<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 333-33483
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
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:
<TABLE>
<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 OCTOBER 31, 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
<PAGE>
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
6
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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
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<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 four 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 QUARTERS ENDED
HISTORICAL FISCAL YEAR ENDED MAY 31, AUGUST 31,
--------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT
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 3,493 2,828
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 13,689 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.
In addition 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.
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 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
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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.
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 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,
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 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
24
<PAGE>
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,
--------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SKIER AMOUNTS)
<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 14,032 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>
<S> <C>
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. This decrease was
attributable primarily to lower long-term debt balances due to principal
payments and was offset by an increase in average balances of seasonal
borrowings due to the decrease in skier visits at Heavenly as discussed above.
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.
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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 * -- --
Madelene 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).............. *
Madelene 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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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 the
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 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, 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
(or, at the option of the Company, in additional 10 1/2% Convertible
Subordinated Debentures) quarterly in arrears. 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, to register the
shares of 10 1/2% Convertible Preferred Stock or the shares of Common Stock into
which
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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 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 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 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."
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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, 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 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.
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.
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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.................................... 91
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
II-1
<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.**
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).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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).
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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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).
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).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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).
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).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.*
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).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.*
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.*
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.*
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.*
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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.**
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.
*** To be filed by amendment.
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.
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
II-9
<PAGE>
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.
II-10
<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 31st day of October, 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 and
Leslie B. Otten Chief Executive Officer October 31, 1997
(Principal Executive Officer)
/s/ THOMAS M. RICHARDSON Chief Financial Officer,
------------------------------------------- Senior Vice President,
Thomas M. Richardson Treasurer and Director October 31, 1997
(Principal Financial and
Accounting Officer)
/s/ CHRISTOPHER E. HOWARD Senior Vice President, Chief
------------------------------------------- Administrative Officer,
Christopher E. Howard General Counsel, Clerk and October 31, 1997
Director
</TABLE>
II-11
<PAGE>
EXHIBIT 3.1
[STATE OF MAINE SEAL] Minimum Fee $105 (See Section 1403
Subsections 1 and 2)
DOMESTIC
BUSINESS CORPORATION FILE NO. 19972588 0 PAGES 2
FEE PAID $ 105.00
DCN 1971481800056 ARTI
STATE OF MAINE ----------FILED------------
05/28/1997
ARTICLES OF INCORPORATION
/s/ Gary Cooper
-------------------------------
(Check box only if applicable) Deputy Secretary of State
/ /This is a professional service corporation
formed pursuant to 13 MRSA Chapter 22. A TRUE COPY WHEN ATTESTED BY
SIGNATURE
/s/ Gary Cooper
-------------------------------
Deputy Secretary of State
Pursuant to 13-A MRSA Section 403, the undersigned, acting as incorporator(s)
of a corporation, adopt(s) the following Articles of Incorporation:
FIRST: The name of the corporation is ASC Holdings, Inc.
and its principal business location in Maine is
Bethel, Maine
(physical location - street
(not P.O. Box), city, state and zip code)
SECOND: The name of its Clerk, who must be a Maine resident, and the
registered office shall be: Christopher E. Howard
(name)
Sunday River Access Road Newry, Maine 04261
(physical location - street (not P.O. Box), city, state and zip code)
P.O. Box 450, Bethel, Maine 04217
(mailing address if different from above)
THIRD: ("X" one box only)
/X/A. 1. The number of directors constituting the initial board of directors of
the corporation is 1 (See Section 703.1.A)
2. If the initial directors have been selected, the names and addresses
of the persons who are to serve as directors until the first annual
meeting of the shareholders or until their successors are elected and
shall qualify are:
NAME ADDRESS
------------------------------ --------------------------------
------------------------------ --------------------------------
------------------------------ --------------------------------
3. The board of directors: /X/is / /is not authorized to increase or
decrease the number of directors.
4. If the board is so authorized, the minimum number, if any, shall be 1
directors, (See Section 703.1.A.) and the maximum number, if any, shall be 7
directors.
/ /B.There shall be no directors initially; the shares of the corporation will
not be sold to more than twenty (20) persons; the business of the
corporation will be managed by the shareholders. (See Section 701.2.)
<PAGE>
FOURTH: ("X" one box only)
/X/ There shall be only one class of shares (title of class) Common Stock
Par value of each share (if none, so state) $1.00 Number of shares
authorized 100,000
/ / There shall be two or more classes of shares. The information required by
Section 403 concerning each such class is set out in Exhibit ___ attached
hereto and made a part hereof.
SUMMARY
The aggregate par value of all authorized shares (of all classes) HAVING A PAR
VALUE is $100,000.00
The total number of authorized shares (of all classes) WITHOUT PAR VALUE is
______ shares
FIFTH: ("X" one box only) Meetings of the shareholders /X/ may / / may not
be held outside of the State of Maine.
SIXTH: ("X" if applicable) /X/ There are no preemptive rights.
SEVENTH: Other provisions of these articles, if any, including provisions
for the regulation of the internal affairs of the corporation,
are set out in Exhibit ___ attached hereto and made a part hereof.
INCORPORATORS DATED May 28, 1997
/s/ David J. Champoux Street
- ------------------------------ R.R #2, Box 556
(signature) (residence address)
David J. Champoux West Buxton, ME 04093
- ------------------------------
(type or print name) (city, state and zip code)
- ------------------------------ Street
(signature) (residence address)
- ------------------------------
(type or print name) (city, state and zip code)
- ------------------------------ Street
(signature) (residence address)
- ------------------------------
(type or print name) (city, state and zip code)
FOR CORPORATE INCORPORATORS*
Name of Corporate Incorporator________________________________________
By_________________________________ Street
(signature of officer) (principal business location)
- -------------------------------
(type of print name and capacity) (city, state and zip code)
* Articles are to be executed as follows:
The corporation is an incorporator (Section 402), the name of the corporation
should be typed and signed on its behalf by an officer of the corporation. The
articles of incorporation must be accompanied by a certificate of an appropriate
officer of the corporation certifying that the person executing the articles on
behalf of the corporation was duly authorized to do so.
SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE,
101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101
TEL. (207) 287-4195
<PAGE>
[STATE OF MAINE SEAL] Minimum Fee $35 (See Section 1401 sub Section 15)
FILE NO. 19972588 0 PAGES 3
DOMESTIC FEE PAID $70.00
BUSINESS CORPORATION DCN 1971971400017 STCK
-----------FILED--------------
STATE OF MAINE 07/16/1997
ARTICLES OF AMENDMENT /s/ Nancy B. Kelleher
---------------------------------
(SHAREHOLDERS VOTING AS ONE CLASS Deputy Secretary of State
ASC Holdings, Inc. A TRUE COPY WHEN ATTESTED BY SIGNATURE
- -----------------------------
(NAME OF CORPORATION /s/ Nancy B. Kelleher
---------------------------------
Deputy Secretary of State
Pursuant to 13-A MRSA Sections 805 and 807, the undersigned corporation
adopts these Articles of Amendment:
FIRST: All outstanding shares were entitled to vote on the following
amendment as one class.
SECOND: The amendment set out in Exhibit A attached was adopted by the
shareholders on (date) July 3, 1997
("X" one box only)
/ / at a meeting legally called and held OR /X/ by unanimous written
consent
THIRD: Shares outstanding and entitled to vote and shares voted for an
against said amendment were:
NUMBER OF SHARES OUTSTANDING NUMBER NUMBER
AND ENTITLED TO VOTE VOTED FOR VOTED AGAINST
100 100 0
FOURTH: If such amendment provides for exchange, reclassification or
cancellation of issued shares, the manner in which this shall be
effected is contained in Exhibit B attached it if it not set forth in
the amendment itself.
FIFTH: If the amendment changes the number or par values of authorized
shares, the number of shares the corporation has authority to issue
thereafter, is as follows:
CLASS SERIES (IF ANY) NUMBER OF SHARES PAR VALUE (IF ANY)
See Exhibit A
The aggregate par value of all such shares (of all classes and
series) HAVING PAR VALUE is $100,000.
The total number of all such shares (of all classes and series)
WITHOUT PAR VALUE is 0 shares.
<PAGE>
SIXTH: The address of the registered office of the corporation in the State
of Maine is__________________________________________________________
Sunday River Access Road, Newry, Maine 04261
---------------------------------------------------------------------
(street, city, state and zip code)
<TABLE>
<S> <C>
DATED: July 3, 1997 *By /s/ Christopher E. Howard
------------- ------------------------------------------------
Christopher E. Howard, Clerk
- ----------------------------------- ------------------------------------------------
MUST BE COMPLETED FOR VOTE (type or print name and capacity)
OF SHAREHOLDERS
- ----------------------------------
I certify that I have custody of *By
the minutes showing the above ------------------------------------------------
action by the shareholders (signature)
------------------------------------------------
/s/ Christopher E. Howard (type or print name and capacity)
------------------------------
(signature of clerk)
- ----------------------------------
</TABLE>
NOTE: This form should not be used if any class of shares is entitled to
vote as a separate class for any of the reasons set out in Section 806,
or because the articles so provide. For vote necessary for adoption
see Section 805.
- --------------------------------------------------------------------------------
*This document MUST be signed by (1) the CLERK OR (2) the PRESIDENT or a
vice-president AND the SECRETARY or an assistant secretary, or such other
officer as the bylaws may designate as a 2nd certifying officer OR (3) if
there are no such officers, then a majority of the DIRECTORS or such
directors as may be designated by a majority of directors then in office OR
(4) if there are no such directors, then the HOLDERS, or such of them as may
be designated by the holders, OF RECORD OF A MAJORITY OF ALL OUTSTANDING
SHARES entitled to vote thereon OR (5) the HOLDERS OF ALL OUTSTANDING SHARES
of the corporation.
SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE,
101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101
TEL. (207) 287-4195
FORM NO. MBCA-9 Rev. 96
<PAGE>
ASC HOLDINGS, INC.
EXHIBIT A TO
ARTICLES OF AMENDMENT
This Amendment changes the number and par values of authorized shares,
including the par value of shares outstanding on the date of these Articles of
Amendment. The number and par values of shares which the corporation has
authority to issue after giving effect to the Amendment are as follows:
CLASS SERIES NUMBER OF SHARES PAR VALUE
(If Any)
Serial Preferred Stock Issuable in Series as 200,000 $.01
Determined by the Board of
Directors
Common Stock None 9,800,000 $.01
<PAGE>
[STATE OF MAINE SEAL] Minimum Fee $35 (See Section 1401 sub-Section 15)
FILE NO. 19972588 0 PAGES 3
DOMESTIC BUSINESS CORPORATION FEE PAID $ 35.00
DCN 1972521800044 LNME
STATE OF MAINE -------------FILED-----------
09/09/1997
ARTICLES OF AMENDMENT
/s/ Nancy B. Kelleher
(SHAREHOLDERS VOTING AS ONE CLASS) ----------------------------
Deputy Secretary of State
ASC Holdings, Inc.
- ----------------------------------
(Name of Corporation)
A TRUE COPY WHEN ATTESTED BY SIGNATURE
/s/ Nancy B. Kelleher
----------------------------
Deputy Secretary of State
Pursuant to 13-A MRSA Sections 805 and 807, the undersigned corporation
adopts these Articles of Amendment:
FIRST: All outstanding shares were entitled to vote on the following
amendment as one class.
SECOND: The amendment set out in Exhibit a attached was adopted by the
shareholders on (date) 8/20/97
("X" one box only)
/XX/ at a meeting legally called and held OR / /by unanimous written
consent
THIRD: Shares outstanding and entitled to vote and shares voted for an
against said amendment were:
NUMBER OF SHARES OUTSTANDING NUMBER NUMBER
AND ENTITLED TO VOTE VOTED FOR VOTED AGAINST
100 100 0
FOURTH: If such amendment provides for exchange, reclassification or
cancellation of issued shares, the manner in which this shall be
effected is contained in Exhibit B attached it if it not set forth in
the amendment itself.
