, $7,809,332 and $7,607,704, respectively.
Bear Mountain Ltd.'s costs in excess of values assigned to the underlying
net assets, net of amortization, totaled $233,774 and $99,255 at July 31, 1995
and 1994, respectively, and are being amortized over 20 years. The 1995 and 1994
amortization totaled $19,481 and $7,635, respectively. The accumulated
amortization at July 31, 1995 and 1994 totaled $320,279 and $300,798,
respectively.
NOTE 2--BUSINESS DEVELOPMENT
In August 1994, the company acquired 51% of the outstanding shares of
Sugarloaf Mountain Corporation ("Sugarloaf"), a ski resort in Western Maine.
Also, additional cash consideration is due, not to exceed $1,500,000, if certain
profit objectives are achieved during the two years following acquisition. No
such amounts were paid relating to fiscal 1995.
The shareholders of Sugarloaf shall have the option to require S-K-I to
purchase their shares during the month of November in the years 1997 through
2002 in return for a cash payment, the amount of which is computed by applying a
formula to Sugarloaf Mountain Corporation's earnings per share over the previous
three year period. S-K-I has the option to purchase the minority shares of
Sugarloaf based upon the same exchange formula during the month of November in
any year beginning in 1999, subject to a minimum value of $2,000,000 less 49% of
any decline in the book value of Sugarloaf between the purchase date and the
date of acquisition.
The acquisition has been accounted for using the purchase method of
accounting. The fair value of the assets acquired was approximately $13,597,000
and the fair value of liabilities was $9,425,000. There is no recourse to S-K-I
for the Sugarloaf liabilities. The amounts in minority interest at July 31, 1995
represent the 49% ownership of Sugarloaf's outstanding capital stock held by the
minority shareholders.
In October 1994, the company acquired the ski-related assets only of the
Waterville Valley Ski Area ("Waterville") for approximately $10,038,000. The
acquisition was accounted for using the purchase method of accounting. The
results of operations of Waterville are included in the company's consolidated
financial statements since acquisition.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions of Sugarloaf and Waterville occurred at the
beginning of the years presented:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Revenues..................................................... $ 126,797,000 $ 114,554,000
Net income................................................... 4,279,000 782,000
Net income per common and common equivalent share............ $ .74 $ .14
</TABLE>
F-35
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--BUSINESS DEVELOPMENT (CONTINUED)
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the transaction taken place
at the beginning of the periods presented or of future results of operations.
NOTE 3--LONG-TERM DEBT AND SUBORDINATED DEBENTURES
LONG-TERM DEBT AT JULY 31, 1995 AND 1994 SUMMARY:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Company, excluding Sugarloaf:
Revolving Credit Agreement....................................................... $ 2,000,000 $ 17,500,000
Teachers Insurance and Annuity Association of America, 8.12% senior promissory
notes due in varying installments through January 14, 2003..................... 12,000,000 12,000,000
Vermont Industrial Development Bonds, fluctuating interest rates,
1995--3.89% to 4.66%; 1994--3.13% to 3.73%; due in varying installments through
1999, secured by certain machinery and equipment and real estate............... 3,265,000 2,695,000
Deferred obligation in connection with acquisition of Bear Mountain Ltd.,
interest of 5%, due in 1995.................................................... 1,000,000 1,000,000
Obligation under capital lease................................................... 103,789 310,346
Other............................................................................ 7,314 180,356
------------- -------------
18,376,103 33,685,702
------------- -------------
Sugarloaf (non-recourse to the Company):
Town of Carrabassett Valley, Maine, note, $3,700,000, due in varying installments
through 2013, interest rates ranging from 4.5% to 8.5%, secured by Sugarloaf's
property, plant and equipment.................................................. -- 3,610,000
Sugarloaf Revolving Credit Agreement, $2,000,000, annual reduction of $200,000
beginning March 1995, due March 1998, interest at lender's base rate plus .5%
(9.25% at July 31, 1995), secured by Sugarloaf's property, plant and
equipment...................................................................... -- 1,800,000
Sugarloaf Line of Credit, $2,000,000 due May 1996, interest at lender's base rate
plus 2% (10.75% at July 31, 1995), secured by Sugarloaf's property, plant and
equipment...................................................................... -- 1,338,482
Sugarloaf Subordinated Notes, due July 1997, interest at 7.25%................... -- 584,934
Obligation under capital lease................................................... -- 549,989
Other............................................................................ -- 1,079,109
------------- -------------
-- 8,962,514
------------- -------------
Total.............................................................................. 18,376,103 42,648,216
Less: current portion.............................................................. 609,246 3,858,184
------------- -------------
$ 17,766,857 $ 38,790,032
------------- -------------
------------- -------------
</TABLE>
F-36
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--LONG-TERM DEBT AND SUBORDINATED DEBENTURES (CONTINUED)
The non-current portion of long-term debt matures as follows:
<TABLE>
<S> <C>
1997.................................................................. $ 1,968,908
1998.................................................................. 4,591,625
1999.................................................................. 3,484,751
2000.................................................................. 5,637,317
2001 and thereafter................................................... 23,107,431
--------------
$ 38,790,032
--------------
--------------
</TABLE>
S-K-I maintains an unsecured revolving credit loan which allows S-K-I to
borrow funds up to the amount of the commitment. At July 31, 1995, the revolving
credit loan amount available was $30,600,000 with $17,500,000 outstanding. The
loan commitment is scheduled to be reduced annually by $3,400,000 on March 31 of
each consecutive year through March 31, 2000 with a final reduction of
$13,600,000 on March 30, 2001. Under the terms of the revolving credit
agreement, S-K-I may request that the interest rate, subject to certain
limitations, be at the adjusted prime rate or at an applicable margin above the
Eurodollar rate. The Eurodollar applicable margin was 1 1/4% at July 31, 1995.
The applicable margin varies between 3/4% to 1 1/4% based on specific financial
ratios on the previous July 31. The Agreement requires S-K-I to pay a commitment
fee of 3/8 % of the average daily unused portion of the loan. Commitment fees
assessed on unused portions of the revolving credit loan were approximately
$38,000, $63,000, and $48,000 in 1995, 1994, and 1993, respectively.
The following table summarizes the financial data relating to the revolving
credit loan agreement for 1995 and 1994:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Weighted average annual interest rate.......................... 4.61% 6.93%
Average amount outstanding during the year..................... $ 2,224,038 $ 16,274,038
Highest balance outstanding.................................... $ 13,500,000 $ 24,750,000
Amount available at year end................................... $ 14,000,000 $ 13,100,000
</TABLE>
In addition to the unsecured revolving credit loan agreement, S-K-I
maintained an unsecured short-term line of credit. Such line of credit allows
for borrowings of up to $12,000,000 and expires January 15, 1996. Under the
terms of the agreement S-K-I may request that the interest rate, subject to
certain limitations, be at the adjusted prime rate or at an applicable margin
above the Eurodollar rate. The Eurodollar applicable margin was 1 1/4% at July
31, 1995. The applicable margin varies between 3/4% to 1 1/4% based on specific
financial ratios on the previous July 31. During 1995, S-K-I borrowed a maximum
of $9,250,000 under this line of credit and did not borrow against the line of
credit during 1994. At July 31, 1995 and 1994, there were no borrowings under
the credit line.
Additionally, at July 31, 1995, S-K-I had outstanding a $1,000,000 letter of
credit relating to Ski Insurance, expiring December 3, 1995. The letter of
credit fee on this line was $6,250 for the year ended July 31, 1995.
F-37
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--LONG-TERM DEBT AND SUBORDINATED DEBENTURES (CONTINUED)
Subordinated debentures of $11,400,000 at July 31, 1995 are due as follows:
<TABLE>
<CAPTION>
YEAR INTEREST AMOUNT
- --------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
1997................................................................. 6% $ 450,000
1999................................................................. 6% 455,000
2000................................................................. 6% 672,500
2001................................................................. 8% 525,000
2002................................................................. 8% 549,000
2003................................................................. 8% 1,074,000
2004................................................................. 8% 1,466,500
2010................................................................. 8% 1,292,000
2012................................................................. 6% 1,155,000
2013................................................................. 6% 1,065,000
2015................................................................. 6% 1,500,000
2016................................................................. 6% 1,196,000
-------------
$ 11,400,000
-------------
-------------
</TABLE>
The company's long-term debt and subordinated debenture agreements require
that the company satisfy various covenants including financial ratios,
limitations on payment of dividends and repurchase of stock. Included in other
accrued expenses is $687,414 and $703,656 of accrued interest at July 31, 1995
and 1994, respectively.
CAPITAL LEASES
The company leases certain machinery and equipment under long-term capital
leases. Obligations under machinery and equipment capital leases are due as
follows:
<TABLE>
<S> <C>
1996.............................................................. $ 407,000
1997.............................................................. 308,000
1998.............................................................. 246,000
1999.............................................................. 16,000
---------
977,000
Less: amounts representing interest............................... 117,000
---------
$ 860,000
---------
---------
</TABLE>
At July 31, 1995, the gross amount of machinery and equipment under capital
leases and related accumulated amortization was $1,409,000 and $486,000,
respectively.
NOTE 4--OPERATING LEASES AND PERMITS
Killington Ltd. leases from the State of Vermont certain portions of land
and facilities it uses known as the Killington section of the Calvin Coolidge
State Forest. The leases together with extensions run to the year 2060. All
installations affixed to the land become the property of the State.
Mount Snow Ltd., Bear Mountain Ltd. and Waterville Valley operate certain
portions of the skiing terrain under special use permits granted by the U.S.
Forest Service.
F-38
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--OPERATING LEASES AND PERMITS (CONTINUED)
Amounts payable under these leases and permits are measured in terms of
percentages of revenues from certain activities. Charges for these leases and
permits are included in cost of operations.
In addition to the leases described above, the company was committed under
operating leases for certain machinery and equipment which expire at various
dates through 2018. Total rent expense under operating leases for 1995, 1994 and
1993 was $2,775,912, $2,526,991, and $2,485,435, respectively.
Minimum lease payments under non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1996.................................................................. $ 3,433,832
1997.................................................................. 3,314,063
1998.................................................................. 3,004,033
1999.................................................................. 2,948,224
Beyond 2000........................................................... 1,889,827
--------------
Total minimum obligations............................................. $ 14,589,979
--------------
--------------
</TABLE>
NOTE 5--INCOME TAXES
In 1994 the company adopted, effective August 1, 1993, Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires the liability method for recording differences in financial and
taxable income.
Income taxes consist of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal................................................................ $ 1,803,884 $ 2,347,943 $ (1,210)
State.................................................................. 534,975 667,929 (3,131)
------------ ------------ ----------
2,338,859 3,015,872 (4,341)
Deferred................................................................. 613,451 154,084 1,001,464
------------ ------------ ----------
Total provision for income taxes..................................... $ 2,952,310 $ 3,169,956 $ 997,123
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Differences between S-K-I's effective income tax rate and the statutory
federal income tax rate are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate....................................... 34.0% 34.0% 34.0%
State income taxes net of federal tax benefit........................... 4.8 5.6 5.7
Sugarloaf loss with no benefit.......................................... -- -- 12.0
Life insurance premiums................................................. -- -- 4.0
Other................................................................... 1.3 0.9 2.0
--- --- ---
Effective rate.......................................................... 40.1% 40.5% 57.7%
--- --- ---
--- --- ---
</TABLE>
At July 31, 1995, Bear Mountain Ltd. had net operating loss carryforwards
for federal income tax purposes of approximately $1,439,000, which expire in the
years 2000 through 2002. At July 31, 1995, Bear Mountain Ltd. had net operating
loss carryforwards for California income tax purposes of approximately
$1,214,000 which expire in the years 1996 through 1999. As of July 31, 1995,
Bear Mountain Ltd. had
F-39
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--INCOME TAXES (CONTINUED)
investment tax credit carryforwards of approximately $225,000 which expire in
the years 1997 through 2000. The federal tax loss and tax credit carryforwards
relate to the operations of Bear Mountain Ltd. prior to the acquisition by S-K-I
and can only be realized against future taxable income from the operations of
Bear Mountain Ltd. The tax effect of these carryforwards and credits, when
realized, will be recognized as an adjustment of the purchase cost.
At July 31, 1995, Sugarloaf had net operating loss carryforwards for federal
and Maine income tax purposes of approximately $17,426,000, which expire in the
years 1999 through 2010. As of July 31, 1995, Sugarloaf had investment tax
credit carryforwards of approximately $209,000, which expire in the years 1997
through 2000. Approximately $16,442,000 of the federal and Maine net operating
loss carryforwards and all of the investment tax credit carryforwards relate to
the operation of Sugarloaf prior to the S-K-I acquisition. Such carryforwards
can only be realized against future taxable income from the operations of
Sugarloaf and will be limited as a result of certain ownership changes pursuant
to Section 382 of the Internal Revenue Code.
At July 31, 1995, the company had additional federal net operating loss
carryforwards of approximately $527,000 and additional state net operating loss
carryforwards of $1,010,000 which expire in the year 2010.
As of July 31, 1995, the company's gross deferred tax assets and liabilities
were comprised of the following:
<TABLE>
<S> <C>
Gross deferred tax assets:
Accrued liabilities and reserves.................................... $ 1,495,000
Operating loss carryforwards........................................ 7,638,000
Alternative minimum and investment tax credits...................... 860,000
--------------
$ 9,993,000
--------------
--------------
Gross deferred tax liabilities:
Depreciation........................................................ $ 10,516,000
Installment sales................................................... 659,000
--------------
$ 11,175,000
--------------
--------------
</TABLE>
At July 31, 1995, a valuation allowance of $7,298,000 has been recorded
which relates primarily to Sugarloaf's net operating loss and tax credit
carryforwards for which a tax benefit is not likely to be received. The net
change in the valuation allowance for deferred tax assets was an increase of
$7,056,000, primarily attributable to Sugarloaf net operating loss
carryforwards. Current and non-current deferred tax assets and liabilities
within the same tax jurisdiction are offset for presentation in the consolidated
balance sheet.
NOTE 6--EARNINGS PER SHARE
The computation of net income per common and common equivalent share amounts
are based on the weighted average of shares outstanding during the year. Shares
issuable upon the exercise of stock option grants (Note 7) have not been
included in the per share computation because they would not have a material
effect on earnings per share.
F-40
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7--STOCK OPTIONS
The company's 1988 Stock Option Plan for officers and key employees
authorized the granting of a maximum of 168,750 shares of common stock options.
On November 18, 1994, the stockholders approved an additional 100,000 shares to
be optioned. The Plan permits the grant of incentive stock options (as defined
in the Internal Revenue Code) and nonstatutory stock options. In the case of an
incentive stock option, the per share option price cannot be less than the fair
market value on the date on which the option is granted. There is no such
requirement in the case of a nonstatutory stock option.
The options become exercisable ratably over a 3-year period and expire in
April 1997, October 1999, July 2000, April 2002, July 2002, March 2004, October
2004, and January 2005.
<TABLE>
<CAPTION>
EXERCISE PRICE PER
1988 PLAN SHARES OPTION
- ------------------------------------------------------------------------------ --------- -----------------------
<S> <C> <C>
Outstanding at July 31, 1992.................................................. 154,417 $8.625 to $10.45
Exercised................................................................... 1,042 $8.625
Canceled or expired......................................................... 10,625 $8.625 to $9.50
Outstanding at July 31, 1993.................................................. 142,750 $8.625 to $10.45
Granted..................................................................... 2,500 $12.00
Exercised................................................................... 4,950 $8.625 to $9.50
Canceled or expired......................................................... 10,000 $8.625
Outstanding at July 31, 1994.................................................. 130,300 $8.625 to $12.00
Granted..................................................................... 48,250 $11.8125 to $15.25
Exercised................................................................... 4,500 $8.625 to $9.50
Canceled or expired......................................................... 2,500 $9.50
Outstanding at July 31, 1995.................................................. 171,550 $8.625 to $15.25
Exercisable at July 31, 1995................................................ 138,550 $8.625 to $15.25
</TABLE>
The company's 1982 Incentive Stock Option Plan authorized the granting to
key employees of similar options to purchase a maximum of 187,500 shares of
common stock. The options granted in 1992 become exercisable ratably over a
3-year period and expire in April 2002 and July 2002.
<TABLE>
<CAPTION>
EXERCISE PRICE PER
1982 PLAN SHARES OPTION
- ------------------------------------------------------------------------------- --------- -----------------------
<S> <C> <C>
Outstanding at July 31, 1992................................................... 80,625 $1.89 to $9.50
Exercised.................................................................... 5,209 $1.89 to $9.50
Canceled or expired.......................................................... 1,000 $8.625 to $9.50
Outstanding at July 31, 1993................................................... 74,416 $1.89 to $9.50
Exercised.................................................................... 45,375 $1.89
Canceled or expired.......................................................... 6,166 $9.50
Outstanding at July 31, 1994 and 1995.......................................... 22,875 $9.50
Exercisable at July 31, 1995................................................. 22,875 $9.50
</TABLE>
NOTE 8--EMPLOYEE BENEFIT PLANS
S-K-I has a trusteed noncontributory profit sharing retirement plan covering
substantially all of its full-time employees. There have been no contributions
made to the Plan and charged to income for 1995, 1994, and 1993.
S-K-I has a savings plan under Section 401(k) of the Internal Revenue Code.
The plan allows all full-time employees to defer up to 15% of their income up to
$9,240 on a pretax basis. The company made a matching contribution of 15% on the
first $1,500 deferred by each participating employee in 1995 and
F-41
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--EMPLOYEE BENEFIT PLANS (CONTINUED)
1994. In addition, S-K-I made a one time fully vested contribution to each
eligible participant as of February 1, 1995. The cost of this contribution was
$294,300.
Effective July 31, 1995, the profit-sharing portion of the S-K-I Ltd.
retirement plan was merged into the S-K-I Ltd. 401(k) savings plan. The name of
the newly merged plan is changed to the S-K-I Ltd. 401(k) Retirement Plan.
NOTE 9--BUSINESS OPERATIONS
S-K-I operates predominantly in a single industry segment--the development
and operation of ski areas. S-K-I provides ski recreation and related services
to skiers, a single customer group.
NOTE 10--SUBSEQUENT EVENTS
On October 23, 1995 the Company sold a majority of the ski resort related
and golf course assets of Bear Mountain to Fibreboard Corporation for
approximately $20,370,000.
F-42
<PAGE>
S-K-I LTD.
CONSOLIDATED BALANCE SHEET
APRIL 28, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and short-term investments (at cost, which approximates market value)......... $ 12,027,556
Accounts receivable................................................................ 2,068,022
Notes receivable................................................................... 242,128
Inventories........................................................................ 3,281,908
Prepaid expenses................................................................... 1,134,816
---------------
TOTAL CURRENT ASSETS............................................................. 18,754,430
---------------
Property and equipment, at cost:
Buildings and grounds.............................................................. 36,335,433
Machinery and equipment............................................................ 60,313,773
Leasehold improvements............................................................. 39,794,570
Lifts/liftlines and trails on corporate property................................... 32,085,284
---------------
168,529,060
Less--accumulated depreciation and amortization...................................... 83,933,510
---------------
84,595,550
Construction in progress............................................................. 772,749
Land and development costs........................................................... 8,359,837
---------------
NET PROPERTY AND EQUIPMENT....................................................... 93,728,136
---------------
Long-term investments................................................................ 3,588,798
Other assets......................................................................... 2,382,298
---------------
TOTAL ASSETS..................................................................... $ 118,453,662
---------------
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................. $ 1,566,927
Accounts payable................................................................... 1,714,241
Income tax payable (Note 3)........................................................ 1,256,500
Accrued lease payments--Vermont.................................................... 1,108,254
Accrued wages...................................................................... 717,329
Deposits and other unearned revenue................................................ 1,044,614
Other accrued expenses (Note 7).................................................... 6,512,619
---------------
TOTAL CURRENT LIABILITIES........................................................ 13,920,484
---------------
Long-term debt....................................................................... 19,821,979
Subordinated debentures.............................................................. 11,400,000
Deferred income taxes (Note 3)....................................................... 7,238,102
Other long-term liabilities (Note 7)................................................. 5,107,358
Minority interest in consolidated subsidiary......................................... 2,402,716
---------------
TOTAL LIABILITIES................................................................ 59,890,639
---------------
Stockholders' equity:
Common stock....................................................................... 579,087
Paid-in capital.................................................................... 6,661,895
Retained earnings.................................................................. 51,322,041
---------------
TOTAL STOCKHOLDERS' EQUITY....................................................... 58,563,023
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $ 118,453,662
---------------
---------------
</TABLE>
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
F-43
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
<S> <C> <C>
APRIL 30, APRIL 28,
1995 1996
-------------- --------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues......................................................................... $ 106,681,987 $ 106,751,742
-------------- --------------
Expenses:
Cost of operations including wages, maintenance and supplies................... 45,309,840 47,885,150
Other taxes.................................................................... 7,544,162 7,540,537
Utilities...................................................................... 7,623,646 7,465,058
Insurance...................................................................... 6,220,257 5,692,399
Selling, general and administrative expenses................................... 16,376,818 17,060,771
Interest....................................................................... 3,017,626 2,561,289
Depreciation and amortization (Note 3)......................................... 13,842,977 10,146,199
Loss on sale of Bear Mountain (Note 2)......................................... -- 4,736,646
-------------- --------------
Total expenses............................................................... 99,935,326 103,088,049
-------------- --------------
Income before provision for income taxes......................................... 6,746,661 3,663,693
Provision for income taxes (Note 3).............................................. 2,724,258 1,428,840
-------------- --------------
Net income before minority interest.............................................. 4,022,403 2,234,853
Minority interest in net income of consolidated subsidiary....................... (193,486) (526,528)
-------------- --------------
Net income....................................................................... $ 3,828,917 $ 1,708,325
-------------- --------------
-------------- --------------
Net income per common share (Note 5)............................................. $ .66 $ .30
-------------- --------------
-------------- --------------
Retained earnings, beginning of period........................................... $ 50,030,708 $ 50,366,108
Add: net income.................................................................. 3,828,917 1,708,325
Less: Dividends paid on common stock (Note 9).................................... 693,997 752,392
-------------- --------------
Retained earnings, end of period................................................. $ 53,165,628 $ 51,322,041
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
F-44
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
------------------------
<S> <C> <C>
APRIL 30, APRIL 28,
1995 1996
----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 3,828,917 $ 1,708,325
Non-cash items included in net income:
Loss on disposition of net assets of Bear Mountain Ltd. (Note 2)..................... -- 4,736,646
Minority interest in net income of subsidiary........................................ 193,486 526,528
Depreciation and amortization........................................................ 13,539,407 10,146,199
Deferred income taxes................................................................ -- (1,241,854)
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN ASSETS AND LIABILITIES........... 17,561,810 15,875,844
----------- -----------
Changes in assets and liabilities:
Decrease (increase) in accounts receivable........................................... (724,565) 579,712
Decrease in notes receivable......................................................... 127,323 2,647
Decrease (increase) in inventories................................................... (540,996) 99,611
Decrease in prepaid expenses......................................................... 402,399 107,643
Increase (decrease) in accounts payable.............................................. (256,947) 96,620
Increase in income taxes payable..................................................... 2,517,977 984,248
Increase (decrease) in accrued lease payments-Vermont................................ (144,963) 68,888
Increase in accrued wages, profit sharing and incentive compensation................. 151,435 187,455
(Decrease) in deposits and other unearned revenue.................................... (383,618) (544,347)
Increase in other accrued expenses................................................... 296,736 954,876
Increase in other long-term liabilities.............................................. 934,010 675,332
----------- -----------
CASH FLOW PROVIDED BY OPERATING ACTIVITIES AFTER CHANGES IN ASSETS AND LIABILITIES..... 19,940,601 19,088,529
----------- -----------
Cash flows from investing activities:
Additions to property and equipment.................................................. (18,981,721) (6,019,657)
Net book value of property and equipment sold........................................ 41,067 86,899
Purchase of long-term investments.................................................... (1,778,704) (1,960,321)
Proceeds from disposition of net assets of Bear Mountain Ltd. (Note 2)............... -- 20,000,247
Businesses acquired less cash on hand from businesses acquired....................... (12,552,020) --
Other, net........................................................................... (230,632) 8,077
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES................................... (33,502,010) 12,115,245
----------- -----------
Cash flows from financing activities:
Net (reductions) proceeds in revolving credit agreement.............................. 12,250,000 (17,500,000)
Reductions in long-term debt......................................................... (1,949,327) (1,468,050)
(Decrease) increase in current portion of long-term debt............................. 2,560,405 (2,291,258)
Proceeds from issuance of common stock............................................... 16,172 44,837
Payment of dividends................................................................. (693,997) (752,392)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................................... 12,183,253 (21,966,863)
----------- -----------
Net increase (decrease) in cash and short-term investments............................. (1,378,156) 9,236,911
Cash and short-term investments at beginning of year................................... 2,704,302 2,790,645
----------- -----------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD....................................... $ 1,326,146 $12,027,556
----------- -----------
----------- -----------
Interest paid.......................................................................... $ 2,229,834 $ 1,998,601
Income taxes paid, net of refunds...................................................... $ 281,350 $ 1,686,523
</TABLE>
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
F-45
<PAGE>
S-K-I LTD.
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position as of April 28, 1996, the results of operations
for the nine months ended April 28, 1996 and April 30, 1995 and cash flows for
the nine months ended April 28, 1996 and April 30, 1995. All such adjustments
are of a normal recurring nature with the exception of the sale of the majority
of Bear Mountain assets. The unaudited condensed consolidated financial
statements should be read in conjunction with the following notes and the
consolidated financial statements in the 1995 Annual Report to the Securities
and Exchange Commission on Form 10-K.
2. BEAR MOUNTAIN SALE
On October 23, 1995 the Company sold a majority of the ski resort related
and golf course assets of Bear Mountain to Fibreboard Corporation for
approximately $20,370,000. The transaction had the following non-cash impact on
the balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Increase in current assets..................................... $ 234,000
Decrease in property and equipment, net........................ (23,833,000)
Decrease in other assets, net.................................. (269,000)
Increase in current liabilities................................ 400,000
</TABLE>
3. INCOME TAXES
The provision for taxes on income is based on a projected annual effective
tax rate. The Company has reflected an effective tax rate through the third
quarter of approximately 39%.
Deferred income taxes include the cumulative reduction in current taxes
payable resulting principally from the excess of depreciation reported for tax
purposes over that reported for financial purposes. The reduction in the April
28, 1996 deferred income tax liability from July 31, 1995 is primarily
attributable to the October 1995 sale of Bear Mountain and other book-tax
differences, principally accelerated depreciation.
4. SEASONAL BUSINESS
Results for interim periods are not indicative of results to be expected for
the year, due to the seasonal nature of the business (skiing resorts).
5. NET INCOME PER COMMON SHARE
Net income per common share figures are based on the average shares
outstanding during year to date Fiscal 1996 of 5,788,592 (5,782,745 year to date
Fiscal 1995). Shares issuable upon the exercise of stock options grants have not
been included in the per share computation because they would not have a
material effect on earnings per share.
F-46
<PAGE>
S-K-I LTD.
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS
The 1988 Stock Option Plan authorized 168,750 shares of common stock to be
optioned. On November 18, 1994 the stockholders approved an additional 100,000
shares. For the nine months ended April 28, 1996, 4,950 shares were exercised
and 5,550 shares were forfeited.
The 1982 Incentive Stock Option Plan authorized 187,500 shares of common
stock to be optioned. No shares were granted, exercised or forfeited under this
plan during Fiscal 1996.
7. GENERAL LIABILITY
Provision is made for the estimated costs under the deductible portion of
S-K-I's general liability insurance policies. The balance of such reserves at
April 28, 1996 was $5,594,666. Of such amount, $4,795,428 is included in other
long-term liabilities, with the remaining balance included in other accrued
expenses.
8. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company does not provide health care and life insurance benefits for
retired employees who reach normal retirement age. The adoption of SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, has no
effect on the Company's financial position or results of operations.
9. DIVIDEND PAID
During November 1995, the Board of Directors declared a $.13 per share
dividend on Common Stock payable to stockholders of record on December 8, 1995.
The dividend was paid on January 17, 1996.
10. AGREEMENT AND PLAN OF MERGER
S-K-I Ltd. announced that it has received, through its investment financial
advisor Schroder Wertheim & Co., an offer by LBO Resort Enterprises of Newry,
Maine, to purchase all of the approximately 6,000,000 shares of outstanding
stock of S-K-I Ltd. for $18.00 per share. The S-K-I Ltd. Board of Directors has
approved a definitive merger agreement with LBO Resort Enterprises. A meeting of
S-K-I Ltd. shareholders will be held on June 10, 1996 to consider the offer as
recommended by the S-K-I Ltd. Board of Directors. The total value of the offer
for the equity approximates $107,000,000. The transaction is subject to, among
other things, shareholder and regulatory approvals.
11. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The standard
identifies indicators to determine whether an impairment of long-lived assets
has been incurred and provides guidance in determining the amount of the
impairment. The Company will adopt SFAS No. 121 in Fiscal 1997. The Company
expects that there will not be a
F-47
<PAGE>
S-K-I LTD.
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
material impact to the Company's financial position or results of operations as
a result of adopting this standard.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." The Company does not intend to adopt the new compensation expense
provisions of FAS 123 but will adopt the disclosure provisions in Fiscal 1997.
12. SUBSEQUENT EVENTS (UNAUDITED)
On June 28, 1996, the Company consummated a transaction with American Skiing
Company in which the Company sold all of its approximately 6,000,000 shares of
outstanding common stock for $18.00 per share.
American Skiing Company has entered into a consent decree with the U.S.
Department of Justice in which American Skiing Company has agreed to divest the
assets constituting the Waterville Valley ski resort. The divestiture is
expected to be consummated no later than December 1, 1996. The unaudited
carrying value of the Waterville Valley ski resort assets to be divested
included in the accompanying S-K-I unaudited consolidated balance sheet as of
April 28, 1996, is approximately $11.1 million and the unaudited net income for
the nine months ended April 28, 1996 of the Waterville Valley ski resort
included in the accompanying S-K-I unaudited consolidated statement of income
for the nine months ended April 28, 1996, is approximately $863,000.
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO KAMORI INTERNATIONAL CORPORATION:
We have audited the accompanying combined balance sheets of the KAMORI
COMBINED ENTITIES (the combined entities listed in Note 1) as of May 31, 1996
and 1997, and the related combined statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1997. These financial statements are the responsibility of Kamori's management.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Kamori Combined
Entities as of May 31, 1996 and 1997, and the combined results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
August 1, 1997
F-49
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED BALANCE SHEETS
AS OF MAY 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 14,391,404 $ 15,653,936
Accounts receivable, net of allowance for doubtful accounts of $67,384 and
$15,551, respectively........................................................ 1,332,653 574,771
Inventory and supplies......................................................... 2,959,210 3,320,540
Receivable from Kamori International Corporation............................... 349,145 246,323
Prepaid expenses and other current assets...................................... 696,322 497,084
-------------- --------------
Total current assets......................................................... 19,728,734 20,292,654
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Ski lifts and trails........................................................... 61,886,703 62,933,368
Buildings and parking structures............................................... 56,199,673 55,678,889
Machinery and equipment........................................................ 46,113,639 47,847,047
Land used in operations........................................................ 17,513,217 16,147,810
Construction in progress....................................................... 3,837,897 4,582,273
-------------- --------------
185,551,129 187,189,387
Less- Accumulated depreciation................................................... (83,810,102) (94,557,022)
-------------- --------------
101,741,027 92,632,365
-------------- --------------
LAND HELD FOR DEVELOPMENT AND SALE............................................... 28,327,824 27,381,613
-------------- --------------
INVESTMENT IN REAL ESTATE PARTNERSHIP (Note 1)................................... 5,536,758 4,894,087
-------------- --------------
OTHER ASSETS, net of accumulated amortization of $2,091,440 and $839,673,
respectively................................................................... 3,733,134 4,243,275
-------------- --------------
$ 159,067,477 $ 149,443,994
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 2,072,766 $ 2,228,956
Accrued property taxes......................................................... 420,034 442,643
Accrued salaries and benefits.................................................. 2,069,674 2,588,032
Other accrued expenses......................................................... 2,367,498 2,568,010
Accrued interest payable....................................................... 1,154,989 1,168,930
Accrued interest payable to Kamori International Corporation................... 431,052 35,159
Current portion of long-term debt (Notes 3 and 4).............................. 4,050,400 5,053,539
-------------- --------------
Total current liabilities...................................................... 12,566,413 14,085,269
-------------- --------------
LONG-TERM DEBT (Notes 3 and 4):
Collateralized notes payable to banks.......................................... 92,866,000 87,812,461
Notes payable to Kamori International Corporation.............................. 45,230,080 42,547,115
-------------- --------------
138,096,080 130,359,576
-------------- --------------
Total liabilities............................................................ 150,662,493 144,444,845
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 8 and 9)
STOCKHOLDERS' EQUITY (Note 11):
Common stock and additional paid-in capital.................................... 44,400,000 44,400,000
Accumulated deficit............................................................ (35,995,016) (39,400,851)
-------------- --------------
8,404,984 4,999,149
-------------- --------------
$ 159,067,477 $ 149,443,994
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these balance sheets.
F-50
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Ski operations.................................................... $ 67,842,988 $ 64,966,616 $ 67,422,873
Retail and ski rental operations.................................. 11,848,262 11,279,791 11,905,843
Commercial leasing................................................ 1,779,339 1,943,583 1,889,300
Reservation services.............................................. 2,881,021 3,271,341 3,336,082
Golf operations................................................... 2,324,361 2,257,214 2,310,431
Land sales........................................................ 519,950 -- 1,199,097
------------- ------------- -------------
Other............................................................. 1,371,156 1,013,458 1,002,642
------------- ------------- -------------
88,567,077 84,732,003 89,066,268
COSTS AND EXPENSES:
Operating expenses--
Ski operations.................................................. 34,682,132 34,032,473 36,712,383
Retail and ski rental operations................................ 8,771,110 8,562,246 8,724,835
Commercial leasing.............................................. 312,430 350,935 310,351
Reservation services............................................ 2,552,523 2,497,808 2,548,538
Golf operations................................................. 1,874,812 1,930,483 1,880,543
Cost of land sales.............................................. 521,855 -- 962,506
Depreciation.................................................... 14,179,049 14,176,014 12,389,363
Amortization.................................................... 463,623 301,212 126,926
General, administrative and marketing............................. 16,468,101 16,511,590 17,238,072
(Gain) loss on disposition of property............................ 606,996 73,521 (60,181)
Writedown of assets (Note 2)...................................... -- -- 2,000,000
------------- ------------- -------------
80,432,631 78,436,282 82,833,336
------------- ------------- -------------
Operating income................................................ 8,134,446 6,295,721 6,232,932
------------- ------------- -------------
OTHER (INCOME) EXPENSES:
Interest expense.................................................. 12,047,155 11,970,893 10,658,465
Interest income................................................... (586,049) (738,639) (681,768)
------------- ------------- -------------
11,461,106 11,232,254 9,976,697
------------- ------------- -------------
Net loss before income taxes.................................... (3,326,660) (4,936,533) (3,743,765)
INCOME TAX (BENEFIT) PROVISION (Note 6)............................. 579,496 (398,267) (337,930)
------------- ------------- -------------
Net loss........................................................ $ (3,906,156) $ (4,538,266) $ (3,405,835)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-51
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
AND ADDITIONAL
PAID-IN
CAPITAL (NOTE ACCUMULATED
11) DEFICIT TOTAL
---------------- -------------- -------------
<S> <C> <C> <C>
BALANCES, at May 31, 1994....................................... $ 40,900,000 $ (27,550,594) $ 13,349,406
Net loss...................................................... -- (3,906,156) (3,906,156)
---------------- -------------- -------------
BALANCES, at May 31, 1995....................................... 40,900,000 (31,456,750) 9,443,250
Issuance of common stock in exchange for the assumption of
debt by Kamori International Corporation.................... 3,500,000 -- 3,500,000
Net loss...................................................... -- (4,538,266) (4,538,266)
---------------- -------------- -------------
BALANCES, at May 31, 1996....................................... 44,400,000 (35,995,016) 8,404,984
Net loss...................................................... -- (3,405,835) (3,405,835)
---------------- -------------- -------------
BALANCES, at May 31, 1997....................................... $ 44,400,000 $ (39,400,851) $ 4,999,149
---------------- -------------- -------------
---------------- -------------- -------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-52
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (3,906,156) $ (4,538,266) $ (3,405,835)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation................................................. 14,179,049 14,176,014 12,389,363
Amortization................................................. 548,664 382,144 260,690
Cost of land sales........................................... 501,733 -- 946,211
Writedown of assets.......................................... -- -- 2,000,000
Equity in earnings from investee............................. (245,626) (178,141) (107,329)
Loss (gain) on disposition of property....................... 111,933 73,521 (60,181)
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable................... (482,951) (114,331) 757,882
(Increase) decrease in inventory and supplies................ (69,766) 135,639 (361,330)
Decrease (increase) in prepaid expenses and other current
assets..................................................... 330,851 (206,636) 199,238
Decrease (increase) in receivable from Kamori
International Corporation.................................. 862,718 (762,402) 102,822
Increase in other assets..................................... (459,290) (607,917) (770,836)
Increase (decrease) in accounts payable...................... 665,689 (23,276) 156,190
Increase (decrease) in accrued expenses...................... 592,145 (586,827) 741,479
Increase (decrease) in accrued interest payable.............. 873,584 (408,197) (381,952)
-------------- -------------- --------------
Net cash provided by operating activities.................... 13,502,577 7,341,325 12,466,412
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to ski lifts and trails.............................. (92,113) (335,359) (979,835)
Additions to machinery and equipment........................... (5,535,146) (3,596,219) (3,103,335)
Additions to buildings and parking structures.................. (440,458) (1,357,493) (516,821)
Net change in construction in progress......................... (857,376) (574,903) (744,376)
Proceeds from sale of property and equipment................... 3,107,677 226,273 123,852
Cash distribution from equity investee......................... -- -- 750,000
Other.......................................................... -- 81,881 --
-------------- -------------- --------------
Net cash used in investing activities.......................... (3,817,416) (5,555,820) (4,470,515)
-------------- -------------- --------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-53
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from seasonal lines of credit............................... 10,000,000 6,700,000 5,500,000
Payment of seasonal lines of credit.................................. (10,000,000) (6,700,000) (5,500,000)
Payments of collateralized notes payable to banks.................... (5,060,098) (4,054,600) (4,050,400)
Proceeds from collateralized notes payable to banks.................. -- 820,598 --
Proceeds from notes payable to Kamori International Corporation...... 12,689,782 15,095,218 15,827,347
Payments of note payable to Kamori International Corporation......... (14,120,000) (13,400,000) (18,510,312)
Capitalized loan fees................................................ -- (321,128) --
------------- ------------- -------------
Net cash used in financing activities............................ (6,490,316) (1,859,912) (6,733,365)
Net increase (decrease) in cash and cash equivalents............. 3,194,845 (74,407) 1,262,532
CASH AND CASH EQUIVALENTS, beginning of year......................... 11,270,966 14,465,811 14,391,404
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year............................... $ 14,465,811 $ 14,391,404 $ 15,653,936
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest, net of amounts
capitalized.................................................... $ 10,906,553 $ 11,968,488 $ 10,649,477
------------- ------------- -------------
------------- ------------- -------------
Cash paid to Kamori International Corporation during the year for
taxes.......................................................... $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During fiscal 1995, Steamboat Ski & Resort Corporation refinanced a note
payable to a bank and applied the loan balance of $800,402 to the new note
payable.
On March 31, 1996, Orlando Resort Corporation had a $3.5 million note
payable in full to a bank. Kamori International Corporation refinanced the note
at the parent level and accepted 100 shares of common stock in exchange for the
assumption of the note payable.
The accompanying notes to combined financial statements are an integral part of
these statements.
F-54
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF MAY 31, 1996 AND 1997
(1) BUSINESS AND ORGANIZATION
The Kamori Combined Entities ("Kamori") are comprised of the five
wholly-owned subsidiaries of Kamori International Corporation ("KIC"). KIC is a
controlled subsidiary of Kamori Kanko Co., Ltd. ("KKCL"), a Japanese
corporation. The combined financial statements presented herein include the
financial position, results of operations and cash flows of Steamboat Ski &
Resort Corporation ("SSRC"), Steamboat Development Corporation ("SDC"), Heavenly
Valley Ski & Resort Corporation ("HVSRC"), Heavenly Corporation ("HC"), and
Orlando Resort Corporation ("ORC"), all Delaware corporations. Such financial
statements have been combined due to the pending sale of Kamori, as discussed
below.