FIFTH: If the amendment changes the number or par values of authorized
shares, the number of shares the corporation has authority to issue
thereafter, is as follows:
CLASS SERIES (IF ANY) NUMBER OF SHARES PAR VALUE (IF ANY)
The aggregate par value of all such shares (of all classes and series) HAVING
PAR VALUE is $_________________
The total number of all such shares (of all classes and series) WITHOUT PAR
VALUE is ____ shares
<PAGE>
SIXTH: The address of the registered office of the corporation in the State
of Maine is__________________________________________________________
P.O. Box 450, Sunday River Access Road, Bethel, Maine 04217
---------------------------------------------------------------------
(street, city, state and zip code)
<TABLE>
<S> <C>
DATED: 8/27/97 *By /s/ Christopher E. Howard
------------- ------------------------------------------------
Christopher E. Howard, Clerk
- ----------------------------------- ------------------------------------------------
MUST BE COMPLETED FOR VOTE (type or print name and capacity)
OF SHAREHOLDERS
- ----------------------------------
I certify that I have custody of *By
the minutes showing the above ------------------------------------------------
action by the shareholders (signature)
------------------------------------------------
/s/ Christopher E. Howard (type or print name and capacity)
------------------------------
(signature of clerk, secretary or
asst. secretary)
- ----------------------------------
</TABLE>
NOTE: This form should not be used if any class of shares is entitled to
vote as a separate class for any of the reasons set out in Section 806,
or because the articles so provide. For vote necessary for adoption
see Section 805.
- --------------------------------------------------------------------------------
*This document MUST be signed by (1) the CLERK OR (2) the PRESIDENT or a
vice-president AND the SECRETARY or an assistant secretary, or such other
officer as the bylaws may designate as a 2nd certifying officer OR (3) if
there are no such officers, then a majority of the DIRECTORS or such
directors as may be designated by a majority of directors then in office OR
(4) if there are no such directors, then the HOLDERS, or such of them as may
be designated by the holders, OF RECORD OF A MAJORITY OF ALL OUTSTANDING
SHARES entitled to vote thereon OR (5) the HOLDERS OF ALL OUTSTANDING SHARES
of the corporation.
SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE,
101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101
TEL. (207) 287-4195
FORM NO. MBCA-9 Rev. 96
<PAGE>
ASC HOLDINGS, INC.
MINUTES OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting of the shareholders of the above-named corporation
was held via conference call on August 20, 1997.
The meeting was called to order and the minutes of the meeting were
kept by the Clerk. The shares of the corporation entitled to vote present or
represented by Proxy at the meeting are as follows:
Shares Issued and Outstanding
and Entitled to Vote: 100
Present in Person: 100
Present by Proxy: 0
Total Number of Shares Present in Person
or by Proxy 100
The Clerk thereupon declared a quorum present and the meeting open for
the transaction of business.
VOTED: To change the name of the corporation from ASC Holdings, Inc.
to American Skiing Company.
There being no further business to come before the meeting, on motion
duly made and seconded, it was unanimously
VOTED: To adjourn.
Adjourned.
A true record.
ATTEST: /s/ Christopher E. Howard
--------------------------------
Clerk
<PAGE>
<TABLE>
<S> <C>
[STATE OF MAINE SEAL] -- Minimum Fee $35 (See Section 1401 Subsection 15) --
DOMESTIC FILE NO. 19972588 0 PAGES 11
BUSINESS CORPORATION FEE PAID $ 365.00
DCN 1972871800006 STCK
STATE OF MAINE -------------FILED-------------
10/14/1997
ARTICLES OF AMENDMENT
/s/ Nancy B. Kelleher
(Shareholders Voting as One Class) ----------------------------
Deputy Secretary of State
American Skiing Corporation ------------------------------------------------------
- ---------------------------------- A True Copy When Attested By Signature
(Name of Corporation)
/s/ Nancy B. Kelleher
----------------------------
Deputy Secretary of State
------------------------------------------------------
</TABLE>
Pursuant to 13-A MRSA Sections 805 and 807, the undersigned corporation
adopts these Articles of Amendment:
FIRST: All outstanding shares were entitled to vote on the following
amendment as ONE class.
SECOND: The amendment set out in Exhibit A attached was adopted by the
shareholders on (date) October 10, 1997.
("X" one box only)
/X/ at a meeting legally called and held OR / / by unanimous written consent
THIRD: Shares outstanding and entitled to vote and shares voted for and
against said amendment were:
Number of Shares Outstanding NUMBER NUMBER
and Entitled to Vote Voted For Voted Against
---------------------------- --------- -------------
100 100 0
FOURTH: If such amendment provides for exchange, reclassification or
cancellation of issued shares, the manner in which this shall be
effected is contained in Exhibit B attached if it is not set forth
in the amendment itself.
FIFTH: If the amendment changes the number or par value of authorized
shares, the number of shares the corporation has authority to issue
thereafter, is as follows:
Class Series (If Any) Number of Shares Par Value (If Any)
----- --------------- ---------------- ------------------
The aggregate par value of all such shares (of all classes and
series) HAVING PAR VALUE is $ _________________________________
The total number of all such shares (of all classes and series)
WITHOUT PAR VALUE is _________________________________ shares.
<PAGE>
SIXTH: The address of the registered office of the corporation in the State
of Maine is__________________________________________________________
Newry, Maine 04261
---------------------------------------------------------------------
(street, city, state and zip code)
<TABLE>
<S> <C>
DATED: October 10, 1997 *By /s/ Christopher E. Howard
-------------------- ------------------------------------------------
Christopher E. Howard, Clerk
- ----------------------------------- ------------------------------------------------
MUST BE COMPLETED FOR VOTE (type or print name and capacity)
OF SHAREHOLDERS
- ----------------------------------
I certify that I have custody of *By
the minutes showing the above ------------------------------------------------
action by the shareholders (signature)
------------------------------------------------
/s/ Christopher E. Howard (type or print name and capacity)
------------------------------
(signature of clerk, secretary or
asst. secretary)
- ----------------------------------
</TABLE>
NOTE: This form should not be used if any class of shares is entitled to
vote as a separate class for any of the reasons set out in Section 806,
or because the articles so provide. For vote necessary for adoption
see Section 805.
- --------------------------------------------------------------------------------
*This document MUST be signed by (1) the CLERK OR (2) the PRESIDENT or a
vice-president AND the SECRETARY or an assistant secretary, or such other
officer as the bylaws may designate as a 2nd certifying officer OR (3) if
there are no such officers, then a majority of the DIRECTORS or such
directors as may be designated by a majority of directors then in office OR
(4) if there are no such directors, then the HOLDERS, or such of them as may
be designated by the holders, OF RECORD OF A MAJORITY OF ALL OUTSTANDING
SHARES entitled to vote thereon OR (5) the HOLDERS OF ALL OUTSTANDING SHARES
of the corporation.
SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE,
101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101
TEL. (207) 287-4195
FORM NO. MBCA-9 Rev. 96
<PAGE>
EXHIBIT A
to
Articles of Amendment
to the
Articles of Incorporation of
American Skiing Company
1. AUTHORIZED CAPITAL STOCK.
This Amendment changes the number and classes of authorized shares of the
corporation. The class designations, numbers of authorized shares and par
values of shares which the corporation has authority to issue after giving
effect to the Amendment are as follows:
Series Number of
Class (If Any) Shares Par Value
- ----- -------- ---------- ---------
Class A Common Stock None 15,000,000 $.01
Common Stock None 50,000,000 $.01
Serial Preferred Stock Issuable in Series
as determined by
the Board of Directors* 500,000* $.01
- -------------------
* Includes 70,197 shares of Series A Exchangeable Preferred Stock authorized by
action of the Board of Directors of the corporation on July 3, 1997, as set
forth in a Statement of Resolution Establishing Series of Shares as filed with
the Secretary of State of Maine on July 16, 1997.
2. CLASS A COMMON STOCK.
(a) The Class A Common Stock shall consist of 15,000,000 shares, each
having a par value of $.01.
(b) (i) The holder of any shares of Class A Common Stock shall have the
right to convert such shares, in whole or in part, at any time
and from time to time, into fully paid and non-assessable shares
of Common Stock on a share for share basis; provided, however,
that such conversion rate shall be subject to adjustment as set
forth in paragraph 2(b)(iv) below.
(ii) Any share of Class A Common Stock shall, automatically and
without further action by the corporation or the holder thereof,
upon the transfer of such share to any person or entity who is
not Leslie B. Otten or an Affiliate of Leslie B. Otten, be
converted on a share for share basis into a fully paid and
non-assessable share of Common Stock; provided, however,
<PAGE>
that such conversion rate shall be subject to adjustment as set
forth in paragraph 2(b)(iv) below. "Affiliate" shall mean, for
purposes of this paragraph 2, (A) the spouse or children or
grandchildren (in each case, natural or adopted) of Leslie B.
Otten or any Affiliate, (B) any trust for the sole benefit of
Leslie B. Otten or any Affiliate, (C) any charitable trust the
grantor of which is Leslie B. Otten or any Affiliate, (D) any
corporation or other entity in which Leslie B. Otten or
Affiliates collectively own at least 80% of the equity interest,
or (E) the heirs, executors, administrators or personal
representatives of Leslie B. Otten or any Affiliate upon the
death of Leslie B. Otten or such Affiliate or upon the
incompetency or disability of Leslie B. Otten or such Affiliate
for purposes of the protection and management of his or her
assets.
(iii) In the event that at any time the number of shares of Class A
Common Stock outstanding is less than 20% of the aggregate number
of all shares of Class A Common Stock and Common Stock then
issued and outstanding, then all shares of Class A Common Stock
shall automatically and without further action by the
corporation or any holder thereof, be converted on a share for
share basis into fully paid and non-assessable shares of Common
Stock; provided, however, that such conversion rate shall be
subject to adjustment as set forth in paragraph 2(b)(iv) below.
(iv) (A) If the corporation shall (1) subdivide the outstanding
shares of Common Stock into a larger number of shares, (2)
combine the outstanding shares of Common Stock into a
smaller number of shares, or (3) issue by reclassification
of the Common Stock any shares of capital stock of the
corporation, then the conversion rate in effect immediately
prior thereto shall be adjusted so that the holder of any
share of Class A Common Stock surrendered for conversion or
subject to automatic conversion shall be entitled to receive
the number of shares of the corporation which he would have
owned or have been entitled to receive after the happening
of any of the events described above had such shares of
Class A Common Stock been converted immediately prior to the
happening of such event.
(B) In case of any capital reorganization of the corporation, or
in case of the consolidation or merger of the corporation
with or into another corporation, or in case of the sale,
transfer or other disposition of all or substantially all of
the property, assets or business of the corporation as a
result of which sale, transfer or other disposition property
other than cash shall be payable or distributable to the
holders of the Common Stock, each share of Class A Common
Stock shall be convertible into the number and class of
shares or other securities or property of the corporation,
or of the corporation resulting from such consolidation or
merger or to which such sale, transfer or other disposition
shall have been made, to which the
2
<PAGE>
Common Stock otherwise issuable upon conversion of such
share of Class A Common Stock would have been entitled upon
such reorganization, consolidation, merger, or sale,
transfer or other disposition if outstanding at the time
thereof; and in any such case appropriate adjustment, as
determined by the Board of Directors of the corporation,
shall be made in the application of the provisions set forth
in this paragraph 2(b) with respect to the conversion rights
thereafter of the holders of the Class A Common Stock, to
the end that such provisions shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares or
securities or other property thereafter issuable or
deliverable upon the conversion of Class A Common Stock.