SSRC owns and operates a major ski and recreation complex in Steamboat
Springs, Colorado (the "Steamboat Ski Resort"). SSRC also owns a majority
interest in a consolidated subsidiary, Walton Pond Apartments, Inc. ("WPA"). WPA
owns and operates an employee housing facility in Steamboat Springs primarily
for the use of SSRC seasonal employees. SDC owns a 50% general partnership
interest in Country Club Highlands Partnership ("CCHP"). CCHP is engaged in the
development and sale of residential real estate adjacent to the Steamboat Ski
Area. HVSRC and HC are the sole partners in Heavenly Valley, Limited Partnership
("HVLP"), which owns and operates the Heavenly Ski Resort, a major destination
ski resort located in South Lake Tahoe, California and Stateline, Nevada. ORC
owns and operates the Sabal Point Golf Course and Country Club ("Sabal Point"),
a golf, tennis and swimming club located in Orlando, Florida.
On August 1, 1997, KIC entered into a stock purchase agreement with ASC
Holdings, Inc. ("ASC"), an unaffiliated third party, wherein ASC will acquire
all of the issued and outstanding shares of Kamori upon the closing date of the
agreement in exchange for approximately $288 million in cash. Certain assets
reflected in the accompanying Kamori combined financial statements will be
distributed to KIC prior to the closing and consist of all Kamori cash and cash
equivalents and certain property with a net book value at May 31, 1997 of
approximately $16.4 million. Proceeds from the sale will be used to retire all
of the outstanding debt of Kamori. The ASC acquisition is subject to certain
significant terms and conditions. In order to consummate the acquisition and
fund the purchase price, ASC must successfully complete the initial public
offering of its common stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Kamori. All
significant intercompany accounts and transactions have been eliminated in
combination. The minority shareholder's interest and share in the profits and
losses of WPA have been reflected in accrued expenses in the accompanying
combined balance sheets.
REVENUE RECOGNITION
Resort revenue primarily consists of revenue from ski operations, lodging,
food and beverage operations and other recreational activities and is recognized
as services are performed or as goods are sold. Real estate revenue is
recognized when consideration has been received, title, possession and other
attributes of ownership have been transferred to the buyer and Kamori is not
obligated to perform significant additional activities after the sale.
F-55
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Kamori considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
LAND HELD FOR DEVELOPMENT AND SALE
Land held for development and sale is carried at the lower of cost or fair
value. Costs related to the development activities of Kamori, including
interest, are capitalized while such property is actively being prepared for its
intended use, until the property is ready for sale. Kamori's land development
and sales activities are impacted by a variety of factors, including local and
regional economic conditions, and local zoning and approval guidelines.
Management of Kamori monitors such conditions and the related effect on the
value of its real estate holdings and will develop, market and dispose of such
holdings at a rate which optimizes its value compared to its cost.
PROPERTY AND EQUIPMENT
Kamori owns substantially all of the base area land and facilities of the
Steamboat and Heavenly Ski Resorts. A significant portion of the ski trails,
lifts and related assets are on land leased from the United States Forest
Service ("USFS") under special use permits which expire in 2029. Kamori also
owns the land and facilities comprising the Sabal Point Country Club.
Property and equipment is carried at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<CAPTION>
ASSETS USEFUL LIVES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Buildings, improvements and parking structures.............................. 10 to 30 years
Ski lifts and trails........................................................ 5 to 15 years
Machinery and equipment..................................................... 3 to 15 years
</TABLE>
HVLP has incurred approximately $3.2 million of project development costs
relating to the proposed expansion of the Heavenly Ski Resort. These costs have
been incurred since 1990 and are included in construction in progress in the
accompanying combined balance sheets. During fiscal 1997, HVLP obtained the
remaining required approvals relating to the proposed expansion. In management's
opinion, these costs will be realized through the future development, operation
and/or sale of the Heavenly Ski Resort.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the
years ended May 31, 1995, 1996 and 1997 totaled approximately $2.1 million, $2.3
million and $2.2 million, respectively.
INVENTORIES
Inventories consist primarily of retail clothing, ski equipment and food and
beverage inventories. Inventories are valued at the lower of cost or market
value, generally on the average cost method.
F-56
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED LOAN COSTS
Costs and fees incurred in connection with Kamori's financing activities
have been capitalized and are being amortized over the terms of the related
loans. Deferred loan costs are included in other assets in the accompanying
combined balance sheets.
GOODWILL
The excess of the purchase price over the fair market value of the assets
acquired in the Steamboat Ski Area acquisition is reflected as goodwill and is
being amortized on a straight-line basis over 40 years. Goodwill is included in
other assets in the accompanying combined balance sheets.
ORGANIZATION COSTS
Organization costs are included in other assets on the accompanying combined
balance sheets and are being amortized on a straight-line basis over five years.
INCOME TAXES
A consolidated federal income tax return is filed by KIC. Kamori
participates in an informal federal income tax sharing arrangement with KIC
whereby taxes paid by KIC are allocated to each individual entity who, on a
stand-alone basis, would have a tax liability. No payment for use of tax
benefits is made to those members generating tax operating losses until such
losses are utilized on a consolidated basis by KIC. Such payments are limited to
the amount of taxes that the loss generating entities paid in prior years.
Companies generating alternative minimum taxes are charged for those taxes on a
stand-alone basis. To the extent alternative minimum tax amounts have been paid,
they may benefit in future years if such benefit is realized by the consolidated
group.
Kamori accounts for income taxes on the liability method by recognizing
deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets, liabilities and carryforwards.
Deferred tax assets are then reduced, if deemed necessary, by a valuation
allowance for the amount of any tax benefits which, more likely than not based
on current circumstances, are not expected to be realized (see Note 6).
EARNINGS PER SHARE
Due to the proposed acquisition of Kamori by ASC, Kamori's historical
capital structure is not indicative of its prospective structure upon the
closing of the anticipated purchase transaction. Accordingly, historical net
income or loss per common share is not considered meaningful and has not been
presented herein.
IMPAIRMENT OF LONG-LIVED ASSETS AND IDENTIFIABLE INTANGIBLES
Kamori reviews its long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Generally, the basis for making such
assessments is based on future cash flow projections.
F-57
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORC has historically generated net cash flow deficits from operations which
have been funded by KIC. As a result, during fiscal 1997, ORC recorded an
impairment loss of $2,000,000 related to its land, buildings and equipment to
properly state these fixed assets at estimated fair values. Fair value was
determined by assessing the present value of estimated expected future cash
flows using a discount rate commensurate with the risks involved and based on
the stock purchase agreement discussed above.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-58
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(3) LONG-TERM DEBT
Long-term debt consists of the following as of May 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
SSRC-
Collateralized note payable to a bank, due May 28, 1999; annual principal
payments of $2,000,000 due March 31; secured by substantially all assets of
SSRC-
Fixed rate portion; interest payable quarterly at 8.05%...................... $ 15,000,000 $ 15,000,000
Variable rate portion; interest payable quarterly based on LIBOR at beginning
of quarter (6.5625% and 6.9375% at May 31, 1996 and 1997, respectively).... 33,350,000 31,350,000
Revolving loan agreement payable to KIC; interest at 6.9%, payable monthly;
principal due October 31, 2001............................................... 32,900,000 31,900,000
Line of credit payable to KIC; interest payable quarterly at prime rate plus 2%
(10.25% and 10.5% at May 31, 1996 and 1997, respectively); principal due
October 31, 2001............................................................. 8,457,149 6,487,174
WPA note payable to a bank, due October 1, 2002; interest at bank's prime rate
and reset annually (8.25% and 8.5% at May 31, 1996 and 1997, respectively);
secured by land, buildings, furniture and equipment of Walton Pond Apartment
Complex...................................................................... 1,566,400 1,516,000
HVLP-
Note payable to a bank, interest payable semiannually based on adjusted LIBOR
(6.8125% and 7.325% on May 31, 1996 and May 31, 1997, respectively); due
March 31, 2001; secured by substantially all assets of HVLP.................. 46,000,000 44,000,000
ORC-
Line of credit payable to KIC; interest payable quarterly at prime rate plus
2%, (10.25% and 10.5% at May 31, 1996 and 1997, respectively); principal due
October 31, 2001............................................................. 3,890,931 4,442,911
SDC-
Line of credit payable to KIC; interest payable quarterly at prime rate plus
2%, (10.25% and 10.5% at May 31, 1996 and 1997, respectively); principal due
October 31, 2001............................................................. 982,000 717,030
-------------- --------------
142,146,480 135,413,115
Less- current portion.......................................................... (4,050,400) (5,053,539)
-------------- --------------
Total long-term debt........................................................... $ 138,096,080 $ 130,359,576
-------------- --------------
-------------- --------------
</TABLE>
SSRC DEBT
At the beginning of each quarter, SSRC can elect to convert the variable
rate portion of the collateralized note payable into fixed rate debt under
certain circumstances. No such election was made by SSRC as of May 31, 1996 or
1997.
F-59
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(3) LONG-TERM DEBT (CONTINUED)
The collateralized note payable and the revolving credit facility (discussed
below) are secured by a first deed of trust covering all Steamboat Ski Area
assets, assignment of all rents, pledging by KIC of all of SSRC's and SDC's
common stock and an assignment of the USFS Permit covering the Steamboat Ski
Area. This note and the revolving credit facility are also secured by an
intercreditor agreement which provides that all other indebtedness or
obligations of SSRC are subordinate to this debt. Additionally, KKCL has
guaranteed all obligations of SSRC under these arrangements. Under terms of the
collateralized note agreement, SSRC is required to deposit Cash Flow, as
defined, into an interest bearing account beginning one year prior to the date
of the required principal payments. The deposit will then be applied to the
principal payment.
The WPA note payable is guaranteed by SSRC and requires, among other
restrictions, that WPA maintain a Debt Service Coverage ratio, as defined, of
1.15 times and provide additional collateral if the projects appraised value
falls below certain levels. On May 31, 1997, the note payable was refinanced
under similar terms with a maturity date of October 1, 2002.
SSRC also has a revolving credit facility with a bank which expires on May
31, 1999. Under this facility, the bank will provide a revolving line of credit
of up to $5 million to finance SSRC's seasonal cash flow needs. Amounts
outstanding under this facility bear interest at the prime interest rate and are
due and payable on the facility's expiration date. No amounts were outstanding
under this facility as of May 31, 1996 and 1997.
The SSRC line of credit amount available to draw upon is set by KIC and
fluctuates depending on SSRC's cash needs. Both the revolving loan and the line
of credit are subordinate to the collateralized note payable and revolving
credit facility with a bank discussed above. The revolving loan and the line of
credit were renewed during the year to mature on October 31, 2001. Each
agreement contains the same terms and provisions that existed in the original
agreements.
HVLP DEBT
The variable rate debt can be converted, at the election of HVLP, into
fixed-rate debt under certain circumstances. The note payable is secured by a
first deed of trust covering all HVLP assets, security and financing statements
and the USFS Permit covering the Heavenly Ski Resort. The note payable is
guaranteed by KKCL. HVLP is subject to various restrictive covenants in
connection with the loan which may be accelerated upon certain conditions.
The loan terms require HVLP to make a minimum payment of $1 million for the
year ended March 31, 1997 and is required to make another $1 million payment for
the year ended March 31, 1999. However, payments must total $4 million by March
31, 1998 and $8 million by March 31, 2000, in the aggregate. HVLP repaid $2
million of the outstanding note during September 1996.
LETTERS OF CREDIT
Under an agreement with an insurance carrier, SSRC had a $210,000 letter of
credit outstanding with a bank which guarantees payments of workers compensation
claims and expires in January, 1998. No amount was drawn under this letter of
credit as of May 31, 1997.
F-60
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(3) LONG-TERM DEBT (CONTINUED)
HVLP has an agreement with a bank to allow for $1.5 million in letters of
credit to be issued under certain circumstances when needed. Semi-annual fees
under the agreement include a letter of credit fee of .5% per annum on the
average amount of all letters of credit outstanding and a commitment fee of
.3125% per annum on the average amount of credit available. The letters of
credit are subordinate to the collateralized note payable and operating loan
described above. No letters of credit were outstanding as of May 31, 1997.
DEBT MATURITIES
Annual maturities for all long-term debt outstanding at May 31, 1997, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
- ------------------------------------------------------------------------------
<S> <C>
1998.......................................................................... $ 5,053,540
1999.......................................................................... 46,408,268
2000.......................................................................... 4,063,418
2001.......................................................................... 39,069,024
2002.......................................................................... 39,622,239
Thereafter.................................................................... 1,196,626
--------------
Total......................................................................... $ 135,413,115
--------------
--------------
</TABLE>
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH AND CASH EQUIVALENTS
The carrying amounts approximate fair value.
DEBT
An estimate of rates currently available to Kamori for debt with similar
terms was used to determine the fair value of Kamori's debt.
The carrying amounts and estimated fair values of Kamori's financial
instruments are as follows:
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- --------------
Cash and cash equivalents...................... $ 14,391,404 $ 14,391,404 $ 15,653,936 $ 15,653,936
Long-term debt................................. $ 142,146,480 $ 142,330,452 $ 135,413,115 $ 134,457,681
</TABLE>
(5) RELATED PARTY TRANSACTIONS
SSRC, ORC and HVLP reimburse KIC and KKCL for certain services provided.
Such reimbursements for the years ended May 31, 1995, 1996 and 1997 totaled
$3,340,928, $3,302,107 and
F-61
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
$3,399,642, respectively, and are included in general, administrative and
marketing expense in the accompanying combined statements of operations.
(6) INCOME TAXES
The components of the income tax provision or benefit are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ----------- -----------
Current tax (benefit) provision............................................ $ 579,000 $ (398,000) $ (338,000)
Deferred tax (benefit) provision........................................... -- -- --
---------- ----------- -----------
Total tax (benefit) provision.............................................. $ 579,000 $ (398,000) $ (338,000)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
A reconciliation of the income tax provision or benefit and the amount
computed by applying the U.S. federal statutory income tax rate to book income
before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- -------------
At U.S. federal income tax rate...................................... $ (1,131,000) $ (1,678,000) $ (1,273,000)
State income tax, net of federal benefit............................. (156,000) (131,000) (101,000)
Excess tax deductible amortization................................... (340,000) (340,000) (340,000)
Nondeductible portion of meals and entertainment..................... 55,000 58,000 72,000
Valuation allowance adjustment....................................... 2,064,000 1,647,000 1,280,000
Other................................................................ 87,000 46,000 24,000
------------- ------------- -------------
Income tax (benefit) provision....................................... $ 579,000 $ (398,000) $ (338,000)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-62
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(6) INCOME TAXES (CONTINUED)
The components of gross deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
DEFERRED TAX ASSETS LIABILITIES
MAY 31, MAY 31,
------------------------------ ----------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
-------------- -------------- ---------- ----------
Current:
Insurance accruals..................................... $ 757,000 $ 661,000 $ -- $ --
Vacation accrual....................................... 133,000 136,000 -- --
Accrued expenses....................................... 88,000 160,000 -- --
AMT credit from parent................................. 370,000 -- -- --
-------------- -------------- ---------- ----------
Total current tax assets............................. 1,348,000 957,000 -- --
-------------- -------------- ---------- ----------
Noncurrent:
Fixed assets basis differences......................... -- 999,000 556,000 --
Intangible assets...................................... 69,000 54,000 -- --
AMT credit from parent................................. 823,000 823,000 -- --
Net operating loss carryover........................... 14,373,000 14,504,000 -- --
-------------- -------------- ---------- ----------
Total noncurrent tax asset............................. $ 15,265,000 16,380,000 556,000 --
-------------- -------------- ---------- ----------
Total deferred taxes................................... $ 16,613,000 $ 17,337,000 $ 556,000 $ --
-------------- -------------- ---------- ----------
-------------- -------------- ---------- ----------
Net deferred tax asset................................... $ 16,057,000 $ 17,337,000
Less -- valuation allowance.............................. (16,057,000) (17,337,000)
$ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
As of May 31, 1996 and 1997, Kamori had an income tax receivable of $312,079
and $218,094, respectively, from KIC related to income taxes. These amounts are
included in receivable from KIC in the accompanying combined balance sheets.
At May 31, 1997, Kamori had approximately $36,828,000 of net operating loss
carryforwards for federal income tax purposes which expire in the years 2005
through 2012. Kamori also has alternative minimum tax credit carryforwards of
approximately $823,000. The alternative minimum tax paid can, in general, be
carried forward indefinitely to reduce future regular tax liabilities to the
amount of tentative minimum tax due.
(7) EMPLOYEE SAVINGS PLANS
SSRC has a tax deferred savings plan covering substantially all year-round
and certain seasonal employees. This plan provides for both employee and SSRC
contributions. Employees may contribute, on an annual basis, up to 16% of their
annual compensation. SSRC's contribution is determined by the board of directors
on an annual basis. SSRC's contribution for the fiscal years ended May 31, 1995,
1996 and 1997 was $213,233, $233,053 and $247,042, respectively.
HVLP has a tax deferred profit sharing plan covering certain year-round
employees. The plan contains an added 401(k) feature whereby participants can
elect to make tax deferred contributions to the plan. The plan also provides for
discretionary HVLP contributions. HVLP's cash contribution is
F-63
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(7) EMPLOYEE SAVINGS PLANS (CONTINUED)
determined by management on an annual basis and totaled $256,965, $262,892 and
$300,000 for the fiscal years ended May 31, 1995, 1996 and 1997, respectively.
(8) COMMITMENTS AND CONTINGENCIES
SSRC executed agreements with major airlines to provide direct flights into
the Yampa Valley Regional Airport. These agreements require SSRC to guarantee
specified minimum airline revenue and to fund start-up costs. SSRC did not meet
the specified minimum levels under these agreements in fiscal 1995, 1996 or 1997
and was required to fund the specified differences. Such amounts have been
expensed in the accompanying combined statements of operations.
Kamori leases certain space and equipment under long-term operating leases.
Aggregate future minimum annual rental commitments under noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31-
- ------------------------------------------------------------------------------------
<S> <C>
1998................................................................................ $ 1,538,447
1999................................................................................ 1,202,523
2000................................................................................ 629,580
2001................................................................................ 163,122
2002................................................................................ 80,163
------------
$ 3,613,835
------------
------------
</TABLE>
Total rental expense for all operating leases for the years ended May 31,
1995, 1996 and 1997, was $2,365,555, $2,132,545 and $2,233,113, respectively.
As of May 31, 1997, Kamori had executed contracts for the acquisition of
equipment, construction of buildings and the expenditure of certain amounts
related to planning activities. These commitments total approximately
$5,045,000, including $4,909,000 that will be incurred during fiscal 1998 and
$136,000 in fiscal year 1999 and beyond.
(9) LITIGATION
Due to the nature of their operations, certain of the combined entities are
defendants in several lawsuits which are actively being contested. In
management's opinion, the effect of these disputes will not have a significant
effect on Kamori's combined financial position or results of operations.
F-64
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(10) RENTAL INCOME UNDER OPERATING LEASES
SSRC leases retail space to unaffiliated entities under noncancellable
leases expiring through 2004. Future minimum tenant rentals under the
noncancellable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31-
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 1,353,098
1999............................................................................ 1,296,769
2000............................................................................ 1,105,754
2001............................................................................ 648,167
2002............................................................................ 442,396
Thereafter...................................................................... 677,521
------------
$ 5,523,705
------------
------------
</TABLE>
(11) STOCKHOLDERS' EQUITY
As of May 31, 1995, 1996 and 1997, the stockholders' equity for each of the
Kamori combined entities is as follows:
<TABLE>
<CAPTION>
STEAMBOAT ORLANDO STEAMBOAT
SKI & RESORT HEAVENLY RESORT DEVELOPMENT
CORPORATION VALLEY (1) CORPORATION CORPORATION TOTAL
------------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, at May 31, 1994................. $ (631,347) $ 9,973,703 $ 104,073 $ 3,902,977 $ 13,349,406
Net income (loss)...................... (2,721,345) (509,176) (808,019) 132,384 (3,906,156)
------------- ------------ ----------- ------------ -------------
BALANCE, at May 31, 1995................. (3,352,692) 9,464,527 (703,946) 4,035,361 9,443,250
Net income (loss)...................... (1,015,783) (2,640,120) (955,898) 73,535 (4,538,266)
Issuance of common stock in exchange
for the assumption of debt by the
parent............................... -- -- 3,500,000 -- 3,500,000
------------- ------------ ----------- ------------ -------------
BALANCE, at May 31, 1996................. (4,368,475) 6,824,407 1,840,156 4,108,896 8,404,984
Net income (loss)...................... 2,321,681 (3,121,328) (2,592,649) (13,539) (3,405,835)
------------- ------------ ----------- ------------ -------------
BALANCE, at May 31, 1997................. $ (2,046,794) $ 3,703,079 $ (752,493) $ 4,095,357 $ 4,999,149
------------- ------------ ----------- ------------ -------------
------------- ------------ ----------- ------------ -------------
</TABLE>
F-65
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(11) STOCKHOLDERS' EQUITY (CONTINUED)
As of May 31, 1997, the common stock components and additional paid-in
capital by entity are as follows:
<TABLE>
<CAPTION>
STEAMBOAT ORLANDO STEAMBOAT
SKI & RESORT HEAVENLY RESORT DEVELOPMENT
CORPORATION VALLEY (1) CORPORATION CORPORATION TOTAL
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Par value, per share................... $ .01 $ .01 $ 1.00 $ .01
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Shares authorized...................... 22 200 10,000 100
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Shares outstanding..................... 18 100 200 20
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Common stock........................... $ -- $ 1 $ 200 $ -- $ 201
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
Additional paid-in capital............. $ 18,000,000 $ 16,999,999 $ 5,399,800 $ 4,000,000 $ 44,399,799
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
</TABLE>
The equity components above were outstanding as of May 31, 1995, 1996 and
1997 for each entity with the exception of ORC, which issued 100 shares of stock
to KIC in exchange for the assumption of a $3.5 million note payable on March
31, 1996.
(1) Includes HVSRC and HC.
F-66
<PAGE>
KAMORI COMBINED ENTITIES
UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED
AUGUST 31, 1996 AND 1997
F-67
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED BALANCE SHEETS
AS OF AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 13,996,615 $ 14,668,241
Accounts receivable, net....................................................... 526,942 494,650
Inventory and supplies......................................................... 3,195,929 3,099,399
Prepaid expenses and other current assets...................................... 359,679 316,174
-------------- --------------
Total current assets......................................................... 18,079,165 18,578,464
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Ski lifts and trails........................................................... 61,886,703 62,704,568
Buildings and parking structures............................................... 56,223,673 55,647,269
Machinery and equipment........................................................ 46,245,189 47,962,043
Land used in operations........................................................ 17,513,217 16,145,770
Construction in progress....................................................... 4,967,345 6,607,566
-------------- --------------
186,836,127 189,067,216
Less--Accumulated depreciation................................................. (86,934,321) (96,683,885)
-------------- --------------
99,901,806 92,383,331
-------------- --------------
LAND HELD FOR DEVELOPMENT AND SALE............................................... 27,381,613 27,381,613
-------------- --------------
INVESTMENT IN REAL ESTATE PARTNERSHIP............................................ 5,564,143 4,702,615
-------------- --------------
OTHER ASSETS, net of accumulated amortization of $642,926 and $855,730,
respectively................................................................... 3,992,329 4,564,881
-------------- --------------
$ 154,919,056 $ 147,610,904
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these balance sheets.
F-68
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED BALANCE SHEETS
AS OF AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................................................... $ 2,892,666 $ 2,986,021
Accrued property taxes......................................................... 686,023 718,044
Accrued salaries and benefits.................................................. 1,628,338 2,028,357
Other accrued expenses......................................................... 2,100,415 2,523,810
Accrued interest payable....................................................... 2,614,886 2,623,066
Accrued interest payable to Kamori International Corporation................... 668,415 200,920
Current portion of long-term debt.............................................. 10,050,765 10,054,681
Payable to Kamori International Corporation.................................... 24,483 177,229
-------------- --------------
Total current liabilities.................................................... 20,665,991 21,312,128
-------------- --------------
LONG-TERM DEBT:
Collateralized notes payable to banks.......................................... 91,853,035 87,798,713
Notes payable to Kamori International Corporation.............................. 44,916,056 43,709,038
-------------- --------------
136,769,091 131,507,751
-------------- --------------
Total liabilities............................................................ 157,435,082 152,819,879
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock and additional paid-in capital.................................... 44,400,000 44,400,000
Accumulated deficit............................................................ (46,916,026) (49,608,975)
-------------- --------------
(2,516,026) (5,208,975)
-------------- --------------
$ 154,919,056 $ 147,610,904
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these balance sheets.
F-69
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
REVENUES:
Ski operations.................................................................. $ 1,440,362 $ 1,777,840
Retail and ski rental operations................................................ 1,417,284 1,686,338
Commercial leasing.............................................................. 418,292 441,243
Reservation services............................................................ 284,392 318,014
Golf operations................................................................. 512,711 462,616
Land sales...................................................................... 1,199,097 --
Other........................................................................... 127,557 248,959
-------------- --------------
5,399,695 4,935,010
-------------- --------------
COSTS AND EXPENSES:
Operating expenses-
Ski operations................................................................ 3,958,779 4,246,710
Retail and ski rental operations.............................................. 1,543,863 1,873,780
Commercial leasing............................................................ 76,525 112,049
Reservation services.......................................................... 441,176 416,475
Golf operations............................................................... 473,160 427,422
Cost of land sales............................................................ 958,006 --
Depreciation.................................................................. 3,124,219 2,458,479
Amortization.................................................................. 31,731 31,731
General, administrative and marketing........................................... 3,280,890 3,393,931
Gain on disposition of property................................................. -- (303,351)
-------------- --------------
13,888,349 12,657,226
-------------- --------------
Operating loss.............................................................. (8,488,654) (7,722,216)
-------------- --------------
OTHER (INCOME) EXPENSES:
Interest expense................................................................ 2,694,607 2,677,081
Interest income................................................................. (177,774) (193,225)
-------------- --------------
2,516,833 2,483,856
-------------- --------------
Net loss before income taxes................................................ (11,005,487) (10,206,072)
INCOME TAX BENEFIT (Note 3)....................................................... (84,483) --
-------------- --------------
Net loss.................................................................... $ (10,921,004) $ (10,206,072)
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these statements.
F-70
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (10,921,004) $ (10,206,072)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation.................................................................. 3,124,219 2,458,479
Amortization.................................................................. 31,731 31,731
Cost of land sales............................................................ 946,211 --
Equity in earnings from investee.............................................. (27,385) (38,528)
Gain on disposition of property............................................... -- (303,351)
Changes in operating assets and liabilities-
Decrease in accounts receivable............................................... 842,777 108,310
(Increase) decrease in inventory and supplies................................. (236,719) 221,141
Decrease in prepaid expenses and other current assets......................... 336,643 180,910
Decrease in receivable from Kamori International Corporation.................. 336,562 395,363
Increase in other assets...................................................... (291,029) (355,388)
Increase in accounts payable.................................................. 819,900 757,065
Decrease in accrued expenses.................................................. (442,430) (328,474)
Increase in accrued interest payable.......................................... 1,697,260 1,619,897
-------------- --------------
Net cash used in operating activities....................................... (3,783,264) (5,458,917)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to machinery and equipment............................................ (135,000) (213,500)
Additions to buildings and parking structures................................... (24,000) (2,500)
Net change in construction in progress.......................................... (1,129,448) (2,025,293)
Proceeds from sale of fixed assets.............................................. 3,547 335,198
Cash distribution from equity investee.......................................... -- 230,000
-------------- --------------
Net cash used in investing activities....................................... (1,284,901) (1,676,095)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from seasonal lines of credit.......................................... $ 5,000,000 $ 5,000,000
Payments of collateralized notes payable to banks............................... (12,600) (12,606)
Proceeds from notes payable to Kamori International Corporation................. 143,125 1,236,962
Payments of note payable to Kamori International Corporation.................... (457,149) (75,039)
-------------- --------------
Net cash provided by financing activities................................... 4,673,376 6,149,317
-------------- --------------
Net decrease in cash and cash equivalents................................... (394,789) (985,695)
CASH AND CASH EQUIVALENTS, beginning of period.................................... 14,391,404 15,653,936
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period.......................................... $ 13,996,615 $ 14,668,241
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of amounts capitalized............ $ 916,788 $ 1,020,288
-------------- --------------
-------------- --------------
Cash paid to Kamori International Corporation during the period for taxes....... $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these statements.
F-71
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AUGUST 31, 1996 AND 1997 (UNAUDITED)
(1) BUSINESS AND ORGANIZATION
The Kamori Combined Entities ("Kamori") are comprised of the five
wholly-owned subsidiaries of Kamori International Corporation ("KIC"). KIC is a
controlled subsidiary of Kamori Kanko Co., Ltd. ("KKCL"), a Japanese
corporation. The condensed combined financial statements presented herein
include the financial position, results of operations and cash flows of
Steamboat Ski & Resort Corporation ("SSRC"), Steamboat Development Corporation
("SDC"), Heavenly Valley Ski & Resort Corporation ("HVSRC"), Heavenly
Corporation ("HC"), and Orlando Resort Corporation ("ORC"), all Delaware
corporations. Such financial statements have been combined due to the pending
sale of Kamori, as discussed below.
SSRC owns and operates a major ski and recreation complex in Steamboat
Springs, Colorado (the "Steamboat Ski Resort"). SSRC also owns a majority
interest in a consolidated subsidiary, Walton Pond Apartments, Inc. ("WPA"). WPA
owns and operates an employee housing facility in Steamboat Springs primarily
for the use of SSRC seasonal employees. SDC owns a 50% general partnership
interest in Country Club Highlands Partnership ("CCHP"). CCHP is engaged in the
development and sale of residential real estate adjacent to the Steamboat Ski
Area. HVSRC and HC are the sole partners in Heavenly Valley, Limited Partnership
("HVLP"), which owns and operates the Heavenly Ski Resort, a major destination
ski resort located in South Lake Tahoe, California and Stateline, Nevada. ORC
owns and operates the Sabal Point Golf Course and Country Club ("Sabal Point"),
a golf, tennis and swimming club located in Orlando, Florida. Kamori's revenues
are earned primarily in December through March.
On August 1, 1997, KIC entered into a stock purchase agreement with ASC
Holdings, Inc. ("ASC"), an unaffiliated third party, wherein ASC will acquire
all of the issued and outstanding shares of Kamori upon the closing date of the
agreement in exchange for approximately $288 million in cash. Certain assets
reflected in the accompanying Kamori combined financial statements will be
distributed to KIC prior to the closing and consist of all Kamori cash and cash
equivalents and certain property with a net book value at May 31, 1997 of
approximately $16.4 million. Proceeds from the sale will be used to retire all
of the outstanding debt of Kamori. The ASC acquisition is subject to certain
significant terms and conditions. In order to consummate the acquisition and
fund the purchase price, ASC must successfully complete the initial public
offering of its common stock.
The condensed combined balance sheets as of August 31, 1996 and 1997 and the
related condensed combined statements of operations and cash flows for the three
months ended August 31, 1996 and 1997 have been derived from unaudited interim
financial statements. In management's opinion, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position and results of operations for such periods have been included in the
condensed financial statements. The operating results for the three months ended
August 31, 1996 and 1997 are not necessarily indicative of the results to be
expected for the full year or any future period. These condensed combined
financial statements should be read in conjunction with Kamori's audited
combined financial statements as of May 31, 1996 and 1997 and for each of the
three years in the period ended May 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-72
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF AUGUST 31, 1996 AND 1997 (UNAUDITED)
(2) EARNINGS PER SHARE
Due to the proposed acquisition of Kamori by ASC, Kamori's historical
capital structure is not indicative of its prospective structure upon the
closing of the anticipated purchase transaction. Accordingly, historical net
income or loss per common share is not considered meaningful and has not been
presented herein.
(3) INCOME TAXES
A consolidated federal income tax return is filed by KIC. Kamori
participates in an informal federal income tax sharing arrangement with KIC
whereby taxes paid by KIC are allocated to each individual entity who, on a
stand-alone basis, would have a tax liability. No payment for use of tax
benefits is made to those members generating tax operating losses until such
losses are utilized on a consolidated basis by KIC. Such payments are limited to
the amount of taxes that the loss generating entities paid in prior years.
Companies generating alternative minimum taxes are charged for those taxes on a
stand-alone basis. To the extent alternative minimum tax amounts have been paid,
they may benefit in future years if such benefit is realized by the consolidated
group.
Kamori accounts for income taxes on the liability method by recognizing
deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets, liabilities and carryforwards.
Deferred tax assets are then reduced, if deemed necessary, by a valuation
allowance for the amount of any tax benefits which, more likely than not based
on current circumstances, are not expected to be realized. As of August 31,
1997, no income tax provision or benefit has been recorded due to the
uncertainty of Kamori's ability to utilize net operating loss carryforwards
considering the pending purchase transaction discussed in Note 1.
(4) LITIGATION
Due to the nature of their operations, certain of the combined entities are
defendants in several lawsuits which are actively being contested. In
management's opinion, the effect of these disputes will not have a significant
effect on Kamori's combined financial position or results of operations.
F-73
<PAGE>
DESCRIPTION OF THE CANYONS
The following page depicts The Canyons resort showing both existing
facilities and future development plans. The Canyons is a largely undeveloped
asset that requires substantial development of on-mountain facilities, real
estate and related infrastructure. The Company has adopted a five-year business
plan for development of this property into a resort; however, accomplishing its
plan is contingent upon obtaining necessary permits and approvals, obtaining
required financing for planned improvements and generating markets for the
resort that will produce significant increases in skier visits. An estimated $60
million (approximately $18 million of which is expected to be spent by December
1997) for on-mountain capital improvements and an estimated $150 million for
real estate development will be required to fulfill the Company's five-year
business plan at The Canyons. There can be no assurance that capital will be
available to fund these capital improvements or real estate development. The
assets acquired from Wolf in connection with the planned development of The
Canyons consisted substantially of rights to use or acquire undeveloped real
estate and limited operating assets. The majority of the limited operating
assets acquired from Wolf have been, or will be, disassembled or demolished.
Substantial new development is required to build the property into the planned
resort facility. The Company believes that the configuration, operation and
estimated historical financial results of Wolf are not material to an
understanding of future financial operations of the planned resort at The
Canyons, or of the Company on a consolidated basis.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE
UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY,
TO ANY PERSON IN ANY JURISDICTION WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................... 3
Recent Developments.............................. 13
The Transactions................................. 14
Risk Factors..................................... 17
Use of Proceeds.................................. 26
Dividend Policy.................................. 26
Dilution......................................... 27
Capitalization................................... 28
Pro Forma Financial Data......................... 29
Selected Historical Consolidated Financial Data
of the Company................................. 42
Selected Combined Financial Data of the Acquired
Resorts........................................ 44
Management's Discussion and Analysis of Financial
Condition and Results of
Operations..................................... 45
Business......................................... 52
Management....................................... 73
Certain Relationships and Related Transactions... 77
Principal Shareholders........................... 78
Description of Certain Indebtedness.............. 79
Description of Capital Stock..................... 82
Shares Eligible for Future Sale.................. 86
Certain United States Federal Tax Considerations
For Non-United States Holders.................. 87
Underwriting..................................... 90
Legal Matters.................................... 92
Experts.......................................... 92
Additional Information........................... 92
Index to Financial Statements.................... F-1
</TABLE>
--------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
14,750,000 SHARES
[LOGO]
COMMON STOCK
-------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
MORGAN STANLEY DEAN WITTER
SCHRODER & CO. INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 102,803
NASD filing fee....................................................... 34,425
New York Stock Exchange listing fee................................... 121,000
Transfer agent fees................................................... 5,000
Accounting fees and expenses.......................................... 900,000
Legal fees and expenses............................................... 600,000
Printing and mailing expenses......................................... 725,000
Miscellaneous......................................................... 200,000
--------------
Total......................................................... $ 2,688,228
--------------
--------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Maine corporation. Section 719 of the Maine Business
Corporation Act (13-A M.R.S.A. ss. 101, et seq.) authorizes the indemnification
by a Maine corporation of any person who is a party or is threatened to be made
a party to any action, suit or proceeding by reason of that person's status as a
director, officer, employee or agent of the corporation; provided that no such
indemnification may be provided for any person if he or she shall have been
finally adjudicated (i) not to have acted honestly or in the reasonable belief
that his or her action was in or not opposed to the best interests of the
corporation or its shareholders, or (ii) in any criminal proceeding, to have had
reasonable cause to believe his or her conduct was unlawful. In the case of
actions brought by or on behalf of the corporation, indemnification may only be
provided if the court determines that such person is fairly and reasonably
entitled to the requested indemnification. Indemnification must be provided to
the extent that a director, officer, employee or agent has been successful, on
the merits or otherwise, in defense of an action of the type described in the
second sentence of this paragraph.
The Bylaws of the Company provide that it shall indemnify any person who is
made a party to any threatened, pending or completed action, suit or proceeding
by reason of the fact that he or she is or was a director or officer of the
Company, and may indemnify any employee or agent of the Company in such
circumstances, against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding. No indemnification may be
provided for any person who shall have been finally adjudicated not to have
acted honestly or in the reasonable belief that his or her action was in or not
opposed to the best interests of the Company or who had reasonable cause to
believe that his or her conduct was unlawful. Indemnification must be provided
to any director, officer, employee or agent of the Company to the extent such
person has been successful, on the merits or otherwise, in defense of any action
or claim described above. Any indemnification under this provision of the
Bylaws, unless required under the Bylaws or ordered by a court, can be made only
as authorized in each specific case upon a determination by a majority of
disinterested directors or by independent legal counsel or by the shareholders
that such indemnification is appropriate under the standard set forth in the
preceding sentence.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding all securities
sold and employee stock options granted by the Registrant since July 1994.
Further included is the consideration, if any, received by the Registrant for
such securities, and information relating to the section of the Securities Act
of 1933, as amended (the "Securities Act"), and the rules of the Securities and
Exchange Commission under which
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<PAGE>
exemption from registration was claimed. All awards of options did not involve
any sale under the Securities Act. None of these securities were registered
under the Securities Act. Except as described below, no sale of securities
involved the use of an underwriter and no commissions were paid in connection
with the sales of any securities. The information set forth in this Item 15
reflects the Company's 14.76-to-1 split in the Class A Common Stock to be
effected prior to the closing of the Offerings.
(1) On June 17, 1997, the Registrant issued 1,000,000 shares of common
stock to Leslie B. Otten in exchange for 937,168 shares of common stock ASC
East (formerly American Skiing Company), pursuant to the exemption contained
in Section 4(2) of the Securities Act.
(2) On July 16, 1997, the Registrant issued 17,500 shares of Series A
Exchangeable Preferred Stock at a price of $1,000 per share to one
institutional investor pursuant to the exemption under Section 4(2) of the
Securities Act.
(3) On July 28, 1997, the Registrant issued $17.5 million principal
amount of its 14% Senior Exchangeable Notes due 2002 to one institutional
investor pursuant to the exemption under Section 4(2) of the Securities Act.