Proper provision shall be made as a part of the terms of any
such consolidation, merger or sale, transfer or other
disposition whereby the conversion rights of the holders of
Class A Common Stock shall be protected and preserved in
accordance with the provisions of this paragraph
2(b)(iv)(B). The provisions of this paragraph 2(b)(iv)(B)
shall similarly apply to successive capital reorganizations,
consolidations, mergers, sales, transfers or other
dispositions of property as aforesaid.
(C) Whenever the conversion rate shall be adjusted as provided
in paragraph 2(b)(iv)(A), the corporation, as soon as
practicable and in no event later than ten full business
days thereafter, shall file with the transfer agent for the
Class A Common Stock a statement, signed by the President,
any Vice President or the Treasurer of the corporation,
stating the adjusted conversion rate determined as provided
in said paragraph 2(b)(iv)(A) and setting forth in
reasonable detail the facts requiring such adjustment, and
shall promptly mail a copy of such statement to each holder
of Class A Common Stock at his address then appearing on the
record books of the corporation. The transfer agent shall
be fully protected in relying on such statement and shall be
under no duty to inquire into the truth or accuracy thereof.
If any question shall at any time arise with respect to the
adjusted conversion rate, such question shall be determined
by a firm of independent public accountants selected by the
corporation, who may be the corporation's auditors, and such
determination shall be binding upon the corporation and the
holders of the Common Stock and the Class A Common Stock.
(D) If the corporation shall propose to effect any
reclassification of its Common Stock (other than a
reclassification involving merely the subdivision or
combination of outstanding Common Stock), or to effect any
capital reorganization, or shall propose to consolidate with
or merge into another corporation, or to sell, transfer or
otherwise
3
<PAGE>
dispose of all or substantially all of its property, assets
or business, or the corporation shall propose to liquidate,
dissolve or wind up, then, in each such case, the
corporation shall file with the transfer agent for the Class
A Common Stock and shall mail to the holders of record of
the Class A Common Stock at their respective addresses then
appearing on the record books of the corporation notice of
such proposed action, such notice to be filed and mailed at
least 30 days prior to the record date for the purpose of
determining holders of the Common Stock entitled to vote
with respect to such action or, if no record date is taken
for any such purpose, the date of the taking of such
proposed action. Such notice shall specify the date on
which such reclassification, reorganization, consolidation,
merger, liquidation, dissolution or winding-up shall take
place, as the case may be, and the date of participation
therein by the holders of Common Stock if any such date is
to be fixed. Such notice shall set forth such facts with
respect thereto as shall be reasonably necessary to inform
the holders of such shares as to the effect of such action
upon their conversion rights. Failure to file any
certificate or notice or to mail any notice, or any defect
in any certificate or notice, pursuant to this paragraph
2(b)(iv)(D), shall not affect the legality or validity of
any adjustment, dividend, distribution or right referred to
herein. This paragraph 2(b)(iv)(D) shall not impair any
voting rights the holders of Class A Common Stock may have
with respect to any transaction referred to herein.
(E) (1) Any holder of shares of Class A Common Stock desiring
to convert the same into Common Stock or whose shares
of Class A Common Stock are automatically converted
into shares of Common Stock as provided in this
paragraph 2(b) shall surrender the certificate or
certificates for such shares of Class A Common Stock at
the office of the transfer agent therefor or at such
other offices or agencies of the corporation, if any,
as the Board of Directors may determine, which
certificate or certificates, if the corporation shall
so request, shall be duly endorsed or assigned to the
corporation or in blank, together (in the case of a
conversion at the option of the holder thereof) with a
written request for conversion, and accompanied by
funds in the amount of any tax or taxes payable in
respect of any transfer involved in the issue and
delivery of certificates for shares of Common Stock in
a name other than that of the record holder of the
shares of Class A Common Stock so surrendered for
conversion.
(2) The corporation will as soon as practicable after such
surrender
4
<PAGE>
for conversion of certificates for shares of Class A
Common Stock, accompanied by the written request
therefor if prescribed above, issue and deliver at the
office at which such certificates for shares of Class A
Common Stock shall have been surrendered to the person
for whose account such shares of Class A Common Stock
were so surrendered, or to his nominee or nominees,
certificates for the number of whole shares of Common
Stock to which he shall be entitled as aforesaid,
together with an adjustment in cash for any fraction of
a share as hereinafter provided, if not evenly
convertible. Such conversion shall be deemed to have
been made as of the date of such surrender of the
certificates for shares of Class A Common Stock to be
converted; and the person or persons entitled to
receive the shares of Common Stock issuable upon the
conversion of such shares of Class A Common Stock shall
be treated for all purposes as the record holders of
such Common Stock on such date. However, the
corporation shall not be required to convert, and no
surrender of shares of Class A Common Stock shall be
effective for that purpose, while the stock transfer
books of the corporation are closed for any purpose;
but the surrender of shares of Class A Common Stock for
conversion during any period while such books are so
closed shall become effective for conversion
immediately upon the reopening of such books, at the
rate in effect at the date of such surrender.
(F) The corporation shall not be required to issue fractional
shares of Common Stock or scrip upon conversion of shares of
Class A Common Stock. As to any final fraction of a share
of Common Stock which the same record holder of one or more
shares of Class A Common Stock would otherwise be entitled
to upon conversion of shares of Class A Common Stock in the
same transaction, the corporation shall pay a cash
adjustment in respect of such final fraction in an amount
equal to the same fraction, if the Common Stock is listed or
admitted to trading on a securities exchange or national
quotation system, of the last sales price (or bid price if
there were no sales) per share on such securities exchange
or national quotation system on the business date which next
precedes the date of conversion or, if such Common Stock is
not so listed, of the market price per share (as determined
in a manner prescribed by the Board of Directors of the
corporation) at the close of business on the business day
which next precedes the date of conversion.
(G) The corporation will pay any documentary stamp taxes
attributable
5
<PAGE>
to the initial issuance of shares of Common Stock upon
conversion of any shares of Class A Common Stock pursuant
hereto, provided, however, that the corporation shall not be
required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issue or delivery of
any certificates for shares of Common Stock in a name other
than that of the registered holder of shares of Class A
Common Stock in respect of which such shares of Common Stock
are issued.
(H) The corporation shall at all times reserve and keep
available, out of its treasury stock or authorized and
unissued stock, or both, solely for the purpose of effecting
the conversion of the shares of Class A Common Stock, such
number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all shares of
Class A Common Stock from time to time outstanding. The
corporation shall at all times take any corporate action
which may, in the opinion of its counsel, be necessary in
order that the corporation may validly and legally issue
fully paid and nonassessable shares of Common Stock upon
conversion of shares of Class A Common Stock.
3. VOTING RIGHTS.
(a) Subject to paragraph 3(c) below and to the provisions of the Maine
Business Corporation Act (or its successor) requiring a separate class
vote, at each meeting of the stockholders of the corporation, each
holder of Class A Common Stock and each holder of Common Stock shall
be entitled to one vote for each share held, and such shares shall
vote together as a single class.
(b) The holders of Serial Preferred Stock shall have such voting rights as
may be fixed and determined by the Board of Directors for the
particular series.
(c) (i) Subject to any rights of holders of Serial Preferred Stock to
elect additional directors, the holders of the Class A Common
Stock shall have the right, voting as a separate class, to elect
the smallest number of directors sufficient to constitute
two-thirds (2/3) in number of such full Board of Directors, and
the directors so elected shall be known as Class A directors.
Subject to any rights of holders of Serial Preferred Stock to
elect additional directors, the holders of the Common Stock shall
have the right, voting as a separate class, to elect the
remaining directors of the corporation. By way of illustration,
if the corporation has ten (10) directors, the holders of the
Class A Common Stock shall have the right to elect seven (7)
directors, and the holders of the Common Stock shall have the
right to elect three (3) directors. If the holders of Serial
6
<PAGE>
Preferred Stock become entitled to elect two (2) additional
directors, the holders of the Class A Common Stock shall have the
right to elect seven (7) directors, the holders of the Common
Stock shall have the right to elect three (3) directors, and such
holders of Serial Preferred Stock shall have the right to elect
two (2) directors. Subject to any rights of holders of Serial
Preferred Stock to elect additional directors, in the event that
no shares of Class A Common Stock remain outstanding, the holders
of the Common Stock shall have the right to elect all of the
directors of the corporation.
(ii) Subject to any rights of holders of Serial Preferred Stock to
elect additional directors, the Board of Directors of the
corporation shall consist of not less than seven (7) or more
than fifteen (15) persons. The exact number of directors
within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by the Board
of Directors pursuant to a resolution adopted by a majority of
the entire Board of Directors, but no decrease in the number of
directors constituting the Board of Directors shall shorten the
term of any incumbent director. Any vacancies in the Board of
Directors for any reason, and any directorships resulting from
any increase in the number of directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual meeting of shareholders.
At such annual meeting, such directors shall be assigned to
classes as contemplated by paragraph 3(c)(iii) and shall be voted
upon by the holders of Class A Common Stock and the holders of
Common Stock as provided in this paragraph 3(c).
(iii) Subject to the foregoing and to the provisions of any Statement
of Resolution Establishing Series of Shares with respect to a
series of Serial Preferred Stock relating to elections of
directors by the holders thereof, at the 1998 annual meeting of
shareholders, the directors shall be divided into three classes,
as nearly equal in number as possible, with at least two-thirds
(2/3) of each such class being comprised of Class A directors (so
long as any shares of Class A Common Stock remain outstanding),
and with the term of office of the first class to expire at the
1999 annual meeting of shareholders, the term of office of the
second class to expire at the 2000 annual meeting of shareholders
and the term of office of the third class to expire at the 2001
annual meeting of shareholders, and with each class to hold
office until its successors are elected and qualified. Subject
to the provisions of any Statement of Resolution Establishing
Series of Shares relating to elections of directors by the
holders thereof, at each annual meeting of shareholders following
such initial classification and election, directors elected to
succeed those directors whose terms
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<PAGE>
expire shall be elected for a term of office to expire at the
third succeeding annual meeting of shareholders after their
election.
(d) There shall be no cumulative voting rights.
4. ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED AT ANNUAL SHAREHOLDER MEETINGS.
At an annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a shareholder. For business to be properly brought before
an annual meeting by a shareholder, the item of business must, under applicable
laws and regulations, be proper for consideration by the shareholders, and the
shareholder must have given timely notice thereof in writing to the Clerk of the
corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Clerk shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the corporation which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this paragraph 4. The Chairman of
the annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph 4, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
5. DIVIDENDS.
The holders of Class A Common Stock and Common Stock, without regard to
which class of shares they hold, shall be entitled to such dividends on a pro
rata basis as may be declared from time to time by the Board of Directors.
6. LIQUIDATION.
8
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In the event of the liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, the holders of Class A Common
Stock and Common Stock, without regard to which class of shares they hold, shall
be entitled to participate on a pro rata basis in the net assets of the
corporation remaining after distributions to the holders of Serial Preferred
Stock.
7. PRE-EMPTIVE RIGHTS.
There are no pre-emptive rights.
8. STATUTE NOT APPLICABLE.
The provisions of 13-A M.R.S.A. Section 910 shall not be applicable to the
corporation.
9
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Exhibit 3.2
BYLAWS
OF
AMERICAN SKIING COMPANY
Adopted: October 10, 1997
ARTICLE I
Name
Section 1. Name. The name of this corporation is stated in the Articles of
Incorporation.
ARTICLE II
References, Locations and Seal
Section 1. References. References in these Bylaws to the Articles of
Incorporation shall mean this corporation's Articles of Incorporation as amended
from time to time as on file with the Secretary of State of Maine. References in
these Bylaws to the Maine Business Corporation Act and to particular sections of
said Act are to said Act and said sections as amended from time to time. The
headings of Articles and Sections in these Bylaws are for convenience only, and
shall not be taken into account in construing these Bylaws.
Section 2. Office and Location. The registered office of this corporation
in Maine and the municipality or other place in Maine where it is located are
set forth in the Articles of Incorporation. The principal office and place of
business of this corporation, within or without Maine, shall be at such place as
the Board of Directors shall from time to time fix.
Section 3. Seal. The seal of this corporation shall be circular in form
with the name of the corporation, the word "Maine" and the year of its
incorporation so engraved on its face that it may be embossed on paper by
pressure, provided that the Board of Directors may adopt a wafer seal in any
form in respect of any particular document, in which case such wafer seal
affixed to such document shall be the corporate seal of this corporation thereon
for all purposes provided by law. The Clerk shall have custody of the corporate
seal and he or the Secretary may affix the same to documents requiring it and
attest the same. The Clerk may permit the President or Secretary to keep a
duplicate of the corporate seal.
ARTICLE III
Meetings of Shareholders
Section 1. Place. All meetings of shareholders shall be held at the
registered office of the corporation or at such other place within Maine (or
outside Maine if permitted by the Articles of Incorporation) as shall be fixed
(i) by the Board of Directors, (ii) by the person or persons calling the
meeting, or (iii) in waivers of notice of the meeting signed by all persons
entitled to notice thereof.
Section 2. Date of Annual Meeting. The annual meeting of shareholders
shall be held on the third Tuesday of April in each year, if not a legal
holiday, and if a legal holiday, then on the next business day following, at
10:00 A.M., Local Time, or at such other hour as may be fixed by the President
or Board of Directors, for the election of a Board of Directors, and for the
transaction of such other business as may properly come before the meeting. The
annual meeting of shareholders may likewise be held at any date and time fixed
by the President or Board of Directors during a period of 30 days after the date
hereinabove specified. If there shall be a failure for whatever reason to hold
the annual meeting for a period of 30 days after the date hereinbefore
specified, a substitute annual meeting of shareholders may be called by any
person or persons entitled to call a special meeting
<PAGE>
of shareholders.
Section 3. Call of Special Meetings. Special meetings of shareholders for
any purpose or purposes may be called to be held at the date and time fixed in
the call by the President, the Chairman of the Board of Directors (if any), a
majority of the Board of Directors, or the holders of not less than 50% of the
shares entitled to vote at the meeting.
Section 4. Notice. Unless waived in the manner prescribed by law, written
notice stating the place, day and time of the meeting and, in case of a special
meeting or when otherwise required by the Maine Business Corporation Act, the
purpose or purposes for which the meeting is called, shall be delivered within
the time period prescribed in ss. 604(1) of the Maine Business Corporation Act,
either personally or by mail, by or at the direction of the President,
Secretary, Clerk, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting, and to shareholders of
record not entitled to vote when required by the Maine Business Corporation Act.
ARTICLE IV
Quorum and Voting of Shares
Section 1. Quorum. The holders of a majority of the shares entitled to
vote thereat shall constitute a quorum at a meeting of shareholders.
Section 2. Votes. Except as otherwise provided by the Maine Business
Corporation Act, any corporate action shall be authorized by a majority of the
votes cast at the meeting by the holders of shares entitled to vote on the
subject matter. In elections of Directors, those candidates who receive the
greatest number of votes cast at the meeting by the holders of shares entitled
to vote to elect Directors, even though not receiving a majority of the votes
cast, shall be deemed elected.
ARTICLE V
Directors
Section 1. Number and Term. The number of Directors shall be fixed by
resolution of the shareholders or the Board of Directors within the limits
specified in the Articles of Incorporation. The Directors shall be elected at
the annual meeting of the shareholders, and each Director so elected shall hold
office for one year and until the next succeeding annual meeting and until his
successor shall have been elected and qualified, or until his earlier
resignation, removal from office, death or incapacity.
Section 2. Vacancies, Resignation and Removal. Any vacancy in the Board of
Directors, including newly created directorships created by an increase in the
number of Directors, may be filled by a majority of the remaining Directors or
by the sole remaining Director. Any Director may resign his office by delivering
a written resignation to the President or Clerk.
Section 3. Powers. In the management and control of the business, property
and affairs of the corporation, the Board of Directors is hereby vested with the
power to authorize any and all corporate action, except when shareholder action
is specifically required by the Maine Business Corporation Act, the Articles of
Incorporation or these Bylaws, or except when otherwise required by a written
agreement pursuant to ss. 618 of the Maine Business Corporation Act.
ARTICLE VI
Meetings of the Board of Directors
Section 1. Annual Meeting. The first meeting of each newly elected Board
of Directors, which shall be
<PAGE>
the Annual Meeting of the Board of Directors, shall be held at such time and
place as shall be fixed by the shareholders at their meeting electing them, or
if no such time and place are so fixed, said first meeting shall be held at the
place of and immediately following such meeting of shareholders. In either
event, no notice of such meeting shall be necessary. Such meeting of the Board
of Directors may also convene at such place and time as shall be fixed by the
consent in writing of all the Directors.
Section 2. Regular Meetings. Regular meetings of the Board of Directors
may be held at such time and place as shall from time to time be fixed by the
Board of Directors. Unless action is to be taken with respect to the Articles of
Incorporation or Bylaws, no notice of such regular meetings shall be necessary.
Section 3. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board of Directors (if any), President,
Clerk, Secretary or any other person or persons authorized byss.709(6) of the
Maine Business Corporation Act. The person or persons calling the special
meeting shall fix the time and place thereof.
Section 4. Notice; Generally. Notice of each special meeting of the Board
of Directors shall be given to each Director who has not signed a waiver of
notice before or after the meeting. Notices of meetings of the Board of
Directors shall be given by the Clerk or Secretary or the person or persons
calling the meeting. Neither the business to be transacted at nor the purpose of
the meeting need be specified in the notice unless the Maine Business
Corporation Act shall otherwise require. The giving of notice of a special
meeting of the Board of Directors by or at the direction of the person or
persons authorized to call the same shall constitute the call thereof.
Section 5. Notice; When and How Given. Notice of meetings of the Board of
Directors may be given by any of the following methods within the time period
specified for that method:
(a) by depositing a copy of the notice in the United States mail, first
class postage prepaid, addressed to the Director at his usual or last
known business or residence address, at least 3 business days before the
meeting;
(b) by delivering a copy of the notice to a recognized overnight delivery
or express service addressed to the Director at his usual or last known
business or residence address, including street or the like in the
address, at least 2 business days before the meeting;
(c) by delivering a copy of the notice in hand to the Director at least 24
hours before the meeting;
(d) by reading or causing to be read the notice over the telephone to the
Director at least 24 hours before the meeting;
(e) by sending a telegram containing the contents of the notice addressed
to the Director at his usual or last known business or residence address
at least 2 business days before the meeting;
(f) by transmitting the contents of the notice by telecopy, fax or any
other electronic means for the simultaneous or substantially simultaneous
transmission of data to a telephone or other number held out by the
Director as a number maintained by him for the receipt of the means of
transmission selected at least 24 hours before the meeting; or
(g) by sending a copy of the notice by any usual means of communication
addressed to the Director at his usual or last known business or residence
address, including street or the like in the address, at least 3 business
days before the meeting.
Notice to any Director actually received by him at least 24 hours before the
meeting shall be deemed sufficient, notwithstanding the method or means of
communication selected or the time when sent. For the purposes of this Section,
a "business day" is any day other than a Saturday, Sunday or legal holiday in
Maine.
<PAGE>
ARTICLE VII
Executive and Other Committees
Section 1. Establishment; Authority. The Board of Directors, by a
resolution adopted by a majority of the Directors then in office, may designate
from among its members an executive committee and other committees, each
consisting of 2 or more Directors, and may delegate to such committee or
committees any part or all of the authority of the Board of Directors, except as
otherwise provided by ss. 713 of the Maine Business Corporation Act relating to
certain amendments, mergers, certain sales, dissolutions,certain distributions
and the like.
Section 2. Procedures. Vacancies in the membership of a committee shall be
filled by resolution adopted by a majority of the Directors then in office.
Committees shall keep minutes of their proceedings and report the same to the
Board of Directors. Members of a committee may be removed from office, with or
without cause, by resolution adopted by a majority of the Directors then in
office. Any person or persons authorized to call a meeting of the Board of
Directors, as well as the chairman of a committee or the committee itself, may
call a meeting of a committee. Except as hereinbefore otherwise provided, so far
as applicable, the provisions of these Bylaws relating to the calling, noticing
and conduct of meetings of the Board of Directors shall govern the calling,
noticing and conduct of meetings of committees.
ARTICLE VIII
Officers
Section 1. Number. The officers of the corporation shall be elected by the
Board of Directors and shall be a President, a Secretary and a Treasurer. The
Board of Directors may also elect one or more Vice Presidents (one of whom may
be designated by the Board of Directors as the Executive Vice President), and
one or more Assistant Secretaries and Assistant Treasurers. The corporation
shall also have a Clerk who shall not be an officer by reason of such position.
Section 2. When Chosen; Qualifications; Term. The Board of Directors at
its initial meeting after the incorporation of the corporation and at each
Annual Meeting thereafter shall elect said officers, who shall hold office until
the next Annual Meeting of the Board of Directors and thereafter until their
successors are chosen and have qualified, or until their earlier death,
resignation or removal from office; provided that the Clerk shall not be elected
annually and shall hold office until his death or a change of Clerk is made
pursuant to ss. 304 of the Maine Business Corporation Act. No officer must also
be a Director.
Section 3. Authority and Duties. Each officer shall have such authority
and perform such duties as are set forth in the Maine Business Corporation Act
or in these Bylaws, and as shall be determined from time to time by the Board of
Directors. Each officer shall also have such authority and perform such duties
as are usually incumbent upon his office except as the same may be limited from
time to time by the Board of Directors.
Section 4. Compensation of Officers. The compensation of all officers of
the corporation shall be fixed by the Board of Directors.
Section 5. President. The President shall be the chief executive officer
of the corporation, shall preside at all meetings of the shareholders and of the
Board of Directors at which he is present, and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
Section 6. Vice President. The Vice President, if any, or if there shall
be more than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in case of the absence or disability of the President, have
the authority and perform the duties of the President. If the Board of Directors
shall elect an Executive Vice President, it shall be presumed that he is the
Vice President determined by the Board of Directors first to act in case of the
absence or disability of the President.
<PAGE>
Section 7. Secretary. The Secretary or the Clerk shall attend all meetings
of the Board of Directors and record all the proceedings of the Board of
Directors in a book kept for that purpose. The Secretary shall perform like
duties for the executive committee. In case of the absence or disability of the
Secretary, or if the corporation shall have no Secretary, all of the powers of
the Secretary may be exercised by the Clerk. The Clerk, Secretary or an
Assistant Secretary may certify all votes, resolutions and actions of the
shareholders and the Board of Directors and its committees.
Section 8. Assistant Secretaries. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries, in the order determined by the Board
of Directors, shall, in case of the absence or disability of the Secretary, have
the authority and perform the duties of the Secretary.
Section 9. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities, and shall deposit all such funds in the name and
to the credit of the corporation in such depositories as may be designated by
the Board of Directors. The Treasurer shall keep or cause to be kept all books
and records of account and shall prepare or cause to be prepared all financial
statements required by ss. 625 of the Maine Business Corporation Act, the Board
of Directors or good accounting practices. The Treasurer shall render to the
Board of Directors, whenever required, accounts of all corporate financial
transactions and of the financial condition of the corporation.
Section 10. Assistant Treasurers. Except as hereinbefore provided, the
Assistant Treasurer, or, if there shall be more than one, the Assistant
Treasurers, in the order determined by the Board of Directors, shall, in case of
the absence or disability of the Treasurer, have the authority and perform the
duties of the Treasurer.