(4) In August 1997 the Registrant granted 2,475,235 stock options to
employees under its Stock Option Plan.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Stock Purchase Agreement dated as of August 1, 1997, among Kamori International Corporation, ASC West and
the Registrant.*
2.2 Escrow Agreement dated as of August 1, 1997, among ASC West, Kamori International Corporation and the
LTCB Trust Company.*
3.1 Articles of Incorporation of the Registrant, as amended.*
3.2 By-Laws of the Registrant, as amended.*
4.1 Specimen Certificate for shares of Common Stock, $.01 par value, of the Registrant.*
4.2 Form of Statement of Resolution Establishing Shares of 10.5% Repriced Convertible Exchangeable Preferred
Stock.**
4.3 Form of Indenture relating to 10.5% Repriced Convertible Subordinated Debentures.**
5.1 Opinion of Pierce Atwood with respect to the validity of the securities being offered.*
10.1 Credit Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries, Fleet National Bank,
BankBoston, N.A., KeyBank National Association and Fleet National Bank, as Agent (incorporated by
reference to Exhibit 10.1 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.2 Security Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries and Fleet National
Bank, as Agent (incorporated by reference to Exhibit 10.2 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.3 Revolving Credit Notes dated June 28, 1996, issued by ASC East and certain Subsidiaries to Fleet National
Bank, BankBoston, N.A. and KeyBank National Association in the aggregate principal amount of $65,000,000
(incorporated by reference to Exhibit 10.3 to ASC East's Registration Statement on Form S-4, Registration
No. 333-9763).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.4 Swing Line Note dated June 28, 1996, issued by ASC East and certain Subsidiaries to Fleet National Bank
in the aggregate principal amount of $5,000,000 (incorporated by reference to Exhibit 10.4 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.5 Fee and Leasehold Mortgage, Assignment of Leases and Rents, Financing Statement and Security Agreement
dated as of June 28, 1996, by Sunday River Skiway Corporation to Fleet National Bank, as Agent
(representative of substantially similar agreements of even date by each of Sunday River, Ltd., L.B.O.
Holding, Inc., Cranmore, Inc., Sugarbush Resort Holdings, Inc., Mountain Water Company, Mountain
Wastewater Treatment, Inc., Killington, Ltd., Mount Snow Ltd. and Waterville Valley Ski Area Ltd. to
Fleet National Bank, as Agent) (incorporated by reference to Exhibit 10.5 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.6 Collateral Assignments of Leases and Rents dated as of June 28, 1996, by Sunday River Skiway Corporation
to Fleet National Bank, as Agent (representative of substantially similar assignments of even date by
each of Sunday River, Ltd., L.B.O. Holding, Inc., Cranmore, Inc., Sugarbush Resort Holdings, Inc.,
Mountain Water Company, Mountain Wastewater Treatment, Inc., Killington, Ltd., Mount Snow Ltd. and
Waterville Valley Ski Area Ltd. to Fleet National Bank, as Agent) (incorporated by reference to Exhibit
10.6 to ASC East's Registration Statement of Form S-4, Registration No. 333-9763).
10.7 Development Agreement dated September 18, 1997, among ASC Utah, Iron Mountain Associates, LLC, WPA, Ltd.,
Iron Mountain Holding Group, LC and Iron Mountain Alliance, Inc.*
10.8 Assignment in Trust dated as of June 28, 1996, from L.B.O. Holding, Inc. to Fleet National Bank, as Agent
(incorporated by reference to Exhibit 10.8 to ASC East's Registration Statement on Form S-4, Registration
No. 333-9763).
10.9 Assignment of Agreements, Permits and Contracts dated as of June 28, 1996, by Sunday River Skiway
Corporation to Fleet National Bank, as Agent (incorporated by reference to Exhibit 10.9 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.10 Assignment of Trademarks and Service Marks (U.S.) dated as of June 28, 1996, by ASC East and certain
Subsidiaries to Fleet National Bank, as Agent (incorporated by reference to Exhibit 10.10 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.11 Hazardous Materials Indemnification Agreement dated as of June 28, 1996, among ASC East, certain
Subsidiaries and Fleet National Bank, as Agent (incorporated by reference to Exhibit 10.11 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.12 Unlimited Guaranty dated as of June 28, 1996, by LBO Hotel Co. in favor of Fleet National Bank, as Agent
(incorporated by reference to Exhibit 10.12 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.13 Unlimited Guaranty dated as of June 28, 1996, by Sugarloaf Mountain Corporation in favor of Fleet
National Bank, as Agent (incorporated by reference to Exhibit 10.13 to ASC East's Registration Statement
on Form S-4, Registration No. 333-9763).
10.14 Assignment dated May 30, 1997, between Wolf Mountain Resorts, L.C. and ASC Utah.*
10.15 Intercreditor Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries, Snowridge, Inc.
and Fleet National Bank, as Agent (incorporated by reference to Exhibit 10.15 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.16 Loan and Security Agreement dated as of October 1, 1984, among the State of Vermont (acting by and
through the Vermont Industrial Development Authority), Sherburne Corporation, Proctor Bank and
BankBoston, N.A. (incorporated by reference to Exhibit 10.16 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.17 Loan and Security Agreement dated as of October 1, 1984, among the State of Vermont (acting by and
through the Vermont Industrial Development Authority), Mount Snow Ltd., Proctor Bank and BankBoston,
N.A.*
10.18 Lease Agreement dated April 2, 1997, between Grand Summit Resort Properties, Inc. and L.B.O. Holding,
Inc.*
10.19 Indenture dated October 24, 1990, between Killington Ltd. and The Howard Bank, as trustee (representative
of indentures with respect to similar indebtedness aggregating approximately $2,995,000 in original
principal amount and maturing at various times from 2015 to 2016) (incorporated by reference to Exhibit
10.19 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.20 Indenture dated September 25, 1986, between Killington Ltd. and The Howard Bank, as trustee
(representative of indentures with respect to similar indebtedness aggregating approximately $10,873,500
in original principal amount and maturing at various times from 1997 to 2013) (incorporated by reference
to Exhibit 10.20 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.21 Restated Concession Agreement dated as of April 30, 1992, between Sugarloaf Mountain Corporation and
Boston Concessions Group, Inc., together with Amendment thereto, Loan Agreement, and $150,000 Promissory
Notes, each dated July 31, 1995 (incorporated by reference to Exhibit 10.21 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.22 Indenture dated as of June 28, 1996, among ASC East, certain Subsidiaries and United States Trust Company
of New York, relating to Series A and Series B 12% Senior Subordinated Notes Due 2006 (incorporated by
reference to Exhibit 4.1 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.23 Indenture dated as of June 28, 1996, among ASC East, certain Subsidiaries and United States Trust Company
of New York, relating to the Series A and Series B 13 3/4% Subordinated Discount Notes Due 2007
(incorporated by reference to Exhibit 4.2 to ASC East's Registration Statement on Form S-4, Registration
No. 333-9763).
10.24 Registration Rights Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries, Bear,
Stearns & Co., Inc. and SPP Hambro & Co., LLC (incorporated by reference to Exhibit 4.3 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.25 Purchase Agreement dated as of June 25, 1996, among ASC East, certain Subsidiaries, Bear, Stearns & Co.,
Inc. and SPP Hambro & Co., LLC (incorporated by reference to Exhibit 4.4 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.26 Registration Rights Agreement dated June 28, 1996, among ASC East, certain Subsidiaries and Bear, Stearns
& Co. Inc. (incorporated by reference to Exhibit 4.5 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.27 Pledge and Disbursement Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries and
United States Trust Company of New York (incorporated by reference to Exhibit 4.6 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.28 Shareholders Agreement dated as of June 28, 1996, among Leslie B. Otten, ASC East and Bear Stearns & Co.
Inc. (incorporated by reference to Exhibit 4.7 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.29 $2,311,838.00 Promissory Note from Mountain Wastewater Treatment, Inc. to LHC Corporation dated May 16,
1995 (incorporated by reference to Exhibit 10.32 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.30 $6,120,000.00 Promissory Note, Senior Commercial Mortgage Deed, Junior Commercial Mortgage Deed, and
Senior Collateral Assignment of Income, Revenue and Rentals from Sugarbush Resort Holdings, Inc. to
Snowridge, Inc. and Sugarbush Inn Corporation dated May 16, 1995 and attachments thereto (incorporated by
reference to Exhibit 10.33 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.31 Form of Subordinated Debenture Due 2002 from L.B.O. Holding, Inc. to former shareholders of Mt. Attitash
Lift Corporation (incorporated by reference to Exhibit 10.34 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.32 Purchase Agreement dated as of April 13, 1994, among Mt. Attitash Lift Corporation, certain of its
shareholders and L.B.O. Holding, Inc. (incorporated by reference to Exhibit 10.35 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.33 Stock Purchase Agreement dated August 17, 1994, between Sugarloaf Mountain Corporation and S-K-I Ltd.
(incorporated by reference to Exhibit 10.36 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.34 Acquisition Agreement dated May 16, 1995, among Sugarbush Resort Holdings, Inc., Sugarbush Resort
Corporation, Snowridge, Inc., Sugar Ridge, Inc., Sugarbush Inn Corporation and Bev Ridge, Inc.
(incorporated by reference to Exhibit 10.38 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.35 Lease dated October 15, 1980, among H. Donald Penley, Joseph Penley, Albert Penley and Sunday River
Skiway Corporation (incorporated by reference to Exhibit 10.40 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.36 Lease/Option dated July 19, 1984, between John Blake and L.B.O. Holding, Inc. (incorporated by reference
to Exhibit 10.41 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.37 Lease Agreement dated as of July 1, 1993, between Snowridge, Inc. and Mountain Water Company
(incorporated by reference to Exhibit 10.42 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.38 Lease Agreement dated as of March 1, 1988, between Snowridge, Inc. and Mountain Wastewater Treatment,
Inc. (incorporated by reference to Exhibit 10.43 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.39 Lease dated November 10, 1960, between the State of Vermont and Sherburne Corporation (predecessor to
Killington Ltd.) (incorporated by reference to Exhibit 10.44 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.40 Lease Agreement dated as of February 20, 1990, between Pico Pond Associates and Killington Ltd.
(incorporated by reference to Exhibit 10.45 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.41 Lease Agreement dated as of June 21, 1994, between the Town of Wilmington and Mount Snow, Ltd.
(incorporated by reference to Exhibit 10.46 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.42 Lease Agreement dated April 24, 1995, between Sargent, Inc. and Mount Snow, Ltd. (incorporated by
reference to Exhibit 10.47 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.43 United States Forest Service Special Use Permit No. 4040/01, issued November 29, 1989 to Mount Snow Ltd.
(incorporated by reference to Exhibit 10.48 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.44 United States Forest Service Special Use Permit No. 4059/01 issued July 19, 1994 to L.B.O. Holding, Inc.
and Amendment 1 thereto (incorporated by reference to Exhibit 10.49 to ASC East's Registration Statement
on Form S-4, Registration No. 333-9763).
10.45 United States Forest Service Special Use Permit No. 4041 issued May 17, 1995, to Sugarbush Resort
Holdings, Inc. (incorporated by reference to Exhibit 10.51 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.46 Agreement between Sugarloaf Mountain Corporation and the Inhabitants of the Town of Carrabassett Valley,
Maine, concerning the Sugarloaf Golf Course dated June 3, 1987 (incorporated by reference to Exhibit
10.52 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.47 Commercial Lease dated August 7, 1997, between L.B.O. Holding, Inc. and Grand Summit Hotel Condominium
Unit Owners Association, Inc.*
10.48 Agreement dated July 26, 1995, among Bombardier Corporation, Killington, Ltd., Mount Snow, Ltd.,
Waterville Valley Ski Area, Ltd., Bear Mountain Ltd., and Sugarloaf Mountain Corporation (incorporated by
reference to Exhibit 10.55 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.49 Agreement dated June 3, 1996, between ASC East and Eastern Resorts Company, LLC (incorporated by
reference to Exhibit 10.56 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.50 Employment Agreement dated as of August 24, 1994, among Warren C. Cook, Sugarloaf Mountain Corporation
and S-K-I Ltd. (incorporated by reference to Exhibit 10.57 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.51 Christopher E. Howard Employment Terms (Agreement) dated August 22, 1996, between Christopher E. Howard
and ASC East.*
10.52 Partnership Agreement dated March 1993 among Sugarloaf Mountain Corporation, Jordan Lumber Company,
Warren C. Cook, Linwood E. Doble, Inc., H&S Land, Inc. and Loaf Land Inc. relating to Sugarloaf Land
Partners I (incorporated by reference to Exhibit 10.58 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.53 Partnership Agreement dated March 1993 among Sugarloaf Mountain Corporation, Jordan Lumber Company,
Warren C. Cook, H&S Land, Inc., Loaf Land, Inc. and Clement Begin relating to Sugarloaf Land Partners II
(incorporated by reference to Exhibit 10.59 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.54 First Amendment to Credit Agreement dated as of November 27, 1996, among ASC East, certain Subsidiaries,
Fleet National Bank, BankBoston N.A., KeyBank National Association and Fleet National Bank, as Agent.*
10.55 Second Amendment to Credit Agreement dated as of May 30, 1997, among ASC East, certain Subsidiaries,
Fleet National Bank, BankBoston N.A., KeyBank National Association and Fleet National Bank, as Agent.*
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.56 Third Amendment to Credit Agreement dated as of July 1997, among ASC East, certain Subsidiaries, Fleet
National Bank, Bank Boston, N.A., KeyBank National Association and Fleet National Bank, as Agent.*
10.57 Limited Guaranty of Payment and Performance dated as of October 3, 1996 from ASC East to Key Bank
National Association (incorporated by reference to Exhibit 10.60 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.58 Purchase and Sale Agreement dated as of August 30, 1996, among Waterville Valley Ski Area, Ltd.,
Cranmore, Inc., ASC East and Booth Creek Ski Acquisition Corp. (incorporated by reference to Exhibit
10.61 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.59 Purchase and Sale Agreement dated as of October 16, 1996, among Sherburne Pass Mountain Properties, LLC,
Pico Mountain Sports Center, LLC, Pico Mountain Operating Company, LLC, Harold L. and Edith Herbert, and
Pico Ski Area Management Company (incorporated by reference to Exhibit 10.62 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.60 Fourth Amendment to Credit Agreement dated as of September 25, 1997, among ASC East, certain
Subsidiaries, Fleet National Bank, BankBoston, N.A., KeyBank National Association and Fleet National
Bank, as Agent.*
10.61 $2,500,000.00 Promissory Note from the Registrant to Madeleine LLC dated June 18, 1997.*
10.62 $6,500,000.00 Promissory Note from ASC Utah to Wolf Mountain Resorts, L.C. dated July 3, 1997.*
10.63 Guaranty dated as of July 3, 1997 by the Registrant to Wolf Mountain Resorts, L.C.*
10.64 Ground Lease Agreement dated July 3, 1997, between ASC Utah and Wolf Mountain Resorts, L.C.*
10.65 Ground Lease Guaranty dated July 3, 1997, from the Registrant to Wolf Mountain Resorts, L.C.*
10.66 Securities Purchase Agreement dated as of July 2, 1997, between the Registrant and Madeleine LLC.*
10.67 $17,500,000.00 14% Senior Exchangeable Note Due 2002 dated July 28, 1997, from the Registrant to
Madeleine LLC.*
10.68 First Amendment to Securities Purchase Agreement dated as of July 25, 1997, between the Registrant and
Madeleine LLC.*
10.69 Registration Rights Agreement dated as of July 2, 1997, between the Registrant and Madeleine LLC.*
10.70 Form of Repriced Converts Indenture between the Registrant and trustee.*
10.71 Loan and Security Agreement dated as of August 1, 1997, among Grand Summit Resort Properties, Inc., the
lenders listed therein and Textron Financial Corporation, as Administrative Agent for the lenders.*
10.72 $2,750,000 Subordinated Promissory Note dated November, 1996 by Booth Creek Ski Acquisition Corp.,
Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc. to ASC East.*
10.73 Management Agreement dated August 7, 1997, between Grand Summit Hotel Condominium Unit Owners
Association, Inc. and L.B.O. Holding, Inc.*
10.74 Purchase and Sale Agreement dated July 3, 1997, between Wolf Mountain Resorts, L.C., and ASC Utah.*
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.75 Second Mortgage Deed, Security Agreement and Financing Statement from Waterville Valley Ski Resort, Inc.
to ASC East, dated November 27, 1996.*
10.76 Promissory Note dated August 15, 1997, in the principal amount of $30,000,000 issued by Grand Summit
Resort Properties, Inc. to Textron Financial Corporation.*
10.77 Agreement in Trust dated as of November 27, 1996, by Waterville Valley Ski Resort, Inc. to ASC East.*
10.78 Second Mortgage Deed, Security Agreement and Financing Statement from Mount Cranmore Ski Resort, Inc. to
ASC East dated November 27, 1996.*
10.79 Promissory Note dated August 15, 1997, in the principal amount of $25,000,000 issued by Grand Summit
Resort Properties, Inc. to Green Tree Financial Servicing Corporation.*
10.80 Subscription Agreement dated June 27, 1997, between Leslie B. Otten and ASC East.*
10.81 Joinder of Sugarloaf Mountain Corporation, Sugartech and Mountainside dated August 30, 1996, among Fleet
National Bank, as Agent on behalf of the lenders, Sugarloaf Mountain Corporation, Sugartech, Mountainside
and certain Subsidiaries.*
10.82 Mortgage, Assignment of Rents and Security Agreement (Attitash) dated as of August 1, 1997, by Grand
Summit Resort Properties, Inc. in favor of Textron Financial Corporation, as Administrative Agent.*
10.83 Letter Agreement dated August 30, 1996, among Fleet National Bank, as Agent, Fleet National Bank,
BankBoston, N.A., and KeyBank National Association and ASC East and certain Subsidiaries amending the
Credit Agreement dated as of June 28, 1996.*
10.84 Security Agreement dated as of August 30, 1996, among Sugarloaf Mountain Corporation, Mountainside and
Sugartech and Fleet National Bank, as Agent.*
10.85 Fee and Leasehold Mortgage, Assignment of Leases and Rents, Financing Statement and Security Agreement
dated as of August 27, 1996, from Sugarloaf Mountain Corporation to Fleet National Bank, as Agent.*
10.86 Collateral Assignment of Leases and Rents dated August 27, 1996, by Sugarloaf Mountain Corporation to
Fleet National Bank, as Agent.*
10.87 Hazardous Materials Indemnification Agreement dated as of August 30, 1996, among ASC East, certain
Subsidiaries and Fleet National Bank, as Agent.*
10.88 Assignment of Agreements, Permits and Contracts dated as of August 30, 1996, by Sugarloaf Mountain
Corporation to Fleet National Bank, as Agent.*
10.89 Stock Option Plan.*
10.90 Form of Non-Qualified Stock Option Agreement (Five-Year Vesting Schedule).*
10.91 Form of Non-Qualified Stock Option Agreement (Fully-Vested).*
10.92 Form of Incentive Stock Option Agreement.*
10.93 Assignment of Rents and Leases (Attitash Project) dated as of August 1, 1997, by Grand Summit Resort
Properties, Inc. in favor of Textron Financial Corporation, as Administrative Agent.*
10.94 Subordination Agreement dated as of August 1, 1997, among Grand Summit Resort Properties, Inc., L.B.O.
Holding, Inc. and Textron Financial Corporation, as Administrative Agent.*
10.95 Subordination Agreement dated as of August 1, 1997, among Grand Summit Resort Properties, Inc., ASC East
and Textron Financial Corporation, as Administrative Agent.*
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.96 Assignment of Property-Related Contracts dated as of August 1, 1997, by Grand Summit Resort Properties,
Inc. in favor of Textron Financial Corporation, as Administrative Agent.*
10.97 Collateral Assignment of Declarant's Rights dated as of August 1, 1997 between Grand Summit Resort
Properties, Inc. and Textron Financial Corporation.*
10.98 Letter Agreement dated August 27, 1996, among S.K.I. Ltd. and certain shareholders of Sugarloaf Mountain
Corporation (incorporated by reference to Exhibit 10.63 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.99 Ski Lease dated September 18, 1997, between ASC Utah and Iron Mountain, LLC.*
10.100 Agreement concerning American Skiing Company for Holder of Special Use Permit No. 4002.01 dated January
2, 1997, among the United States Department of Agriculture Forest Service, ASC East and Waterville Valley
Ski Resort, Inc.*
10.101 Lease Agreement dated September 12, 1997, between Grand Summit Resort Properties, Inc. and Sunday River,
Ltd.*
10.102 Lease Agreement dated September 9, 1997, between Grand Summit Resort Properties, Inc. and Killington
Ltd.*
10.103 Lease Agreement dated September 4, 1997, between Grand Summit Resort Properties, Inc. and Mount Snow
Ltd.*
10.104 Commitment Letter dated October 8, 1997, among BankBoston, N.A., BancBoston Securities, Inc. and the
Registrant.*
10.105 Irrevocable Option and Real Estate Purchase Agreement Upon Exercise of Option dated January 28, 1997,
between Wolf Mountain Resorts, L.C. and Harry P. Condas, John P. Condas, George P. Condas, Tessie P.
Condas, Margarita C. Ellis and Jack W. Ellis, and Modification thereof dated May 27, 1997, and Second
Modification thereof dated June 2, 1997.*
10.106 Consent Solicitation Advisory Agreement dated October 7, 1997, between the Registrant and Donaldson,
Lufkin & Jenrette.*
10.107 Form of Amendment and Waiver Letter Agreement between the Registrant and Madeleine LLC.**
10.108 Form of Amended and Restated Registration Rights Agreement between the Registrant and Madeleine LLC.**
11.1 Computation of pro forma earnings per share.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.*
23.2 Consent of Pierce Atwood (See Exhibit 5.1).
23.3 Consent of Price Waterhouse LLP.**
23.4 Consent of Arthur Andersen LLP.**
24.1 Power of Attorney.*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or Notes
thereto.
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<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Articles of
Incorporation, as amended, and By-Laws, as amended, of the Registrant and the
laws of the State of Maine or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matters have been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bethel,
State of Maine, on this 5th day of November, 1997.
<TABLE>
<S> <C> <C>
AMERICAN SKIING COMPANY
By: /s/ LESLIE B. OTTEN
-----------------------------------------
Leslie B. Otten
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ LESLIE B. OTTEN Chairman of the Board of
------------------------------------------- Directors, President,
Leslie B. Otten Chief Executive Officer and November 5, 1997
Director (Principal Executive
Officer)
/s/ THOMAS M. RICHARDSON Chief Financial Officer,
------------------------------------------- Senior Vice President,
Thomas M. Richardson Treasurer and Director November 5, 1997
(Principal Financial and
Accounting Officer)
/s/ CHRISTOPHER E. HOWARD Senior Vice President, Chief
------------------------------------------- Administrative Officer,
Christopher E. Howard General Counsel, Clerk and November 5, 1997
Director
</TABLE>
II-11
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EXHIBIT INDEX
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1.1 Form of Underwriting Agreement.*
2.1 Stock Purchase Agreement dated as of August 1, 1997, among Kamori International Corporation,
ASC West and the Registrant.*
2.2 Escrow Agreement dated as of August 1, 1997, among ASC West, Kamori International Corporation
and the LTCB Trust Company.*
3.1 Articles of Incorporation of the Registrant, as amended.*
3.2 By-Laws of the Registrant, as amended.*
4.1 Specimen Certificate for shares of Common Stock, $.01 par value, of the Registrant.*
4.2 Form of Statement of Resolution Establishing Shares of 10.5% Repriced Convertible Exchangeable
Preferred Stock.**
4.3 Form of Indenture relating to 10.5% Repriced Convertible Subordinate Debentures.**
5.1 Opinion of Pierce Atwood with respect to the validity of the securities being offered.*
10.1 Credit Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries, Fleet
National Bank, BankBoston, N.A., KeyBank National Association and Fleet National Bank, as Agent
(incorporated by reference to Exhibit 10.1 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.2 Security Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries and Fleet
National Bank, as Agent (incorporated by reference to Exhibit 10.2 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.3 Revolving Credit Notes dated June 28, 1996, issued by ASC East and certain Subsidiaries to
Fleet National Bank, BankBoston, N.A. and KeyBank National Association in the aggregate
principal amount of $65,000,000 (incorporated by reference to Exhibit 10.3 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.4 Swing Line Note dated June 28, 1996, issued by ASC East and certain Subsidiaries to Fleet
National Bank in the aggregate principal amount of $5,000,000 (incorporated by reference to
Exhibit 10.4 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.5 Fee and Leasehold Mortgage, Assignment of Leases and Rents, Financing Statement and Security
Agreement dated as of June 28, 1996, by Sunday River Skiway Corporation to Fleet National Bank,
as Agent (representative of substantially similar agreements of even date by each of Sunday
River, Ltd., L.B.O. Holding, Inc., Cranmore, Inc., Sugarbush Resort Holdings, Inc., Mountain
Water Company, Mountain Wastewater Treatment, Inc., Killington, Ltd., Mount Snow Ltd. and
Waterville Valley Ski Area Ltd. to Fleet National Bank, as Agent) (incorporated by reference to
Exhibit 10.5 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.6 Collateral Assignments of Leases and Rents dated as of June 28, 1996, by Sunday River Skiway
Corporation to Fleet National Bank, as Agent (representative of substantially similar
assignments of even date by each of Sunday River, Ltd., L.B.O. Holding, Inc., Cranmore, Inc.,
Sugarbush Resort Holdings, Inc., Mountain Water Company, Mountain Wastewater Treatment, Inc.,
Killington, Ltd., Mount Snow Ltd. and Waterville Valley Ski Area Ltd. to Fleet National Bank,
as Agent) (incorporated by reference to Exhibit 10.6 to ASC East's Registration Statement of
Form S-4, Registration No. 333-9763).
</TABLE>
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10.7 Development Agreement dated September 18, 1997, among ASC Utah, Iron Mountain Associates, LLC,
WPA, Ltd., Iron Mountain Holding Group, LC and Iron Mountain Alliance, Inc.*
10.8 Assignment in Trust dated as of June 28, 1996, from L.B.O. Holding, Inc. to Fleet National
Bank, as Agent (incorporated by reference to Exhibit 10.8 to ASC East's Registration Statement
on Form S-4, Registration No. 333-9763).
10.9 Assignment of Agreements, Permits and Contracts dated as of June 28, 1996, by Sunday River
Skiway Corporation to Fleet National Bank, as Agent (incorporated by reference to Exhibit 10.9
to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.10 Assignment of Trademarks and Service Marks (U.S.) dated as of June 28, 1996, by ASC East and
certain Subsidiaries to Fleet National Bank, as Agent (incorporated by reference to Exhibit
10.10 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.11 Hazardous Materials Indemnification Agreement dated as of June 28, 1996, among ASC East,
certain Subsidiaries and Fleet National Bank, as Agent (incorporated by reference to Exhibit
10.11 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.12 Unlimited Guaranty dated as of June 28, 1996, by LBO Hotel Co. in favor of Fleet National Bank,
as Agent (incorporated by reference to Exhibit 10.12 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.13 Unlimited Guaranty dated as of June 28, 1996, by Sugarloaf Mountain Corporation in favor of
Fleet National Bank, as Agent (incorporated by reference to Exhibit 10.13 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.14 Assignment dated May 30, 1997, between Wolf Mountain Resorts, L.C. and ASC Utah.*
10.15 Intercreditor Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries,
Snowridge, Inc. and Fleet National Bank, as Agent (incorporated by reference to Exhibit 10.15
to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.16 Loan and Security Agreement dated as of October 1, 1984, among the State of Vermont (acting by
and through the Vermont Industrial Development Authority), Sherburne Corporation, Proctor Bank
and BankBoston, N.A. (incorporated by reference to Exhibit 10.16 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.17 Loan and Security Agreement dated as of October 1, 1984, among the State of Vermont (acting by
and through the Vermont Industrial Development Authority), Mount Snow Ltd., Proctor Bank and
BankBoston, N.A.*
10.18 Lease Agreement dated April 2, 1997, between Grand Summit Resort Properties, Inc. and L.B.O.
Holding, Inc.*
10.19 Indenture dated October 24, 1990, between Killington Ltd. and The Howard Bank, as trustee
(representative of indentures with respect to similar indebtedness aggregating approximately
$2,995,000 in original principal amount and maturing at various times from 2015 to 2016)
(incorporated by reference to Exhibit 10.19 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
</TABLE>
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10.20 Indenture dated September 25, 1986, between Killington Ltd. and The Howard Bank, as trustee
(representative of indentures with respect to similar indebtedness aggregating approximately
$10,873,500 in original principal amount and maturing at various times from 1997 to 2013)
(incorporated by reference to Exhibit 10.20 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.21 Restated Concession Agreement dated as of April 30, 1992, between Sugarloaf Mountain
Corporation and Boston Concessions Group, Inc., together with Amendment thereto, Loan
Agreement, and $150,000 Promissory Notes, each dated July 31, 1995 (incorporated by reference
to Exhibit 10.21 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.22 Indenture dated as of June 28, 1996, among ASC East, certain Subsidiaries and United States
Trust Company of New York, relating to Series A and Series B 12% Senior Subordinated Notes Due
2006 (incorporated by reference to Exhibit 4.1 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.23 Indenture dated as of June 28, 1996, among ASC East, certain Subsidiaries and United States
Trust Company of New York, relating to the Series A and Series B 13 3/4% Subordinated Discount
Notes Due 2007 (incorporated by reference to Exhibit 4.2 to ASC East's Registration Statement
on Form S-4, Registration No. 333-9763).
10.24 Registration Rights Agreement dated as of June 28, 1996, among ASC East, certain Subsidiaries,
Bear, Stearns & Co., Inc. and SPP Hambro & Co., LLC (incorporated by reference to Exhibit 4.3
to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.25 Purchase Agreement dated as of June 25, 1996, among ASC East, certain Subsidiaries, Bear,
Stearns & Co., Inc. and SPP Hambro & Co., LLC (incorporated by reference to Exhibit 4.4 to ASC
East's Registration Statement on Form S-4, Registration No. 333-9763).
10.26 Registration Rights Agreement dated June 28, 1996, among ASC East, certain Subsidiaries and
Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.5 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.27 Pledge and Disbursement Agreement dated as of June 28, 1996, among ASC East, certain
Subsidiaries and United States Trust Company of New York (incorporated by reference to Exhibit
4.6 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.28 Shareholders Agreement dated as of June 28, 1996, among Leslie B. Otten, ASC East and Bear
Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.29 $2,311,838.00 Promissory Note from Mountain Wastewater Treatment, Inc. to LHC Corporation dated
May 16, 1995 (incorporated by reference to Exhibit 10.32 to ASC East's Registration Statement
on Form S-4, Registration No. 333-9763).
10.30 $6,120,000.00 Promissory Note, Senior Commercial Mortgage Deed, Junior Commercial Mortgage
Deed, and Senior Collateral Assignment of Income, Revenue and Rentals from Sugarbush Resort
Holdings, Inc. to Snowridge, Inc. and Sugarbush Inn Corporation dated May 16, 1995 and
attachments thereto (incorporated by reference to Exhibit 10.33 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
</TABLE>
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10.31 Form of Subordinated Debenture Due 2002 from L.B.O. Holding, Inc. to former shareholders of Mt.
Attitash Lift Corporation (incorporated by reference to Exhibit 10.34 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.32 Purchase Agreement dated as of April 13, 1994, among Mt. Attitash Lift Corporation, certain of
its shareholders and L.B.O. Holding, Inc. (incorporated by reference to Exhibit 10.35 to ASC
East's Registration Statement on Form S-4, Registration No. 333-9763).
10.33 Stock Purchase Agreement dated August 17, 1994, between Sugarloaf Mountain Corporation and
S-K-I Ltd. (incorporated by reference to Exhibit 10.36 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.34 Acquisition Agreement dated May 16, 1995, among Sugarbush Resort Holdings, Inc., Sugarbush
Resort Corporation, Snowridge, Inc., Sugar Ridge, Inc., Sugarbush Inn Corporation and Bev
Ridge, Inc. (incorporated by reference to Exhibit 10.38 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.35 Lease dated October 15, 1980, among H. Donald Penley, Joseph Penley, Albert Penley and Sunday
River Skiway Corporation (incorporated by reference to Exhibit 10.40 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.36 Lease/Option dated July 19, 1984, between John Blake and L.B.O. Holding, Inc. (incorporated by
reference to Exhibit 10.41 to ASC East's Registration Statement on Form S-4, Registration No.
333-9763).
10.37 Lease Agreement dated as of July 1, 1993, between Snowridge, Inc. and Mountain Water Company
(incorporated by reference to Exhibit 10.42 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.38 Lease Agreement dated as of March 1, 1988, between Snowridge, Inc. and Mountain Wastewater
Treatment, Inc. (incorporated by reference to Exhibit 10.43 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.39 Lease dated November 10, 1960, between the State of Vermont and Sherburne Corporation
(predecessor to Killington Ltd.) (incorporated by reference to Exhibit 10.44 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.40 Lease Agreement dated as of February 20, 1990, between Pico Pond Associates and Killington Ltd.
(incorporated by reference to Exhibit 10.45 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.41 Lease Agreement dated as of June 21, 1994, between the Town of Wilmington and Mount Snow, Ltd.
(incorporated by reference to Exhibit 10.46 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.42 Lease Agreement dated April 24, 1995, between Sargent, Inc. and Mount Snow, Ltd. (incorporated
by reference to Exhibit 10.47 to ASC East's Registration Statement on Form S-4, Registration
No. 333-9763).
10.43 United States Forest Service Special Use Permit No. 4040/01, issued November 29, 1989 to Mount
Snow Ltd. (incorporated by reference to Exhibit 10.48 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.44 United States Forest Service Special Use Permit No. 4059/01 issued July 19, 1994 to L.B.O.
Holding, Inc. and Amendment 1 thereto (incorporated by reference to Exhibit 10.49 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
</TABLE>
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10.45 United States Forest Service Special Use Permit No. 4041 issued May 17, 1995, to Sugarbush
Resort Holdings, Inc. (incorporated by reference to Exhibit 10.51 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.46 Agreement between Sugarloaf Mountain Corporation and the Inhabitants of the Town of
Carrabassett Valley, Maine, concerning the Sugarloaf Golf Course dated June 3, 1987
(incorporated by reference to Exhibit 10.52 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.47 Commercial Lease dated August 7, 1997, between L.B.O. Holding, Inc. and Grand Summit Hotel
Condominium Unit Owners Association, Inc.*
10.48 Agreement dated July 26, 1995, among Bombardier Corporation, Killington, Ltd., Mount Snow,
Ltd., Waterville Valley Ski Area, Ltd., Bear Mountain Ltd., and Sugarloaf Mountain Corporation
(incorporated by reference to Exhibit 10.55 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.49 Agreement dated June 3, 1996, between ASC East and Eastern Resorts Company, LLC (incorporated
by reference to Exhibit 10.56 to ASC East's Registration Statement on Form S-4, Registration
No. 333-9763).
10.50 Employment Agreement dated as of August 24, 1994, among Warren C. Cook, Sugarloaf Mountain
Corporation and S-K-I Ltd. (incorporated by reference to Exhibit 10.57 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.51 Christopher E. Howard Employment Terms (Agreement) dated August 22, 1996, between Christopher
E. Howard and ASC East.*
10.52 Partnership Agreement dated March 1993 among Sugarloaf Mountain Corporation, Jordan Lumber
Company, Warren C. Cook, Linwood E. Doble, Inc., H&S Land, Inc. and Loaf Land Inc. relating to
Sugarloaf Land Partners I (incorporated by reference to Exhibit 10.58 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.53 Partnership Agreement dated March 1993 among Sugarloaf Mountain Corporation, Jordan Lumber
Company, Warren C. Cook, H&S Land, Inc., Loaf Land, Inc. and Clement Begin relating to
Sugarloaf Land Partners II (incorporated by reference to Exhibit 10.59 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.54 First Amendment to Credit Agreement dated as of November 27, 1996, among ASC East, certain
Subsidiaries, Fleet National Bank, BankBoston N.A., KeyBank National Association and Fleet
National Bank, as Agent.*
10.55 Second Amendment to Credit Agreement dated as of May 30, 1997, among ASC East, certain
Subsidiaries, Fleet National Bank, BankBoston N.A., KeyBank National Association and Fleet
National Bank, as Agent.*
10.56 Third Amendment to Credit Agreement dated as of July 1997, among ASC East, certain
Subsidiaries, Fleet National Bank, Bank Boston, N.A., KeyBank National Association and Fleet
National Bank, as Agent.*
10.57 Limited Guaranty of Payment and Performance dated as of October 3, 1996 from ASC East to Key
Bank National Association (incorporated by reference to Exhibit 10.60 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.58 Purchase and Sale Agreement dated as of August 30, 1996, among Waterville Valley Ski Area,
Ltd., Cranmore, Inc., ASC East and Booth Creek Ski Acquisition Corp. (incorporated by reference
to Exhibit 10.61 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
</TABLE>
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10.59 Purchase and Sale Agreement dated as of October 16, 1996, among Sherburne Pass Mountain
Properties, LLC, Pico Mountain Sports Center, LLC, Pico Mountain Operating Company, LLC, Harold
L. and Edith Herbert, and Pico Ski Area Management Company (incorporated by reference to
Exhibit 10.62 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.60 Fourth Amendment to Credit Agreement dated as of September 25, 1997, among ASC East, certain
Subsidiaries, Fleet National Bank, BankBoston, N.A., KeyBank National Association and Fleet
National Bank, as Agent.*
10.61 $2,500,000.00 Promissory Note from the Registrant to Madeleine LLC dated June 18, 1997.*
10.62 $6,500,000.00 Promissory Note from ASC Utah to Wolf Mountain Resorts, L.C. dated July 3, 1997.*
10.63 Guaranty dated as of July 3, 1997 by the Registrant to Wolf Mountain Resorts, L.C.*
10.64 Ground Lease Agreement dated July 3, 1997, between ASC Utah and Wolf Mountain Resorts, L.C.*
10.65 Ground Lease Guaranty dated July 3, 1997, from the Registrant to Wolf Mountain Resorts, L.C.*
10.66 Securities Purchase Agreement dated as of July 2, 1997, between the Registrant and Madeleine
LLC.*
10.67 $17,500,000.00 14% Senior Exchangeable Note Due 2002 dated July 28, 1997, from the Registrant
to Madeleine LLC.*
10.68 First Amendment to Securities Purchase Agreement dated as of July 25, 1997, between the
Registrant and Madeleine LLC.*
10.69 Registration Rights Agreement dated as of July 2, 1997, between the Registrant and Madeleine
LLC.*
10.70 Form of Repriced Converts Indenture between the Registrant and trustee.*
10.71 Loan and Security Agreement dated as of August 1, 1997, among Grand Summit Resort Properties,
Inc., the lenders listed therein and Textron Financial Corporation, as Administrative Agent for
the lenders.*
10.72 $2,750,000 Subordinated Promissory Note dated November, 1996 by Booth Creek Ski Acquisition
Corp., Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc. to ASC East.*
10.73 Management Agreement dated August 7, 1997, between Grand Summit Hotel Condominium Unit Owners
Association, Inc. and L.B.O. Holding, Inc.*
10.74 Purchase and Sale Agreement dated July 3, 1997, between Wolf Mountain Resorts, L.C., and ASC
Utah.*
10.75 Second Mortgage Deed, Security Agreement and Financing Statement from Waterville Valley Ski
Resort, Inc. to ASC East, dated November 27, 1996.*
10.76 Promissory Note dated August 15, 1997, in the principal amount of $30,000,000 issued by Grand
Summit Resort Properties, Inc. to Textron Financial Corporation.*
10.77 Agreement in Trust dated as of November 27, 1996, by Waterville Valley Ski Resort, Inc. to ASC
East.*
10.78 Second Mortgage Deed, Security Agreement and Financing Statement from Mount Cranmore Ski
Resort, Inc. to ASC East dated November 27, 1996.*
</TABLE>
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10.79 Promissory Note dated August 15, 1997, in the principal amount of $25,000,000 issued by Grand
Summit Resort Properties, Inc. to Green Tree Financial Servicing Corporation.*
10.80 Subscription Agreement dated June 27, 1997, between Leslie B. Otten and ASC East.*
10.81 Joinder of Sugarloaf Mountain Corporation, Sugartech and Mountainside dated August 30, 1996,
among Fleet National Bank, as Agent on behalf of the lenders, Sugarloaf Mountain Corporation,
Sugartech, Mountainside and certain Subsidiaries.*
10.82 Mortgage, Assignment of Rents and Security Agreement (Attitash) dated as of August 1, 1997, by
Grand Summit Resort Properties, Inc. in favor of Textron Financial Corporation, as
Administrative Agent.*
10.83 Letter Agreement dated August 30, 1996, among Fleet National Bank, as Agent, Fleet National
Bank, BankBoston, N.A., and KeyBank National Association and ASC East and certain Subsidiaries
amending the Credit Agreement dated as of June 28, 1996.*
10.84 Security Agreement dated as of August 30, 1996, among Sugarloaf Mountain Corporation,
Mountainside and Sugartech and Fleet National Bank, as Agent.*
10.85 Fee and Leasehold Mortgage, Assignment of Leases and Rents, Financing Statement and Security
Agreement dated as of August 27, 1996, from Sugarloaf Mountain Corporation to Fleet National
Bank, as Agent.*
10.86 Collateral Assignment of Leases and Rents dated August 27, 1996, by Sugarloaf Mountain
Corporation to Fleet National Bank, as Agent.*
10.87 Hazardous Materials Indemnification Agreement dated as of August 30, 1996, among ASC East,
certain Subsidiaries and Fleet National Bank, as Agent.*
10.88 Assignment of Agreements, Permits and Contracts dated as of August 30, 1996, by Sugarloaf
Mountain Corporation to Fleet National Bank, as Agent.*
10.89 Stock Option Plan.*
10.90 Form of Non-Qualified Stock Option Agreement (Five-Year Vesting Schedule).*
10.91 Form of Non-Qualified Stock Option Agreement (Fully-Vested).*
10.92 Form of Incentive Stock Option Agreement.*
10.93 Assignment of Rents and Leases (Attitash Project) dated as of August 1, 1997, by Grand Summit
Resort Properties, Inc. in favor of Textron Financial Corporation, as Administrative Agent.*
10.94 Subordination Agreement dated as of August 1, 1997, among Grand Summit Resort Properties, Inc.,
L.B.O. Holding, Inc. and Textron Financial Corporation, as Administrative Agent.*
10.95 Subordination Agreement dated as of August 1, 1997, among Grand Summit Resort Properties, Inc.,
ASC East and Textron Financial Corporation, as Administrative Agent.*
10.96 Assignment of Property-Related Contracts dated as of August 1, 1997, by Grand Summit Resort
Properties, Inc. in favor of Textron Financial Corporation, as Administrative Agent.*
10.97 Collateral Assignment of Declarant's Rights dated as of August 1, 1997 between Grand Summit
Resort Properties, Inc. and Textron Financial Corporation.*
10.98 Letter Agreement dated August 27, 1996, among S.K.I. Ltd. and certain shareholders of Sugarloaf
Mountain Corporation (incorporated by reference to Exhibit 10.63 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
</TABLE>
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10.99 Ski Lease dated September 18, 1997, between ASC Utah and Iron Mountain, LLC.*
10.100 Agreement concerning American Skiing Company for Holder of Special Use Permit No. 4002.01 dated
January 2, 1997, among the United States Department of Agriculture Forest Service, ASC East and
Waterville Valley Ski Resort, Inc.*
10.101 Lease Agreement dated September 12, 1997, between Grand Summit Resort Properties, Inc. and
Sunday River, Ltd.*
10.102 Lease Agreement dated September 9, 1997, between Grand Summit Resort Properties, Inc. and
Killington Ltd.*
10.103 Lease Agreement dated September 4, 1997, between Grand Summit Resort Properties, Inc. and Mount
Snow Ltd.*
10.104 Commitment Letter dated October 8, 1997, among BankBoston, N.A., BancBoston Securities, Inc.
and the Registrant.*
10.105 Irrevocable Option and Real Estate Purchase Agreement Upon Exercise of Option dated January 28,
1997, between Wolf Mountain Resorts, L.C. and Harry P. Condas, John P. Condas, George P.