ARTICLE IX
Voting Shares of Other Corporations
Section 1. Voting Shares of Other Corporations. The Chairman of the Board
of Directors, if any, the President, any Vice President, the Secretary, the
Treasurer and the Clerk of this corporation, in that order, shall have authority
to vote shares of other corporations standing in the name of this corporation,
and the President, Secretary or Clerk is authorized to execute and deliver in
the name and on behalf of this corporation proxies appointing any one or more of
the foregoing officers as the proxy agents of this corporation.
ARTICLE X
Lost Stock Certificates
Section 1. Lost Stock Certificates. The Board of Directors may authorize,
generally or in a specific case, the appropriate officers to execute and deliver
a replacement certificate for shares of this corporation in substitution for any
certificate for shares theretofore issued alleged to have been lost, destroyed
or stolen. Unless waived by the Board of Directors, the officers executing the
replacement certificate shall require the registered holder thereof to sign and
swear to an affidavit of loss and indemnity agreement in such form as shall be
prescribed by the Clerk. In addition, the Board of Directors may prescribe such
other terms and conditions precedent to the issuance of replacement
certificates, including without limitation the requirement of further
indemnities and surety bonds or insurance policies, as it deems appropriate to
protect the corporation and its officers and agents from any claim that may be
made against it or them with respect to any such certificate alleged to have
been lost, destroyed or stolen. The powers and duties of the Board of Directors
prescribed in this ARTICLE X may be delegated in whole or in part to any
registrar or transfer agent for this corporation.
ARTICLE XI
Transfers and Registration of Shares
<PAGE>
Section 1. Stock Transfer Books. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto, and the old certificate cancelled and the transaction recorded in the
original stock transfer books of the corporation, provided that the provisions
of Article XV of these Bylaws respecting restrictions on transfers of shares
have been complied with. The original issue of shares of this corporation shall
likewise be recorded in the original stock transfer books of the corporation.
Section 2. Registered Shareholders. The corporation shall be entitled to
recognize the person or persons shown on its original stock transfer books as
the owner of shares as the exclusive and only owner thereof for all purposes,
including without limitation the right to (i) receive dividends and other
distributions; (ii) vote (except as otherwise provided in ss. 613 of the Maine
Business Corporation Act); and (iii) examine lists, books, minutes or other
materials relating to the corporation. The corporation shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person not noted in its original stock transfer books, whether or
not it shall have express or other notice thereof.
ARTICLE XII
Indemnification
Section 1. Definitions. For all purposes of this Article, (i) the term
"Officer" (when capitalized, but not otherwise) shall mean any person who is or
was a Director, the President, the Treasurer, the Secretary or the Clerk of this
corporation; (ii) the term "Employee" (when capitalized, but not otherwise)
shall mean any other person (whether or not a common law employee) who is or was
an officer, employee or agent of this corporation, or is or was serving at the
request of this corporation as a director, officer, trustee, partner, fiduciary,
employee or agent of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan, or other enterprise; and (iii) the term
"Claimant" (when capitalized, but not otherwise) shall mean any Officer or
Employee seeking indemnification under this Article.
Section 2. Indemnification. This corporation shall in all cases indemnify
any Officer, and shall have power exercisable by its Board of Directors as
provided in Section 5 hereof to indemnify any Employee, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that the Claimant is or was an Officer or Employee, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement to the extent actually and reasonably incurred by the Claimant in
connection with such action, suit or proceeding; provided that no
indemnification may be provided for any Claimant with respect to any matter as
to which the Claimant shall have been finally adjudicated:
A. Not to have acted honestly or in the reasonable belief that the
Claimant's action was in or not opposed to the best interests of this
corporation or its shareholders or, in the case of a Claimant serving as a
fiduciary of an employee benefit plan or trust, in or not opposed to the
best interests of that plan or trust, or its participants or
beneficiaries; or
B. With respect to any criminal action or proceeding, to have had
reasonable cause to believe that the Claimant's conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order or
conviction adverse to the Claimant, or by settlement or plea of nolo contendere
or its equivalent, shall not of itself create a presumption that the Claimant
did not act honestly or in the reasonable belief that the Claimant's action was
in or not opposed to the best interests of this corporation or its shareholders
or, in the case of a person serving as a fiduciary of an employee benefit plan
or trust, in or not opposed to the best interests of that plan or trust or its
participants or beneficiaries and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the Claimant's conduct was
unlawful.
<PAGE>
Section 3. Derivative Actions. Notwithstanding any provision of Section 2
hereof, this corporation shall not indemnify any person with respect to any
claim, issue or matter asserted by or in the right of this corporation as to
which the Claimant is finally adjudicated to be liable to this corporation
unless the court in which the action, suit or proceeding was brought shall
determine that, in view of all the circumstances of the case, the Claimant is
fairly and reasonably entitled to indemnity for such amounts as the court shall
deem reasonable.
Section 4. When Defense Successful. Any provisions of Sections 2, 3 or 5
hereof to the contrary notwithstanding, to the extent that a Claimant has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 2 or 3, or in defense of any claim, issue or
matter therein, the Claimant shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection therewith.
Section 5. Determination in Specific Cases. Any indemnification of an
Employee under Section 2 hereof, unless ordered by a court or required by
Section 4 hereof, shall be made by this corporation only as authorized in the
specific case upon a determination that indemnification of the Claimant is
proper in the circumstances and in the best interests of this corporation. Where
such a case specific determination is required, that determination shall be made
by the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to the action, suit or proceeding, or if such a quorum is
not obtainable, or even if obtainable if so directed by a majority vote of a
quorum of disinterested Directors, by independent legal counsel in a written
opinion, or by the shareholders. Such a determination once made may not be
revoked and, upon the making of that determination, the Employee may enforce the
indemnification against this corporation by a separate action notwithstanding
any attempted or actual subsequent action by the Board of Directors.
Section 6. Advances of Expenses. Expenses incurred by or in behalf of an
Employee in defending a civil, criminal, administrative or investigative action,
suit or proceeding may be authorized and paid by this corporation in advance of
the final disposition of that action, suit or proceeding upon a determination
made in accordance with the procedure established in Section 5 hereof that,
based solely on the facts then known to those making the determination and
without further investigation, the Claimant satisfies the standard of conduct
prescribed by Section 2 hereof.
Expenses incurred by or in behalf of an Officer in defending a civil,
criminal, administrative or investigative action, suit or proceeding shall in
all cases be paid, as reasonably requested from time to time by the Officer, by
this corporation in advance of the final disposition of the action, suit or
proceeding upon receipt by this corporation, at the time of the initial advance,
of:
A. A written undertaking by or on behalf of the Officer to repay all
amounts advanced if the Officer is finally adjudicated:
(1) Not to have acted honestly or in the reasonable belief that his
action was in or not opposed to the best interests of this
corporation or its shareholders, or, in the case of a Claimant
serving as a fiduciary of an employee benefit plan or trust, in or
not opposed to the best interests of that plan or trust, or its
participants or beneficiaries;
(2) With respect to any criminal action or proceeding, to have had
reasonable cause to believe that his conduct was unlawful; or
(3) With respect to any claim, issue or matter asserted in any
action, suit or proceeding brought by or in the right of this
corporation, to be liable to this corporation, unless the court in
which the action, suit or proceeding was brought permits
indemnification in accordance with Section 3 hereof; and
B. A written affirmation by the Officer that he has met the standard of
conduct necessary for indemnification by this corporation as authorized in
this Article.
The undertaking required by paragraph A shall be an unlimited general
obligation of the Officer seeking
<PAGE>
the advance, but need not be secured and may be accepted without reference to
financial ability to make the repayment.
Section 7. Indemnification Not Exclusive. The indemnification and
entitlement to advances of expenses provided by this Article shall not be deemed
exclusive of any other rights to which a Claimant may be entitled under any
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in the Claimant's official capacity and as to action in another
capacity while holding an office with this corporation, and shall continue as to
a person who has ceased to be a director, officer, employee, agent, trustee,
partner or fiduciary and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of such a person.
Section 8. Enforceable By Separate Action. A right to indemnification
required by this Article or established pursuant to the provisions of this
Article may be enforced by a separate action against this corporation, if an
order for indemnification has not been entered by a court in any action, suit or
proceeding in respect to which indemnification is sought.
Section 9. Miscellaneous. For purposes of this Article, (i) references to
this "corporation" shall include, in addition to the surviving corporation or
new corporation, any participating corporation in a consolidation or merger;
(ii) this corporation shall be deemed to have requested a person to serve an
employee benefit plan whenever the performance by him of his duties to this
corporation also imposes duties on, or otherwise involves services by, him to
the plan or participants or beneficiaries of the plan; and (iii) excise taxes
assessed on a person seeking indemnification with respect to an employee benefit
plan pursuant to applicable law shall be deemed "fines".
Section 10. Amendment. Any amendment, modification or repeal of this
Article shall not deny, diminish or otherwise limit the rights of any Claimant
to indemnification or advances hereunder with respect to any action, suit or
proceeding arising out of any conduct, act or omission occurring or allegedly
occurring at any time prior to the date of such amendment, modification or
repeal.
ARTICLE XIII
Fiscal Year
Section 1. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XIV
Execution of Documents
Section 1. Execution of Documents. Unless the Board of Directors,
Executive Committee or shareholders shall otherwise generally or in any specific
instance provide:
A. Any bill, note or negotiable instrument may be signed or endorsed in
the name and on behalf of this corporation in the ordinary course of
business by the President or Treasurer, acting singly;
B. The President or Treasurer, acting singly, shall in the ordinary course
of business have authority to sign or endorse in the name and on behalf of
this corporation all checks and other orders for the payment of money
drawn on any bank or trust company;
C. The President or Treasurer, acting singly, shall have authority to
make, in the name and on behalf of this corporation, all contracts in the
ordinary course of business; and
D. Any other instrument, document, deed, bill of sale or other writing of
whatever nature to be executed in the ordinary course of business may be
executed in the name and on behalf of this corporation by
<PAGE>
the President or Treasurer, acting singly, and either officer may seal,
acknowledge and deliver the same.
Section 2. Assistants. Vice Presidents and Assistant Treasurers shall not
have the authority provided in Section 1 unless granted by the Board of
Directors generally or in any specific instance.
ARTICLE XV
Amendments to Bylaws
Section 1. Amendments. The Board of Directors shall have the power to
alter, amend or repeal these Bylaws, and to adopt new Bylaws, provided that the
notice, unless notice shall be duly waived, of any regular or special meeting at
which such action is to be taken shall either set out the text of the proposed
new Bylaw or amendment or Bylaw to be repealed, or shall summarize the changes
to be effectedby such adoption, amendment or repeal, and provided further that
the shareholders may amend or repeal a Bylaw provision adopted by the Board of
Directors and in such case the Board of Directors may not, for two years
thereafter, amend or readopt the Bylaw provision thus amended or repealed by the
shareholders.
<PAGE>
TEMPORARY CERTIFICATE--EXCHANGEABLE FOR
ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY
AMERICAN SKIING COMPANY
[LOGO]
COMMON STOCK COMMON STOCK
NUMBER SHARES
ASC
AMERICAN SKIING COMPANY
INCORPORATED UNDER THE LAWS
OF THE STATE OF MAINE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 029654 30 8
THIS IS TO CERTIFY THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $.01 PAR VALUE OF
============================ AMERICAN SKIING COMPANY ===========================
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Articles of
Incorporation of the Corporation and all amendments thereof to all of which
the holder by the acceptance hereof assents. This certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
/s/ Christopher E. Howard /s/ Leslie B. Otten
------------------------- -----------------------------
CHIEF ADMINISTRATIVE OFFICER CHIEF EXECUTIVE OFFICER
AND CLERK AND PRESIDENT
[SEAL OF AMERICAN SKIING COMPANY 1997 APPEARS HERE]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK)
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF
WHICH THE CORPORATION IS AUTHORIZED TO ISSUE AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS OF EACH SUCH
CLASS OF STOCK OR SERIES THEREOF. ANY SUCH REQUEST SHOULD BE MADE TO THE
SECRETARY OF THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR TO THE
TRANSFER AGENT AND REGISTRAR.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ---------------------------------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act_____________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
INDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the capital stock represented by within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-----------------------------
--------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAMES AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- -----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[PIERCE ATWOOD LETTERHEAD]
October 28, 1997
American Skiing Company
Sunday River Access Road
Bethel, Maine 04217
Re: Registration Statement on Form S-1 (No. 333-33483)
Dear Sirs:
We have assisted in the preparation of a Registration Statement on Form S-1
(the "Registration Statement") filed with the Securities and Exchange Commission
relating to 14,750,000 shares of Common Stock, par value $.01 per share (the
"Shares"), of American Skiing Company, a Maine corporation (the "Company").