Condas, Tessie P. Condas, Margarita C. Ellis and Jack W. Ellis, and Modification thereof dated
May 27, 1997, and Second Modification thereof dated June 2, 1997.*
10.106 Consent Solicitation Advisory Agreement dated October 7, 1997, between the Registrant and
Donaldson, Lufkin & Jenrette.*
10.107 Form of Amendment and Waiver Letter Agreement between the Registrant and Madeleine LLC.**
10.108 Form of Amended and Restated Registration Rights Agreement between the Registrant and Madeleine
LLC.**
11.1 Computation of pro forma earnings per share.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.*
23.2 Consent of Pierce Atwood (See Exhibit 5.1).
23.3 Consent of Price Waterhouse LLP.**
23.4 Consent of Arthur Andersen LLP.**
24.1 Power of Attorney.*
27.1 Financial Data Schedule.*
</TABLE>
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* Previously filed.
** Filed herewith.
<PAGE>
Exhibit 4.2
EXHIBIT A
RESOLVED: That Pursuant to Articles SECOND and FIFTH of the Corporation's
Amendment to Articles of Incorporation dated July 16, 1997, as further
amended by the Corporation's Amendment to Articles of Incorporation
dated October 14, 1997, the Board of Directors hereby creates and
authorizes a series of Serial Preferred Stock (the "Preferred Stock")
having the following relative rights and preference designations,
voting powers and terms, in addition to those fixed by and set forth
in such Articles SECOND and FIFTH:
Section 1. DESIGNATION AND AMOUNT. The designation of such series
of Preferred Stock shall be the 10.5% Repriced Convertible Exchangeable
Preferred stock (herein the "Exchangeable Preferred Stock"). The number of
issuable shares of Exchangeable Preferred Stock shall be 40,000.
Section 2. RANK. All shares of Exchangeable Preferred Stock, both
as to payment of dividends and to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
shall rank prior to all of the Corporation's now or hereafter issued preferred
stock, and senior to all of the Corporation's now or hereafter issued Common
Stock or any other common stock of any class of the Corporation. The term
"Common Stock" shall mean the Common Stock, $.01 par value per share, and the
Class A Common Stock, $.01 par value per share, of the Corporation as the same
exists at the date hereof or as such stock may be constituted from time to time.
Section 3. Dividends and Certain Restrictions. The holders of the
Exchangeable Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors of the Corporation out of funds of the
Corporation legally available therefor, dividends at a rate per share of 10.5%
per annum, and no more, which shall be fully cumulative, shall accrue (whether
or not declared or paid), shall compound quarterly, and shall be payable in
cash on the fifth anniversary of the date of issuance of the Exchangeable
Preferred Stock, or, at the option of the Company, in whole or in part on any
January 1, April 1, July 1 or October 1 (except that if such date is a
Saturday, Sunday or legal holiday, then such dividend will be payable on the
next day that is not a Saturday, Sunday or legal holiday) to holders of record
as they appear on the stock transfer books of the Corporation on such record
date, not more than 60 nor less than 10 days preceding the payment date for
such dividend, as is fixed by the Board of Directors. For purposes hereof,
the term "legal holiday" shall mean any day on which banking institutions are
obligated or authorized to close in New York, New York or in Boston,
Massachusetts.
On such dividend payment date all dividends which shall have accrued
on each share of Exchangeable Preferred Stock outstanding on such dividend
payment date shall accumulate and be deemed to become "due" but shall
nonetheless be payable as set forth in the preceeding paragraph. If such
dividends are not fully paid on such dividend payment date, such accrued
dividends shall be added (solely for the purpose of calculating
<PAGE>
dividends payable on the Exchangeable Preferred Stock) to the Liquidation
Preference of the Exchangeable Preferred Stock effective at the beginning of the
quarterly dividend compounding period next succeeding the dividend payment date
as to which such dividends were not paid and shall thereafter accrue additional
dividends in respect thereof until such unpaid dividends have been paid in full.
Dividends paid on shares of Exchangeable Preferred Stock in an amount less than
the total amount of such dividends at the time accumulated and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
Unless all accrued and unpaid dividends on the Exchangeable Preferred
Stock have been paid in cash, or declared and sums set aside for the payment
thereof, dividends (other than in Common Stock or any other stock of the
Corporation ranking junior to the Exchangeable Preferred Stock as to dividends
and as to liquidation rights) may not be paid, or declared and set aside for
payment, and other distributions may not be made upon the Common Stock or on any
other stock of the Corporation ranking junior to the Exchangeable Preferred
Stock as to dividends. So long as any shares of Exchangeable Preferred Stock
are outstanding, the Common Stock (or any rights, options or warrants to
purchase Common Stock), any other stock or other equity interests (or rights,
options or warrants to purchase such other stock or other equity interests) of
the Corporation ranking junior to the Exchangeable Preferred Stock as to
dividends or upon liquidation may not be redeemed, purchased or otherwise
acquired for any consideration by the Corporation.
The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock (or rights,
options or warrants to purchase shares of stock or other equity interests) of
the Corporation unless the Corporation could, under this Section 3, purchase or
otherwise acquire such shares (or rights, options or warrants to purchase shares
of stock) or units at such time and in such manner.
Any reference to "distribution" contained in this Section 3 shall not
be deemed to include any distribution made in connection with any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 4. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Exchangeable Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets are stated capital or surplus
of any nature, an amount equal to the dividends accrued and unpaid thereon to
the date of final distribution to such holders, whether or not declared, without
interest, and a sum equal to $1,000 per share, and no more (such sum, the
"Liquidation Preference") before any payment shall be made or any assets
distributed to the holders of Common Stock or any other class or series of the
Corporation's capital stock ranking junior as to liquidation rights to the
Exchangeable Preferred Stock; provided, however, that such rights
<PAGE>
shall accrue to the holders of Exchangeable Preferred Stock only in the event
that the Corporation's payments with respect to the liquidation preferences of
the holders of capital stock of the Corporation ranking senior as to liquidation
rights to the Exchangeable Preferred Stock (the "Senior Liquidation Stock") are
fully met. If the assets of the Corporation available for distribution after
the liquidation preferences of the Senior Liquidation Stock are fully met are
not sufficient to pay an amount equal to the Liquidation Preference to the
holders of outstanding shares of Exchangeable Preferred Stock and the
liquidation preference to the holders of any other series of the Corporation's
capital stock which may hereafter be created in accordance with Section 6(c)
hereof having liquidation rights on a parity with the shares of Exchangeable
Preferred Stock (the "Parity Liquidation Stock"), then the assets of the
Corporation shall be distributed ratably among the holders of the Exchangeable
Preferred Stock and the Parity Liquidation Stock in proportion to the respective
preferential amounts to which each is entitled (but only to the extent of such
preferential amounts). Neither a consolidation, merger or other business
combination of the Corporation with or into another corporation or other entity
nor a sale or offer of all or part of the Corporation's assets for cash,
securities or other property shall be considered a liquidation, dissolution or
winding up of the Corporation for purposes of this Section 4 (unless in
connection therewith the liquidation of the Corporation is specifically
approved).
The holder of any shares of Exchangeable Preferred Stock shall not be
entitled to receive any payment owed for such shares under this Section 4 until
such holder shall cause to be delivered to the Corporation (i) the
certificate(s) representing such shares of Exchangeable Preferred Stock and (ii)
transfer instrument(s) satisfactory to the Corporation and sufficient to
transfer such shares of Exchangeable Preferred Stock to the Corporation free of
any adverse interest. As in the case of the Redemption Price, no interest shall
accrue on any payment upon liquidation after the due date thereof .
Section 5. REDEMPTION. On the fifth anniversary of the date of
issuance of shares of the Exchangeable Preferred Stock (the "Mandatory
Redemption Date"), the Corporation shall redeem, out of funds legally available
therefor, all shares of the Exchangeable Preferred Stock then outstanding at a
redemption price (the "Redemption Price") equal to the Liquidation Preference
per share, together with accrued and unpaid dividends to the redemption date.
if, on the Mandatory Redemption Date, funds are not legally available to the
Corporation for redemption of the shares of Exchangeable Preferred Stock, the
Corporation shall redeem on such date, at the Redemption Price, that number of
shares of Exchangeable Preferred Stock which it can lawfully redeem, and from
time to time thereafter, as soon as funds are legally available, the Corporation
shall redeem at the Redemption Price shares of Exchangeable Preferred Stock
until the Corporation has redeemed the shares of Exchangeable Preferred Stock in
full.
The Corporation, at its option, may at any time, redeem, out of funds
legally available therefor, in whole or from time to time in part, the
Exchangeable Preferred Stock on any date set by the Board of Directors, for cash
at the Redemption Price, together with accrued and unpaid dividends to the
redemption date (subject to the right of the holder of record of shares of
<PAGE>
Exchangeable Preferred Stock on a record date for the payment of a dividend on
the Exchangeable Preferred Stock to receive the dividend due on such shares of
Exchangeable Preferred Stock on the corresponding dividend payment date, if such
dividend payment date is prior to the date set for redemption); provided that
the Exchangeable Preferred Stock may not be so redeemed prior to the Mandatory
Redemption Date unless the closing price of the Common Stock for 45 consecutive
trading days ending no more than 30 calendar days prior to the date notice of
redemption is first mailed is at least 140% of the Adjusted IPO Price then in
effect. The Adjusted IPO Price means $____ (as adjusted for the events
specified in Section 11(3)(a) hereof).
In case of the redemption of less than all of the then outstanding
Exchangeable Preferred Stock, the Corporation shall select the shares of
Exchangeable Preferred Stock to be redeemed in accordance with any method
permitted by the national securities exchange on which the Exchangeable
Preferred Stock is then listed, or if not so listed, the Corporation shall
designate by lot, or in such other manner as the Board of Directors may
determine, the shares to be redeemed, or shall effect such redemption pro rata.
Notwithstanding, the foregoing, the Corporation shall not redeem less than all
of the Exchangeable Preferred Stock at any time outstanding until all dividends
accrued to such payment date upon all Exchangeable Preferred Stock then
outstanding shall have been paid.
Not more than 120 nor less than 90 days prior to the redemption date,
notice by first class mail, postage prepaid, shall be given to each holder of
record of the Exchangeable Preferred Stock to be redeemed, at such holder's
address as it shall appear upon the stock transfer books of the Corporation.
Each such notice of redemption shall specify the date fixed for redemption, the
Redemption Price, the then current Conversion Price, the place or places of
payment and conversion and that payment or conversion will be made upon
presentable on and surrender of the certificates) evidencing the shares of
Exchangeable Preferred Stock to be redeemed or converted, and that the
Exchangeable Preferred Stock may be converted at any time before the close of
business on the redemption date.
Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder of the Exchangeable
Preferred Stock receives such notice; and failure to give such notice by mail,
or any defect in such notice, to the holders of any shares designated for
redemption shall not affect the validity of the proceedings for the redemption
of any other shares of Exchangeable Preferred Stock. On or after the date fixed
for redemption as stated in such notice, each holder of the shares called for
redemption shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price. If less than all the
shares represented by any such surrendered certificate are redeemed, a new
certificate shall be issued without cost to the holder thereof representing the
unredeemed shares. If such notice of redemption shall have been so mailed and
if, on or prior to the redemption date specified in such notice all funds
necessary for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the account of the holders
of the shares so to
<PAGE>
be redeemed (as to be and continue to be available therefor), then on and after
the redemption date, notwithstanding that any certificate for shares of the
Exchangeable Preferred Stock so called for redemption shall not have been
surrendered for cancellation, all shares of the Exchangeable Preferred Stock
with respect to which such notice shall have been mailed and such funds shall
have been set aside shall be deemed to be no longer outstanding and all rights
with respect to such shares of the Exchangeable Preferred Stock so called for
redemption shall forthwith cease and terminate, except the fight of the holders
thereof to receive out of the funds so set aside in trust the amount payable on
redemption thereof (including an amount equal to accrued and dividends to the
redemption date) without interest thereon.
The holder of any shares of Exchangeable Preferred Stock redeemed upon
any exercise of the Corporation's redemption right shall not be entitled to
receive payment of the Redemption Price for such shares until such holder shall
cause to be delivered to the place specified in the notice given with respect to
such redemption (i) the certificate(s) representing such shares of Exchangeable
Preferred Stock redeemed and (ii) transfer instrument(s) satisfactory to the
Corporation and sufficient to transfer such shares of Exchangeable Preferred
Stock to the Corporation free of any adverse interests. No interest shall
accrue on the Redemption Price of share of Exchangeable Preferred Interests
after its redemption date.
Section 6. VOTING RIGHTS.
(a) GENERAL. The holders of the shares of Exchangeable Preferred
Stock shall vote together with the holders of the Common Stock (and any other
class of equity securities which may similarly vote with the holders of the
Common Stock as a single class) upon all matters upon which stockholders are
entitled to vote and shall be entitled to a number of votes per share of
Exchangeable Preferred Stock equal to the number of shares of Common Stock into
which the shares of the Exchangeable Preferred Stock are convertible on the
record date of the determination of stockholders entitled to notice of and
to vote at such meeting; provided, however, that, other than as provided in
Section 6(b) below, the holders of Exchangeable Preferred Stock shall have no
voting rights with respect to the election of directors, as to which the
holders of the Common Stock shall (subject to Section 6(b) below) have
exclusive voting rights as provided in the Articles of Incorporation
of the Corporation. In addition, the holders of Exchangeable Preferred
Stock will have all voting rights required by law, and shall also have
all special voting rights provided below. Any shares of Exchangeable
Preferred Stock held by the Corporation or any entity controlled by the
Corporation shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum.
(b) DEFAULT VOTING RIGHTS.
(i) RIGHT TO ELECT DIRECTORS. Whenever dividends on the
Exchangeable Preferred Stock shall be in arrears, or the Redemption Price
(whether mandatory or optional) has not been paid in full when due, or an
Event of Default (as hereinafter
<PAGE>
defined), has occurred (A) the number of members of the Board of Directors
of the Corporation shall be increased by two, effective as of the time of
election of such directors as hereinafter provided, and (B) the holders of
the Exchangeable Preferred Stock (voting separately as a class) will have
the exclusive right to vote for and elect such two additional directors of
the Corporation at any meeting of stockholders of the Corporation at which
directors are to be elected held during the period such dividends remain in
arrears or such redemption price has not been paid in full. The right of
the holders of the Exchangeable Preferred Stock to vote for such two
additional directors shall remain vested until (x) payment in full of all
accrued and unpaid dividends on the Exchangeable Preferred Stock has been
made, or (y) payment in full of any Redemption Price (whether mandatory or
optional) which has become due, or (z) the date on which such conversion is
honored or such Event of Default has ceased to be continuing, at which time
such rights shall terminate (subject in each case to revesting). An "Event
of Default" shall occur if: (i) a default shall occur under any bond,
debenture, note or other evidence of Indebtedness (as defined in the
Securities Purchase Agreement (the "Agreement"), dated July 2, 1997,
between the Corporation and Madeleine L.L.C., a copy of which is attached
as Appendix I to the Statement of Resolution Establishing Shares filed by
the Corporation with the Secretary of State of Maine on July 16, 1997) for
money borrowed by the Corporation or any Restricted Subsidiary (as defined
in the Agreement), which default shall have resulted in such Indebtedness
becoming or being declared payable prior to the date on which it would
otherwise have been due and payable (provided that the aggregate amount of
such Indebtedness subject to acceleration exceeds $5 million), without such
Indebtedness having been discharged, such acceleration having been
rescinded or annulled or there having been deposited in trust a sum of
money sufficient to discharge in full such Indebtedness; or (ii) the
Corporation or any of its Subsidiaries (as defined in the Agreement) fails
to pay any principal or interest when due under any bond, debenture, note
or other evidence of Indebtedness for money borrowed (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument evidencing or governing such Indebtedness,
has expired (provided that the amount of such Indebtedness, and any
interest or premium thereon, exceeds $5 million).
(ii) SPECIAL MEETING. Whenever such right shall vest, it may be
exercised initially by the vote of the holders of a majority of the shares
of the Exchangeable Preferred Stock present and voting, in person or by
proxy, at a special meeting of holders of the Exchangeable Preferred Stock
or at the next annual meeting of stockholders, or by written consent of the
holders of record of a majority of the outstanding shares of the
Exchangeable Preferred Stock without a meeting. Unless such action shall
have been taken by written consent as aforesaid, a special meeting of the
holders of the Exchangeable Preferred Stock for the exercise of such right
shall be called by the Clerk of the Corporation as promptly as possible in
compliance with applicable law and regulations, and in any event within 10
days after receipt of a written request signed
<PAGE>
by the holders of record of at least 25% of the outstanding shares of the
Exchangeable Preferred Stock, subject to any applicable notice requirements
imposed by law or by any national securities exchange on which any
Exchangeable Preferred Stock is listed. Such meeting shall be held at the
earliest practicable date thereafter.
(iii) TERM OF OFFICE OF DIRECTORS. Any director who shall
have been elected by holders of the Exchangeable Preferred Stock shall hold
office for a term expiring (subject to the earlier payment of all dividends
and redemption payments (whether mandatory or optional) in arrears on the
Exchangeable Preferred Stock) at the next annual meeting of stockholders
and during such term may be removed at any time, either for or without
cause, by and only by, the affirmative vote of the holders of record of a
majority of the shares of the Exchangeable Preferred Stock, voting as a
single class, present and voting, in person or by proxy, at a special
meeting of such stockholders called for such purpose, or by written consent
without a meeting of the holders of record of a majority of the outstanding
shares of the Exchangeable Preferred Stock, voting as a single class, and
any vacancy created by such removal may also be filled at such meeting or
by such written consent. A special meeting of the holders of the shares of
the Exchangeable Preferred Stock for the removal of a director elected by
the holders of the Exchangeable Preferred Stock and the filling of the
vacancy created thereby shall be called by the Clerk of the Corporation as
promptly as possible and in any event within 10 days after receipt of
request therefor signed by the holders of not less than 25% of the
outstanding shares of the Exchangeable Preferred Stock taken as a single
class, subject to any applicable notice requirements imposed by law or any
national securities exchange on which any Exchangeable Preferred Stock is
listed. Such meeting shall be held at the earliest practicable date
thereafter.
(iv) VACANCIES. Any vacancy caused by the death or resignation
of a director who shall have been elected in accordance with this
subparagraph (b) may be filled by the remaining director so elected or, if
not so filled, by a vote of holders of one-third of the shares of the
Exchangeable Preferred Stock present and voting as a single class, in
person or by proxy, at a meeting of such holders of Exchangeable Preferred
Stock called for such purpose, or by written consent without a meeting of
the holders of record of a majority of the outstanding shares of the
Exchangeable Preferred Stock as a single class. Unless such vacancy shall
have been filled by the remaining director or by written consent as
aforesaid, such meeting shall be called by the Clerk of the Corporation at
the earliest practicable date after such death or resignation, and in any
event within 10 days after receipt of a written request signed by the
holders of record of at least 25% of the outstanding shares of the
Exchangeable Preferred Stock taken as a single class.
(v) STOCKHOLDERS' RIGHT TO CALL MEETING. If any meeting of the
holders of the Exchangeable Preferred Stock required by this subparagraph
(b) to be called shall not have been called within 10 days after personal
service of a written request therefor
<PAGE>
upon the Clerk of the Corporation or within 15 days after mailing the same
within the United States of America by registered mail addressed to the
Clerk of the Corporation at its principal office, subject to any applicable
notice requirements imposed by law or any national securities exchange on
which any Exchangeable Preferred Stock is listed, then the holders of
record of at least 25% of the outstanding shares of the Exchangeable
Preferred Stock may designate in writing a holder of a share of the
Exchangeable Preferred Stock to call such meeting at the expense of the
Corporation, and such meeting may be called by such Person so designated
upon the notice required for annual meetings of stockholders or such
shorter notice (but in no event shorter than permitted by law or any
national securities exchange on which the Exchangeable Preferred Stock is
listed) as may be acceptable to the holders of a majority of the total
number of shares of the Exchangeable Preferred Stock. Any holder of a
share of the Exchangeable Preferred Stock so designated shall have access
to the stock books of the Corporation relating solely to the Exchangeable
Preferred Stock for the purpose of causing such meeting to be called
pursuant to these provisions.
(vi) QUORUM. At any meeting of the holders of the Exchangeable
Preferred Stock called in accordance with the provisions of this
subparagraph (b) for the election or removal of directors, the presence in
person or by proxy of the holders of one-third of the total number of
shares of the Exchangeable Preferred Stock as a single class shall be
required to constitute a quorum; in the absence of a quorum, a majority of
the holders present in person or by proxy shall have power to adjourn the
meeting from time to time without notice, other than announcement at the
meeting, until a quorum shall be present.
(c) CLASS VOTING RIGHTS. So long as shares of the Exchangeable
Preferred Stock are outstanding, the Corporation shall not, directly or
indirectly or through merger or consolidation with any other person, without the
affirmative vote or consent of the holders of at least a majority of all
outstanding Exchangeable Preferred Stock, voting separately as a class,
(i) amend, alter or repeal (by merger, consolidation or otherwise) any provision
of the Articles of Incorporation or the By-laws of the Corporation, as amended,
or prior to an exchange date, the Indenture (as hereinafter defined) (except for
such amendments which can be made without the consent of the holders of the
debentures pursuant to the terms of the Indenture) so as to affect adversely the
relative rights, preferences, qualifications, limitations or restrictions of the
Exchangeable Preferred Stock or the rights of holders of the debentures (if
issued), (ii) increase the authorized number of shares of the Exchangeable
Preferred Stock, (iii) authorize or issue or increase the authorized amount of
any additional class or series of stock (including any series of Preferred
Stock), or any security convertible into stock of such class or series, ranking
on a parity with or senior to the Exchangeable Preferred Stock as to dividends
or as to rights upon liquidation, dissolution or winding up, or (iv) effect any
reclassification of the Exchangeable Preferred Stock. In connection with any
right to vote pursuant to this Section 6(c), each holder of Exchangeable
Preferred Stock will have one vote for each share held. A class vote on the
part
<PAGE>
of the Exchangeable Preferred Stock shall, without limitation, specifically not
be deemed to be required (except as otherwise required by law or resolution of
the Corporation's Board of Directors) in connection with the authorization,
issuance or increase in the authorized amount of any shares of any other class
or series of stock that ranks junior to the Exchangeable Preferred Stock upon
liquidation, dissolution or winding up of the Corporation; provided that so long
as any of the shares of Exchangeable Preferred Stock are outstanding, the
Corporation may not create any shares of any other class or series of stock that
ranks junior to the Exchangeable Preferred Stock, unless the terms thereof
provide that (A) dividends on such junior class or series of stock are payable
solely in additional shares of such junior class or series of stock if cash
dividends have not been paid on the Exchangeable Preferred Stock on the
immediately preceding dividend payment date, and (B) such junior class or series
of stock shall not be subject to any mandatory redemption or mandatory offer to
purchase requirements prior to the Mandatory Redemption Date.
Section 7. EXCHANGE. The shares of Exchangeable Preferred Stock
are exchangeable at the option only of the Corporation in whole but not in part,
on any January 1, April 1, July 1 or October 1, commencing January 1, 1998, for
the 10.5% Repriced Subordinated Debentures due on the Mandatory Redemption Date
(the "Debentures") of the Corporation, to be issued under an indenture (the
"Indenture") substantially in the form attached hereto as APPENDIX I, between
the Corporation and a corporation organized and doing business under the laws of
the United States or any State thereof or of the District of Columbia (or a
corporation or other person permitted to act as a trustee by the Securities and
Exchange Commission) authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $100,000,000 and
subject to supervision or examination by Federal, State or District of Columbia
authority, as trustee under the Indenture (the "Trustee"), as set forth therein
and with such changes as may be required by law or usage. Holders of the
outstanding shares of Exchangeable Preferred Stock will be entitled to receive
$1,000 principal amount of the Debentures in exchange for each share of
Exchangeable Preferred Stock held by them. On the date of the exchange, the
Corporation shall pay an amount equal to accrued and unpaid dividends, at the
Corporation's option, in cash or in Debentures (at the rate of $1,000 principal
amount for each $1,000 in accrued and unpaid dividends) or in any combination
thereof.
No such exchange of Debentures for shares of Exchangeable Preferred
Stock shall be made unless on or prior to the date on which such exchange is to
be made (i) the Indenture shall have been executed and delivered by the
Corporation and the Trustee and (ii) the Trustee shall have received an opinion
of counsel, dated such exchange date, substantially to the following effect
(together with appropriate assumptions or qualifications), with such changes
therein as such Trustee shall approve:
(1) the Corporation has duly authorized the exercise of its right to
redeem the Exchangeable Preferred Stock in exchange for the Debentures and
has exercised such option; (2) the Corporation has full corporate power and
authority to enter into the Indenture and to perform its obligations under
the Indenture and to issue and deliver the
<PAGE>
Debentures and the shares of Common Stock issuable upon conversion thereof;
(3) the Indenture has been duly authorized, executed and delivered by the
Corporation and is a legal, valid and binding agreement of the Corporation
enforceable against the Corporation in accordance with its terms (subject,
as to enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors' rights generally
from time to time in effect and to general equitable principles); (4) the
Debentures will, when issued in accordance with the terms of the Indenture,
constitute legal, valid and binding obligations of the Corporation
enforceable against the Corporation in accordance with their terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting creditors'
rights generally from time to time in effect and to general equitable
principles) and are entitled to the benefits of the Indenture; (5) the
shares of Common Stock issuable upon conversion of the Debentures have been
reserved for issuance and upon such issuance will be duly issued, fully
paid and non-assessable and free of pre-emptive rights; (6) no consent,
approval, authorization or order of any court or governmental agency or
body is required in connection with the issuance of the Debentures or the
shares issuable upon conversion thereof except such as may be required
under the blue sky laws of any jurisdiction and such other approvals
(specified in such opinion) as have been obtained, and (7) the issuance of
Debentures and the performance by the Corporation of its obligations under
the Indenture (including the issuance of shares of Common Stock upon
conversion of Debentures) will not be in conflict with or constitute a
breach of or a default (with the passage of time or otherwise) under (w)
the Articles of Incorporation or By-laws of the Corporation in effect at
the date of such opinion, (x) the charter or by-laws of any subsidiary of
the Corporation, which conflict, breach or default is material to the
Corporation and its subsidiaries taken as a whole, in effect at the date of
such opinion, (y) any agreement or instrument, known to such counsel and
which is, individually or in the aggregate, material to the Corporation and
its subsidiaries taken as a whole, to which the Corporation or any of its
subsidiaries is a party or by which it or any of its subsidiaries is bound
or (z) any statute, law or regulation known to such counsel and in effect
at the date of such opinion to which the Corporation or any of its
subsidiaries or any of their respective properties may be subject or any
judgment, decree or order, known to such counsel, of any court or
governmental agency or authority then in effect and applicable to the
Corporation or any of its subsidiaries (which conflict, breach or default
is, in the case of this clause (z), individually or in the aggregate,
material to the Corporation and its subsidiaries taken as a whole).
Upon such exchange (unless default shall be made by the Corporation in
issuing Debentures in exchange for the outstanding shares of Exchangeable
Preferred Stock on the exchange date), the rights of the holders of the
Exchangeable Preferred Stock as stockholders of the Corporation shall cease
(except the right to receive on the date of exchange an amount equal to the
amount of accrued and unpaid dividends on the Exchangeable Preferred Stock to
the date of exchange and the Debentures), and the person or persons entitled to
receive the Debentures
<PAGE>
issuable upon such redemption and exchange shall be treated for all purposes as
the registered holder or holders of such Debentures. The Corporation will mail
to each holder of record of Exchangeable Preferred Stock, at such holder's last
address as it shall appear upon the stock transfer books of the Corporation,
written notice of its intention to exchange the Exchangeable Preferred Stock not
less than 20 nor more than 60 days prior to the exchange date. Such notice
shall state: (i) the exchange date, (ii) the place or places where certificates
for such shares are to be surrendered for exchange for Debentures; and (iii)
that dividends on the shares to be exchanged will cease to accrue on such
exchange date. Upon surrender in accordance with said notice of the
certificates for any shares to be exchanged (properly endorsed or assigned for
transfer, if the Corporation shall so require and the notice shall so state),
the Corporation will cause the Debentures to be authenticated and issued in
exchange for such shares of Exchangeable Preferred Stock and to be mailed to the
holder of the shares of Exchangeable Preferred Stock at such holder's address of
record or such other address as the holder shall specify upon such surrender of
such certificates.
If on the exchange date the Corporation shall be in default in the
payment of any dividends (including cumulative dividends, if applicable) on
Exchangeable Preferred Stock, or if there shall not be legally available funds
sufficient therefor, or if such exchange shall on such date be prohibited by
applicable law, then no shares of the Exchangeable Preferred Stock shall be
exchanged.
Section 8. OUTSTANDING SHARES. For purposes of this Resolution,
all shares of Exchangeable Preferred Stock shall be deemed outstanding except
(i) from the date fixed for redemption pursuant to Section 5, all shares of
Exchangeable Preferred Stock that have been so called for redemption under
Section 5 if funds necessary for payment of the redemption price have been
irrevocably deposited in trust, for the account of the holders of the shares so
to be redeemed (so as to be and continue to be available therefor), with a
corporation organized and doing business under the laws of the United States or
any State or territory thereof or of the District of Columbia (or a corporation
or other person permitted to act as a trustee by the Securities and Exchange
Commission) authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $100,000,000 and subject to
supervision or examination by Federal, State or District of Columbia or
territorial authority; and (ii) from the date of registration of transfer, all
shares of Exchangeable Preferred Stock held of record by the Corporation or
any subsidiary of the Corporation.
Section 9. STATUS OF ACQUIRED SHARES. Shares of Exchangeable
Preferred Stock redeemed by the Corporation, received upon exchange pursuant to
Section 7 or converted pursuant to Section 11, or otherwise acquired by the
Corporation, will be restored to the status of authorized and unissued shares of
Preferred Stock, without designation as to series, and may thereafter be issued,
but not as shares of Exchangeable Preferred Stock.
<PAGE>
Section 10. PREEMPTIVE RIGHTS. The Exchangeable Preferred Stock
are not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
Section 11. CONVERSION.
(1) Except as provided in the next succeeding sentence, each share of
the Exchangeable Preferred Stock shall be convertible at any time at the option
of the holder thereof into fully paid and non-assessable shares of Common Stock,
$.01 par value per share, of the Corporation ("Conversion Stock") at the
conversion price, determined as hereinafter provided, in effect at the time of
conversion. Unless default be made in the payment in full of the Redemption
Price and any accrued and unpaid dividends, shares of Exchangeable Preferred
Stock called for redemption shall cease to be convertible into shares of
Conversion Stock at the close of business on the Redemption Date. The price at
which shares of the Conversion Stock shall be delivered upon conversion of
shares of the Exchangeable Preferred Stock (hereinafter the "Conversion Price")
shall be initially $_____ per share. The number of shares of Conversion Stock
issuable upon conversion of a share of Exchangeable Preferred Stock is
determined by dividing the Liquidation Preference of a share of Exchangeable
Preferred Stock by the Conversion Price in effect on the Conversion Date (as
hereinafter defined) and round the result to the nearest 1/100th of a share.
The Conversion Price shall be subject to adjustment as provided below. Upon
conversion any accrued and unpaid dividends on the Exchangeable Preferred Stock
shall be paid to the holder thereof, at the option of the Corporation, either
(i) in freely tradeable shares of Conversion Stock at the Conversion Price, or
(ii) in cash. If a holder converts more than one share at the same time, the
number of full shares issuable upon the conversion shall be based upon the total
number of shares converted.
(2) In order to convert shares of the Exchangeable Preferred Stock
into shares of Conversion Stock, the holder thereof shall surrender at the
office of any transfer agent for the Exchangeable Preferred Stock (or in the
absence of any transfer agent, the Corporation) the certificate or certificates
therefor, duly endorsed to the Corporation or in blank, and give written notice
to the Corporation at said office that he or she elects to convert such shares.
Shares of the Exchangeable Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the date of surrender of
such shares for conversion in accordance with the foregoing provisions
(hereinafter the "Conversion Date"), and the person or persons entitled to
receive shares of the Conversion Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of the
Conversion Stock at such time. As promptly as practicable after the Conversion
Date, the Corporation shall issue and deliver at said office the certificate or
certificates for the number of full shares of the Conversion Stock issuable upon
such conversion, together with a cash payment in lieu of any fraction of a share
of Conversion Stock, as hereinafter provided, to the person or persons entitled
to receive the same or to the nominee or nominees of such person or persons.
(3) The Conversion Price shall be subject to adjustment as follows:
<PAGE>
(a) In case the Corporation shall (i) pay a dividend in shares of
either class of Common Stock to all holders of such class, (ii) make a
distribution in shares of either class of Common Stock to all holders of such
class, (iii) subdivide its outstanding Common Stock into a greater number of
shares, or (iv) combine its outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior thereto shall be
adjusted so that the holder of any shares of Exchangeable Preferred Stock
thereafter surrendered for conversion shall be entitled to receive that number
of shares of Conversion Stock representing the percentage of all outstanding
Common Stock which he or she would have owned had such Exchangeable Preferred
Stock been converted immediately prior to the happening of such event. An
adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend in shares or
distribution and shall become effective immediately after the effective date in
the case of subdivision or combination.
(b) In case the Corporation shall issue rights or warrants to all or
substantially all holders of its either class of Common Stock entitling them
(for a period commencing no earlier than the record date described below and
expiring not more than 60 days after such record date) to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock) at
a price per share less than the current market price per share of Common Stock
(as determined in accordance with subsection (e) below) at the record date for
the determination of shareholders entitled to receive such rights or warrants,
the Conversion Price in effect immediately prior thereto shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to such record date by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding on such
record date, plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate Conversion
Price of the convertible securities so offered) would purchase at such current
market price, and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered (or into which the convertible securities so
offered are convertible). Such adjustment shall be made successively whenever
any such rights or warrants are issued, and shall become effective immediately
after such record date. If at the end of the period during which such rights or
warrants are exercisable not all rights or warrants shall have been exercised,
the adjusted Conversion Price shall be immediately readjusted to what it would
have been based upon the number of additional shares of Common Stock actually
issued (or the number of shares of Common Stock issuable upon conversion of
convertible securities actually issued).
(c) In case the Corporation shall distribute to all or substantially
all holders of any class of Common Stock any shares of capital stock of the
Corporation (other than Common Stock), evidences of indebtedness or other
non-cash assets (including securities of any company other than the
Corporation), or shall distribute to all or substantially all holders of any
class of Common Stock rights or warrants to subscribe for or purchase any of its
securities (excluding
<PAGE>
those referred to in subsection (b) above), then in each such case the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of such distribution by a fraction of which the numerator shall be the
current market price per share (as defined in subsection (e) below) of the
Conversion Stock on the record date mentioned below less the fair market value
on such record date (as determined by the Board of Directors of the Corporation,
whose determination shall be conclusive evidence of such fair market value) of
the portion of the capital stock or assets or evidences of indebtedness so
distributed or of such rights or warrants applicable to one share of Common
Stock (determined on the basis of the number of shares of Common Stock
outstanding on the record date), and of which the denominator shall be the
current market price per share (as defined in subsection (e) below) of the
Conversion Stock on such record date. Such adjustment shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such distribution. Notwithstanding the foregoing, in the event that
the Corporation shall distribute rights or warrants (other than those referred
to in subsection (b) above) ("Rights") pro rata to holders of any class of
Common Stock, the Corporation may, in lieu of making any adjustment pursuant to
this Section 11, make proper provision so that each holder of Exchangeable
Preferred Stock who converts such Stock (or any portion thereof) after the
record date for such distribution and prior to the expiration or redemption of
the Rights shall be entitled to receive upon such conversion, in addition to the
shares of Conversion Stock issuable upon such conversion (the "Conversion
Shares"), a number of Rights to be determined as follows: (i) if such conversion
occurs on or prior to the date for the distribution to the holders of Rights of
separate certificates evidencing such Rights (the "Distribution Date"), the same
number of Rights to which a holder of a number of shares of Common Stock equal
to the number of Conversion Shares is entitled at the time of such conversion in
accordance with the terms and provisions of and applicable to the Rights and
(ii) if such conversion occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares of Common Stock into which the
principal amount of the Security so converted was convertible immediately prior
to the Distribution Date would have been entitled on the Distribution Date in
accordance with the terms and provisions of and applicable to the Rights.
(d) In case the Corporation shall, by dividend or otherwise, at any
time distribute (a "Triggering Distribution") to all or substantially all
holders of any class of Common Stock cash in an aggregate amount that, together
with the aggregate amount of any other cash distributions to all or
substantially all holders of any class of Common Stock made within the 12 months
preceding the date of payment of the Triggering Distribution and in respect of
which no Conversion Price adjustment pursuant to this Section 11 has been made,
exceeds 10% of the product of the current market price per share of Conversion
Stock (determined in accordance with subsection (e) below) on the Business Day
(the "Determination Date") immediately preceding the day on which such
Triggering Distribution is declared by the Corporation multiplied by the number
of shares of Common Stock outstanding on such date (excluding shares held in the
treasury of the Corporation), the Conversion Price shall be reduced so that the
same shall equal the price determined by multiplying such Conversion Price in
effect immediately prior to the
<PAGE>
Determination Date by a fraction of which the numerator shall be the current
market price per share of the Conversion Stock (as determined in accordance with
subsection (e) below) on the Determination Date less the amount of cash so
distributed within such 12 months (including, without limitation, the Triggering
Distribution) applicable to one share of Common Stock (determined on the basis
of the number of shares of Common Stock outstanding on the Determination Date)
and the denominator shall be such current market price per share of the
Conversion Stock (as determined in accordance with subsection (e) below) on the
Determination Date, such reduction to become effective immediately prior to the
opening of business on the day following the date on which the Triggering
Distribution is paid.