We have examined and relied upon the Company's Articles of Incorporation and
Bylaws and originals, or copies certified to our satisfaction, of all pertinent
records of the meetings of the directors and stockholders of the Company, the
Registration Statement and such other documents relating to the Company as we
have deemed relevant for the purposes of this opinion.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, and the conformity to original documents of all documents
submitted to us as certified or photostatic copies.
Based on and subject to the foregoing, we are of the opinion that the
Company has duly authorized for issuance the Shares covered by the Registration
Statement and the Shares, when issued as described in the Registration
Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission in connection with the Registration Statement. We also
consent to the reference to our firm appearing under the caption "Legal Matters"
in the Prospectus forming part of the Registration Statement.
Very truly yours,
/s/ Pierce Atwood
<PAGE>
EXHIBIT 10.104
BANKBOSTON, N.A.
100 Federal Street
Boston, MA 02110
BANCBOSTON SECURITIES, INC.
100 Federal Street
Boston, MA 02110
October 8, 1997
$215,000,000
Senior Secured Credit Facilities
Commitment Letter
Mr. Thomas M. Richardson
Chief Financial Officer
American Skiing Company
P.O. Box 450
Sunday River Road
Bethel, ME 04127
Dear Tom:
You have informed BankBoston, N.A. ("BKB" or the "Agent") and BancBoston
Securities Inc. ("BSI" or the "Arranger") that American Skiing Company
("American Ski"), ASC West, Inc. ("ASC West") and ASC Utah (ASC West and ASC
Utah, collectively, "American Ski-West") and certain subsidiaries of ASC West
and ASC East and certain of its subsidiaries desire to arrange for credit
facilities of $215,000,000 (the "Facilities"), principally to finance the
acqusition of the Heavenly Valley and Steamboat Springs ski resorts by ASC West,
to refinance certain existing infebtedness and to provide for ongoing general
corporate purposes, including capital expenditures.
BSI is pleased to advise you that it is willing to act as arranger for the
Facilities. Furthermore, BKB is pleased to advise you that it is willing to make
an initial commitment for the entire amount of the Facilities. Attached hereto
as Appendix A is a Statement of Terms and Conditions (the "Term Sheet") setting
forth the principal terms and conditions of the
<PAGE>
American Skiing Company
October 8, 1997
Page 2
Facilities. You agree that (a) BKB shall be Agent for the Facilities and (b) no
other agents, co-agents or arrangers will be appointed, no other titles will be
awarded and no compensation (other than that expressly contemplated by the Term
Sheet and the Fee Letter referred to below) will be paid in connection with the
Facilities unless you and BKB and BSI shall so agree.
As we have discussed with you, BSI intends to syndicate the Facilities
to a group of financial institutions (together with BKB, the "Lenders")
identified by BSI in consultation with you. BSI will manage all aspects of
the syndication, in consultation and cooperation with you. To assist BSI in
achieving a satisfactory syndication, you will provide direct contact during
the syndication (at places and times to be reasonsably agreed upon) between
the management and advisors of American Ski, American Ski-West and ASC East,
on the one hand, and the proposed syndicate participants, on the other.
American Ski, American Ski-West and ASC East will also provide BSI upon
request with all information and projections reasonably deemed necessary by
BSI to complete successfully the syndication and will assist BSI in the
preparation of a confidential information memorandum and other marketing
materials to be used in connection with the syndication. American Ski,
American Ski-West and ASC East will provide customary representations
regarding such information and projections. No such information or any other
confidential information shall be distributed to any prospective Lender
without your consent, which consent shall not be unreasonably withheld.
As consideration for BKB's commitment hereunder and for the agreements
contained herein as to the management, structuring and syndication of the
Facilities, American Ski agrees to pay the fees set forth in the fee letter
dated September 18, 1997 by and among American Ski, BKB and BSI (the "Fee
Letter").
The commitment of BKB hereunder to provide the Facilities is subject to
the terms and conditions set forth herein, in the Fee Letter and the Term
Sheet and the conditions, among others, that there not have occurred after
the date hereof a general banking moratorium or a practical cessation in bank
and other private debt financing markets or the introduction of additional
material government restrictions imposed upon lending institutions which
materially affect the type of transactions contemplated hereby. In addition,
such commitment is subject to the negotiation, execution and delivery prior
to November 30, 1997 (unless such date shall have been extended by mutual
agreement of the parties hereto) of definitive documentation with respect to
the Facilities satisfactory in all respects to the Agent and its counsel.
By executing this Commitment Letter, you agree (a) to indemnify and
hold harmless BKB and BSI and each of their affiliates and their respective
officers and directors (the
<PAGE>
American Skiing Company
October 8, 1997
Page 3
"Indemnified Person(s)") from and against all losses, claims, damages and
liabilities in actions by third parties arising out of this Commitment
Letter, the Term Sheet or the Fee Letter for any claims, litigation,
investigation or proceeding relating thereto, and to reimburse upon demand
each of such indemnified parties from time to time for any reasonable legal
or other expenses incurred in connection with investigating or defending any
of the foregoing; provided that the foregoing indemnity will not apply to any
losses, claims, damages, liabilities or related expenses to the extent they
are determined by a court in a final non-appealable judgment to have resulted
from willful misconduct or gross negligence of any indemnified party and (b)
to reimburse BKB and BSI and each of their affiliates from time to time upon
presentation of a summary statement for all reasonable out-of-pocket expenses
(including their reasonable syndication expenses and the reasonable fees and
disbursements of their counsel, but excluding any fees payable to syndicate
members) incurred in connection with the preparation of this Commitment
Letter, the Term Sheet, the Fee Letter, the definitive documentation for the
Facilities and the other transactions contemplated hereby and thereby. Upon
receipt by an Indemnified Person of actual notice of action against such
Indemnified Person with respect to which indemnity may be sought under this
Agreement, such Indemnified Person shall promptly notify American Ski in
writing; provided that failure to so notify American Ski shall not relieve
American Ski from any liability which American Ski may have on account of
this indemnity or otherwise except to the extent that American Ski shall have
been prejudiced by such failure. American Ski shall have the right to assume
the defense of any such action including the employment of counsel reasonably
satisfactory to the Indemnified Person, except as provided below. Any
Indemnified Person shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Person, except as
provided below. In the event that an Indemnified Person has been advised by
counsel that there may be one or more legal defenses available to it or
prospective bases for liability against it, which conflict with those
available to or against American Ski, then American Ski shall not have the
right to assume the defense of such matter with respect to such Indemnified
Person and shall pay the costs of such defense. American Ski shall not be
liable for any settlement of any action affected without its written consent
(which shall not be unreasonably withheld). In addition, American Ski shall
not, without prior written consent of an Indemnified Person, settle,
compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Person is a party thereto) unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Person from all liabilities arising out of such action. The provisions
contained in this paragraph shall remain in full force and effect
notwithstanding that definitive financing documentation for the Facilities
shall not be executed and delivered and that this Commitment
<PAGE>
American Skiing Company
October 8, 1997
Page 4
Letter (or the commitment hereunder) may be terminated, except that such
provisions shall not survive, and shall expire an terminate upon, the execution
and delivery of such definitive financing documentation by BKB and American Ski
and shall be replaced thereby.
This Commitment Letter may be executed in any number of counterparts,
each of which shall be an original and all of which, when taken together,
shall constitute one agreement. Capitalized terms used herein and in the Term
Sheet and not otherwise defined shall have the meanings set forth Appendix B
attached hereto. This Commitment Letter shall be governed by, and construed
in accordance with, the laws of The Commonwealth of Massachusetts. This
Commitment Letter is intended to be solely for the benefit of the parties
hereto and is not intended to confer any benefits upon, or create any rights
in favor of, any person other than the parties hereto.
If you are in agreement with the foregoing, please sign and return to BKB
the enclosed copies of this Commitment Letter no later than 5:00 P.M., Boston
time, on October 9, 1997.
<PAGE>
American Skiing Company
October 8, 1997
Page 5
We look foward to working with you on this transaction.
Sincerely,
BANKBOSTON N.A. BANCBOSTON SECURITIES, INC.
By: /s/ Carlton F. Williams By: /s/ J. Peter Mitchell
----------------------------- --------------------------------
Name: Carlton F. Williams Name: J. Peter Mitchell
Title: Director Title: Managing Director
Accepted and agreed to as of the
date first above written:
AMERICAN SKIING COMPANY
By: /s/ Thomas M. Richardson
--------------------------------
Name: Thomas M. Richardson
Title: Chief Financial Officer
<PAGE>
APPENDIX A
ASC EAST and AMERICAN SKI-WEST
Terms and Conditions
For $ 215,000,000
Senior Secured Credit Facilities
- --------------------------------------------------------------------------------
Facilities: A total of $215,000,000 in senior secured facilities,
provided as follows:
I. $140,000,000 for American Ski-West comprised of :
(A) $65,000,000 Reducing Revolving Credit
(B) $75,000,000 Term Loan
II. $75,000,000 for ASC East comprised of:
(A) $45,000,000 Reducing Revolving Credit
(B) $30,000,000 Term Loan
Use of Proceeds: I. Advances on the Closing Date may be used, in
conjunction with the net equity proceeds of the equity
offerings described below, (i) to finance the
acquisition of the Heavenly Valley and Steamboat Springs
resorts by ASC West, (ii) to pay certain existing
indebtedness to Michael Baker and Kenneth Griswold of
approximately $4.2 million and (iii) to pay associated
fees and expenses. Thereafter, the facilities will be
available to fund on-going working capital needs,
capital expenditures and general corporate purposes, all
as more fully outlined below.
II. Advances on the Closing Date may be used to
refinance amounts outstanding under ASC East's existing
revolving credit agreement, to repay certain scheduled
indebtedness in an amount not to exceed $10,000,000, to
pay certain existing indebtedness to Claniel of
approximately $7.7 million and to pay associated fees
and expenses. Thereafter, the facilities will available
to fund on-going working capital needs, capital
expenditures and general corporate purposes, all as more
fully outlined below.
BankBoston, N.A.
BancBoston Securities Inc. -- Confidential Page 1
- --------------------------------------------------------------------------------
<PAGE>
Borrowers: I. ASC West, Inc. ("ASC West") (a wholly-owned
subsidiary of American Skiing Company ("American Ski")
which will own the subsidiaries that own the Heavenly
Valley and Steamboat Springs resorts), ASC Utah (a
wholly-owned subsidiary of American Ski which owns the
Canyons resort) (ASC West and ASC Utah, collectively
"American Ski-West") and certain other Subsidiaries of
ASC West to be determined (collectively the "Facility I
Borrowers").
II. ASC East (the present owner of the subsidiaries that
own the Eastern resorts and a wholly-owned subsidiary of
American Ski) and certain of its Subsidiaries to be
determined (collectively the "Facility II Borrowers").
Agent: BankBoston, N.A.
Arranger: BancBoston Securities Inc.
Lenders: The Arranger will undertake to syndicate the facilities
with other Lenders reasonably acceptable to the
Borrowers and the Agent in an amount sufficient to
reduce the Agent's share to its desired hold level of
$40,000,000.