(e) For the purpose of any computation under subsections (b), (c) and
(d) of this Section 11(3), the current market price per share of Conversion
Stock on any date shall be deemed to be the average of the daily closing prices
for the 30 consecutive trading days commencing 45 trading days before (i) the
Determination Date with respect to distributions under subsection (d) above or
(ii) the record date with respect to distributions, issuances or other events
requiring such computation under subsection (b) or (c) above. The closing price
for each day shall be the last reported sales price or, in case no such reported
sale takes place on such date, if the Conversion Stock is not listed or admitted
to trading on the New York Stock Exchange ("NYSE"), on the principal national
securities exchange on which the Conversion Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, the closing sales price of the Conversion Stock as quoted by NASDAQ
or, in case no reported sales takes place, the average of the closing bid and
asked prices as quoted by NASDAQ or any comparable system or, if the Conversion
Stock is not quoted on NASDAQ or any comparable system, the closing sales price
or, in case no reported sale takes place, the average of the closing bid and
asked prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose. If no such prices are available, the current market price per share
shall be the fair value of a share of Conversion Stock as determined by the
Board of Directors of the Corporation.
(f) In any case in which this Section 11 shall require that an
adjustment be made following a record date or a Determination Date, as the case
may be, established for purposes of this Section 11, the Corporation may elect
to defer (but only until five Business Days following the mailing by the
Corporation to the holders of the Notice of Adjustment described in subsection
(i) below) issuing to the holder of any Exchangeable Preferred Stock converted
after such record date or Determination Date the shares of Conversion Stock and
other capital stock of the Corporation issuable upon such conversion over and
above the shares of Conversion Stock and other capital stock of the Corporation
issuable upon such conversion only on the basis of the Conversion Price prior to
adjustment; and, in lieu of the shares the issuance of which is so deferred, the
Corporation shall issue or cause its transfer agents to issue due bills or other
appropriate evidence prepared by the Corporation of the right to receive such
shares. If any distribution in respect of which an adjustment to the Conversion
Price is required to be made as of the record date, effective date or
Determination Date therefor is not thereafter made or paid by
<PAGE>
the Corporation for any reason, the Conversion Price shall be readjusted to the
Conversion Price which would then be in effect if such record date had not been
fixed or such effective date or Determination Date had not occurred.
(g) NO ADJUSTMENT. No adjustment in the Conversion Price shall be
required unless the adjustment would require an increase or decrease of at least
1% in the Conversion Price as last adjusted; provided, however, that any
adjustments which by reason of this subsection (g) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
No adjustment need be made for a transaction referred to in (a), (b),
(c) or (d) above if all holders of Exchangeable Preferred Stock are entitled to
participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction. The
Corporation shall give 30 days prior notice to the transfer agent and to the
holders of the Exchangeable Preferred Stock of any such determination.
No adjustment need be made for rights to purchase Common Stock or
issuances of Common Stock pursuant to a Corporation plan for reinvestment of
dividends or interest.
No adjustment need be made for a change in the par value or a change
to no par value of the Common Stock.
To the extent that the Exchangeable Preferred Stock becomes convertible
into the right to receive cash, no adjustment need be made thereafter as to the
cash. Interest will not accrue on the cash.
(h) ADJUSTMENT FOR TAX PURPOSES. The Corporation shall be entitled
to make such reductions in the Conversion Price, in addition to those required
other provisions of this Section 11, as it in its discretion shall determine to
be advisable in order that any stock dividends, subdivisions of shares,
distributions of rights to purchase stock or securities or distributions of
securities convertible into or exchangeable for stock hereafter made by the
Corporation to its shareholders shall not be taxable; provided that no such
reduction shall give rise to a right of the Corporation to optionally redeem the
Exchangeable Preferred Stock pursuant to Section 5.
(i) NOTICE OF ADJUSTMENT. Whenever the Conversion Price is adjusted,
the Corporation shall promptly mail to holders of the Exchangeable Preferred
Stock and to the transfer agent a notice of the adjustment briefly stating the
facts requiring the adjustment and the manner of computing it. The certificate
shall be conclusive evidence of the correctness of such adjustment.
<PAGE>
(j) NOTICE OF CERTAIN TRANSACTIONS.
In the event that:
(1) the Corporation takes any action which would require an
adjustment in the Conversion Price;
(2) the Corporation consolidates or merges with, or transfers all or
substantially all of its assets to, another corporation and
shareholders of the Corporation must approve the transaction; or
(3) there is a dissolution or liquidation of the Corporation,
the Corporation shall mail to holders of the Exchangeable Preferred Stock and to
the transfer agent a notice stating the proposed record or effective date, as
the case may be. The Corporation shall mail the notice at least ten days before
such date. Failure to mail such notice or any defect therein shall not affect
the validity of any transaction referred to in clause (1), (2) or (3) of this
Section 11(3)(j).
(k) EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE ON
CONVERSION PRIVILEGE.
If any of the following shall occur, namely: (a) any reclassification
or change of shares of Conversion Stock issuable upon conversion of the
Exchangeable Preferred Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination, or any other change for which an adjustment is
provided in (a), (b) or (c) above); (b) any consolidation or merger to which the
Corporation is a party other than a merger in which the Corporation is the
continuing corporation and which does not result in any reclassification of, or
change (other than a change in name, or in par value, or from par value to no
par value, or from no par value to par value, or as a result of a subdivision or
combination) in, outstanding shares of Common Stock; or (c) any sale or
conveyance of all or substantially all of the assets of the Corporation as an
entirety, then the Corporation, or such successor or purchasing corporation, as
the case may be, shall, as a condition precedent to such reclassification,
change, consolidation, merger, sale or conveyance, ensure that effective
provision be made in the certificate of incorporation of the resulting or
surviving corporation or otherwise that each holder of Exchangeable Preferred
Stock then outstanding shall have the right to convert such Exchangeable
Preferred Stock into the kind and amount of shares of stock and other securities
and property (including cash) receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Conversion Stock deliverable upon conversion of such Exchangeable Preferred
Stock immediately prior to such reclassification, change, consolidation, merger,
sale or conveyance, and that the Conversion Price shall continue to be subject
to adjustment which shall be as nearly equivalent as may be
<PAGE>
practicable to the adjustments of the Conversion Price provided for in this
Section 11. If in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including cash)
receivable thereupon by a holder of Conversion Stock include shares of stock or
other securities and property of a corporation other than the successor or
purchasing corporation, as the case may be, in such consolidation, merger, sale
or conveyance, then effective provision shall also be made in the certificate of
incorporation of such other corporation or otherwise of such additional
antidilution provisions as are necessary to protect the interests of the
holders of the Exchangeable Preferred Stock by reason of the foregoing.
The provisions of this Section 11(3)(k) shall similarly apply to successive
consolidations, mergers, sales or conveyances.
Section 12. REPORTS. So long as the Exchangeable Preferred Stock
remains outstanding, the Corporation shall cause its annual reports to
stockholders and any quarterly or other financial reports and information
furnished by it to stockholders pursuant to the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to be mailed to the
holders of the Exchangeable Preferred Stock (contemporaneously with the mailing
of such materials to the Corporation's stockholders) at their addresses
appearing on the books of the Corporation. If the Corporation is not required to
furnish annual or quarterly reports to its stockholders pursuant to the Exchange
Act, it shall cause its financial statements, including any notes thereto (and
with respect to annual reports, an auditors' report by a nationally recognized
firm of independent certified public accountants), a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and such other
information which the Corporation would otherwise be required to include in
annual and quarterly reports filed under the Exchange Act, to be mailed to the
holders of the Exchangeable Preferred Stock, within 120 days after the end of
each of the Corporation's fiscal years and within 60 days after the end of each
of its first three fiscal quarters.
Section 13. ADDITIONAL AND SUPPLEMENTARY RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS. In addition to the matters contained herein, the
Exchangeable Preferred Stock shall have such additional or supplementary rights,
and be subject to such additional or supplementary qualifications, limitations
and restrictions as are set forth in the Agreement and made expressly applicable
to the Exchangeable Preferred Stock.
Section 14. SEVERABILITY OF PROVISIONS. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
<PAGE>
Exhibit 4.3
AMERICAN SKIING COMPANY
10 1/2% Repriced Convertible Subordinated Debentures
due *
______________________________________
INDENTURE
Dated as of [date of issuance]
______________________________________
_______________
Trustee
______________________________________
_________________
* 5 years after date of issuance of 10 1/2% Repriced Convertible Preferred
Stock.
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . .1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . .4
Section 1.3 Trust Indenture Act Provisions. . . . . . . . . . . . . .5
Section 1.4 Rules of Construction . . . . . . . . . . . . . . . . . .5
ARTICLE II THE SECURITIES. . . . . . . . . . . . . . . . . . . . . . . .6
Section 2.1 Form and Dating . . . . . . . . . . . . . . . . . . . . .6
Section 2.2 Execution and Authentication. . . . . . . . . . . . . . .6
Section 2.3 Registrar, Paying Agent and Conversion Agent. . . . . . .7
Section 2.4 Paying Agent to Hold Money In Trust . . . . . . . . . . .7
Section 2.5 Securityholder Lists. . . . . . . . . . . . . . . . . . .8
Section 2.6 Transfer and Exchange . . . . . . . . . . . . . . . . . .8
Section 2.7 Replacement Securities. . . . . . . . . . . . . . . . . .9
Section 2.8 Outstanding Securities. . . . . . . . . . . . . . . . . .9
Section 2.9 Treasury Securities . . . . . . . . . . . . . . . . . . .10
Section 2.10 Temporary Securities . . . . . . . . . . . . . . . . . .10
Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE III REDEMPTION AND PURCHASES . . . . . . . . . . . . . . . . . .11
Section 3.1 Right to Redeem; Notice to Trustee. . . . . . . . . . . .11
Section 3.2 Selection of Securities to Be Redeemed. . . . . . . . . .11
Section 3.3 Notice of Redemption. . . . . . . . . . . . . . . . . . .11
Section 3.4 Effect of Notice of Redemption. . . . . . . . . . . . . .12
Section 3.5 Deposit of Redemption Price . . . . . . . . . . . . . . .12
Section 3.6 Securities Redeemed in Part . . . . . . . . . . . . . . .13
Section 3.7 Conversion Arrangement on Call for Redemption . . . . . .13
ARTICLE IV CONVERSION. . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 4.1 Conversion Privilege. . . . . . . . . . . . . . . . . . .14
Section 4.2 Conversion Procedure. . . . . . . . . . . . . . . . . . .14
Section 4.3 Fractional Shares . . . . . . . . . . . . . . . . . . . .15
Section 4.4 Taxes on Conversion . . . . . . . . . . . . . . . . . . .15
Section 4.5 Company to Provide Stock. . . . . . . . . . . . . . . . .15
Section 4.6 Adjustment of Conversion Price. . . . . . . . . . . . . .16
Section 4.7 No Adjustment . . . . . . . . . . . . . . . . . . . . . .19
Section 4.8 Adjustment for Tax Purposes . . . . . . . . . . . . . . .19
Section 4.9 Notice of Adjustment. . . . . . . . . . . . . . . . . . .19
Section 4.10 Notice of Certain Transactions . . . . . . . . . . . . .20
i
<PAGE>
Section 4.11 Effect of Reclassification, Consolidation,
Merger or Sale on Conversion Privilege. . . . . . 20
Section 4.12 Trustee's Disclaimer. . . . . . . . . . . . . . . . . . 21
ARTICLE V SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.1 Securities Subordinated to Senior Indebtedness . . . . . 21
Section 5.2 Securities Subordinated to Prior Payment of
All Senior Indebtedness on Dissolution,
Liquidation, Reorganization, Etc., of the
Company . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Securityholders to Be Subrogated to Right of
Holders of Senior Indebtedness. . . . . . . . . . 23
Section 5.4 Obligations of the Company Unconditional . . . . . . . . 24
Section 5.5 Company Not to Make Payment With Respect to
Securities in Certain Circumstances . . . . . . . 24
Section 5.6 Notice to Trustee. . . . . . . . . . . . . . . . . . . . 25
Section 5.7 Application by Trustee of Monies Deposited
With It . . . . . . . . . . . . . . . . . . . . . 26
Section 5.8 Subordination Rights Not Impaired by Acts or
Omissions of Company or Holders of Senior
Indebtedness. . . . . . . . . . . . . . . . . . . 26
Section 5.9 Trustee to Effectuate Subordination. . . . . . . . . . . 27
Section 5.10 Right of Trustee to Hold Senior Indebtedness. . . . . . 27
Section 5.11 Article 5 Not to Prevent Events of Default. . . . . . . 27
Section 5.12 No Fiduciary Duty Created to Holders of
Senior Indebtedness . . . . . . . . . . . . . . . 27
Section 5.13 Article Applicable to Paying Agents . . . . . . . . . . 27
ARTICLE VI COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.1 Payment of Securities. . . . . . . . . . . . . . . . . . 27
Section 6.2 SEC Reports. . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.3 Liquidation. . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.4 Compliance Certificates. . . . . . . . . . . . . . . . . 29
Section 6.5 Notice of Defaults . . . . . . . . . . . . . . . . . . . 29
Section 6.6 Further Instruments and Acts . . . . . . . . . . . . . . 29
ARTICLE VII SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . 30
Section 7.1 When Company May Merge, Etc. . . . . . . . . . . . . . . 30
Section 7.2 Successor Corporation Substituted. . . . . . . . . . . . 30
ARTICLE VIII DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . 31
Section 8.1 Events of Default. . . . . . . . . . . . . . . . . . . . 31
Section 8.2 Acceleration . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.3 Other Remedies . . . . . . . . . . . . . . . . . . . . . 33
Section 8.4 Waiver of Defaults and Events of Default . . . . . . . . 33
Section 8.5 Control by Majority. . . . . . . . . . . . . . . . . . . 34
Section 8.6 Limitations on Suits . . . . . . . . . . . . . . . . . . 34
Section 8.7 Rights of Holders to Receive Payment . . . . . . . . . . 34
ii
<PAGE>
Section 8.8 Collection Suit by Trustee . . . . . . . . . . . . . . . 35
Section 8.9 Trustee May File Proofs of Claim . . . . . . . . . . . . 35
Section 8.10 Priorities. . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.11 Undertaking for Costs . . . . . . . . . . . . . . . . . 36
Section 8.12 Waiver of Usury, Stay or Extension Laws . . . . . . . . 36
ARTICLE IX TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.1 Duties of Trustee. . . . . . . . . . . . . . . . . . . . 36
Section 9.2 Rights of Trustee. . . . . . . . . . . . . . . . . . . . 37
Section 9.3 Individual Rights of Trustee . . . . . . . . . . . . . . 38
Section 9.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 38
Section 9.5 Notice of Default or Events of Default . . . . . . . . . 38
Section 9.6 Reports by Trustee to Holders. . . . . . . . . . . . . . 38
Section 9.7 Compensation and Indemnity . . . . . . . . . . . . . . . 39
Section 9.8 Replacement of Trustee . . . . . . . . . . . . . . . . . 39
Section 9.9 Successor Trustee by Merger, Etc.. . . . . . . . . . . . 40
Section 9.10 Eligibility; Disqualification . . . . . . . . . . . . . 40
Section 9.11 Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 10. SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . . . . 41
Section 10.1 Termination of Company's Obligations. . . . . . . . . . 41
Section 10.2 Application of Trust Money. . . . . . . . . . . . . . . 42
Section 10.3 Repayment to Company. . . . . . . . . . . . . . . . . . 42
Section 10.4 Reinstatement . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XI AMENDMENTS, SUPPLEMENTS AND WAIVERS. . . . . . . . . . . . . 43
Section 11.1 Without Consent of Holders. . . . . . . . . . . . . . . 43
Section 11.2 With Consent of Holders . . . . . . . . . . . . . . . . 43
Section 11.3 Compliance With Trust Indenture Act . . . . . . . . . . 44
Section 11.4 Revocation and Effect of Consents . . . . . . . . . . . 44
Section 11.5 Notation on or Exchange of Securities . . . . . . . . . 44
Section 11.6 Trustee to Sign Amendments, etc.. . . . . . . . . . . . 45
ARTICLE XII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 45
Section 12.1 Trust Indenture Act Controls. . . . . . . . . . . . . . 45
Section 12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 12.3 Communications by Holders With Other
Holders . . . . . . . . . . . . . . . . . . . . . 46
Section 12.4 Certificate and opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . . 46
Section 12.5 Record Date for Vote or Consent of
Securityholders . . . . . . . . . . . . . . . . . 47
Section 12.6 Rules by Trustee, Paying Agent, Registrar,
Conversion Agent. . . . . . . . . . . . . . . . . 47
Section 12.7 Legal Holidays. . . . . . . . . . . . . . . . . . . . . 47
Section 12.8 Governing Law . . . . . . . . . . . . . . . . . . . . . 47
Section 12.9 No Adverse Interpretation of Other Agreements . . . . . 47
Section 12.10 No Recourse Against Others . . . . . . . . . . . . . . 47
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Section 12.11 Successors . . . . . . . . . . . . . . . . . . . . . . 48
Section 12.12 Multiple Counterparts. . . . . . . . . . . . . . . . . 48
Section 12.13 Separability . . . . . . . . . . . . . . . . . . . . . 48
Section 12.14 Table of Contents, Headings, etc.. . . . . . . . . . . 48
Exhibit A-1 Form of Face of Security
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CROSS-REFERENCE TABLE*
Indenture
TIA Section Section
- ----------- ---------
__________________
* This Cross-Reference Table shall not, for any purpose, be deemed a part of
this Indenture.
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INDENTURE dated as of _____________* between American Skiing Company,
a Maine corporation (the "Company"), and ______________**, a banking
corporation duly organized and existing under the laws of the state of New York,
as Trustee (the "Trustee").
Both parties agree as follows for the benefit of the other and for the
equal and ratable benefit of the registered holders of the Company's 10 1/2%
Convertible Subordinated Debentures due ______***.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 DEFINITIONS.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Adjusted IPO Price" means the IPO Price as adjusted for the events
specified in Section 4.6(a).
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors.
"Business Day" means a day that is not a Legal Holiday.
"Capitalized Lease Obligation" means indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles;
the amount of such indebtedness shall be the capitalized amount of such
obligations determined in accordance with such principles.
"Cash" or "cash" means such coin or currency of the United States as
at any time of payment is legal tender for the payment of public and private
debts.
"Certificated Securities" means Securities that are in the form of the
Securities attached hereto as Exhibit A-1.
_______________
* Date of Issuance.
** Insert name of trustee.
*** Five years from date of Issuance of the 10 1/2% Repriced Convertible
Preferred Stock.
<PAGE>
"Common Stock" means the common stock, $.01 par value per share, of
the Company, as such Common Stock as it exists on the date of this Indenture or
as it may be constituted from time to time.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means the
successor.
"Conversion Price" has the meaning ascribed to such term in Section
4.1.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at the date of the execution of this Indenture is located at
____________________________________________,
____________________________________________ or at any other time at such other
address as the Trustee may designate from time to time by notice to the Company.
"Default" or "default" means any event which is, or after notice or
passage of time, or both, would be an Event of Default.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time
to time pursuant to the terms of this Indenture.
"Officer" means the Chairman or any Co-Chairman of the Board, any Vice
Chairman of the Board, the President, any Vice President, the Chief Financial
Officer, the Secretary or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers;
provided, however, that for purposes of Section 6.4, "Officers' Certificate"
means a certificate signed by the principal executive officer, principal
financial officer or principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of or counsel to the Company or the Trustee.
"Person" or "person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock company,
trust, or any other entity or organization, including a government or political
subdivision or instrumentality thereof.
"Principal" or "principal" of a debt security, including the
Securities, means the principal of the security plus, when appropriate, the
premium, if any, on the security.
"Redemption Date" or "redemption date," when used with respect to any
Security to be redeemed, means the date fixed for such redemption pursuant to
this Indenture.
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"Redemption Price" or "redemption price," when used with respect to
any Security to be redeemed, means the price fixed for such redemption pursuant
to this Indenture, as set forth in the form of Security annexed as Exhibit A-1
hereto.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities" means the 10 1/2% Convertible Subordinated Debentures due
_______* or any of them (each, a "Security"), as amended or supplemented from
time to time, that are issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the following: (a) the principal of and
premium, if any, and interest (including, without limitation, any interest
accruing subsequent to the filing of a petition or other action concerning
bankruptcy or other similar proceedings, whether or not constituting an allowed
claim in any such proceedings) on, and fees, costs, enforcement expenses
(including legal fees and disbursements), collateral protection expenses and
other reimbursement or indemnity obligations in respect of, the following,
whether presently outstanding or hereafter incurred or created: all indebtedness
or obligations of the Company to any person, including, but not limited to,
banks and other lending institutions, for money borrowed (other than that
evidenced by the Securities) or in respect of credit or other banking facilities
and which is evidenced by a note, bond, debenture, loan agreement, a lease
intended as security or similar instrument or agreement (including purchase
money obligations with an original maturity in excess of one year and
noncontingent obligations to reimburse any bank or other person in respect of
amounts paid under letters of credit); (b) commitment or standby fees due and
payable to lending institutions with respect to credit facilities available to
the Company; (c) all noncontingent obligations of the Company (i) for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (ii) under interest rate swaps, caps, collars,
options and similar arrangements, and (iii) under any foreign exchange contract,
currency swap agreement, futures contract, currency option contract, or other
foreign currency hedge; (d) all obligations of the Company for the payment of
money relating to a Capitalized Lease Obligation; (e) any liabilities of others
described in the preceding clauses (a), (b), (c) and (d) which the Company has
guaranteed or which are otherwise its legal liability; and (f) renewals,
extensions, refundings, restructurings, amendments and modifications of any such
indebtedness or guarantee. Notwithstanding anything to the contrary in this
Indenture or the Securities, "Senior Indebtedness" shall not include (x) any
particular indebtedness, lease, fee, obligation, renewal, extension, refunding,
restructuring, amendment or modification if, under the express provisions of the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, such indebtedness, lease, fee, obligation, renewal, extension,
refunding, restructuring, amendment or modification thereof is stated to be not
superior in right of payment to the Securities, (y) indebtedness of the Company
(i) owing, directly or indirectly, to any person under or in respect of any
employee benefit plan of the Company, or (ii) owing, directly or
_______________
* Insert date five years from date of Issuance of the 10 1/2% Repriced
Convertible Preferred Stock.
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indirectly, to any employee of the Company or any Affiliate of the Company, and
(z) the Securities.
"Subsidiary" means any corporation of which at least a majority of the
outstanding capital stock having voting power under ordinary circumstances to
elect directors of such corporation shall at the time be held, directly or
indirectly, by the Company, by the Company and one or more Subsidiaries, or by
one or more Subsidiaries.
"TIA" means the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 and as in effect on the date of this Indenture,
except as provided in Section 11.3, and except to the extent any amendment to
the Trust Indenture Act expressly provides for application of the Trust
Indenture Act as in effect on another date.
"Trading Day" means, with respect to any security, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not generally traded on the exchange or market in which such security is
traded.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture, and
thereafter means the successor.
"Trust Officer" means, with respect to the Trustee, any officer
assigned to the Corporate Trust office, including any managing director, vice
president, assistant vice president, assistant treasurer, assistant secretary or
any other officer of the Trustee customarily performing functions similar to
those performed by any of the above-designated officers and having direct
responsibility for the administration of this Indenture, and also, with respect
to a particular matter, any other officer, to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
Section 1.2 Other Definitions.
-----------------
Term Defined in Section
---- ------------------
"Agent Members" 2.1
"Bankruptcy Law" 8.1
"Company Order" 2.2
"Conversion Agent" 2.3
"Conversion Date" 4.2
"Conversion Price" 4.6
"Conversion Shares" 4.6
"Custodian" 8.1
"DTC" 2.1
"Default Notice" 5.5
"Depositary" 2.1
"Determination Date" 4.6
"Distribution Date" 4.6
4
<PAGE>
"Event of Default" 8.1
"Exchange Act" 3.8
"Legal Holiday" 12.7
"Paying Agent" 2.3
"Registrar" 2.3
"Rights" 4.6
"Transfer Restricted Security" 2.12
"Triggering Distribution" 4.6
"Unissued Shares" 3.8
"U.S. Government Obligations" 10.1
Section 1.3 TRUST INDENTURE ACT PROVISIONS.
Whenever this Indenture refers to a provision of the TIA, that
provision is incorporated by reference in and made a part of this Indenture.
The Indenture shall also include those provisions of the TIA required to be
included herein by the provisions of the Trust Indenture Reform Act of 1990.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company or any
other obligor on the Securities.
All other terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
Section 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally
accepted accounting principles in effect on the date
hereof, and any other reference in this Indenture to
"generally accepted accounting principles" refers to
generally accepted accounting principles in effect on
the date hereof;
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(3) words in the singular include the plural, and words in
the plural include the singular;
(4) provisions apply to successive events and transactions;
and
(5) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE SECURITIES
Section 2.1 FORM AND DATING.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A-1, which is incorporated in and made
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company shall
approve, with the consent of the Trustee, the form of the Securities and any
notation, legend or endorsement thereon. Each Security shall be dated the date
of its authentication.
Section 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
Typographic and other minor errors or defects in any such reproduction of the
seal or any such signature shall not affect the validity or enforceability of
any Security which has been authenticated and delivered by the Trustee.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate and make available for delivery
Securities for original issue in the aggregate principal amount of up to
$____________ upon a written order or orders of the Company signed by two
officers of the Company (a "Company Order"). The Company Order shall specify
the amount of Securities to be authenticated and the date on which the original
issue of Securities is to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $___________, except as
provided above and in Section 2.7.
The Trustee shall act as the initial authenticating agent.
Thereafter, the Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An
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<PAGE>
authenticating agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the "Registrar"), an
office or agency where Securities may be presented for payment (the "Paying
Agent"), an office or agency where Securities may be presented for conversion
(the "Conversion Agent") and an office or agency where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
The Registrar shall keep a register of the Securities and of their transfer and
exchange.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any Agent not a party to this
Indenture. If the Company fails to maintain a Registrar, Paying Agent,
Conversion Agent or agent for service of notices and demands, or fails to give
the foregoing notice, the Trustee shall act as such. The Company or any
Affiliate of the Company may act as Paying Agent (except for the purposes of
Section 6.1 and Article 10), Registrar or Conversion Agent.
The Company initially appoints the Trustee as Registrar, Paying Agent,
Conversion Agent and agent for service of notices and demands in connection with
the Securities.
Section 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to each due date of the principal of or interest on any
Securities, the Company shall deposit with the Paying Agent a sum sufficient to
pay such principal or interest so becoming due. Subject to Section 5.7, the
Paying Agent shall hold in trust for the benefit of Securityholders or the
Trustee all money held by the Paying Agent for the payment of principal of or
interest on the Securities, and shall notify the Trustee of any default by the
Company (or any other obligor on the Securities) in making any such payment. If
the Company or an Affiliate of the Company acts as Paying Agent, it shall, on or
before each due date of the principal of or interest on any Securities,
segregate the money and hold it as a separate trust fund. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
the Trustee may at any time during the continuance of any default, upon written
request to a Paying Agent, require such Paying Agent to forthwith pay to the
Trustee all sums so held in trust by such Paying Agent. Upon doing so, the
Paying Agent (other than the Company) shall have no further liability for the
money.
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Section 2.5 SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee on or before each semiannual interest payment date and at such
other times as the Trustee may request in writing a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
Securityholders.
Section 2.6 TRANSFER AND EXCHANGE.
(a) When a Security is presented to the Registrar with a request to
register a transfer thereof or to exchange such Security for an equal principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested; provided, however, that
every Security presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Registrar duly executed by the Holder thereof or his or
her attorney duly authorized in writing. To permit registration of transfers
and exchanges, upon surrender of any Security for registration of transfer or
exchange at the office or agency maintained pursuant to Section 2.3, the Company
shall execute and the Trustee shall authenticate Securities of a like aggregate
principal amount at the Registrar's request. Any exchange or transfer shall be
without charge, except that the Company or the Registrar may require payment of
a sum sufficient to cover any tax, assessment or other governmental charge that
may be imposed in relation thereto, and provided further that this sentence
shall not apply to any exchange pursuant to Section 2.10, 3.6, 3.11, 4.2 (last
paragraph) or 11.5.
Neither the Company, the Registrar nor the Trustee shall be required
to exchange or register a transfer of (a) any Securities for a period of 15 days
next preceding any selection of Securities to be redeemed, or (b) any Securities
or portions thereof selected or called for redemption (except, in the case of
redemption of a Security in part, the portion not to be redeemed).
All Securities issued upon any transfer or exchange of Securities
shall be valid obligations of the Company, evidencing the same debt and entitled
to the same benefits under this Indenture as the Securities surrendered upon
such transfer or exchange.
(b) Successive registrations and registrations of transfers and
exchanges as aforesaid may be made from time to time as desired, and each such
registration shall be noted on the register for the Securities.
(c) Any Registrar appointed pursuant to Section 2.3 hereof shall
provide to the Trustee such information as the Trustee may reasonably require in
connection with the delivery by such Registrar of Securities upon transfer or
exchange of Securities.
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(d) No Registrar shall be required to make registrations of transfer
or exchange of Securities during any periods designated in the text of the
Securities or in this Indenture as periods during which such registration of
transfers and exchanges need not be made.
Section 2.7 REPLACEMENT SECURITIES.
If any mutilated Security is surrendered to the Company, the Registrar
or the Trustee, or the Company, the Registrar and the Trustee receive evidence
to their satisfaction of the destruction, loss or theft of any Security, and
there is delivered to the Company, the Registrar and the Trustee such Security
or indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Company, the Registrar or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute,
and upon its written request the Trustee shall authenticate and deliver, in
exchange for any such mutilated Security or in lieu of any such destroyed, lost
or stolen Security, a new Security of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be redeemed or
purchased by the Company pursuant to Article 3, the Company in its discretion
may, instead of issuing a new Security, pay, redeem or purchase such Security,
as the case may be.
Upon the issuance of any new Securities under this Section 2.7, the
Company may require the payment of a sum sufficient to cover any tax, assessment
or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee or the Registrar)
in connection therewith.
Every new Security issued pursuant to this Section 2.7 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section 2.7 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 2.8 OUTSTANDING SECURITIES.
Securities outstanding at any time are all Securities authenticated by
the Trustee, except for those canceled by it, those delivered to it for
cancellation and those described in this Section 2.8 as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Company receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
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If the Paying Agent (other than the Company) holds on a redemption
date or maturity date money sufficient to pay the principal of, and premium, if
any, and accrued interest on, Securities payable on that date, then on and after
that date such Securities cease to be outstanding and interest on them ceases to
accrue.
Subject to the restrictions contained in Section 2.9, a Security does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Security.
Section 2.9 TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any notice, direction, waiver or consent,
Securities owned by the Company or any other obligor on the Securities or by any
Affiliate of the Company or of such other obligor shall be disregarded, except
that, for purposes of determining whether the Trustee shall be protected in
relying on any such notice, direction, waiver or consent, only Securities which
the Trustee knows are so owned shall be so disregarded. Securities so owned
which have been pledged in good faith shall not be disregarded if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to the Securities and that the pledgee is not the Company or any
other obligor on the Securities or any Affiliate of the Company or of such other
obligor.
Section 2.10 TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and execute, and, upon the order of the Company, the Trustee shall
authenticate and deliver, temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company with the consent of the Trustee considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate and deliver definitive Securities in exchange for
temporary Securities.
Section 2.11 CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, the Paying Agent and the Conversion Agent shall
forward to the Trustee or its agent any Securities surrendered to them for
transfer, exchange, payment or conversion. The Trustee and no one else shall
cancel, in accordance with its standard procedures, all Securities surrendered
for transfer, exchange, redemption, payment, conversion or cancellation and
shall deliver the canceled Securities to the Company. The Company may not issue
new Securities to replace Securities it has paid or delivered to the Trustee for
cancellation or that any Holder has converted pursuant to Article 4.
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ARTICLE III
REDEMPTION AND PURCHASES
Section 3.1 RIGHT TO REDEEM; NOTICE TO TRUSTEE.
The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at the redemption prices specified in
paragraph 5 of the form of Security attached hereto as Exhibit A-1, together
with accrued interest up to but not including the Redemption Date; provided that
the Securities may not be so redeemed prior to the fifth anniversary of their
issuance unless the closing price per share of the Common Stock for any 45
consecutive trading days ending no more than 30 calendar days prior to the date
notice of redemption is first mailed is at least 140% of the Adjusted IPO Price
then in effect.
If the Company elects to redeem Securities pursuant to this Section
3.1 and paragraph 5 of the Securities, it shall notify the Trustee at least 100
days prior to the redemption date as fixed by the Company of the redemption date
and the principal amount of Securities to be redeemed. If fewer than all of the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall not
be less than five days after the date of notice to the Trustee.
Section 3.2 SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed, the Trustee
shall, not more than 100 days prior to the redemption date, select the
Securities to be redeemed by lot. The Trustee shall make the selection from the
Securities outstanding and not previously called for redemption. Securities in
denominations of $1,000 may only be redeemed in whole. The Trustee may select
for redemption portions (equal to $1,000 or any multiple thereof) of the
principal of Securities that have denominations larger than $1,000. Provisions
of this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
Section 3.3 NOTICE OF REDEMPTION.
At least 90 days but not more than 120 days before a redemption date,
the Company shall mail or cause to be mailed a notice of redemption by
first-class mail to each Holder of Securities to be redeemed at such Holder's
address as it appears on the Registrar's books.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the then current Conversion Price;
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(4) the name and address of the Paying Agent and the Conversion
Agent;
(5) that Securities called for redemption must be presented and
surrendered to the Paying Agent to collect the redemption
price;
(6) that the Securities called for redemption may be converted
at any time before the close of business on the redemption
date; provided that at the option of the Company, upon
conversion any accrued and unpaid interest on the Securities
shall be paid to the Holder thereof, at the option of the
Company, either (i) in freely tradeable shares of Common
Stock at the Conversion Price or (ii) in cash.
(7) that Holders who wish to convert Securities must satisfy the
requirements in paragraph 8 of the Securities;
(8) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption shall
cease accruing on and after the redemption date and the only
remaining right of the Holder shall be to receive payment of
the redemption price upon presentation and surrender to the
Paying Agent of the Securities; and
(9) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and
that, after the redemption date, upon presentation and
surrender of such Security, a new Security or Securities in
aggregate principal amount equal to the unredeemed portion
thereof will be issued.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
Section 3.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption price stated
in the notice, except for Securities that are converted in accordance with the
provisions of Section 4.1. Upon presentation and surrender to the Paying Agent,
Securities called for redemption shall be paid at the redemption price, plus
accrued interest up to but not including the redemption date.
Section 3.5 DEPOSIT OF REDEMPTION PRICE.
On or prior to 12:00 noon New York time on the redemption date, the
Company shall deposit with the Paying Agent (or, if the Company acts as Paying
Agent, shall segregate and hold in trust) money sufficient to pay the redemption
price of and accrued interest on all
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Securities to be redeemed on that date, other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation or have been converted. The Paying
Agent shall return to the Company any money not required for that purpose
because of the conversion of securities pursuant to Article 4 or otherwise. If
such money is then held by the Company in trust and is not required for such
purpose, it shall be discharged from the trust.
Section 3.6 SECURITIES REDEEMED IN PART.
Upon presentation and surrender of a Security that is redeemed in
part, the Company shall execute and the Trustee shall authenticate for and
deliver to the Holder a new Security equal in principal amount to the unredeemed
portion of the Security surrendered.
Section 3.7 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
In connection with any redemption of Securities, the Company may
arrange for the purchase and conversion of any Securities called for redemption
by an agreement with one or more investment bankers or other purchasers to
purchase such Securities by paying to the Paying Agent in trust for the
Securityholders, on or before the close of business on the Redemption Date, an
amount that, together with any amounts deposited with the Paying Agent by the
Company for the redemption of such Securities, is not less than the Redemption
Price, together with interest, if any, accrued to, but not including, the
Redemption Date, of such Securities. Notwithstanding anything to the contrary
contained in this Article 3, the obligation of the Company to pay the Redemption
Price of such Securities, including all accrued interest, if any, shall be
deemed to be satisfied and discharged to the extent such amount is so paid by
such purchasers. If such an agreement is entered into, any Securities not duly
surrendered for conversion by the Holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such Holders and (notwithstanding anything to the contrary
contained in Article 4) surrendered by such purchasers for conversion, all as of
immediately prior to the close of business on the Redemption Date, subject to
payment of the above amount as aforesaid. The Paying Agent shall hold and pay
to the Holders whose Securities are selected for redemption any such amount paid
to it for purchase and conversion in the same manner as it would moneys
deposited with it by the Company for the redemption of Securities. Without the
Paying Agent's prior written consent, no arrangement between the Company and
such purchasers for the purchase and conversion of any Securities shall increase
or otherwise affect any of the powers, duties, responsibilities or obligations
of the Paying Agent as set forth in this Indenture, and the Company agrees to
indemnify the Paying Agent from, and hold it harmless against, any loss,
liability or expense arising out of or in connection with any such arrangement
for the purchase and conversion of any Securities between the Company and such
purchasers, including the costs and expenses incurred by the Paying Agent in the
defense of any claim or liability arising out of or in connection with the
exercise or performance of any of its powers, duties, responsibilities or
obligations under this Indenture.
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ARTICLE IV
CONVERSION
Section 4.1 CONVERSION PRIVILEGE.
Subject to the further provisions of this Section 4.1, a Holder of a
Security may convert such Security into Common Stock at any time prior to
maturity, at the Conversion Price then in effect; provided, however, that, if
such Security is called for redemption pursuant to Article 3, such conversion
right shall terminate at the close of business on the redemption date for such
Security (unless the Company shall default in making the redemption payment when
due, in which case the conversion right shall terminate at the close of business
on the date such default is cured and such Security is redeemed). The number of
shares of Common Stock issuable upon conversion of a Security shall be
determined by dividing the principal amount of the Security or portion thereof
surrendered for conversion by the Conversion Price in effect on the Conversion
Date. The initial Conversion Price is set forth in paragraph 7 of the
Securities and is subject to adjustment as provided in this Article 4.
A Holder may convert a portion of a Security equal to $1,000 or any
integral multiple thereof. Provisions of this Indenture that apply to
conversion of all of a Security also apply to conversion of a portion of a
Security. Upon conversion any accrued and unpaid interest on the Securities
shall be paid to the Holder thereof, at the option of the Company, either (i) in
freely tradeable shares of Common Stock at the Conversion Price or (ii) in cash.
A Holder of Securities is not entitled to any rights of a holder of
Common Stock until such Holder has converted his or her Securities to Common
Stock, and only to the extent such Securities are deemed to have been converted
into Common Stock pursuant to this Article 4.
Section 4.2 CONVERSION PROCEDURE.
To convert a Security, a Holder must (a) complete and manually sign
the conversion notice on the back of the Security and deliver such notice to the
Conversion Agent, (b) surrender the Security to the Conversion Agent, (c)
furnish appropriate endorsements and transfer documents if required by the
Registrar or the Conversion Agent, and (d) pay any transfer or similar tax, if
required. The date on which the Holder satisfies all of those requirements is
the "Conversion Date." As soon as practicable after the Conversion Date, the
Company shall deliver to the Holder through the Conversion Agent a certificate
for the number of whole shares of Common Stock issuable upon the conversion and
cash in lieu of any fractional shares pursuant to Section 4.3.
The person in whose name the certificate is registered shall be deemed
to be a shareholder of record on the Conversion Date; provided, however, that no
surrender of a Security on any date when the stock transfer books of the Company
shall be closed shall be effective to constitute the person or persons entitled
to receive the shares of Common Stock upon such conversion as the record holder
or holders of such shares of Common Stock on such date, but
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such surrender shall be effective to constitute the person or persons entitled
to receive such shares of Common Stock as the record holder or holders for all
purposes at the close of business on the next succeeding day on which such stock
transfer books are open; provided, further, that such conversion shall be at the
Conversion Price in effect on the Conversion Date as if the stock transfer books
of the Company had not been closed. Upon conversion of a Security, such person
shall no longer be a Holder of such Security. No payment or adjustment will be
made for dividends or distributions on shares of Common Stock issued upon
conversion of a Security.
Upon conversion of a Security, the Holder shall be paid, in cash, an
amount equal to accrued interest on the converted Security.
If a Holder converts more than one Security at the same time, the
number of shares of Common Stock issuable upon the conversion shall be based on
the aggregate principal amount of Securities converted.
Upon surrender of a Security that is converted in part, the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder, a
new Security equal in principal amount to the unconverted portion of the
Security surrendered.
Section 4.3 FRACTIONAL SHARES.
The Company will not issue fractional shares of Common Stock upon
conversion of Securities. In lieu thereof, the Company will pay an amount in
cash based upon the closing sale price of the Common Stock on the Trading Day
immediately prior to the date of conversion.
Section 4.4 TAXES ON CONVERSION.
If a Holder converts a Security, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon such conversion. However, the Holder shall pay any such
tax which is due because the Holder requests the shares to be issued in a name
other than the Holder's name. The Conversion Agent may refuse to deliver the
certificate representing the Common Stock being issued in a name other than the
Holder's name until the Conversion Agent receives a sum sufficient to pay any
tax which will be due because the shares are to be issued in a name other than
the Holder's name. Nothing herein shall preclude any tax withholding required
by law or regulation.
Section 4.5 COMPANY TO PROVIDE STOCK.
The Company shall, prior to issuance of any Securities hereunder, and
from time to time as it may be necessary, reserve, out of its authorized but
unissued Common Stock, a sufficient number of shares of Common Stock to permit
the conversion of all outstanding Securities into shares of Common Stock.
All shares of Common Stock delivered upon conversion of the Securities
shall be newly issued shares or treasury shares, shall be duly authorized,
validly issued, fully paid and nonassessable and shall be free from preemptive
rights and free of any lien or adverse claim.
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The Company will endeavor promptly to comply with all federal and
state securities laws regulating the offer and delivery of shares of Common
Stock upon conversion of Securities, if any, and will list or cause to have
quoted such shares of Common Stock on each national securities exchange or in
the over-the-counter market or such other market on which the Common Stock is
then listed or quoted.
Section 4.6 ADJUSTMENT OF CONVERSION PRICE.
The conversion price as stated in paragraph 8 of the Securities (the
"Conversion Price") shall be adjusted from time to time by the Company as
follows:
(a) In case the Company shall (i) pay a dividend in shares of Common
Stock to all holders of Common Stock, (ii) make a distribution in shares of
Common Stock to all holders of Common Stock, (iii) subdivide its outstanding
Common Stock into a greater number of shares, or (iv) combine its outstanding
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the Holder of any Security
thereafter surrendered for conversion shall be entitled to receive that number
of shares of Common Stock which he or she would have owned had such Security
been converted immediately prior to the happening of such event. An adjustment
made pursuant to this subsection (a) shall become effective immediately after
the record date in the case of a dividend in shares or distribution and shall
become effective immediately after the effective date in the case of subdivision
or combination.
(b) In case the Company shall issue rights or warrants to all or
substantially all holders of its Common Stock entitling them (for a period
commencing no earlier than the record date described below and expiring not more
than 60 days after such record date) to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at a price per share
less than the current market price per share of Common Stock (as determined in
accordance with subsection (e) of this Section 4.6) at the record date for the
determination of shareholders entitled to receive such rights or warrants, the
Conversion Price in effect immediately prior thereto shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to such record date by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding on such
record date, plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate Conversion
Price of the convertible securities so offered) would purchase at such current
market price, and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered (or into which the convertible securities so
offered are convertible). Such adjustment shall be made successively whenever
any such rights or warrants are issued, and shall become effective immediately
after such record date. If at the end of the period during which such rights or
warrants are exercisable not all rights or warrants shall have been exercised,
the adjusted Conversion Price shall be immediately readjusted to what it would
have been based upon the number of additional shares of Common Stock actually
issued (or the number of shares of Common Stock issuable upon conversion of
convertible securities actually issued).
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(c) In case the Company shall distribute to all or substantially all
holders of its Common Stock any shares of capital stock of the Company (other
than Common Stock), evidences of indebtedness or other non-cash assets
(including securities of any company other than the Company), or shall
distribute to all or substantially all holders of its Common Stock rights or
warrants to subscribe for or purchase any of its securities (excluding those
referred to in subsection (b) of this Section 4.6), then in each such case the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of such distribution by a fraction of which the numerator shall be the
current market price per share (as defined in subsection (e) of this Section
4.6) of the Common Stock on the record date mentioned below less the fair market
value on such record date (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such fair market value) of the
portion of the capital stock or assets or evidences of indebtedness so
distributed or of such rights or warrants applicable to one share of Common
Stock (determined on the basis of the number of shares of Common Stock
outstanding on the record date), and of which the denominator shall be the
current market price per share (as defined in subsection (e) of this Section
4.6) of the Common Stock on such record date. Such adjustment shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution. Notwithstanding the
foregoing, in the event that the Company shall distribute rights or warrants
(other than those referred to in subsection (b) of this Section 4.6) ("Rights")
pro rata to holders of Common Stock, the Company may, in lieu of making any
adjustment pursuant to this Section 4.6, make proper provision so that each
holder of a Security who converts such Security (or any portion thereof) after
the record date for such distribution and prior to the expiration or redemption
of the Rights shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversion (the "Conversion
Shares"), a number of Rights to be determined as follows: (i) if such
conversion occurs on or prior to the date for the distribution to the holders of
Rights of separate certificates evidencing such Rights (the "Distribution
Date"), the same number of Rights to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled at the time of
such conversion in accordance with the terms and provisions of and applicable to
the Rights and (ii) if such conversion occurs after the Distribution Date, the
same number of Rights to which a holder of the number of shares of Common Stock
into which the principal amount of the Security so converted was convertible
immediately prior to the Distribution Date would have been entitled on the
Distribution Date in accordance with the terms and provisions of and applicable
to the Rights.
(d) In case the Company shall, by dividend or otherwise, at any time
distribute (a "Triggering Distribution") to all or substantially all holders of
its Common Stock cash in an aggregate amount that, together with the aggregate
amount of any other cash distributions to all or substantially all holders of
its Common Stock made within the 12 months preceding the date of payment of the
Triggering Distribution and in respect of which no Conversion Price adjustment
pursuant to this Section 4.6 has been made, exceeds 15% of the product of the
current market price per share of Common Stock (as determined in accordance with
subsection (e) of this Section 4.6) on the Business Day (the "Determination
Date") immediately preceding the day on which such Triggering Distribution is
declared by the Company multiplied by the number of shares of Common Stock
outstanding on such date (excluding shares held in the Treasury of the
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Company), the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying such Conversion Price in effect immediately
prior to the Determination Date by a fraction of which the numerator shall be
the current market price per share of the Common Stock (as determined in
accordance with subsection (e) of this Section 4.6) on the Determination Date
less the amount of cash so distributed within such 12 months (including, without
limitation, the Triggering Distribution) applicable to one share of Common Stock
(determined on the basis of the number of shares of Common Stock outstanding on
the Determination Date) and the denominator shall be such current market price
per share of the Common Stock (as determined in accordance with subsection (e)
of this Section 4.6) on the Determination Date, such reduction to become
effective immediately prior to the opening of business on the day following the
date on which the Triggering Distribution is paid.
(e) For the purpose of any computation under subsections (b), (c) and
(d) of this Section 4.6, the current market price per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices for the
30 consecutive Trading Days commencing 45 Trading Days before (i) the
Determination Date with respect to distributions under subsection (d) of this
Section 4.6 or (ii) the record date with respect to distributions, issuances or
other events requiring such computation under subsection (b) or (c) of this
Section 4.6. The closing price for each day shall be the last reported sales
price or, in case no such reported sale takes place on such date, the average of
the reported closing bid and asked prices in either case on the NASDAQ National
Market System or, if the Common Stock is not listed or admitted to trading on
the NASDAQ National Market System, on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, the closing sales price
of the Common Stock as quoted by NASDAQ or, in case no reported sales takes
place, the average of the closing bid and asked prices as quoted by NASDAQ or
any comparable system or, if the Common Stock is not quoted on NASDAQ or any
comparable system, the closing sales price or, in case no reported sale takes
place, the average of the closing bid and asked prices, as furnished by any two
members of the National Association of Securities Dealers, Inc. selected from
time to time by the Company for that purpose. If no such prices are available,
the current market price per share shall be the fair value of a share of Common
Stock as determined by the Board of Directors of the Company.
(f) In any case in which this Section 4.6 shall require that an
adjustment be made following a record date or a Determination Date, as the case
may be, established for purposes of this Section 4.6, the Company may elect to
defer (but only until five Business Days following the filing by the Company
with the Trustee of the certificate described in Section 4.9) issuing to the
holder of any Security converted after such record date or Determination Date
the shares of Common Stock and other capital stock of the Company issuable upon
such conversion over and above the shares of Common Stock and other capital
stock of the Company issuable upon such conversion only on the basis of the
Conversion Price prior to adjustment; and, in lieu of the shares the issuance of
which is so deferred, the Company shall issue or cause its transfer agents to
issue due bills or other appropriate evidence prepared by the Company of the
right to receive such shares. If any distribution in respect of which an
adjustment to the Conversion Price is required to be made as of the record date,
effective date or Determination Date therefor is
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not thereafter made or paid by the Company for any reason, the Conversion Price
shall be readjusted to the Conversion Price which would then be in effect if
such record date had not been fixed or such effective date or Determination Date
had not occurred.
Section 4.7 NO ADJUSTMENT.
No adjustment in the Conversion Price shall be required unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price as last adjusted; provided, however, that any adjustments which
by reason of this Section 4.7 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article 4 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
No adjustment need be made for a transaction referred to in Section
4.6 if all Securityholders are entitled to participate in the transaction on a
basis and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction. The Company shall give 30 days prior notice to
the Trustee and to the Holders of the Securities of any such determination.
No adjustment need be made for rights to purchase Common Stock or
issuances of Common Stock pursuant to a Company plan for reinvestment of
dividends or interest.
No adjustment need be made for a change in the par value or a change
to no par value of the Common Stock.
To the extent that the Securities become convertible into the right to
receive cash, no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
Section 4.8 ADJUSTMENT FOR TAX PURPOSES.
The Company shall be entitled to make such reductions in the
Conversion Price, in addition to those required by Section 4.6, as it in its
discretion shall determine to be advisable in order that any stock dividends,
subdivisions of shares, distributions of rights to purchase stock or securities
or distributions of securities convertible into or exchangeable for stock
hereafter made by the Company to its shareholders shall not be taxable; provided
that no such reduction shall give rise to a right of the Company to optionally
redeem the securities pursuant to Section 3.1.
Section 4.9 NOTICE OF ADJUSTMENT.
Whenever the Conversion Price is adjusted, the Company shall promptly
mail to Securityholders a notice of the adjustment and file with the Trustee an
Officers' Certificate briefly stating the facts requiring the adjustment and the
manner of computing it. The certificate shall be conclusive evidence of the
correctness of such adjustment.
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Section 4.10 NOTICE OF CERTAIN TRANSACTIONS.
In the event that:
(1) the Company takes any action which would require an
adjustment in the Conversion Price;
(2) the Company consolidates or merges with, or transfers all or
substantially all of its assets to, another corporation and
shareholders of the Company must approve the transaction; or
(3) there is a dissolution or liquidation of the Company,
the Company shall mail to Securityholders and file with the Trustee a notice
stating the proposed record or effective date, as the case may be. The Company
shall mail the notice at least ten days before such date. Failure to mail such
notice or any defect therein shall not affect the validity of any transaction
referred to in clause (1), (2) or (3) of this Section 4.10.
Section 4.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE ON CONVERSION PRIVILEGE.
If any of the following shall occur, namely: (a) any reclassification
or change of shares of Common Stock issuable upon conversion of the Securities
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination, or any
other change for which an adjustment is provided in Section 4.6); (b) any
consolidation or merger to which the Company is a party other than a merger in
which the Company is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock;
or (c) any sale or conveyance of all or substantially all of the assets of the
Company as an entirety, then the Company, or such successor or purchasing
corporation, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then outstanding shall have the right to convert such Security
into the kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reclassification, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
deliverable upon conversion of such Security immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Such
supplemental indenture shall provide for adjustments of the Conversion Price
which shall be as nearly equivalent as may be practicable to the adjustments of
the Conversion Price provided for in this Article 4. If, in the case of any
such consolidation, merger, sale or conveyance, the stock or other securities
and property (including cash) receivable thereupon by a holder of Common Stock
include shares of stock or other securities and property of a corporation other
than the successor or purchasing corporation, as the case may be, in such
consolidation, merger, sale or conveyance, then such supplemental indenture
shall also be executed by such other corporation and shall contain such
additional provisions to protect the
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interests of the Holders of the Securities as the Board of Directors shall
reasonably consider necessary by reason of the foregoing. The provisions of
this Section 4.11 shall similarly apply to successive consolidations, mergers,
sales or conveyances.
In the event the Company shall execute a supplemental indenture
pursuant to this Section 4.11, the Company shall promptly file with the Trustee
(x) an Officers' Certificate briefly stating the reasons therefor, the kind or
amount of shares of stock or securities or property (including cash) receivable
by Holders of the Securities upon the conversion of their Securities after any
such reclassification, change, consolidation, merger, sale or conveyance, any
adjustment to be made with respect thereto and that all conditions precedent
have been complied with and (y) an Opinion of Counsel that all conditions
precedent have been complied with.
Section 4.12 TRUSTEE'S DISCLAIMER.
The Trustee has no duty to determine if the conditions precedent to
the Company's redemption rights under Section 3 have been satisfied and to
determine when an adjustment under this Article 4 should be made, how it should
be made or what such adjustment should be, but may accept as conclusive evidence
of that fact or the correctness of any such adjustment, and shall be protected
in relying upon, an Officers' Certificate including the Officers' Certificate
with respect thereto which the Company is obligated to file with the Trustee
pursuant to Section 4.9. The Trustee makes no representation as to the validity
or value of any securities or assets issued upon conversion of Securities, and
the Trustee shall not be responsible for the Company's failure to comply with
any provisions of this Article 4.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 4.11, but may accept as conclusive evidence of the
correctness thereof, and shall be fully protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 4.11.
ARTICLE V
SUBORDINATION
Section 5.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each holder of Securities issued
hereunder by his or her acceptance thereof likewise covenants and agrees, that
all Securities shall be issued subject to the provisions of this Article 5; and
each person holding any Security, whether upon original issue or upon transfer
or assignment thereof, accepts and agrees to be bound by such provisions.
The payment of the principal of and interest on all Securities issued
hereunder (including, without limitation, in connection with any redemption of
Securities) shall, to the extent and in the manner hereinafter set forth, be
subordinated and subject in right of payment to
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the prior payment in full of all Senior Indebtedness, whether outstanding at the
date of this Indenture or thereafter created, assumed or guaranteed.
Section 5.2 SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION, REORGANIZATION, ETC., OF THE COMPANY.
Upon the payment or distribution of the assets of the Company of any
kind or character, whether in cash, property or securities (including any
collateral at any time securing the Securities), to creditors upon any
dissolution, winding-up, total or partial liquidation or reorganization of the
Company (whether voluntary or involuntary, or in bankruptcy, insolvency,
reorganization, liquidation, receivership proceedings, or upon an assignment for
the benefit of creditors, or any other marshalling of the assets and liabilities
of the Company, or otherwise), then in such event:
(a) all Senior Indebtedness (including principal thereof, interest
thereon and fees and expenses relating thereto) and the reasonable fees and
expenses of the Trustee shall first be paid in full, in cash, or have provision
made for such payment, before any payment is made on account of the principal of
or interest on the indebtedness evidenced by the Securities or any deposit is
made pursuant to Section 6.3;
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than securities of
the Company as reorganized or readjusted, or securities of the Company or any
other company, trust or corporation provided for by a plan of reorganization or
readjustment, junior, or the payment of which is otherwise subordinate, at least
to the extent provided in this Article 5, with respect to the Securities, to the
payment of all Senior Indebtedness at that time outstanding and to the payment
of all securities issued in exchange therefor to the holders of the Senior
Indebtedness at the time outstanding), to which the Holders or the Trustee on
behalf of the Holders would be entitled except for the provisions of this
Article 5, including any such payment or distribution which may be payable or
deliverable by reason of the payment of another debt of the Company being
subordinated to the payment of the Securities, shall be paid or delivered by any
debtor, Custodian or other person making such payment or distribution, directly
to the holders of the Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness have been
issued, ratably according to the aggregate amounts remaining unpaid on account
of the principal of, interest on and fees and expenses relating to the Senior
Indebtedness held or represented by each, for application to payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior Indebtedness;
and
(c) in the event that, notwithstanding the foregoing provisions of
this Section 5.2, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities other than securities
of the Company as reorganized or readjusted, or securities of the Company or any
other Company, trust or corporation provided for by a plan of reorganization or
readjustment, junior, or the payment of which is otherwise subordinate, at least
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to the extent provided for in this Article 5, with respect to the Securities, to
the payment of all Senior Indebtedness at the time outstanding and to the
payment of all securities issued in exchange thereof to the holders of Senior
Indebtedness at the time outstanding), shall be received by the Trustee or the
Holders before all Senior Indebtedness is paid in full, or provision made for
its payment, such payment or distribution (subject to the provisions of Sections
5.6 and 5.7) shall be held in trust for the benefit of, and shall be immediately
paid or delivered by the Trustee or such Holders, as the case may be, to, the
holders of Senior Indebtedness remaining unpaid or unprovided for, or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the principal of, interest on and fees and
expenses relating to the Senior Indebtedness held or represented by each, for
application to the payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full after giving effect to
any concurrent payment or distribution, or provision therefor, to the holders of
such Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of the Company.
Upon any distribution of assets of the Company referred to in this
Article 5, the Trustee, subject to the provisions of Sections 9.1 and 9.2, and
the Holders shall be entitled to rely conclusively upon any order or decree by
any court of competent jurisdiction in which such dissolution, winding-up,
liquidation or reorganization proceeding is pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Trustee or to the Holders, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 5.
Section 5.3 SECURITYHOLDERS TO BE SUBROGATED TO RIGHT OF HOLDERS OF
SENIOR INDEBTEDNESS.
Subject to the prior payment in full of all Senior Indebtedness then
due, the Holders shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the principal of and interest on the
Securities shall be paid in full, and, for purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of assets,
whether in cash, property or securities, distributable to the holders of Senior
Indebtedness under the provisions hereof to which the Holders would be entitled
except for the provisions of this Article 5, and no payment pursuant to the
provisions of this Article 5 to the holders of Senior Indebtedness by the
Holders shall, as among the Company, its creditors other than the holders of
Senior Indebtedness, and the Holders, be deemed to be a payment by the Company
to or on account of Senior Indebtedness, it being understood that the provisions
of this Article 5 are, and are intended, solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
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Section 5.4 OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article 5 or elsewhere in this Indenture or
in any Security is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders the principal of and interest on the Securities, as and when the same
shall become due and payable in accordance with the terms of the Securities, or
to affect the relative rights of the Holders and other creditors of the Company
other than the holders of Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon the happening of an Event of Default under this
Indenture, subject to the provisions of Article 8, and the rights, if any, under
this Article 5 of the holders of Senior Indebtedness in respect of assets,
whether in cash, property or securities of the Company received upon the
exercise of any such remedy.
Section 5.5 COMPANY NOT TO MAKE PAYMENT WITH RESPECT TO SECURITIES
IN CERTAIN CIRCUMSTANCES.
(a) Upon the happening of a default in payment (whether at maturity
or at a date fixed for prepayment or by acceleration or otherwise) of the
principal of or interest on any Senior Indebtedness, as such default is defined
under or in respect of such Senior Indebtedness or in any agreement pursuant to
which such Senior Indebtedness has been incurred, then, unless and until the
amount of such Senior Indebtedness then due shall have been paid in full or
provision made therefor in a manner satisfactory to the holders of such Senior
Indebtedness, or such default shall have been cured or waived or shall have
ceased to exist, the Company shall not pay principal of or interest on the
Securities or make any deposit pursuant to Section 6.3 or 10.1 and shall not
repurchase, redeem or otherwise retire any Securities (collectively, "pay the
Securities").
(b) Upon the happening of an event of default with respect to any
Senior Indebtedness (other than under circumstances when the terms of subsection
(a) of this Section 5.5 are applicable), as such event of default is defined
under or in respect of such Senior Indebtedness or in any agreement pursuant to
which such Senior Indebtedness has been incurred, permitting the holders thereof
to accelerate the maturity thereof, and upon written notice thereof given to the
Company and the Trustee by any holders of such Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness have been issued (a "Default Notice"), then, unless and until such
event of default shall have been cured or waived in writing by the holders of
such Senior Indebtedness or shall have ceased to exist, no direct or indirect
payment shall be made with respect to the principal of or interest on the
Securities or to acquire any of the Securities or on account of the redemption
or mandatory repurchase provisions of the Securities; provided, however, that
this subsection (b) shall not prevent the making of any such payment (which is
not otherwise prohibited by subsection (a) of this Section 5.5) for more than
120 days after the Default Notice shall have been given unless the Senior
Indebtedness in respect of which such event of default exists has been declared
due and payable in its entirety, in which
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case no such payment may be made until such acceleration has been waived,
rescinded or annulled, or such Senior Indebtedness shall have been paid in full,
or payment thereof shall be duly provided for in cash or in any other manner
satisfactory to the holders of such Senior Indebtedness. Notwithstanding the
foregoing, not more than one Default Notice shall be given with respect to the
same issue of Senior Indebtedness within a period of 360 consecutive days, and
no event of default which existed or was continuing on the date of any Default
Notice and was known to the holders of such issue of Senior Indebtedness shall
be made the basis for the giving of a subsequent Default Notice by the holders
of such issue of Senior Indebtedness.
(c) In the event that, notwithstanding the foregoing provisions of
this Section 5.5, any payment on account of the principal of or interest on the
Securities shall be made by or on behalf of the Company and received by the
Trustee, any Holder or any Paying Agent (or, if the Company is acting as its own
Paying Agent, money for any such payment shall be segregated and held in trust),
after the happening of a default under any Senior Indebtedness of the type
specified in subsections (a) and (b) of this Section 5.5, then, unless and until
the amount of such Senior Indebtedness then due shall have been paid in full, or
provision made therefor or such default shall have been cured or waived, such
payment (subject, in each case, to the provisions of Sections 5.6 and 5.7 and
the proviso contained in subsection (b) of this Section 5.5) shall be held in
trust for the benefit of, and shall be immediately paid over to, the holders of
Senior Indebtedness or their representative or representatives or the trustee or
trustees under any indenture under which any instruments evidencing any of the
Senior Indebtedness may have been issued ratably according to the aggregate
amounts remaining unpaid on account of the principal of and interest on, and
fees and other charges in respect of, the Senior Indebtedness held or
represented by each, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of Senior Indebtedness.
Section 5.6 NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article 5 or any other provision of this Indenture, the Trustee shall not
at any time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee, unless and until the
Trustee shall have received written notice thereof from the Company or from the
holder or holders of Senior Indebtedness or from their representative or
representatives or from the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness have been
issued; and, prior to the receipt of any such written notice, the Trustee,
subject to the provisions of Sections 9.1 and 9.2, shall be entitled to assume
conclusively that such facts do not exist.
The Trustee shall be entitled to rely conclusively on the delivery to
it of a written notice by a person representing himself or herself to be a
holder of Senior Indebtedness (or a representative of such holder or the trustee
under any indenture pursuant to which any instruments evidencing any of such
Senior Indebtedness have been issued) to establish that such
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notice has been given by a holder of Senior Indebtedness or a representative of
any such holder. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 5, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
each person under this Article 5, and, if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
Section 5.7 APPLICATION BY TRUSTEE OF MONIES DEPOSITED WITH IT.
Money or U.S. Government Obligations deposited in trust with the
Trustee pursuant to Sections 6.3 and 10.1 and not in violation of this Article 5
shall be for the sole benefit of Securityholders and shall thereafter not be
subject to the subordination provisions of this Article 5. Otherwise, any
deposit of monies by the Company with the Trustee or any Paying Agent (whether
or not in trust) for the payment of the principal of or interest on any
Securities shall be subject to the provisions of Sections 5.1, 5.2, 5.3 and 5.5;
except that, if two Business Days prior to the date on which by the terms of
this Indenture any such monies may become payable for any purpose (including,
without limitation, the payment of either the principal of or interest on any
Security) the Trustee shall not have received with respect to such monies the
notice provided for in Section 5.6, then the Trustee or any Paying Agent shall
have full power and authority to receive such monies and to apply such monies to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such date. This
Section 5.7 shall be construed solely for the benefit of the Trustee and the
Paying Agent and shall not otherwise affect the rights that holders of Senior
Indebtedness may have to recover any such payments from the Holders in
accordance with the provisions of this Article 5.
Section 5.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS
OF COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination, as herein provided, shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with. The holders of any Senior Indebtedness may extend,
renew, modify or amend the terms of such Senior Indebtedness or any security
therefor and release, sell or exchange such security and otherwise deal freely
with the Company, all without affecting the liabilities and obligations of the
parties to this Indenture or the Holders. No provision in any supplemental
indenture which affects the superior position of the holders of the Senior
Indebtedness shall be effective against the holders of the Senior Indebtedness
unless the holders of such Senior Indebtedness (required pursuant to the terms
of such Senior Indebtedness to give such consent) have consented thereto.
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Section 5.9 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of a Security by his or her acceptance thereof authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 5 and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
Section 5.10 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee, in its individual capacity, shall be entitled to all of
the rights set forth in this Article 5 in respect of any Senior Indebtedness at
any time held by it to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 9.7.
Section 5.11 ARTICLE 5 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of the principal of or
interest on the Securities by reason of any provision in this Article 5 shall
not be construed as preventing the occurrence of an Event of Default under
Section 8.1.
Section 5.12 NO FIDUCIARY DUTY CREATED TO HOLDERS OF SENIOR
INDEBTEDNESS.
Notwithstanding any other provision in this Article 5, the Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness by virtue of the provisions of this Article 5.
Section 5.13 ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 5 shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if such Paying Agent were named
in this Article 5 in addition to or in place of the Trustee; provided, however,
that Sections 5.6, 5.10 and 5.12 shall not apply to the Company if it acts as
Paying Agent.
ARTICLE VI
COVENANTS
Section 6.1 PAYMENT OF SECURITIES.
The Company shall promptly make all payments in respect of the
Securities on the dates and in the manner provided in the Securities and this
Indenture. An installment of
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principal or interest shall be considered paid on the date it is due if the
Paying Agent (other than the Company or any Affiliate thereof) holds on that
date money, deposited by the Company or an Affiliate thereof, sufficient to pay
the installment. The Company shall pay interest on overdue principal at the
rate borne by the Securities per annum; it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Section 6.2 SEC REPORTS.
The Company shall file all reports and other information and documents
which it is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act, and within 15 days after it files them with the SEC, the Company
shall file copies of all such reports, information and other documents with the
Trustee. The Company will cause any quarterly and annual reports which it mails
to its shareholders to be mailed to the Holders of the Securities.
In the event the Company is at any time not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will
prepare, for the first three quarters of each fiscal year, quarterly financial
statements substantially equivalent to the financial statements required to be
included in a report on Form 10-Q under the Exchange Act. The Company will also
prepare, on an annual basis, complete audited consolidated financial statements,
including, but not limited to, a balance sheet, a statement of operations, a
statement of cash flows and all appropriate notes. All such financial
statements will be prepared in accordance with generally accepted accounting
principles. The Company will cause a copy of such financial statements to be
filed with the Trustee and mailed to the Holders of the Securities within 50
days after the end of each of the first three quarters of each fiscal year and
within 95 days after the close of each fiscal year. The Company will also
comply with the other provisions of TIA Section 314(a).
Section 6.3 LIQUIDATION.
Subject to the provisions of Article 5, so far as they may be
applicable hereto, the Board of Directors or the shareholders of the Company may
not adopt a plan of liquidation, which plan provides for, contemplates or the
effectuation of which is preceded by (a) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company otherwise
than substantially as an entirety (any such sale, lease, conveyance or other
disposition substantially as an entirety being governed by Article 7) and (b)
the distribution of all or substantially all of the proceeds of such sale,
lease, conveyance or other disposition and of the remaining assets of the
Company to the holders of the capital stock of the Company, unless the Company
shall in connection with the adoption of such plan make provision for, or agree
that prior to making any liquidating distributions it will make provision for,
the satisfaction of the Company's obligations hereunder and under the Securities
as to the payment of the principal and interest thereof. The Company shall be
deemed to make provision for such payments only if (1) the Company irrevocably
deposits in trust with the Trustee money or U.S. Government Obligations maturing
as to principal and interest in such amounts and at such times as are
sufficient, without consideration of any reinvestment of such interest, to pay
the principal of and interest on the Securities then outstanding to maturity and
to pay all other sums payable by it
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hereunder or (2) there is an express assumption of the due and punctual payment
of the Company's obligations hereunder and under the Securities and the
performance and observance of all covenants and conditions to be performed by
the Company hereunder, by the execution and delivery of a supplemental indenture
in form satisfactory to the Trustee by a person who acquires, or will acquire
(otherwise than pursuant to a lease), a portion of the assets of the Company,
and which person will have assets (immediately after the acquisition) and
aggregate earnings (for such person's four full fiscal quarters immediately
preceding the acquisition) equal to not less than the assets of the Company
(immediately preceding such acquisition) and the aggregate earnings of the
Company (for its four full fiscal quarters immediately preceding the
acquisition), respectively, and which is a corporation organized under the laws
of the United States, any State thereof or the District of Columbia; provided,
however, that the Company shall not make any liquidating distribution until
after the Company (x) has certified to the Trustee with an Officers' Certificate
at least five days prior to the making of any liquidating distribution that it
has complied with the provisions of this Section 6.3 and (y) delivered to the
Trustee an Opinion of Counsel that all conditions precedent to such liquidation
have been complied with.
Section 6.4 COMPLIANCE CERTIFICATES.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, an Officers' Certificate as to the signer's
knowledge of the Company's compliance with all conditions and covenants on its
part contained in this Indenture and stating whether or not the signer knows of
any default or Event of Default. If such signer knows of such a default or
Event of Default, the Officers' Certificate shall describe the default or Event
of Default and the efforts to remedy the same. For the purposes of this Section
6.4, compliance shall be determined without regard to any grace period or
requirement of notice provided pursuant to the terms of this Indenture. The
Officers' Certificate need not comply with Section 12.4 hereof.
Section 6.5 NOTICE OF DEFAULTS.
In the event (a) that indebtedness of the Company in an aggregate
amount in excess of $5,000,000 is declared due and payable before its maturity
because of the occurrence of any default under such indebtedness, or (b) of the
occurrence of any event which entitles the holder or holders of such
indebtedness to declare such indebtedness due and payable before its maturity
and with respect to which any applicable grace period has lapsed or expired, the
Company will promptly give written notice to the Trustee of such declaration or
event.
Section 6.6 FURTHER INSTRUMENTS AND ACTS.
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purposes of this Indenture.
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ARTICLE VII
SUCCESSOR CORPORATION
Section 7.1 WHEN COMPANY MAY MERGE, ETC.
The Company shall not consolidate with or merge with or into, or
transfer all or substantially all of its assets to, any person unless:
(a) either the Company shall be the resulting or surviving entity or
such person is a corporation organized and existing under the laws of the United
States, a State thereof or the District of Columbia, and such person expressly
assumes by supplemental indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Securities and this Indenture (in which case all such obligations of the Company
shall terminate); and
(b) immediately before and immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Company as a result of such transaction as having been incurred by the Company
at the time of such transaction, no default or Event of Default shall have
occurred and be continuing.
The Company shall deliver to the Trustee prior to the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each of which
shall comply with Section 12.4 and shall state that such consolidation, merger
or transfer and such supplemental indenture comply with this Article 7 and that
all conditions precedent herein provided for relating to such transaction have
been complied with; provided, however, that such Opinion of Counsel shall not
address Events of Default, except where such counsel has actual knowledge of any
such Event of Default.
Section 7.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with Section 7.1,
the successor corporation formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor corporation had been named as the
Company herein.
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ARTICLE VIII
DEFAULT AND REMEDIES
Section 8.1 EVENTS OF DEFAULT.
An "Event of Default" shall occur if:
(1) the Company defaults in the payment of interest on any
Security when the same becomes due and payable and the
default continues for a period of 10 business days;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at maturity,
upon redemption or otherwise;
(3) the Company fails to comply with any of its other agreements
contained in the Securities or this Indenture and the
default continues for the period and after the notice
specified below;
(4) a default shall occur under any bond, debenture, note or
other evidence of Indebtedness for money borrowed by the
Company or any Restricted Subsidiary, which default shall
have resulted in such Indebtedness becoming or being
declared payable prior to the date on which it would
otherwise have been due and payable (provided that the
aggregate amount of such Indebtedness subject to
acceleration exceeds $5 million), without such Indebtedness
having been discharged, such acceleration having been
rescinded or annulled or there having been deposited in
trust a sum of money sufficient to discharge in full such
Indebtedness;
(5) the Company or any of its Subsidiaries fails to pay any
principal or interest when due under any bond, debenture,
note or other evidence of Indebtedness for money (whether by
scheduled maturity, required prepayment, acceleration,
demand or otherwise) and such failure shall continue after
the applicable grace period, if any, specified in the
agreement or instrument evidencing or governing such
Indebtedness, has expired (provided that the amount of such
Indebtedness, and any interest or premium thereon, exceeds
$5 million);
(6) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case or proceeding;
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(B) consents to the entry of an order for relief against it
in an involuntary case or proceeding;
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property; or
(D) makes a general assignment for the benefit of its
creditors; or
(7) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company in an involuntary
case or proceeding;
(B) appoints a Custodian of the Company or for all or
substantially all of its property; or
(C) orders the liquidation of the Company;
and in each case the order or decree remains unstayed and in
effect for 60 days.
The term "Bankruptcy Law" means Title 11 of the United States Code or
any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
A default under clause (3) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal amount
of the Securities then outstanding notify the Company and the Trustee, of the
default, and the Company does not cure the default within 30 days after receipt
of such notice. The notice given pursuant to this Section 8.1 must specify the
default, demand that it be remedied and state that the notice is a "Notice of
Default." When a default is cured, it ceases.
Subject to the provisions of Sections 9.1 and 9.2, the Trustee shall
not be charged with knowledge of any Event of Default unless written notice
thereof shall have been given to a Trust Officer at the Corporate Trust Office
of the Trustee by the Company, the Paying Agent, any Holder or any agent of any
Holder.
Section 8.2 ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clause (5) or (6) of Section 8.1) occurs and is continuing, the Trustee may, by
notice to the Company, or the Holders of at least 25% in principal amount of the
Securities then outstanding may, by notice to the Company and the Trustee, and
the Trustee shall, upon the request of such Holders, declare all unpaid
principal of and accrued interest to the date of acceleration on the Securities
then outstanding (if not then due and payable) to be due and payable upon any
such declaration, and
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the same shall become and be immediately due and payable. If an Event of
Default specified in clause (5) or (6) of Section 8.1 occurs, all unpaid
principal of and accrued interest on the Securities then outstanding shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Securityholder. The Holders of a majority
in principal amount of the Securities then outstanding by notice to the Trustee
may rescind an acceleration and its consequences if (a) all existing Events of
Default, other than the nonpayment of the principal of and accrued interest on
the Securities which has become due solely by such declaration of acceleration,
have been cured or waived; (b) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid; (c) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction; and (d) all payments due to the Trustee and
any predecessor Trustee under Section 9.7 have been made. Anything herein
contained to the contrary notwithstanding, in the event of any acceleration
pursuant to this Section 8.2, the Company shall not be obligated to pay any
premium which it would have had to pay if it had then elected to redeem the
Securities pursuant to paragraph 5 of the Securities, except in the case of any
Event of Default occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium which it would have had to pay if it had then elected to
redeem the Securities pursuant to paragraph 5 of the Securities, in which case
an equivalent premium shall also become and be immediately due and payable to
the extent permitted by law.
Section 8.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of the principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 8.4 WAIVER OF DEFAULTS AND EVENTS OF DEFAULT.
Subject to Sections 8.7 and 11.2, the Holders of a majority in
principal amount of the Securities then outstanding by notice to the Trustee may
waive an existing default or Event of Default and its consequence, except a
default in the payment of the principal of or interest on any Security as
specified in clauses (1) and (2) of Section 8.1. When a default or Event of
Default is waived, it is cured and ceases.
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Section 8.5 CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Securities then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of another Securityholder or the Trustee, or that may
involve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee which is not inconsistent
with such direction.
Section 8.6 LIMITATIONS ON SUITS.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities (except actions for payment of overdue principal or
interest or for the conversion of the Securities pursuant to Article 4) unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee
to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or
expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the
Holders of a majority in principal amount of the Securities
then outstanding.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
Section 8.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of the principal of and interest on
the Security, on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.
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Section 8.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default in the payment of principal or interest
specified in clause (1) or (2) of Section 8.1 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or another obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 8.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor on the Securities), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceeding is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 9.7, and to the
extent that such payment of the reasonable compensation, expenses, disbursements
and advances in any such proceedings shall be denied for any reason, payment of
the same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, monies, securities and other property which the
Securityholders may be entitled to receive in such proceedings, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to, or, on behalf of any Securityholder, to authorize, accept or
adopt any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Securityholder in any such
proceeding.
Section 8.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article 8, it shall
pay out the money in the following order:
First, to the Trustee for amounts due under Section 9.7;
Second, to the holders of Senior Indebtedness to the extent required
by Article 5;
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Third, to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
Fourth, to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section 8.10.
Section 8.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 8.11 does not apply to a suit made by the Trustee, a suit by a
Holder pursuant to Section 8.7, or a suit by Holders of more than 10% in
principal amount of the Securities then outstanding.
Section 8.12 WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE IX
TRUSTEE
Section 9.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no others; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. The
Trustee, however, shall examine any certificates and
opinions which by any provision hereof are specifically
required to be delivered to the Trustee to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this paragraph does not limit the effect of subsection (b)
of this Section 9.1;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 8.5.
(d) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability, expense or fee.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 9.2 RIGHTS OF TRUSTEE.
Subject to Section 9.1:
(a) The Trustee may rely conclusively on any document believed by it
to be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, which shall conform to
Section 12.4(b). The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Certificate or Opinion.
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(c) The Trustee may act through its agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers.
(e) The Trustee may consult with counsel, and the advice or opinion
of such counsel as to matters of law shall be full and complete authorization
and protection in respect of any such action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
Section 9.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 9.10 and 9.11.
Section 9.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than its certificate of authentication.
Section 9.5 NOTICE OF DEFAULT OR EVENTS OF DEFAULT.
If a default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the default or Event of Default within 90 days after it occurs. Except in the
case of a default or an Event of Default in payment of the principal of or
interest on any Security, the Trustee may withhold the notice if and so long as
a committee of its Trust Officers in good faith determines that withholding
notice is in the interest of Securityholders.
Section 9.6 REPORTS BY TRUSTEE TO HOLDERS.
If such report is required by TIA Section 313, within 60 days after
each April 15, beginning with the April 15 following the date of this Indenture,
the Trustee shall mail to each Securityholder a brief report dated as of such
April 15 that complies with TIA Section 313(a). The Trustee also shall comply
with TIA Section 313(b)(2) and (c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed. The Company shall notify the
Trustee whenever the Securities become listed on any stock exchange and any
changes in the stock exchanges on which the Securities are listed.