Guarantors: American Ski and certain of its Subsidiaries to be
determined. Additionally, Facilities I and II will be
guaranteed, respectively, by all non-Borrower
Subsidiaries of the Facility I and II Borrowers, with
exceptions and/or limitations (including limitations
imposed by the Senior Subordinated Notes Indenture) to
be negotiated.
Closing Date: A mutually agreeable date prior to November 30, 1997.
I. Facility I
American Ski - West $140,000,000
A. Reducing Revolving Credit
Amount: $65,000,000
Availability: Amounts under this Reducing Revolver may be drawn,
repaid and reborrowed through maturity, subject to
compliance with the terms and conditions of the loan
documentation. The revolving credit facility will have a
sub-limit of $7 million for the issuance of letters of
credit. The availability will be reduced by the Letter
of Credit Exposure.
BankBoston, N.A.
BancBoston Securities Inc. -- Confidential Page 2
- --------------------------------------------------------------------------------
<PAGE>
Clean Down: Borrowings under this Reducing Revolver must be reduced
for 30 consecutive days, including April 30, during each
fiscal year to an amount which is at least $30,000,000
less than the total Reducing Revolver limit at the time
of such clean-down.
Maturity: May 31, 2004
Revolver Limit
Reductions: The revolving credit amount will reduce annually
commencing on May 31, 1999 by the following amounts:
(A)
May 31, 1999 $ 350,000
May 31, 2000 $ 1,000,000
May 31, 2001 $ 5,500,000
May 31, 2002 $ 5,750,000
May 31, 2003 $ 5,850,000
May 31, 2004 $ 6,550,000
-----------
Total $25,000,000
Swing Line
Availabilty: The Agent will make available, within the limitations
of the Reducing Revolver, a swing line facility (the
"Swing Line Facility") of $5,000,000.
B. Term Loan
Amount: $75,000,000
Availability: To be drawn in full by December 20, 1997 in two
installments. The first installment will be drawn at
Closing in a minimum amount acceptable to the Agent
and to be determined at least 10 days prior to closing.
The balance, if any, of the Term Loan will be drawn in
one additional installment prior to December 20, 1997.
Maturity: May 31, 2006
Amortization: The Term Loan will amortize in annual payments
commencing May 31, 1999 as follows:
(B)
May 31, 1999 $ 700,000
May 31, 2000 $ 700,000
BankBoston, N.A.
BancBoston Securities Inc. -- Confidential Page 3
- --------------------------------------------------------------------------------
<PAGE>
May 31, 2001 $ 700,000
May 31, 2002 $ 700,000
May 31, 2003 $ 700,000
May 31, 2004 $ 700,000
May 31, 2005 $ 34,800,000
May 31, 2006 $ 36,000,000
=============
Total $ 75,000,000
II. Facility II
ASC East $75,000,000
A. Reducing Revolving Credit
Amount: $45,000,000
Availability: $35,000,000 of the Reducing Revolver will be available
at Closing, with the final $10,000,000 becoming
available upon achievement of cash flow sufficient to
permit such borrowings under the debt incurrence
covenants of the Senior Subordinated Notes Indenture.
Subject to the foregoing, amounts under this Reducing
Revolver may be drawn, repaid and reborrowed through
Maturity, subject to compliance with the terms and
conditions of the loan documentation. The revolving
credit facility will have a sub-limit of $5 million for
the issuance of letters of credit. The availability will
be reduced by the Letter of Credit Exposure.
Clean Down: Borrowings under this Reducing Revolver must be reduced
for 30 consecutive days, including April 30, during each
fiscal year to an amount which is at least $25,000,000
less than the total Reducing Revolver limit at the time
of such clean-down.
Maturity: May 31, 2004
Revolver Limit
Reductions: The revolving credit amount will reduce annually
commencing on May 31, 1999 by the following amounts:
(A)
May 31, 1999 $ 150,000
May 31, 2000 $ 500,000
May 31, 2001 $ 1,750,000
BankBoston, N.A.
BancBoston Securities Inc. -- Confidential Page 4
- --------------------------------------------------------------------------------
<PAGE>
May 3l, 2002 $ 2,150,000
May 31, 2003 $ 2,200,000
May 31, 2004 $ 3,250,000
============
Total $ 10,000,000
Swing Line
Availability: The Agent will make available, within the limitations of
the Reducing Revolver, a Swing Line Facility of
$5,000,000.
B. Term Loan
Amount: $30,000,000
Availability: To be drawn in full at Closing.
Maturity: May 31, 2006
Amortization: The Term Loan will amortize in annual payments
commencing May 31, 1999 as follows:
(B)
May 31, 1999 $ 300,000
May 31, 2000 $ 300,000
May 31, 2001 $ 300,000
May 31, 2002 $ 300,000
May 31, 2003 $ 300,000
May 31, 2004 $ 300,000
May 31, 2005 $ 14,000,000
May 31, 2006 $ 14,200,000
Total $ 30,000,000
III. General Provisions
Security: The facilities, as well as required interest rate
protection agreements with the Lenders, will be
secured and cross defaulted by first perfected
security interests in all tangible and intangible
assets of the Guarantors, the Borrowers and their
Subsidiaries, now owned or hereafter acquired,
including without limitation receivables, securities,
inventory, equipment, real estate, intercompany
notes, patents, trademarks and copyrights, and a
pledge of stock of the Borrowers and
BankBoston, N.A.
BancBoston Securities Inc. -- Confidential Page 5
- --------------------------------------------------------------------------------
<PAGE>
any Subsidiaries, subject to such limited exceptions as
are acceptable to the Agent, including the limits
imposed under the Senior Subordinated Notes Indenture.
The rights of the Agent and the Lenders under the stock
pledges will not be exercised for a period of 45 days
after default and shall be subject to advance notice
provisions to the Borrowers on terms acceptable to the
Agent, except in the case of bankruptcy and insolvency
defaults.
Mandatory
Prepayments: Mandatory prepayments equal to 50% of Consolidated
Excess Cash Flow. 100% of the net proceeds of asset
sales and key man life insurance and property and
casualty insurance (with exceptions for
repair/replacement and/or reinvestment in permitted
Capital Expenditures and Permitted Acquisitions) and of
the net proceeds of new debt or equity offerings
(subsequent to American Ski's initial public offering)
exceeding $10,000,000 in the aggregate of American Ski
and its Restricted Subsidiaries. Prepayments from
Consolidated Excess Cash Flow will be required annually
commencing with the fiscal year ending 7/31/99. All such
prepayments will be applied pro rata to the Term Loans
and to reduce the Reducing Revolver commitments, subject
to the limits imposed under the Senior Subordinated
Notes Indenture, and will reduce the remaining scheduled
principal payments and commitment reductions on a pro
rata basis. Term Loan participants will collectively
have the right to refuse their pro rata share of such
required prepayments, in which case such amounts shall
also be applied to reduce the Reducing Revolver
commitments as described above. Consolidated Excess Cash
Flow recapture will be required only when Consolidated
Senior Secured Debt plus the undrawn Reducing Revolver
commitments)/Consolidated EBITDA exceeds 3.50-to-1 and
nothing in this section shall require that the Reducing
Revolver Commitments be reduced to below $35,000,000 for
each facility.
Voluntary
Prepayments: Permitted, subject to payment of breakage costs, if any,
in the case of LIBOR loans and interest rate swaps.
Voluntary prepayments will be applied pro rata to the
Term Loans and Reducing Revolver commitments and will
reduce the remaining scheduled principal payments and
commitment reductions on a pro rata basis.
Cancellation: The Borrowers shall have the right, on 7 days written
notice, to cancel the undrawn portion of the facilities
in whole or in part, provided that any partial
cancellation shall be in a minimum amount of $5,000,000
and integral multiples of $1,000,000.
BankBoston, N.A.
BancBoston Securities Inc. -- Confidential Page 6
- --------------------------------------------------------------------------------
<PAGE>
Closing Fees: Per the Fee Letter.
Agent's Fee: Per the Fee Letter.
Commitment Fee: Payable quarterly at a rate of 0.50% per annum on the
average daily unused portion of the Reducing Revolvers
during any period for which the Pricing Grid is at Level
I, II or III, and at 0.375% per annum otherwise.
Interest Rates: At the Borrower's option, interest will be payable at
the Alternate Base Rate or LIBOR plus the Applicable
Margin determined quarterly through April 30, 1998 and
annually thereafter in accordance with the following
Pricing Grid:
Reducing Revolver Term Loan
----------------- ---------
Level Total Debt/EBITDA Alt. Base + LIBOR + Alt. Base + LIBOR +
- ----- ----------------- ----------- -------- ----------- -------
I. > 5.50x 1.25% 2.75% 1.75% 3.25%
II. >= 5.00x < 5.50x 1.00% 2.50% 1.50% 3.00%
III. >= 4.50x < 5.00x 0.75% 2.25% 1.25% 2.75%
IV. >= 4.00x < 4.50x 0.50% 2.00% 1.25% 2.50%
V. >= 3.50x < 4.00x 0.25% 1.75% 1.25% 2.50%
VI. < 3.50x 0.00% 1.50% 1.25% 2.50%
* The Pricing Grid notwithstanding, interest rates will
initially be set at Level II and will reset, in
accordance with the Pricing Grid, following delivery of
the compliance certificate, initially for each fiscal
quarter through April 30, 1998 and then for the fiscal
year ending July 31, 1998 and each fiscal year-end
thereafter.
Interest on the Swing Line Facilities will be payable at
the Alternate Base Rate or money-market rates quoted by
the Agent.
Default Pricing: Upon the occurrence and during the continuance of any
Event of Default, all interest rates and letter of
credit fees will be set at 2% per annum above the
otherwise applicable rate.
Interest Payments: For Alternate Base Rate loans, at the end of each fiscal
quarter. For LIBOR loans, at the end of each Interest
Period, or quarterly, if earlier. Interest will be
calculated on an actual/365 day basis for Alternate Base
Rate loans and on an actual/360 day basis for LIBOR
loans. For loans under the Swing Line Facilities,
quarterly.
Interest Periods: For LIBOR loans, 1, 2, 3 or 6 months, subject to
availability.
BankBoston, N.A.
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Letter of
Credit Fees: Per annum fees payable pro rata to the Lenders at a per
annum rate equal to the Applicable LIBOR Margin on the
Reducing Revolvers, as determined by the Pricing Grid,
times the face amount of each letter of credit. In
addition, the Borrowers will pay to the Issuing Bank a
fronting fee equal to 0.25% per annum times face amount
of each letter of credit. All letter of credit fees will
be payable quarterly in arrears.
Issuing Bank: BankBoston, N.A.
Interest Rate
Protection: Within 90 days of closing, the Borrowers will obtain
interest rate protection (including but not limited to
interest rate swaps) on notional amounts for a minimum
of 50% of the initial Term Loan commitments and at rate
and tenor satisfactory to the Agent.