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Section 9.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust). The Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it. Such expenses may
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss, liability or expense (including reasonable legal fees and
expenses) incurred by it in connection with its duties under this Indenture or
any action or failure to act as authorized or within the discretion or rights or
powers conferred upon the Trustee hereunder. The Trustee shall notify the
Company promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Trustee shall have the option of undertaking the defense of such
claims; provided, however, that if the Trustee opts not to defend itself, the
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement
without its written consent, which shall not be unreasonably withheld.
The Company need not reimburse the Trustee for any expense or
indemnify it against any loss or liability incurred by it resulting from its
negligence or bad faith.
To secure the Company's payment obligations in this Section 9.7, the
Trustee shall have a senior claim to which the Securities are hereby made
subordinate on all money or property held or collected by the Trustee, except
such money or property held in trust to pay the principal of and interest on
particular Securities. The obligations of the Company under this Section 9.7 to
compensate or indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall be secured by a lien prior to that of
the Securities upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the benefit of the Holders of particular
Securities. The obligations of the Company under this Section 9.7 shall survive
the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (5) or (6) of Section 8.1 occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 9.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities then outstanding may remove the
Trustee by so notifying the Trustee and may, with the Company's written consent,
appoint a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 9.10;
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(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 45 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of 10% in principal amount of the Securities then outstanding may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 9.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee and be released from its obligations (exclusive of any
liabilities that the retiring Trustee may have incurred while acting as Trustee)
hereunder, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Securityholder.
A retiring Trustee shall not be liable for the acts or omissions of
any successor Trustee after its succession.
Notwithstanding replacement of the Trustee pursuant to this Section
9.8, the Company's obligations under Section 9.7 shall continue for the benefit
of the retiring Trustee.
Section 9.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, the resulting, surviving or transferee corporation, without any
further act, shall be the successor Trustee, provided such transferee
corporation shall qualify and be eligible under Section 9.10.
Section 9.10 ELIGIBILITY; DISQUALIFICATION.
The Trustee shall always satisfy the requirements of paragraphs (1),
(2) and (5) of TIA Section 310(a). If at any time the Trustee shall cease to
satisfy any such requirements, it shall resign immediately in the manner and
with the effect specified in this Article 9. The Trustee shall be subject to
the provisions of TIA Section 310(b). Nothing herein shall prevent
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the Trustee from filing with the SEC the application referred to in the
penultimate paragraph of TIA Section 310(b).
Section 9.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE X
SATISFACTION AND DISCHARGE OF INDENTURE
Section 10.1 TERMINATION OF COMPANY'S OBLIGATIONS.
Subject to applicable rules of any stock exchange or system on which
the Securities are listed or quoted, the Company may terminate all of its
obligations under the Securities and this Indenture (excepting those obligations
referred to in the immediately succeeding paragraph) if all Securities
previously authenticated and delivered (other than destroyed, lost or stolen
Securities which have been replaced or paid or Securities for whose payment
money has theretofore been held in trust and thereafter repaid to the Company,
as provided in Section 10.3) have been delivered to the Trustee or the Paying
Agent for cancellation and the Company has paid all sums payable by it
hereunder, or if the Company irrevocably deposits in trust with the Trustee or
the Paying Agent, pursuant to a written trust agreement satisfactory to the
Trustee, money or U.S. Government Obligations maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay the principal of and
interest on the Securities then outstanding to maturity or to the date fixed for
redemption and to pay all other sums payable by it hereunder. The Company may
make an irrevocable deposit pursuant to this Section 10.1 only if at such time
it is not prohibited from doing so under the provisions of Article 5 and the
Company shall have delivered to the Trustee and any such Paying Agent an
Officers' Certificate and an Opinion of Counsel to that effect and that all
other conditions to such deposit have been complied with.
The Company's obligations in paragraph 13 of the Securities and in
Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.11, 2.12, 6.1, 9.7, 9.8, 10.4 and Article 4
shall survive until the Securities are no longer outstanding. Thereafter, the
Company's obligations in such paragraph 13 and in Section 9.7 shall survive.
After such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture, except for those surviving obligations specified
above.
"U.S. Government Obligations" means direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States is pledged.
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Section 10.2 APPLICATION OF TRUST MONEY.
The Trustee or the Paying Agent shall hold in trust, for the benefit
of the Holders, money or U.S. Government Obligations deposited with it pursuant
to Section 10.1, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of the
principal of and interest on the Securities. Money and U.S. Government
Obligations so held in trust shall not be subject to the subordination
provisions of Article 5.
Section 10.3 REPAYMENT TO COMPANY.
Subject to Section 10.1, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess money or U.S. Government
Obligations held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal or interest that remains
unclaimed for two years after a right to such money has matured; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such payment, may at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and that
after a date specified therein, which shall be at least 30 days from the date of
such publication or mailing, any unclaimed balance of such money then remaining
will be repaid to the Company. After payment to the Company, Securityholders
entitled to money must look to the Company for payment as general creditors
unless otherwise prohibited by law.
Section 10.4 REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 10.1 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 10.1 until such time as the Trustee or the Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with Section
10.1; provided, however, that if the Company has made any payment of the
principal of or interest on any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive any such payment from the money or U.S. Government
Obligations held by the Trustee or the Paying Agent.
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ARTICLE XI
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 11.1 WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
(a) to comply with Sections 4.11, 6.3 and 7.1;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(c) to cure any ambiguity, defect or inconsistency, or to make any
other change that does not adversely affect the rights of any Securityholder;
(d) to comply with the provisions of the TIA; or
(e) to appoint a successor Trustee.
Section 11.2 WITH CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to any Securityholder with the written consent of
the Holders of a majority in principal amount of the Securities then
outstanding. The Holders of a majority in principal amount of the Securities
then outstanding may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Securities without notice to any
Securityholder. Subject to Section 11.4, without the written consent of each
Securityholder affected, however, an amendment, supplement or waiver, including
a waiver pursuant to Section 8.4, may not:
(1) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of
interest on any Security;
(3) reduce the principal of or premium on or change the fixed
maturity of any Security or alter the redemption provisions
with respect thereto in a manner adverse to the Holder
thereof;
(4) alter the conversion provisions with respect to any Security
in a manner adverse to the Holder thereof;
(5) waive a default in the payment of the principal of or
premium or interest on any Security;
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(6) make any changes in Section 8.4 or 8.7 or in this sentence;
(7) modify the provisions of Article 5 in a manner adverse to
the Holders; or
(8) make any Security payable in money other than that stated in
the Security.
It shall not be necessary for the consent of the Holders under this
Section 11.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 11.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
An amendment under this Section 11.2 may not make any change that
adversely affects the rights under Article 5 of any holder of an issue of Senior
Indebtedness unless the holders of that issue, pursuant to its terms, consent to
the change.
Section 11.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as in effect at the date of such amendment or
supplement.
Section 11.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his or her Security or portion of a Security if the Trustee
receives the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 11.2. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
Section 11.5 NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may
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place an appropriate notation on the Security about the changed terms and return
it to the Holder. Alternatively, if the Company or the Trustee so determines,
the Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms.
Section 11.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplement authorized pursuant
to this Article 11 if the amendment or supplement does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, in its sole discretion, but need not sign it. In signing or
refusing to sign such amendment or supplement, the Trustee shall be entitled to
receive and, subject to Section 9.1, shall be fully protected in relying upon,
an opinion of Counsel stating that such amendment or supplement is authorized or
permitted by this Indenture. The Company may not sign an amendment or
supplement until the Board of Directors approves it.
ARTICLE XII
MISCELLANEOUS
Section 12.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through
operation of Section 318(c) thereof, such imposed duties shall control.
Section 12.2 NOTICES.
Any notice, request or communication shall be given in writing and
delivered in person or mailed by first-class mail, postage prepaid, addressed as
follows:
If to the Company:
If to the Trustee:
Such notices or communications shall be effective when received.
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
by first-class mail to him or her at his or her address shown on the register
kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or
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communication to a Securityholder is mailed in the manner provided above, it is
duly given, whether or not the addressee receives it.
Section 12.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).
Section 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
(a) Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee
at the request of the Trustee:
(1) an Officer's Certificate stating that, in the opinion of the
signers, all conditions precedent (including any covenants,
compliance with which constitutes a condition precedent), if
any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent (including any
covenants, compliance with which constitutes a condition
precedent) have been complied with.
(b) Each Officers' Certificate and opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture (other
than annual certificates provided pursuant to Section 6.4) shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary
to enable him or her to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with;
provided, however, that with respect to matters of fact an
Opinion of Counsel
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may rely on an Officers' Certificate or certificates of
public officials.
Section 12.5 RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS.
The Company (or, in the event deposits have been made pursuant to
Section 6.3 or 10.1, the Trustee) may set a record date for purposes of
determining the identity of Securityholders entitled to vote or consent to any
action by vote or consent authorized or permitted under this Indenture, which
record date shall be the later of ten days prior to the first solicitation of
such vote or consent or the date of the most recent list of Securityholders
furnished to the Trustee pursuant to Section 2.5 prior to such solicitation.
Notwithstanding the provisions of Section 11.4, if a record date is fixed, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to take such
action by vote or consent or to revoke any vote or consent previously given,
whether or not such persons continue to be Holders after such record date.
Section 12.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR, CONVERSION
AGENT.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar, Paying Agent or Conversion Agent may make reasonable
rules for its functions.
Section 12.7 LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, Sunday or a day on which state or
federally chartered banking institutions in New York, New York (or such other
city and state where the Trustee's corporate trust operations are then located)
are not required to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
Section 12.8 GOVERNING LAW.
Except as specifically provided in Section 3.8(a), the laws of the
State of New York shall govern this Indenture and the Securities without regard
to principles of conflicts of law.
Section 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.10 NO RECOURSE AGAINST OTHERS.
All liability described in paragraph 18 of the Securities of any
director, officer, employee or shareholder, as such, of the Company is waived
and released.
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Section 12.11 SUCCESSORS.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
Section 12.12 MULTIPLE COUNTERPARTS.
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent the same agreement.
Section 12.13 SEPARABILITY.
In case any provisions in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.14 TABLE OF CONTENTS, HEADINGS, ETC.
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
as of ________________________.
AMERICAN SKIING COMPANY
By:
-------------------------------
Name:
Title:
{SEAL}
Attest:
By:
-------------------------------
Name:
Title:
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[TRUSTEE]
By:
-------------------------------
Name:
Title:
{SEAL}
Attest:
By:
-------------------------------
Name:
Title:
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EXHIBIT A-1
[FORM OF FACE OF SECURITY]
10 1/2% Convertible Subordinated Debentures due _______(1)
AMERICAN SKIING COMPANY
INCORPORATED UNDER THE
LAWS OF THE STATE OF MAINE
CUSIP: __________ R-__________
10 1/2% Repriced Convertible Subordinated Debentures due _______(2)
American Skiing Company promises to pay to _______________, or
registered assigns, the principal sum of __________________ Dollars on
_______(2).
Interest Payment Dates (subject to paragraph 1 appearing on the other side of
this Debenture): January 15, April 15, July 15 and October 15
Record Dates (subject to paragraph 1 appearing on the other side of this
Debenture): December 30, March 30, June 30, and September 30
This Debenture is convertible as specified on the other side of this
Debenture. Additional provisions of this Debenture are set forth on the other
side of this Debenture.
__________________
1. Insert five years from date of issuance of the 10 1/2% Repriced Convertible
Preferred Stock.
2. Insert fifth anniversary of the date of issuance of the 10 1/2% Repriced
Convertible Preferred Stock.
50
<PAGE>
IN WITNESS WHEREOF, American Skiing Company has caused this instrument
to be duly executed in its corporate name and the facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
AMERICAN SKIING COMPANY
By:
-------------------------------
President and Chief Executive Officer
[SEAL]
Attest:
Dated:
Trustee's Certificate of Authentication:
This is one of the Securities referred to
in the within-mentioned Indenture.
[NAME OF TRUSTEE],
as Trustee
By:
-------------------------------
Authorized Signatory
1
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
AMERICAN SKIING COMPANY
10 1/2% Repriced Convertible Subordinated Debentures due _______(1)
1. INTEREST.
American Skiing Company, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Debenture at the rate
per annum shown above. The Company shall accrue and compound quarterly on
January 15, April 15, July 15 and October 15 of each year, commencing
_____________;(2) provided that (i) all accrued interest shall be payable in
cash on ___________(2) or if earlier upon the Redemption Date. Interest on the
Debentures shall accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of first issuance of the
Debentures under the Indenture (as defined below). The Company at its option
may pay accrued and unpaid interest in cash on any interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT.
Subject to the provisions of paragraph 1, above, the Company shall
pay interest on this Debenture (except defaulted interest) to the person who
is the Holder of this Debenture at the close of business on the December 30,
March 30, June 30 or September 30 next preceding the related interest payment
date. The Holder must surrender this Debenture to the Paying Agent to collect
payment of principal. The Company will pay principal and interest in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. The Company may, however, pay principal and
interest by its check or wire payable in such money. It may mail an interest
check to the Holder's registered address.
3. PAYING AGENT, REGISTRAR AND CONVERSION AGENT.
Initially, [Insert Name of Trustee] (the "Trustee") will act as Paying
Agent, Registrar and Conversion Agent. The Company may change any Paying Agent,
Registrar or Conversion Agent without notice to the Holder. The Company or any
of its Subsidiaries may act as Paying Agent, Registrar or Conversion Agent.
___________________
1. Insert five years from date of issuance of 10 1/2% Repriced Convertible
Preferred Stock.
2. Insert first quarterly payment date after issuance.
2
<PAGE>
4. INDENTURE, LIMITATIONS.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 10 1/2% Convertible Subordinated Debentures due
_______(1) (the "Debentures"), issued under an Indenture dated as of [insert
date of issuance] (the "Indenture"), between the Company and the Trustee. The
terms of this Debenture include those stated in the Indenture and those required
by or made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended, and as in effect on the date of the Indenture. This Debenture
is subject to all such terms and the Holder of this Debenture is referred to the
Indenture and said Act for a statement of them.
The Debentures are subordinated unsecured obligations of the Company
limited to up to $40,000,000(2) aggregate principal amount, subject to Section
2.2 of the Indenture. The Indenture does not limit other debt of the Company,
secured or unsecured, including Senior Indebtedness.
5. OPTIONAL REDEMPTION.
The Debentures are subject to redemption, at any time as a whole or in
part, at the election of the Company; provided that the Debentures may not be so
redeemed prior to [insert the fifth anniversary of date of issuance of the 10
1/2% Repriced Convertible Preferred Stock] unless the closing price per share of
the Common Stock for 45 consecutive trading days ending no more than 30 calendar
days prior to the date notice of redemption is first mailed is at least 140% of
the Adjusted IPO Price then in effect. The Redemption Price shall equal 100% of
the principal amount thereof, in each case together with accrued interest
through the Redemption Date.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed by first-class mail at least 90
days before the Redemption Date to each Holder of Debentures to be redeemed at
his or her registered address. Debentures in denominations larger than $1,000
may be redeemed in part, but only in whole multiples of $1,000. On and after
the Redemption Date, subject to the deposit with the Paying Agent of funds
sufficient to pay the Redemption Price interest ceases to accrue on Debentures
or portions of them called for redemption.
___________________
1. Insert five years from date of issuance of 10 1/2% Repriced Convertible
Preferred Stock.
2. Plus accrued dividends on the 10 1/2% Repriced Convertible Preferred Stock.
3
<PAGE>
7. CONVERSION.
A Holder of a Debenture may convert such Debenture into shares of
Common Stock of the Company at any time prior to maturity; provided, however,
that if the Debenture is called for redemption, the conversion right will
terminate at the close of business on the redemption date for such Debenture
(unless the Company shall default in making the redemption payment when due, in
which case the conversion right shall terminate at the close of business on the
date such default is cured and such Debenture is redeemed); provided, further,
that if the Holder of a Debenture presents such Debenture for redemption prior
to the close of business on the redemption date for such Debenture, the right of
conversion shall terminate upon presentation of the Debenture to the Trustee
(unless the Company shall default in making the redemption payment when due, in
which case the conversion right shall terminate on the close of business on the
date such default is cured and such Debenture is redeemed). The initial
conversion price is ________* per share, subject to adjustment under certain
circumstances. The number of shares issuable upon conversion of a Debenture is
determined by dividing the principal amount converted by the conversion price in
effect on the Conversion Date. Upon conversion any accrued and unpaid interest
on the Securities shall be paid to the Holder thereof, at the option of the
Company, either (i) in freely tradeable shares of Common Stock at the Conversion
Price or (ii) in cash. No fractional shares will be issued upon conversion; in
lieu thereof, an amount will be paid in cash based upon the closing sale price
of the Common Stock on the last Trading Day prior to the Conversion Date.
To convert a Debenture, a Holder must (a) complete and manually sign
the conversion notice set forth below and deliver such notice to the Conversion
Agent, (b) surrender the Debenture to the Conversion Agent, (c) furnish
appropriate endorsements or transfer documents if required by the Registrar or
the Conversion Agent, and (d) pay any transfer or similar tax, if required. If
a Holder surrenders a Debenture for conversion after the close of business on
the record date for the payment of an installment of interest and before the
close of business on the related interest payment date then, notwithstanding
such conversion, the interest payable on such interest payment date shall be
paid to the Holder of such Debenture on such record date. In such event, the
Debenture must be accompanied by payment of an amount equal to the interest
payable on such interest payment date on the principal amount of the Debenture
or portion thereof then converted. A Holder may convert a portion of a
Debenture equal to $1,000 or any integral multiple thereof.
8. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
Any Securities called for redemption, unless surrendered for
conversion before the close of business on the Redemption Date, may be deemed to
be purchased from the Holders of such Securities at an amount not less than the
Redemption Price, together with accrued interest, if any, to, but not including,
the Redemption Date, by one or more investment bankers or other purchasers who
may agree with the Company to purchase such Securities from the Holders, to
_________________
* Insert the then applicable conversion price for the 10 1/2% Repriced
Convertible Preferred Stock.
4
<PAGE>
convert them into Common Stock of the Company and to make payment for such
Securities to the Paying Agent in Trust for such Holders.
9. SUBORDINATION.
The indebtedness evidenced by the Debentures is, to the extent and in
the manner provided in the Indenture, subordinate and junior in right of payment
to the prior payment in full of all Senior Indebtedness of the Company. Any
Holder by accepting this Debenture agrees to and shall be bound by such
subordination provisions and authorizes the Trustee to give them effect. Such
subordination provisions include certain rights of the holders of Senior
Indebtedness to block the payment of principal and interest on the Debentures
during the pendency of certain defaults in respect of such Senior Indebtedness.
In addition to all other rights of Senior Indebtedness described in
the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any terms of any instrument relating to the
Senior Indebtedness or any extension or renewal of the Senior Indebtedness.
10. DENOMINATIONS, TRANSFER, EXCHANGE.
The Debentures are in registered form without coupons in denominations
of $1,000 and integral multiples of $1,000. A Holder may register the transfer
of or exchange Debentures in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes or other governmental charges that may
be imposed by law or permitted by the Indenture.
11. PERSONS DEEMED OWNERS.
The Holder of a Debenture may be treated as the owner of it for all
purposes.
12. UNCLAIMED MONEY.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent will pay the money back to the
Company at its written request. After that, Holders entitled to money must look
to the Company or payment.
13. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the Holders of a majority in
principal amount of the Debentures then outstanding and any past default or
compliance with any provision may be
5
<PAGE>
waived in a particular instance with the consent of the Holders of a majority in
principal amount of the Debentures then outstanding. Without the consent of or
notice to any Holder, the Company and the Trustee may amend or supplement the
Indenture or the Debentures to, among other things, provide for uncertificated
Debentures in addition to or in place of certificated Debentures, or to cure any
ambiguity, defect or inconsistency or make any other change that does not
adversely affect the rights of any Holder.
14. SUCCESSOR CORPORATION.
When a successor corporation assumes all the obligations of its
predecessor under the Debentures and the Indenture in accordance with the terms
and conditions of the Indenture, the predecessor corporation will be released
from those obligations.
15. DEFAULTS AND REMEDIES.
An Event of Default is: default for 10 business days in payment of
interest on the Debentures; default in payment of principal on the Debentures
when due; failure by the Company for 30 days after notice to it to comply with
any of its other agreements contained in the Indenture or the Debentures;
certain events of bankruptcy, insolvency or reorganization of the Company; and
defaults in respect of certain other indebtedness. If an Event of Default
(other than as a result of certain events of bankruptcy, insolvency or
reorganization) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the Debentures then outstanding may declare all
unpaid principal of and accrued interest to the date of acceleration on the
Debentures then outstanding to be due and payable immediately, all as and to the
extent provided in the Indenture. If an Event of Default occurs as a result of
certain events of insolvency or reorganization, unpaid principal of and accrued
interest on the Debentures then outstanding shall become due and payable without
any declaration or other act on the part of the Trustee, or all as and to the
extent provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Debentures. Subject
to certain limitations, Holders of a majority in principal amount of the
Debentures then outstanding may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Company is required to file
periodic reports with the Trustee as to the absence of default.
16. TRUSTEE DEALINGS WITH THE COMPANY.
[Insert name of Trustee], the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits from and
perform services for the Company or an Affiliate of the Company, and may
otherwise deal with the Company or an Affiliate of the Company, as if it were
not the Trustee.
6
<PAGE>
17. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Debentures or the Indenture nor for any claim based on, in respect of or by
reason of such obligations or their creation. The Holder of this Debenture by
accepting this Debenture waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of this Debenture.
18. DISCHARGE PRIOR TO MATURITY.
If the Company deposits with the Trustee or the Paying Agent money or
U.S. Government Obligations sufficient to pay the principal of and interest on
the Debentures to maturity, the Company will be discharged from the Indenture
except for certain sections thereof.
19. AUTHENTICATION.
This Debenture shall not be valid until the Trustee or an
authenticating agent signs the certificate of authentication on the other side
of this Debenture.
20. ABBREVIATIONS AND DEFINITIONS.
Customary abbreviations may be used in the name of the Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
All capitalized terms used in this Debenture and not specifically
defined herein are defined in the Indenture and are used herein as so defined.
21. INDENTURE TO CONTROL.
In the case of any conflict between the provisions of this Debenture
and the Indenture, the provisions of the Indenture shall control.
The Company will furnish to any Holder, upon written request and
without charge, a copy of the Indenture. Requests may be made to: [Insert name
and address].
7
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below:
I or we assign and transfer this Debenture to
___________________________________________________________
___________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint
___________________________________________________________
agent to transfer this Debenture on the books of the
Company. The Agent may substitute another to act for him or
her.
Date: ____________________________________________________
Your signature: ___________________________________________
(Sign exactly as your name appears on the
other side of this Debenture)
___________________________________________________________
(Sign exactly as your name appears on the other side of this
Debenture)
**/Signature guaranteed by:________________________________________
By: ___________________________________
___________________
** The signature must be guaranteed by a bank, a trust company or a member
firm of the New York Stock Exchange.
8
<PAGE>
CONVERSION NOTICE
To convert this Debenture into Common Stock of the Company, check the box:
/ /
To convert only part of this Debenture, state the amount to be converted:
$_________________
If you want the stock certificate made out in another person's name, fill in the
form below:
___________________________________________________________
___________________________________________________________
(Insert other person's soc. sec. or tax I.D. no.)
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
(Print or type assignee's name, address and zip code)
Date: _____________________________________________________
Your signature: ___________________________________________
(Sign exactly as your name appears on the
other side of this Debenture)
___________________________________________________________
(Sign exactly as your name appears on the
other side of this Debenture)
*/Signature guaranteed by: _______________________________
By: _______________________________________________________
_______________
* The signature must be guaranteed by a bank, a trust company or a member
firm of the New York Stock Exchange.
9
<PAGE>
EXHIBIT 10.107
Madeleine LLC
c/o Cerberus Partners
450 Park Avenue, 28th Floor
New York, New York 10022
American Skiing Company
Sunday River Access Road
Bethel, ME 04217
Attn: Leslie B. Otten, Chairman
Re: Amendment and Waiver
To the Board of Directors:
Reference is made to (i) that certain Securities Purchase Agreement dated
as of July 2, 1997, as amended by that certain First Amendment dated July 25,
1997 (the "Securities Purchase Agreement") by and between Madeleine LLC
("Purchaser" ) and American Skiing Company, a Maine corporation (the "Company"),
formerly known as "ASC Holdings, Inc."; (ii) that certain Registration Rights
Agreement dated as of July 2, 1997 (the "Registration Rights Agreement") by and
between Purchaser and the Company; (iii) the Statement of Resolution
Establishing Series of Shares with respect to the Company's Series A
Exchangeable Preferred Stock (the "Certificate of Designation") filed with the
Secretary of State of Maine on July 16, 1997; and (iv) the Notes (as defined
below). The Securities Purchase Agreement, the Registration Rights Agreement,
the Certificate of Designation and the Notes and the other agreements,
instruments and documents relating to Purchaser's purchase of the Preferred
Stock and the Notes are referred to herein, collectively, as the "Purchaser
Closing Documents." Capitalized terms used in this letter agreement and not
otherwise defined herein shall have the respective meanings given them in the
Securities Purchase Agreement and the Registration Rights Agreement.
You have advised us that the Company has filed a Registration Statement on
Form S-1 (the "IPO Registration Statement") with the Securities and Exchange
Commission (the "SEC") with respect to an initial public offering (the "IPO") of
its common stock, par value $.01 per share ("Common Stock"). Purchaser
acknowledges that it has received a copy of the Registration Statement,
including Amendment No. 2 thereto filed on October 10, 1997 and a copy of the
Subject to Completion Prospectus dated October 14, 1997 relating to the IPO.
Purchaser represents and warrants that it is the sole record and beneficial
owner of 17,500 shares of Series A Exchangeable Preferred Stock (the "Preferred
Stock") and $17,500,000
<PAGE>
aggregate principal amount of ASC's 14% Senior Exchangeable Notes due 2002 (the
"Notes" and, together with the Preferred Stock, the "Securities"). In
connection with the IPO and as contemplated by the Securities Purchase
Agreement, the Company is required to offer to exchange such Preferred Stock and
Notes for the Company's Repriced Converts (as defined in the Securities Purchase
Agreement). Purchaser and the Company have had discussions with respect to
amending or waiving certain provisions of the Purchaser Closing Documents
relating to such exchange. This Letter Agreement ("Letter Agreement") sets
forth the entire agreement between Purchaser and the Company with respect to the
subject matter of such discussions. In consideration of the mutual agreements
contained herein, Purchaser hereby agrees with the Company as follows:
1. AMENDMENT OF SECURITIES PURCHASE AGREEMENT.
(a) The Company and Purchaser agree that Section 1 of the
Securities
Purchase Agreement is hereby amended by deleting the definition
of "Repriced Converts" in its entirety and substituting the
following therefor:
"Repriced Converts" shall mean the 101/2% Repriced
Convertible Exchangeable Preferred Stock issued pursuant to
the Repriced Converts Certificate of Designation or 101/2%
Repriced Convertible Subordinated Debentures of the Company
issued pursuant to the Repriced Converts Indenture in
exchange for the 101/2% Convertible Exchangeable Preferred
Stock, with dividends or interest payable in cash or
compounding quarterly at the Company's option at a rate per
annum equal to 101/2%, Convertible into Conversion Shares
and with a maturity or mandatory redemption date on the
fifth anniversary of their date of issuance.
(b) The Company and Purchaser agree that the Securities Purchase
Agreement is hereby amended by deleting Exhibits C and D attached
thereto in their entirety and replacing them with EXHIBITS C AND
D, respectively, attached hereto.
(c) The Company and Purchaser agree that Section 8.1 of the
Securities Purchase Agreement is hereby amended by deleting
such section in its entirety and substituting the following
therefor:
8.1 CONVERSION AND EXCHANGE OF SECURITIES;
REGISTRATION.(i) In connection with the Company's initial
public offering of its Common Stock, par value $.01 per
share (the "IPO"), pursuant to a Registration Statement on
Form S-1 Reg. No. 333-33493 (the "IPO Registration
Statement") filed with the Securities and Exchange
Commission the Company hereby notifies Purchaser that:
2
<PAGE>
(1) that the Company is offering (the "IPO Offer") to
exchange (the "IPO Exchange") effective upon the
consummation of the IPO for all, but not less than all, of
the Preferred Stock and Notes owned by Purchaser, a number
of shares of the Company's 101/2% Repriced Convertible
Exchangeable Preferred Stock, having a liquidation
preference of $1,000 per share, equal to the aggregate
Liquidation Preference and Principal Amount of the Preferred
Stock and Notes being exchanged; and (2) that the Repriced
Converts will be issued pursuant to the Repriced Converts
Certificate of Designation, that the Repriced Converts have
been duly authorized by the Company and, upon issuance
thereof, will be legal, valid and binding obligations of the
Company enforceable in accordance with their terms, and that
the Conversion Shares of the Company will be, upon
conversion of the Repriced Coverts, legally and validly
issued, fully-paid and non-assessable, free of pre-emptive
rights. The Purchaser hereby irrevocably accepts the IPO
Offer, in whole, and agrees to exchange all of the
Securities owned by it for Repriced Converts provided that,
(i) the obligations of the Company and the Purchaser to
consummate the IPO Exchange shall be subject to the
condition precedent the IPO shall have closed within 180
days of November 3, 1997 and (ii) the price to the public
for the Common Stock issued in the IPO shall not be less
than $15.30 nor more than $22.00 per share. Purchaser
agrees to deliver certificates representing its shares of
Preferred Stock and Notes to the Company at the closing of
the IPO, and to execute such other documents or instruments
necessary to effect the IPO Exchange.
(b) The Repriced Converts shall be issued on the date
of closing of the IPO, pursuant to a Statement of Resolution
Establishing Series of Shares in the form of the Repriced
Convert Certificate of Designations and shall have an
aggregate Liquidation Preference equal to the aggregate
Principal Amount and Liquidation Preference of the
Securities being exchanged. The Repriced Converts shall be
convertible into IPO Common Stock at an initial conversion
price (subject to adjustment as provided in the Repriced
Converts Certificate of Designations) per share of IPO
Common Stock equal to the IPO Price multiplied by the
difference between one (1) minus the Conversion Discount
Percentage. As promptly as practicable thereafter, the
Company shall issue and deliver to the Purchaser
certificates for the Repriced Converts being issued.
(c) Purchaser acknowledges and agrees that the IPO
Exchange shall be effected as a private placement pursuant
to Section 3(a)(9) under the Securities Act of 1933, as
amended (the "1933 Act"), or other applicable exemption from
the registration
3
<PAGE>
requirements of the 1933 Act. Purchaser represents and
warrants that (i) it is acquiring the 101/2% Repriced
Convertible Exchangeable Preferred Stock for investment and
not with a view to distribution thereof: (ii) it has
received a copy of the Registration Statement; (iii) it is
an "accredited investor" within the meaning of Rule 502
under the 1933 Act and has such knowledge and experience so
as to be able to be capable of evaluating the IPO Exchange;
and (iv) it understands that each certificate evidencing the
101/2% Repriced Convertible Exchangeable Preferred Stock and
the Common Stock or 101/2% Repriced Subordinated Debentures
issuable upon conversion or exchange thereof shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT
PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO
SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE
144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES.
2. The Company and Purchaser have entered into the Amended and Restated
Registration Rights Agreement in the form attached hereto as Exhibit F
(the "Amended and Restated Registration Rights Agreement"), which
shall become effective solely upon the closing of the IPO Exchange.
3. WAIVER. In order to permit the Company to complete the IPO,
Purchaser consents to the IPO and irrevocably and forever waives any
and all rights it may have under the Purchaser Closing Documents
(i) relating to notice of the IPO; (ii) except as provided in the
Amended and Restated Registration Rights Agreement to require the
Company to register any securities held by Purchaser, or issuable to
the Purchaser upon conversion or exchange of any other securities,
under the 1933 Act, including, without limitation, any registration of
securities for sale in the IPO, or to require the Company to cause the
Repriced Converts or underlying Common Stock issuable upon conversion
thereof to be freely tradeable at the closing of the IPO, including,
without limitation, the rights set forth in Sections 8.1(a), 8.1(b)
and 8.1(c) of the Securities Purchase Agreement; (iii) relating to
notice or response periods with respect to its rights to exchange the
Securities for the Repriced Converts in connection with the IPO; and
(iv) relating to any Change of Control including, without limitation,
any and all rights to receive notice of, or exchange or require the
redemption of Securities as a result of, any such Change of Control,
4
<PAGE>
provided that this waiver shall be effective only if the IPO shall
have been consummated within 180 days of the date hereof.
Notwithstanding the foregoing, effective upon the closing of the IPO
Exchange, the Purchaser shall have the registration rights set forth
in the Amended and Restated Registration Rights Agreement.
4. LOCK-UP. Purchaser agrees to enter into the Lock-Up Letter Agreement
which is attached hereto as EXHIBIT A at the effective time of the IPO
Registration Statement, and the terms of the Lock-Up Agreement are
incorporated herein by reference and are deemed to be a part hereof as
if stated in their entirety.
5. CONSENT TO AMENDMENT TO ARTICLES OF INCORPORATION. Purchaser hereby
consents to and approves the Amended and Restated Articles of
Incorporation of the Company attached hereto as EXHIBIT B.
6. WAIVER OF ANY CONFLICTS. Purchaser hereby irrevocably, waives
compliance with the covenants contained in the Purchaser Closing
Documents to the extent necessary to permit, and waives any Events of
Default existing or arising under the Purchaser Closing Documents as
a result of , and consents to, the following: (i) the filing of the
IPO Registration Statement and the consummation of the IPO; and (ii)
subject to the consummation of the IPO within 180 days of the date
hereof, the occurrence on or after the consummation of the IPO of the
events or transactions described or contemplated in the IPO
Registration Statement, including, without limitation: (A) the
granting of stock options covering 2,475,235 shares of Common Stock
to certain officers of the Company and the granting of additional
stock options from time to time pursuant to the Company's Stock
Option Plan, (B) the exchange by the Company of 1,000,000 shares
of the Company's Common Stock held by Leslie B. Otten for 14,760,530
shares of the Company's Class A Common Stock, (C) the consummation
on or after the consummation of the IPO of the New Credit Facility
(as defined in the Registration Statement) substantially in accordance
with the terms of the commitment letter for such financing attached
hereto as EXHIBIT E, (D) the redemption of the Discount Notes on the
terms described in the IPO Registration Statement and (E) the exchange
offer for the 4% minority interests in ASC East, Inc.
7. SECURITIES PURCHASE AGREEMENT COVENANTS. Purchaser acknowledges and
agrees that the following sections of the Securities Purchase
Agreement shall terminate effective upon the closing of the IPO and be
of no further force or effect: Sections 2.3, 2.5, 2.6(b), 2.7,
Section 6 (other than Sections 6.4, 6.8 and 6.22(a), which shall
continue in effect) and Section 7.
8. LETTER DATED OCTOBER 9, 1997. The letter between the Company and
Purchaser dated October 9, 1997 (the "Initial Letter") and any
and all prior oral or written expressions, agreements or
understandings with respect to the subject matter hereof and of
the Initial Letter are superseded in their entirety by this
Letter Agreement,
5
<PAGE>
which constitutes the parties' entire understanding with respect to
such subject matter, and may be amended only by a writing duly
executed by both parties.
9. GOVERNING LAW. This Letter Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
10. COUNTERPARTS. This Letter Agreement may be signed in any number of
counterparts, each executed counterpart constituting an original, but
all together only one agreement.
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To the extent the foregoing correctly reflects the understanding and
agreements of ASC please kindly execute the acknowledgment below and return one
original agreement to Purchaser.
Very truly yours,
MADELEINE LLC
By: ____________________________________
Name:
Title:
Date: ___________________, 1997
Agreed to and Acknowledged by
AMERICAN SKIING COMPANY
(Formerly ASC HOLDINGS, INC.)
By: ___________________________
Name:
Title:
Date: ___________________, 1997
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<PAGE>
EXHIBIT 10.108
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
by and between
AMERICAN SKIING COMPANY
and
MADELEINE L.L.C.
Dated as of November 3, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS...............................................................2
2. REGISTRATION UNDER THE SECURITIES ACT.....................................6
2.1 REGISTRATION.........................................................6
2.2 EFFECTIVE PERIOD.....................................................8
2.3 EXPENSES.............................................................9
2.4 UNDERWRITTEN OFFERINGS...............................................9
2.5 CONVERSIONS; EXERCISES...............................................9
3. REGISTRATION PROCEDURES..................................................10
3.1 OBLIGATIONS OF THE COMPANY..........................................10
3.2 SELLER INFORMATION..................................................14
3.3 NOTICE TO DISCONTINUE...............................................14
4. INDEMNIFICATION; CONTRIBUTION............................................15
4.1 INDEMNIFICATION BY THE COMPANY......................................15
4.2 INDEMNIFICATION BY HOLDERS..........................................16
4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS..............................16
4.4 CONTRIBUTION........................................................17
4.5 OTHER INDEMNIFICATION...............................................18
4.6 INDEMNIFICATION PAYMENTS............................................18
5. GENERAL..................................................................18
5.1 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES........................18
5.2 REGISTRATION RIGHTS TO OTHERS.......................................18
5.3 AMENDMENTS AND WAIVERS..............................................18
5.4 NOTICES.............................................................18
5.5 SUCCESSORS AND ASSIGNS..............................................19
5.6 COUNTERPARTS........................................................20
5.7 DESCRIPTIVE HEADINGS, ETC...........................................20
5.8 SEVERABILITY........................................................20
5.9 GOVERNING LAW.......................................................20
5.10 REMEDIES; SPECIFIC PERFORMANCE......................................21
5.11 ENTIRE AGREEMENT....................................................21
5.12 NOMINEES FOR BENEFICIAL OWNERS......................................21
5.13 CONSENT TO JURISDICTION.............................................21
5.14 FURTHER ASSURANCES..................................................22
5.15 NO INCONSISTENT AGREEMENTS..........................................22
5.16 CONSTRUCTION........................................................22
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AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this or the
"Agreement") dated as of November 3, 1997, by American Skiing Company (formerly
ASC Holdings, Inc., a Maine corporation (the "Company"), and Madeleine L.L.C.
(the "Initial Holder").
W I T N E S S E T H:
WHEREAS, the Company and the Initial Holder entered into a Securities
Purchase Agreement, dated as of July 2, 1997, as amended by that certain First
Amendment dated July 25, 1997 and as further amended by that certain Amendment
and Waiver, of even date herewith (the "Amendment and Waiver") between the
Company and the Initial Holder amending or waiving certain provisions of the
Purchase Agreement (the "Purchase Agreement"), pursuant to which the Company
issued, and the Initial Holder purchased, certain securities of the Company;
and
WHEREAS, in order to induce the Initial Holder to enter into the
Purchase Agreement, the Company and its Subsidiaries agreed to provide certain
registration rights on the terms and subject to the conditions set forth herein;
and
WHEREAS, the Initial Holder and the Company desire to amend and
restate this Agreement in connection with the Company's initial public offering
of common stock (the "IPO") and the Amendment and Waiver;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings:
"Acquiring Person" has the meaning specified in the Purchase
Agreement.
"Affiliate" shall mean with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Business Day" shall mean any day except a Saturday, a Sunday or a day
on which banking institutions in New York, New York generally are required or
authorized by law or other government action to be closed.
<PAGE>
"Certificate of Designation" shall mean the Certificate of
Designation, Number, Voting Powers, Preferences and Rights of the Preferred
Stock of the Company and Rights of the Convertible Preferred Stock, as filed
with the Secretary of State of the State of Maine.
"Common Shares" shall mean shares of Common Stock of the Company.
"Common Stock" shall mean the class of Common Stock, par value $.01
per share, of the Company to be issued to the public, as such Common Stock may
be constituted from time to time.
"Company" shall have the meaning set forth in the preamble.
"Conversion Shares" shall mean the Common Shares or other equity
securities issued or issuable upon conversion of the Convertible Securities.
"Convertible Securities" shall mean the Repriced Converts.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations thereunder, or any
similar or successor statute.
"Holders" shall mean the Initial Holder for so long as it owns any
Registrable Securities and such of its respective heirs, successors and
permitted assigns (including any permitted transferees of Registrable
Securities) who acquire or are otherwise the transferee of Registrable
Securities, directly or indirectly, from such Initial Holder (or any subsequent
Holder), for so long as such heirs, successors and permitted assigns own any
Registrable Securities. For purposes of this Agreement, a Person will be deemed
to be a Holder whenever such Person holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities,
whether or not such purchase, conversion, exercise or exchange has actually been
effected and disregarding any legal restrictions upon the exercise of such
rights. Registrable Securities issuable upon exercise of an option or upon
conversion, exchange or exercise of another security shall be deemed outstanding
for the purposes of this Agreement.
"Holders' Counsel" shall mean one firm of counsel (per registration)
to the Holders of Registrable Securities participating in such registration,
which counsel shall be selected (i) in the case of a Registration, by the
Initiating Holders holding a majority of the Registrable Securities for which
registration was requested in the Notice, and (ii) in all other cases, by the
Majority Holders of the Registration.
"Initial Holder" shall mean Madeleine L.L.C.
"Initial Public Offering" means the initial public offering of the
Company's Common Stock pursuant to a Registration Statement on Form S-1
(Registration No. 333-33483) filed with the SEC, as amended at the time it
becomes effective.
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<PAGE>
"Initiating Holders" shall mean, with respect to a particular
registration, the Holders who initiated the Notice for Registration.
"Inspectors" shall have the meaning set forth in Section 4.1(g).
"Liquidation Preference" shall have the meaning specified in the
Purchase Agreement.
"Majority Holders" shall mean one or more Holders of Registrable
Securities who would hold a majority of the Registrable Securities then
outstanding.
"Majority Holders of the Registration" shall mean, with respect to the
Registration, one or more Holders of Registrable Securities who would hold a
majority of the Registrable Securities to be included in the Registration.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Notice" shall have the meaning set forth in Section 2.1(a).
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
any other entity or organization, including a government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business), and shall include any successor (by merger or otherwise) of such
entity.
"Prospectus" shall mean the prospectus included in a Registration
Statement (including, without limitation, any preliminary prospectus and any
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), and any such Prospectus as amended or
supplemented by any prospectus supplement, and all other amendments and
supplements to such Prospectus, including post-effective amendments, and in each
case including all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Purchase Agreement" shall have the meaning set forth in the preamble.
"Registrable Securities" shall mean (i) any Conversion Shares issued
or issuable upon conversion of the Repriced Converts, (ii) the Repriced Converts
and (iii) any other securities of the Company (or any successor or assign of the
Company, whether by merger, consolidation, sale of assets or otherwise) which
may be issued or issuable with respect to, in exchange for, or in substitution
of, Registrable Securities referenced in clauses (i) and (ii) above by reason of
any dividend or stock split, combination of shares, merger, consolidation,
recapitalization, reclassification, reorganization, sale of assets or similar
transaction. As to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when (A) a
4
<PAGE>
registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (B) such
securities are sold pursuant to Rule 144 (or any similar provisions then in
force) under the Securities Act, (C) such securities have been otherwise
transferred, a new certificate or other evidence of ownership for them not
bearing the legend restricting further transfer shall have been delivered by the
Company and subsequent public distribution of them shall not require
registration under the Securities Act, (D) such securities shall have ceased to
be outstanding or (E) such securities are freely tradable under the Securities
Act.
"Registration" shall mean a registration required to be effected by
the Company pursuant to Section 2.1.
"Registration Expenses" shall mean any and all expenses incident to
the performance of or compliance with this Agreement by the Company,
including, without limitation (i)all SEC, stock exchange, NASD and other
registration, listing and filing fees, (ii)all fees and expenses incurred in
connection with compliance with state securities or blue sky laws and
compliance with the rules of any stock exchange (including fees and
disbursements of counsel in connection with such compliance and the
preparation of a blue sky memorandum and legal investment survey), (iii)all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing, distributing, mailing and delivering any Registration
Statement, any Prospectus, any underwriting agreements, transmittal letters,
securities sales agreements, securities certificates and other documents
relating to the performance of or compliance with this Agreement, (iv)the
fees and disbursements of counsel for the Company, (v)the fees and
disbursements of Holders' Counsel, (vi)the fees and disbursements of all
independent public accountants (including the expenses of any audit and/or
"cold comfort" letters) and the fees and expenses of other Persons, including
experts, retained by the Company, (vii) the expenses incurred by the Company
in connection with making road show presentations and holding meetings with
potential investors to facilitate the distribution and sale of Registrable
Securities which are customarily borne by the issuer, (viii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, (ix)premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Registrable Securities
being registered, and (x)discounts and commissions payable to underwriters,
selling brokers, dealer managers or other similar Persons engaged in the
distribution of any of the Registrable Securities up to a maximum of three
percent (3%) of the price of the Registrable Securities distributed;
PROVIDED, HOWEVER, that in any case where Registration Expenses are not to be
borne by the Company, such expenses shall not include salaries of the
Company's personnel or general overhead expenses of the Company, auditing
fees, premiums or other expenses relating to liability insurance required by
underwriters of the Company or other expenses for the preparation of
financial statements or other data normally prepared by the Company in the
ordinary course of its business or which the Company Entity would have
incurred in any event.
"Registration Statement" shall mean a registration statement of the
Company which covers the Registrable Securities included therein pursuant to the
provisions of Section 2.1 and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference (or deemed to be incorporated by reference)
therein.
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<PAGE>
"Repriced Converts" shall have the meaning set forth in the Purchase
Agreement.
"SEC" shall mean the Securities and Exchange Commission, or any
successor agency having jurisdiction to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, and the rules and regulations thereunder, or any similar or
successor statute.
"Shelf Registration" shall have the meaning set forth in Section
2.1(a).
"Transfer Agent" shall mean Boston EquiServe.
"Underwriters" shall mean the underwriters, if any, of the offering
being registered under the Securities Act.
"Underwritten Offering" shall mean a sale of securities of the Company
to an Underwriter or Underwriters for reoffering to the public.
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 REGISTRATION.
(a) The Company shall cause the registration of all of the
Registrable Securities in accordance with the provisions of Section 2.1(b)
hereof, and use its best efforts to cause such Registration to become effective
at the time set forth in Section 2.1(b) below.
(b) In connection with a Registration contemplated by Section 2.1(a),
the Majority Holders shall have the right to notify in writing that the Company
register all or part of such Holders' Registrable Securities (a "Notice") (which
Notice shall specify the intended method of disposition thereof) by filing with
the SEC a Registration Statement. Subject to Section 2.1(b), the Company shall
include in a Registration all Registrable Securities intended to be disposed of
by the Holders within two years of the initial effective date of the
Registration as specified in the Notice. The Company shall, as expeditiously as
possible following a Notice, cause to be filed with the SEC a Registration
Statement providing for the registration under the Securities Act of the
Registrable Securities to the extent necessary to permit the disposition of such
Registrable Securities so to be registered in accordance with the intended
methods of disposition thereof specified in such Notice or further notices by
means of a shelf registration pursuant to Rule 415 under the Securities Act.
The Company shall cause such Registration Statement to be declared effective by
the SEC as soon as practicable thereafter and shall use its best efforts to keep
such Registration Statement continuously effective for the period specified in
Section 3.1(b). The Registration may also include the registration of the
issuance of the Common Shares issuable upon conversion of the Repriced Converts.
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<PAGE>
No Holder of Registrable Securities may include any of its
Registrable Securities in the Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing, within 10
business days after receipt of a request therefor, such information concerning
such Holder or its intended method of disposition as the Company may reasonably
request for use in connection with the Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Registrable Securities
shall be entitled to the Registration Delay Fee pursuant to Section 2.1(b)
hereof as a result of a failure to have the Registration Statement effective
within 90 days of the Applicable Closing Date if such failure is a result of
such Holder shall have provided all such reasonably requested information. Each
Holder as to which any Registration Statement is being effected agrees to
furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading.
The Company shall use its best efforts to cause the Registration
Statement to be declared effective no later than ninety (90) days following the
closing date of the IPO (the "Applicable Closing Date").
In the event that the Registration Statement shall fail to be
declared effective within ninety (90) days following the Applicable Closing
Date, or a Delay Period (as hereinafter defined) shall occur and be continuing,
the Company shall pay to the Holders a fee (the "Registration Delay Fee"), in
cash, equal to 3% per annum of the Liquidation Value of the Repriced Converts
owned by the Holders, compounded quarterly, for the period from the 90th day
following Applicable Closing date to the date the Registration Statement became
effective and for the period commencing on the first day of any Delay Period and
continuing until the Delay Period shall have ended.
(c) UNDERWRITING; SELECTION OF UNDERWRITERS. If the Initiating
Holders holding a majority of the Registrable Securities for which registration
was requested in the Notice so elect, the offering of such Registrable
Securities pursuant to such Registration shall be in the form of an Underwritten
Offering in customary form; and such Initiating Holders may require that all
other Holders participating in such registration sell their Registrable
Securities to the Underwriters at the same price and on the same terms of
underwriting applicable to the Initiating Holders. If any Registration involves
an Underwritten Offering, the sole or managing Underwriters and any additional
investment bankers and managers to be used in connection with such registration
shall be selected by the Company, subject to the approval of the Holders of a
majority of the Registrable Securities for which registration was requested in
the Request (such approval not to be unreasonably withheld). If any
Registration is being requested concurrently with an offering by the Company and
such registration is for an Underwriting Offering, the sole or managing
Underwriters for such registration shall be the same as selected by the Company
for the registration of such offering.
(d) REGISTRATION OF OTHER SECURITIES. Whenever the Company shall
effect a Registration, no securities other than the Registrable Securities
shall be covered by such registration unless the Majority Holders of the
Registration shall have consented in writing to the inclusion of such other
securities.
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<PAGE>
(e) EFFECTIVE REGISTRATION STATEMENT: SUSPENSION. The Company shall
use its best efforts to keep the Registration Statement effective in compliance
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement for the time
period specified in Section 3.1(b), PROVIDED THAT the Company may suspend the
effectiveness of the Registration Statement, in the event that, and for a period
not to exceed sixty (60) days in any calendar year (a "Blackout Period") if, (i)
an event occurs and is continuing as a result of the Registration Statement
would, in the Company's good faith judgment, contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading and (ii) the Company determines in good faith
that (a) the disclosure of such event at such time would have a material adverse
effect on the business, operations or prospects of the Company or (b) the
disclosure otherwise relates to a pending material business transaction which
has not yet been publicly disclosed. If (i) the offering of any Registrable
Securities pursuant to such Registration Statement is interfered with by any
stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, (ii) in the case of an Underwritten Offering, the
conditions to closing specified in an underwriting agreement to which the
Company is a party are not satisfied other than by the sole reason of any breach
of failure by the Holders of Registrable Securities or are not otherwise waived,
or (iii) a Blackout Period shall occur, then the period of time from the
occurrence of any of the events described in (i), (ii) or (iii) until such event
is no longer continuing shall constitute a "Delay Period".
(f) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form of the SEC which shall be
available for the sale of Registrable Securities in accordance with the intended
method or methods of disposition specified in the Notice requesting
registration. The Company shall include in any such Registration Statement, in
addition to such information as the Company may desire, all additional
information which any selling Holder, upon advice of counsel, shall reasonably
request.
2.2 EFFECTIVE PERIOD
Subject to its limited right to impose a Blackout Period, the Company
shall use its best efforts to keep the Registration continuously effective
through the date on which all of the Registrable Securities covered by such
Registration may be sold pursuant to Rule 144(k) under the Securities Act (or
any successor provision having similar effect); PROVIDED, HOWEVER, that prior to
the termination of such Registration, the Company shall first furnish to each
Holder of Registrable Securities participating in such Registration (i) an
opinion, in form and substance reasonably satisfactory to the Majority Holders
of the Registration, of counsel for such IPO Entity reasonably satisfactory to
the Majority Holders of the Registration stating that such Registrable
Securities are freely salable pursuant to Rule 144(k) under the Securities Act
(or any successor provision having similar effect) or (ii) a "No-Action Letter"
from the staff of the SEC stating that the SEC would not recommend enforcement
action if the Registrable Securities included in such Registration were sold in
a public sale other than pursuant to an effective registration statement.
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2.3 EXPENSES. The Company shall pay all of its Registration Expenses
(including all discounts and commissions payable to underwriters, selling
brokers, managers or other similar Persons engaged in the distribution of
such Holder's Registrable Securities up to a maximum of three percent (3%) of
the price of the Registrable Securities distributed) in connection with the
Registration, whether or not such registration shall become effective and
whether or not all Registrable Securities originally requested to be included
in such registration are withdrawn or otherwise ultimately not included in
such registration.
2.4 UNDERWRITTEN OFFERINGS.
(a) UNDERWRITTEN OFFERINGS. If requested by the sole or lead
managing Underwriter for any Underwritten Offering elected pursuant to a
Registration, the Company shall enter into a customary underwriting agreement
with the Underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to each Holder of Registrable Securities
participating in such offering and to contain such representations and
warranties by the Company and such other terms are generally prevailing in
agreements of that type, including, without limitation, indemnification and
contribution to the effect and to the extent provided in Section 5.
(b) HOLDERS OF REGISTRABLE SECURITIES TO BE PARTIES TO UNDERWRITING
AGREEMENT. The Holders of Registrable Securities to be distributed by
Underwriters in an Underwritten Offering contemplated by Section 2 shall be
parties to the underwriting agreement among the Company and such Underwriters
and may, at such Holders' option, require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such Underwriters shall also be made to and for the benefit
of such Holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such Underwriters under such underwriting
agreement be conditions precedent to the obligations of such Holders of
Registrable Securities; PROVIDED, HOWEVER, that the Company shall not be
required to make any representations or warranties with respect to written
information specifically provided by a selling Holder for inclusion in the
Registration Statement. No Holder shall be required to make any representations
or warranties to, or agreements with, the Company or the Underwriters other than
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of disposition.
(c) PARTICIPATION IN UNDERWRITTEN REGISTRATION. Notwithstanding
anything herein to the contrary, no Person may participate in any underwritten
registration hereunder unless such Person (i) agrees to sell its securities on
the same terms and conditions provided in any underwritten arrangements approved
by the Persons entitled hereunder to approve such arrangements and (ii)
accurately completes and executes in a timely manner all questionnaires, powers
of attorney, indemnities, custody agreements, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
2.5 CONVERSIONS; EXERCISES. Notwithstanding anything to the contrary
herein, in order for any Registrable Securities that are issuable only upon the
exercise of conversion rights, to be included in any registration pursuant to
Section 2 hereof, the exercise of such conversion rights
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must be effected no later than immediately prior to the closing of any sales
under the Registration Statement pursuant to which such Registrable Securities
are to be sold.
3. REGISTRATION PROCEDURES.
3.1 OBLIGATIONS OF THE COMPANY. Whenever the Company is required to
effect the registration of the Registrable Securities under the Securities Act
pursuant to Section 2 of this Agreement, the Company shall, as expeditiously as
possible:
(a) prepare and file with the SEC (promptly, and in any event within
the time period set forth in Section 2.1(b) hereof) the requisite Registration
Statement to effect such registration, which Registration Statement shall comply
as to form in all material respects with the requirements of the applicable form
and include all financial statements required by the SEC to be filed therewith,
and the Company shall use its best efforts to cause such Registration Statement
to become effective (PROVIDED, that the Company may discontinue any registration
of its securities that are not Registrable Securities, and, under the
circumstances specified in Section 2.1(e), its securities that are Registrable
Securities); PROVIDED, HOWEVER, that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, or comparable statements
under securities or blue sky laws of any jurisdiction, the Company shall (i)
provide Holders' Counsel and any other Inspector with an adequate and
appropriate opportunity to participate in the preparation of such Registration
Statement and each Prospectus included therein (and each amendment or supplement
thereto or comparable statement) to be filed with the SEC, which documents shall
be subject to the review and reasonable comment of Holders' Counsel, and (ii)
not file any such Registration Statement or Prospectus (or amendment or
supplement thereto or comparable statement) with the SEC to which Holder's
Counsel, any selling Holder or any other Inspector shall have reasonably
objected on the grounds that such filing does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus used in connection therewith as
may be necessary (i) to keep such Registration Statement effective (PROVIDED,
that the Company may discontinue any registration of its securities that are not
Registrable Securities, and, under the circumstances specified in Section
2.1(e), its securities that are Registrable Securities), and (ii) to comply with
the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement, in each case
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller(s) thereof set
forth in such Registration Statement; and PROVIDED, that such period need not
extend beyond the time period provided in Section 2.2, and which periods, in any
event, shall terminate when all Registrable Securities covered by such
Registration Statement have been sold (but not before the expiration of the 90
day period referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable);
(c) furnish, without charge, to each selling Holder of such
Registrable Securities and each Underwriter, if any, of the securities covered
by such Registration Statement,
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such number of copies of such Registration Statement, each amendment and
supplement thereto (in each case including all exhibits), and the Prospectus
included in such Registration Statement (including each preliminary Prospectus)
in conformity with the requirements of the Securities Act, and other documents,
as such selling Holder and Underwriter may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
owned by such selling Holder (the Company hereby consenting to the use in
accordance with applicable law of each such Registration Statement (or amendment
or post-effective amendment thereto) and each such Prospectus (or preliminary
prospectus or supplement thereto) by each such selling Holder of Registrable
Securities and the Underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by such Registration Statement or
Prospectus);
(d) prior to any public offering of Registrable Securities, use its
best efforts to register or qualify all Registrable Securities and other
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as any selling Holder of Registrable
Securities covered by such Registration Statement or the sole or lead managing
Underwriter, if any, may reasonably request to enable such selling Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such selling Holder and to continue such registration or qualification
in effect in each such jurisdiction for as long as such Registration Statement
remains in effect (including through new filings or amendments or renewals), and
do any and all other acts and things which may be necessary or advisable to
enable any such selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such selling Holder;
PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3.1(d), (ii) subject itself to taxation
in any such jurisdiction, or (iii) consent to general service of process in any
such jurisdiction;
(e) use its best efforts to obtain all other approvals, consents,
exemptions or authorizations from such governmental agencies or authorities as
may be necessary to enable the selling Holders of such Registrable Securities to
consummate the disposition of such Registrable Securities;
(f) promptly notify Holders' Counsel, each Holder of Registrable
Securities covered by such Registration Statement and the sole or leading
managing Underwriter, if any: (i) when the Registration Statement, any
pre-effective amendment, the Prospectus or any prospectus supplement related
thereto or post-effective amendment to the Registration Statement has been filed
and, with respect to the Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request by the SEC or any state
securities or blue sky authority for amendments or supplements to the
Registration Statement or the Prospectus related thereto or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation or threat of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
existence of any fact of which the Company becomes aware or the happening of any
event which results in (A) the Registration Statement containing an untrue
statement of a material fact or omitting to state a
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material fact required to be stated therein or necessary to make any statements
therein not misleading, or (B) the Prospectus included in such Registration
Statement containing an untrue statement of a material fact or omitting to state
a material fact required to be stated therein or necessary to make any
statements therein, in the light of the circumstances under which they were
made, not misleading, (vi) if at any time the representations and warranties
contemplated by Section 2.4(b) cease to be true and correct in all material
respects, and (vii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate or
that there exists circumstances not yet disclosed to the public which make
further sales under such Registration Statement inadvisable pending such
disclosure and post-effective amendment; and, if the notification relates to an
event described in any of the clauses (ii) through (vii) of this Section 3.1(f),
such Company shall promptly prepare a supplement or post-effective amendment to
such Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that (1) such
Registration Statement shall not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (2) as thereafter delivered to
the purchasers of the Registrable Securities being sold thereunder, such
Prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading (and shall furnish to each such Holder and each Underwriter, if
any, a reasonable number of copies of such Prospectus so supplemented or
amended); and if the notification relates to an event described in clause (iii)
of this Section 3.1(f), the Company shall take all reasonable action required to
prevent the entry of such stop order or to remove it if entered;
(g) make available for inspection by any selling Holder of
Registrable Securities, any sole or lead managing Underwriter participating in
any disposition pursuant to such Registration Statement, Holders' Counsel and
any attorney, accountant or other agent retained by any such seller or any
Underwriter (each, an "Inspector" and, collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "Records") as shall be necessary, in the opinion of such
Holders' and such Underwriters' respective counsel, to enable them to exercise
their due diligence responsibility and to conduct a reasonable investigation
within the meaning of the Securities Act, and cause the Company's and any of its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspectors in connection with such Registration Statement;
(h) obtain an opinion from the Company's counsel and a "cold comfort"
letter from the Company's independent public accountants who have certified such
Company's financial statements included or incorporated by reference in such
Registration Statement, in each case dated the effective date of such
Registration Statement (and if such registration involves an Underwritten
Offering, dated the date of the closing under the underwriting agreement), in
customary form and covering such matters as are customarily covered by such
opinions and "cold comfort" letters delivered to underwriters in underwritten
public offerings, which opinion and letter shall be reasonably satisfactory to
the sole or leading managing Underwriter, if any, and to
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the Majority Holders of the Registration, and furnish to each Holder
participating in the offering and to each Underwriter, if any, a copy of such
opinion and letter addressed to such Holder (in the case of the opinion) and
Underwriter (in the case of the opinion and the "cold comfort" letter);
(i) provide a CUSIP number for all Registrable Securities and provide
and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effectiveness of such Registration Statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and any other governmental agency or authority
having jurisdiction over the offering, and make available to its security
holders, as soon as reasonably practicable but no later than 90 days after the
end of any 12-month period, an earnings statement (i) commencing at the end of
any month in which Registrable Securities are sold to Underwriters in an
Underwritten Offering and (ii) commencing with the first day of the Company's
calendar month next succeeding each sale of Registrable Securities after the
effective date of a Registration Statement, which statement shall cover such
12-month periods, in a manner which satisfied the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
(k) if so requested by the Majority Holders of the Registration, use
its best efforts to cause all Common Shares constituting such Registrable
Securities to be listed (i) on each national securities exchange on which the
Company's securities are then listed or (ii) if securities of the Company are
not at the time listed on any national securities exchange (or if the listing of
Registrable Securities is not permitted under the rules of each national
securities exchange on which such Company's securities are then listed), on a
national securities exchange reasonably acceptable to the Majority Holders of
the Registration or the NASDAQ National Market System;
(l) keep each selling Holder of Registrable Securities advised as to
the initiation and progress of any registration under Section 2 hereunder;
(m) enter into and perform customary agreements (including, if
applicable, an underwriting agreement in customary form) and provide officers'
certificates and other customary closing documents;
(n) cooperate with each selling Holder of Registrable Securities and
each Underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the NASD and make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the Underwriters (taking into account
the needs of the Company's businesses and the requirements of the marketing
process) in the marketing of Registrable Securities in any Underwritten
Offering;
(o) furnish to each Holder participating in the offering and the sole
or lead managing Underwriter, if any, without charge, at least one
manually-signed copy of the Registration Statement and any post-effective
amendments thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those deemed to be
incorporated by reference);
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(p) cooperate with the selling Holders of Registrable Securities and
the sole or lead managing Underwriter, if any, to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such Registrable
Securities to be issued in such denominations and registered in such names in
accordance with the underwriting agreement prior to any sale of Registrable
Securities to the Underwriters or, if not an Underwritten Offering, in
accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities;
(q) if requested by the sole or lead managing Underwriter or any
selling Holder of Registrable Securities, immediately incorporate in a
prospectus supplement or post-effective amendment such information concerning
such Holder of Registrable Securities, the Underwriters or the intended method
of distribution as the sole or lead managing Underwriter or the selling Holder
of Registrable Securities reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company, including, without
limitation, information with respect to the number of shares of the Registrable
Securities being sold to the Underwriters, the purchase price being paid
therefor by such Underwriters and with respect to any other terms of the
Underwritten Offering of the Registrable Securities to be sold in such offering;
make all required filings of such Prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; and supplement or make
amendments to any Registration Statement if requested by the sole or lead
managing Underwriter of such Registrable Securities; and
(r) use its best efforts to take all other steps necessary to
expedite or facilitate the registration and disposition of the Registrable
Securities contemplated hereby.
3.2 SELLER INFORMATION. The Company may require each selling Holder of
Registrable Securities as to which any registration is being effect to furnish
to it such information regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method of disposition as the Company may
from time to time reasonably request in writing; PROVIDED that such information
shall be sued only in connection with such registration.
If any Registration Statement or comparable statement under "blue sky"
laws refers to any Holder by name or otherwise as the Holder of any Securities
of the Company, then such Holder shall have the right to require (i) the
insertion therein of language, in form and substance satisfactory to such Holder
and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, and (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.
3.3 NOTICE TO DISCONTINUE. Each Holder of Registrable Securities agrees
by acquisition of such Registrable Securities that, upon receipt of any notice
from an the Company of the
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happening of any event of the kind described in Section 3.1(f)(ii) through
(vii), such Holder shall forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.1(f) and, if so directed by the
Company, such Holder shall deliver to the Company (at Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Registrable Securities which is current at the time
of receipt of such notice. If the Company shall give any such notice, the
Company shall extend the period during which such Registration Statement shall
be maintained effective pursuant to this Agreement (including, without
limitation, the period referred to in Section 3.1(b)) by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 3.1(f) to and including the date when the Holder shall have
received the copies of the supplemented or amended prospectus contemplated by
and meeting the requirements of Section 3.1(f).
4. INDEMNIFICATION; CONTRIBUTION
4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Holder of
Registrable Securities, its officers, directors, partners, members,
shareholders, employees, Affiliates and agents (collectively, "Agents") and each
Person who controls such Holder (within the meaning of the Securities Act) and
its Agents with respect to each registration which has been effected pursuant to
Section 2 of this Agreement, against any and all losses, claims, damages or
liabilities, joint or several, actions or proceedings (whether commenced or
threatened) in respect thereof, and expenses (as incurred or suffered and
including, but not limited to, any and all expenses incurred in investigating,
preparing or defending any litigation or proceeding, whether commenced or
threatened, and the reasonable fees, disbursements and other charges of legal
counsel) in respect thereof (collectively, "Claims"), insofar as such Claims
arise out of or are based upon any untrue or alleged untrue statement of a
material fact contained in any registration Statement or Prospectus (including
any preliminary, final or summary prospectus and any amendment or supplement
thereto) related to any such registration or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, or any qualification or compliance incident thereto;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such Claims arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
of a material fact so made in reliance upon and in conformity with written
information furnished to the Company in an instrument duly executed by such
Holder specifically stating that it was expressly for use therein. The Company
shall also indemnify any Underwriters of the Registrable Securities, their
Agents and each Person who controls any such Underwriter (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Holders of Registrable Securities. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Person who may be entitled to indemnification pursuant to this
Section 5 and shall survive the transfer of securities by such Holder or
Underwriter.
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4.2 INDEMNIFICATION BY HOLDERS. Each Holder, if Registrable Securities
held by it are included in the securities as to which a registration is being
effected, agrees to, severally and not jointly, indemnify and hold harmless, to
the fullest extent permitted by law, the relevant Company, its directors and
officers, each other Person who participates as an Underwriter in the offering
or sale of such securities of the Company and its Agents and each Person who
controls the Company or any such Underwriter (within the meaning of the
Securities Act) and its Agents against any and all Claims, insofar as such
Claims arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (including any preliminary, final or summary prospectus and any
amendment or supplement thereto) related to such registration, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company in an instrument
duly executed by such Holder specifically stating that it was expressly for use
therein; PROVIDED, HOWEVER, that the aggregate amount which any such Holder
shall be required to pay pursuant to this Section 4.2 shall in no event be
greater than the amount of the net proceeds received by such holder upon the
sale of the Registrable Securities pursuant to the Registration Statement giving
rise to such Claims less all amounts previously paid by such Holder with
respect to any such Claims. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such indemnified
party and shall survive the transfer of such securities by such Holder or
Underwriter.
4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by an
indemnified party of notice of any Claim or the commencement of any action or
proceeding involving a Claim under this Section 4, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party
pursuant to Section 5, (i) notify the indemnifying party in writing of the Claim
or the commencement of such action or proceeding; PROVIDED, that the failure of
any indemnified party to provide such notice shall not relieve the indemnifying
party of its obligations under this Section 4, except to the extent the
indemnifying party is materially and actually prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 4, and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; PROVIDED, HOWEVER, that any indemnified
party shall have the right to employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (A) the indemnifying party has agreed
in writing to pay such fees and expenses, (B) the indemnifying party shall have
failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such indemnified party within 10 days after receiving notice
from such indemnified party that the indemnified party believes it has failed to
do so, (C) in the reasonable judgment of any such indemnified party, based upon
advice of counsel, a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claims (in which case, if
the indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such indemnified party) or (D) such indemnified party is a
defendant in an action or proceeding which is also brought against the
indemnifying
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party and reasonably shall have concluded that there may be one or more legal
defenses available to such indemnified party which are not available to the
indemnifying party. No indemnifying party shall be liable for any settlement of
any such claim or action effected without its written consent, which consent
shall not be unreasonably withheld. In addition, without the consent of the
indemnified party (which consent shall not be unreasonably withheld), no
indemnifying party shall be permitted to consent to entry of any judgment with
respect to, or to effect the settlement or compromise of any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim), unless such settlement, compromise or
judgment (1) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim, (2) does not include a statement
as to or an admission of fault, culpability or a failure to act, by or on behalf
of any indemnified party, and (3) does not provide for any action on the part of
any party other than the payment of money damages which is to be paid in full by
the indemnifying party.
4.4 CONTRIBUTION. If the indemnification provided for in Section 4.1 or
4.2 from the indemnifying party for any reason is unavailable (other than by
reason of exceptions provided therein), or is insufficient to hold harmless, an
indemnified party hereunder in respect of any Claim, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Claim in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, in connection with the actions which resulted in such Claim, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. If, however, the foregoing allocation is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only to such relative faults but also the relative benefits of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by PRO RATA allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by a party as a result of any Claim referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in Section 4.3, any legal or other fees, costs or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. Notwithstanding anything in this Section 4.4 to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to this
Section 4.4 to contribute any amount in excess of the net proceeds received by
such indemnifying party from the sale of the Registrable Securities pursuant to
the Registration Statement giving rise to such Claims, less all amounts
previously paid by such indemnifying party with respect to such
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Claims. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
4.5 OTHER INDEMNIFICATION. Indemnification similar to that specified in
the preceding Sections 4.1 and 4.2 (with appropriate modifications) shall be
given by the Company and each selling Holder of Registrable Securities with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of any governmental authority, other than
the Securities Act. The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract.
4.6 INDEMNIFICATION PAYMENTS. The indemnification and contribution
required by this Section 4 shall be made by periodic payments of the amount
thereof during the course of any investigation or defense, as and when bills are
received or any expense, loss, damage or liability is incurred.
5. GENERAL
5.1 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company agrees that
it shall not effect or permit to occur any combination or subdivision of shares
which would adversely affect in any material respects the ability of the Holder
of any Registrable Securities to include such Registrable Securities in any such
registration.
5.2 REGISTRATION RIGHTS TO OTHERS. Other than as listed on Schedule 4.14
of the Purchase Agreement, the Company is not a party to any agreement (other
than this Agreement) with respect to its securities granting any registration
rights to any Person. If the Company shall at any time hereafter provide to any
holder of any securities of the Company rights with respect to the registration
of such securities under the Securities Act, such rights shall not be in
conflict with or adversely affect any of the rights provided in this Agreement
to the Holders.
5.3 AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified, supplemented or terminated in any material respect, and
waivers or consents to departures from the provisions hereof may not be given,
without the written consent of the Company and the Holders of not less than 50%
of the Registrable Securities then outstanding; PROVIDED, HOWEVER, that no such
amendment, modification, supplement, waiver or consent to departure shall reduce
the aforesaid percentage of Registrable Securities without written consent of
all of the Holders of Registrable Securities; and PROVIDED FURTHER, that nothing
herein shall prohibit any amendment, modification, supplement, termination,
waiver or consent to departure the effect of which is limited only to those
Holders who have agreed to such amendment, modification, supplement,
termination, waiver or consent to departure.
5.4 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, telecopier, any
courier guaranteeing overnight delivery or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to
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the applicable party at the address set forth below or such other address as may
hereafter be designated in writing by such party to the other parties in
accordance with the provisions of this Section:
(i) If to the Company, to:
American Skiing Company
Sunday River Access Road
P.O. Box 450
Bethel, Maine 04217
Attn.: Mr. Chris Howard
Telecopy: 207-824-5158
Telephone: 207-824-8100
(ii) If to the Initial Holders, to:
Madeleine, LLC
450 Park Avenue
28th Floor
New York, New York 10022
Attn.: Mr. Robert Davenport
Telecopy: 212-758-5305
Telephone: 212-891-2118
With a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attn.: Mark A. Neporent, Esq.
Telecopy: (212) 593-5955
Telephone: (212) 756-2000
(iii) If to any subsequent Holder, to the address of such Person set
forth in the records of the Company.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt is
acknowledged, if telecopied; on the next business day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid.
5.5 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors
and permitted assigns (including any permitted transferee of Registrable
Securities). Any Holder may assign to any permitted (as determined under the
Purchase Agreement transferee of its Registrable Securities
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(other than a transferee that acquires such Registrable Securities in a
registered public offering or pursuant to a sale under Rule 144 of the
Securities Act (or any successor rule)), its rights and obligations under this
Agreement; PROVIDED, HOWEVER, if any permitted transferee shall take and hold
Registrable Securities, such transferee shall promptly notify the Company and,
by taking and holding such Registrable Securities, such permitted transferee
shall automatically be entitled to receive the benefits of and be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement as if it were a party hereto (and shall, for all
purposes, be deemed a Holder under this Agreement). If the Company shall so
request, any heir, successor or permitted assign (including any permitted
transferee) shall agree in writing to acquire and hold the Registrable
Securities subject to all of the terms hereof. For purposes of this Agreement,
"successor" for any entity other than a natural person shall mean a successor to
such entity as a result of such entity's merger, consolidation, liquidation,
dissolution, sale of substantially all of its assets, or similar transaction.
Except as provided above or otherwise permitted by this Agreement, neither this
Agreement nor any right, remedy, obligation or liability arising hereunder or by
reason hereof shall be assignable by any party hereto without the consent of the
other parties.
5.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original, but all of which counterparts, taken together, shall constitute
one and the same instrument.
5.7 DESCRIPTIVE HEADINGS, ETC. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and paragraph references are to the Sections and
paragraphs of this Agreement unless otherwise specified; (4) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified; (5) "or" is not
exclusive; and (6) provisions apply to successive events and transactions.
5.8 SEVERABILITY. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in ever other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any way
impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
5.9 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (without giving effect to the
conflict of laws principles thereof).
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5.10 REMEDIES; SPECIFIC PERFORMANCE. With respect to the occurrence of a
Delay Period (other than a Delay Period resulting from a material breach by the
Company of its obligations under this Agreement), the payments set forth in
Section 2.1 shall be the Holders' exclusive remedy. Except as provided in the
preceding sentence, the parties hereto acknowledge that money damages would not
be an adequate remedy at law if any party fails to perform in any material
respect any of its obligations hereunder, and accordingly agree that each party,
in addition to any other remedy to which it may be entitled at law or in equity,
shall be entitled to seek to compel specific performance of the obligations of
any other party under this Agreement, without the posting of any bond, in
accordance with the terms and conditions of this Agreement in any court of the
United States or any State thereof having jurisdiction, and if any action should
be brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law. Except as otherwise provided by law, a delay or omission by a party hereto
in exercising any right or remedy accruing upon any such breach shall not impair
the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy shall be exclusive of any other remedy. All available
remedies shall be cumulative.
5.11 ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final express of their agreement and intended to be a complete an exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises or
undertakings, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the Company and the
other parties to this Agreement with respect to such subject matter.
5.12 NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company (on behalf of the Company), be treated as the holder of such Registrable
Securities for purposes of any request or other action by any holder or holders
of Registrable Securities pursuant to this Agreement or any determination of
any number or percentage of shares of Registrable Securities held by any holder
or holders of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
5.13 CONSENT TO JURISDICTION. Each party to this Agreement hereby
irrevocably and unconditionally agrees that any legal action, suit or proceeding
arising out of or relating to this Agreement or any agreements or transactions
contemplated hereby may be brought in any federal court of the Southern District
of New York or any state court located in New York County, State of New York,
and hereby irrevocably and unconditionally expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and hereby
irrevocably and unconditionally waives any claim (by way of motion, as a defense
or otherwise) of improper venue, that it is not subject personally to the
jurisdiction of such court, that such courts are an inconvenient forum or that
this Agreement or the subject matter may not be enforced in or by such court.
Each party hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth or provided for
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in Section 5.5 of this Agreement, such service to become effective 10 days after
such mailing. Nothing herein contained shall be deemed to affect the right of
any party to serve process in any manner permitted by law or commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgments obtained in any action, suit or proceeding
brought pursuant to this Section.
5.14 FURTHER ASSURANCES. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
5.15 NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into
any agreement which is inconsistent with the rights granted to the Holders in
this Agreement.
5.16 CONSTRUCTION. Each of the parties hereto acknowledges that it has had
the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement with its legal counsel and that this
Agreement shall be construed as if jointly drafted by the parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
AMERICAN SKIING COMPANY MADELEINE L.L.C.:
By: ___________________________ By: ___________________________
Name: Name:
Title: Title:
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EXHIBIT 21.1
SUBSIDIARIES OF AMERICAN SKIING COMPANY, A MAINE CORPORATION:
ASC Utah, a wholly-owned Maine corporation;
ASC West, a wholly-owned Maine corporation; and
ASC East, Inc., a 96%-owned Maine corporation.
SUBSIDIARIES OF ASC EAST, INC.:
Sunday River Skiway Corporation, a wholly-owned Maine corporation;
Sunday River Transportation, Inc., a wholly-owned Maine corporation;
Sunday River, Ltd., a wholly-owned Maine corporation;
Perfect Turn, Inc., a wholly-owned Maine corporation;
L.B.O. Holding, Inc., a wholly-owned Maine corporation;
Sugarbush Resort Holdings, a wholly-owned Vermont corporation;
Grand Summit Resort Properties, Inc., a wholly-owned Maine corporation;
Sugarbush Leasing Company, a wholly-owned Vermont corporation; and
S-K-I Ltd., a wholly-owned Delaware corporation.
SUBSIDIARY OF L.B.O. HOLDING, INC.:
Cranmore, Inc., a wholly-owned Maine corporation.
SUBSIDIARIES OF SUGARBUSH RESORT HOLDINGS:
Sugarbush Restaurants, Inc., a wholly-owned Vermont corporation;
Club Sugarbush, a wholly-owned Vermont corporation;
Mountain Water Company, a wholly-owned Vermont corporation; and
Mountain Wastewater Treatment, Inc., a wholly-owned Vermont
corporation.
SUBSIDIARIES OF S-K-I LTD.:
Killington, Ltd., a wholly-owned Vermont corporation;
Sugarloaf Mountain Corporation, a wholly-owned Maine corporation;
SKI Insurance Company, a wholly-owned Vermont corporation;
Mount Snow, Ltd., a wholly-owned Vermont corporation;
Pico Ski Area Management Company, a wholly-owned Vermont corporation;
Waterville Valley Ski Area, Ltd., a wholly-owned New Hampshire
corporation;
Killington West, Ltd., a wholly-owned California corporation; and
Resorts Software Services, Inc., a wholly-owned Vermont corporation.
SUBSIDIARIES OF KILLINGTON, LTD.:
Killington Restaurants, Inc., a wholly-owned Vermont corporation;
and
Resort Technologies, Inc., a wholly-owned Vermont corporation.
SUBSIDIARIES OF SUGARLOAF MOUNTAIN CORPORATION:
Mountainside, a wholly-owned Maine corporation; and
Sugartech, a wholly-owned Maine corporation.
SUBSIDIARIES OF MOUNT SNOW, LTD.:
Dover Restaurants, Inc., a wholly-owned Vermont corporation; and
Deerfield Operating Company, a wholly-owned Vermont corporation.
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EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of American Skiing Company of our report
dated September 19, 1997, except as to Note 16 which is as of October 10, 1997
relating to the financial statements of American Skiing Company, which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Historical Financial Data of the Company" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Historical Financial Data of the Company."
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of American Skiing Company of our report
dated August 31, 1995 relating to the financial statements of S-K-I Ltd., which
appears in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Historical Financial Data of the Company" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Historical and Pro Forma Financial Data of
the Company."
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 3, 1997
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EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
November 3, 1997