Conditions
Precedent:
o Satisfactory structure and documentation for the
acquisitions of the Heavenly Valley and Steamboat
Springs resorts.
o Satisfactory appraisals on any owned real estate
evidencing a maximum ratio of the total amount of
the facilities to appraised value of 75%.
o Satisfactory documentation, including without
limitation, satisfactory representations and
warranties (including those previously agreed to
by the Agent and American Ski) and opinions of
counsel.
o Satisfactory corporate and capital structure,
including (i) minimum gross proceeds from the sale
or initial public offering of common stock ("IPO
Gross Proceeds") of $250,000,000, all of the net
proceeds of such IPO Gross Proceeds to be utilized
in the ski and lodging operations of American Ski
and its Restricted Subsidiaries; provided,
however, that the first $25,000,000 of net
proceeds from IPO Gross Proceeds exceeding
$250,000,000 may be used for any purpose and
provided further that if IPO Gross proceeds exceed
$275,000,000, 50% of the net proceeds from such
IPO Gross Proceeds exceeding $275,000,000 shall be
used in the ski and lodging operations of American
Ski and its Restricted Subsidiaries and 50% may be
used by American Ski or its Subsidiaries for any
purpose and (ii) minimum gross proceeds from the
sale of other equity interests to Cerebus of
$35,000,000, both of which must be on terms
satisfactory to the Agent, including without
limitation, the absence of mandatory redemption
provisions and cash dividend
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requirements; provided that the Cerebus equity may
be replaced by increasing the IPO Gross Proceeds
minimum from $250,000,000 to $285,000,000.
o The Agent's satisfaction with the terms and
conditions of the Borrowers' other debt
obligations.
o Proceeds of the offering may be used, in
conjunction with amounts drawn at closing under
the Facilities to effect the acquisitions of the
Heavenly Valley and Steamboat Springs resorts, to
refinance the existing ASC East revolver, to pay
certain existing indebtedness to Claniel of
approximately $7.7 million and to Michael Baker
and Kenneth Griswold of approximately $4.2
million, to repay certain scheduled indebtedness
in an amount not to exceed $10,000,000, to redeem
the existing junior subordinated note and to pay
fees and expenses.
o Satisfactory evidence of Solvency.
o Without limiting the foregoing, immediately after
giving effect to the borrowings at closing, the
ratio of Consolidated Funded Debt to trailing 4
quarter combined proforma historical EBITDA
for the period ending July 31, 1997 at closing,
would not exceed 6.0-to-1 and there would be a
minimum of $30,000,000 in unused availability
under the Reducing Revolvers (excluding the
$10,000,000 under the ASC East revolver which will
become available only upon satisfaction of
financial tests in the Senior Subordinated Notes
Indenture).
o Absence of any material adverse change in the
condition (financial or otherwise), operations,
assets, income and/or prospects of the Facility I
Borrowers or the Facility II Borrowers.
o Absence of any material adverse litigation.
o Absence of any material adverse change or material
disruption in the financial, banking or capital
markets, which in the reasonable judgment of the
Agent or Arranger would have a Material Adverse
Effect on the syndication of the Facilities.
o Assignment of life insurance on the life of Leslie
B. Otten in an amount not less than $14,000,000.
Reporting
Requirements: Periodic financial reporting, including, but not limited
to, the following: certified annual audited financials,
quarterly and monthly financials, quarterly compliance
certificates, annual budgets and other information that
may from time to time be requested by the Agent and
co-lenders.
Financial
Covenants: Financial covenants will be as defined below, with
covenant compliance reported quarterly and tested on a
consolidated basis at the American Ski
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level, with the exception of separate leverage and net
worth tests as outlined below. Borrower level covenants
will be determined based upon review of the relevant
Borrower projections. Covenants at the American Ski
level will include the following:
o Consolidated Total Debt / Consolidated EBITDA may
not exceed the following:
Quarters Ending
---------------
10/31 1/31 4/30 7/31
----- ---- ---- ----
Year 1 6.0x 6.0x 5.5x 5.5x
Year 2 5.5x 5.5x 4.5x 5.0x
Year 3 5.0x 5.0x 4.0x 4.5x
Year 4 4.5x 4.5x 4.0x 4.0x
Thereafter 4.0x 4.0x 4.0x 4.0x
This covenant will be tested on a consolidated basis for
American Ski, the Borrowers and their Restricted
Subsidiaries and a similar covenant will also be tested
separately for each of ASC East and American Ski - West
and their Restricted Subsidiaries at the same levels,
provided that the separate subsidiary tests shall cease
to apply if the full cash flow and assets of the
Facility I Borrowers and the Facility II Borrowers
become available to support all Facilities (e.g. if
restrictions in the Senior Subordinated Notes Indenture
are eliminated).
o Consolidated Adjusted Cash Flow / Consolidated
Debt Service may not be less than:
Year 1 1.05x
Year 2 1.10x
Year 3 1.20x
Year 4 & After 1.25x
o Consolidated EBITDA / Consolidated Interest
Expense may not be less than:
Year 1 1.75x
Year 2 2.25x
Year 3 & After 2.50x
o Consolidated net worth (including Preferred Stock)
may not be less than the greater of (i)
$240,000,000 or (ii) 85% of actual net worth on
the Closing Date plus 75% of annual net income or
loss for the period after
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July 31, 1997, plus 100% of the proceeds from
equity offerings after the Closing Date. There
will be separate net worth covenants for ASC East
and its Restricted Subsidiaries and for American
Ski - West and its Restricted Subsidiaries.
For purposes of the financial covenants, Consolidated
EBITDA will include income from real estate only if
earned by a Borrower or if paid to a Borrower in cash as
a dividend, loan repayment or other distribution and
will not include as an expense deduction a one-time
non-cash charge within fiscal year 1998 only of
approximately $13.5 million in connection with stock
option grants contemplated by American Ski (the "1998
Stock Options").
Other Terms
and Conditions: Customary for facilities of this type, including but not
limited to, the following:
o The negative covenants more fully described in
Exhibit 1 hereto and incorporated herein by this
reference and others reasonably deemed appropriate
by the Agent to address any facts or circumstances
which become evident through the process of
preparing for closing of the Facilities.
o The affirmative covenants more fully described in
Exhibit 2 hereto and incorporated herein by this
reference and others reasonably deemed appropriate
by the Agent to address any facts or circumstances
which become evident through the process of
preparing for closing of the Facilities.
o Restrictions on voluntary prepayments of scheduled
debt not to exceed $10,000,000 other than the
Facilities (subject to provisions described above
that allow, in certain instances, for a certain
amount of additional net proceeds of IPO Gross
Proceeds to be used for purposes other than for
the ski and lodging operations of American Ski).
o Cash collection system for the Borrowers to be
acceptable to the Agent.
o Without limiting the foregoing, such additional
terms and conditions (not materially adverse to
the Borrowers' interests) as may be necessary to
complete a successful syndication of the
Facilities in the reasonable judgment of the
Agent.
o The additional General Conditions described in
Exhibit 3 hereto and incorporated herein by this
reference.
Events of
Default: Usual for facilities and transactions of this type and
others reasonably specified by the Lenders, including
without limitation, nonpayment of principal, interest,
fees or other amounts, violation of covenants, breach of
representations and warranties, cross-defaults to other
indebtedness, certain
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bankruptcy and insolvency events, material judgments,
actual or asserted invalidity of any loan documents or
security interests, change of management and change of
control defaults as set forth below and other defaults
similar to those set forth in the 1996 Credit Agreement.
Change of management and change of control defaults as
follows:
(i) Leslie B. Otten shall cease to serve actively as a
director and full-time chief executive officer of
American Ski and each Borrower, whether by reason of
death, disability, resignation, action by the Board of
Directors, or otherwise, and in the case of his death or
disability only the passage of 120 days after such
event.
(ii) Leslie B. Otten, his spouse and children, and
trusts established for his or their benefit
(collectively the "Otten Shareholders") shall cease to
own of record and beneficially at least 25% of the
issued and outstanding capital stock of American Ski, on
a fully diluted basis.
(iii) Any person or group of persons within the meaning
of Section 13 or 14 of the Securities Exchange Act of
1934, as amended, other than the Otten Shareholders,
shall own of record or beneficially more than 35% of the
issued and outstanding capital stock of American Ski.
(iv) The Otten Shareholders shall cease to have the
power to elect two-thirds of the directors of American
Ski.
(v) American Ski shall cease to own, directly or
indirectly, of record and beneficially all of the issued
and outstanding capital stock of any material (i.e.,
assets or revenues representing over 5% of American
Ski's consolidated assets or revenues) Borrower or
Restricted Subsidiary.
Increased Costs,
Change of
Circumstances: The credit agreement will contain certain customary
provisions protecting the Lenders in the event of
unavailability of funding, illegality, capital adequacy
requirements, reserves, increased costs and funding
losses. Capital adequacy compensation will be required
only with respect to capital requirements adopted after
the Closing Date.
Assignments and
Participations: Usual and customary for transactions of this type and
size. Each Lender may assign all or a portion of its
loans and commitments under the Facilities, or sell
participations therein, to another Person or Persons,
provided that each such assignment shall be in a minimum
amount of $5,000,000 (or if less,
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such Lender's entire commitment), except in the case of
an assignment to an existing Lender, and shall be
subject to certain conditions, including but not limited
to, the approval of the Borrowers (so long as no Event
of Default has occurred) and the Agent, such approvals
not to be unreasonably withheld. Each assignment shall
be subject to payment to the Agent by the assigning
Lender of an Assignment Fee of $2,500.
Syndication: American Ski and the Borrowers will provide all
information (including pro forma financial projections),
in a form reasonably acceptable to the Agent and
Arranger, necessary for the preparation of an
information memorandum describing American Ski and the
Borrowers, the Facilities, and any related transactions.
Such package will be distributed on a confidential basis
to selected financial institutions. In addition, the
management of American Ski and the Borrowers will, at
the request of the Agent or Arranger, hold themselves
and their advisors available at reasonable times to meet
with potential lenders, to answer questions and provide
general assistance and support during the syndication
process.
Voting Rights: Majority Lenders for waivers and amendments--except
waivers and amendments customarily requiring unanimous
consent, including without limitation, increases in any
Lender's loans or commitments, reductions in principal,
interest rates or fees, postponement of any due date for
payments of principal, interest or fees, extensions of
any maturity date, release of any substantial part of
the collateral, or change to the definition of Majority
Lenders. Amendments affecting the Agent shall require
the consent of the Agent.
Governing Law: The Commonwealth of Massachusetts.
Expenses: Borrowers will pay all reasonable fees and expenses
incurred by the Agent and/or Arranger in connection with
the preparation and execution of the Facilities,
including without limitation, legal, syndication,
collateral examination, appraisal, environmental survey
and other direct out-of-pocket expenses.
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Exhibit 1
SUMMARY OF CERTAIN NEGATIVE COVENANTS
A. Indebtedness prohibited except for:
1. Debt under the Facilities.
2. Scheduled existing debt.
3. Subordinated debt of American Ski and existing subordinated debt of
ASC East (unsecured, no scheduled amortization until after bank
debt, minimum terms of subordination to be consistent with public
subordinated debt).
4. Seller subordinated debt associated with Permitted Acquisitions
provided certain minimum conditions satisfactory to the Agent are
met (e.g. seller debt to be unsecured, to have a cash interest rate
not greater than 12%, to have no scheduled amortization until after
bank debt, to have minimum terms of subordination).
5. (a) Real estate Guarantees in an amount (when combined with real
estate investments covered by clause 9(a) of Section C below)
not to exceed $25,000,000;
(b) Capital leases and purchase money mortgages in an amount not
to exceed $50,000,000;
(c) Other debt of Targets of Permitted Acquisitions not incurred
in anticipation of such acquisition in an amount not to exceed
$50,000,000;
(d) Other debt not otherwise permitted in an amount not to exceed
$25,000,000; provided, however, that the sum of all amounts
outstanding at any time under clauses 5(a)-(d) above and under
clause 9(a) of Section C below shall not exceed $100,000,000.
6. Indemnifications/price adjustment clauses.
7. Current liabilities in the ordinary course.
8. Taxes, assessments, etc.
9. Certain debt between the Borrowers and Restricted Subsidiaries.
10. Hedging obligations (specifically not for speculative purposes).
11. Performance and surety bonds (in support of activities of the
Borrowers and Restricted Subsidiaries in the ordinary course).
12. Non-recourse debt issued by Unrestricted Subsidiaries.
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B. Liens prohibited except for:
1. Scheduled existing liens.
2. Liens related to permitted purchase money debt, capital leases and
debt of Permitted Acquisitions, provided the liens do not extend
beyond the asset financed (or the assets originally securing such
debt in the case of Permitted Acquisitions).
3. Workmen's compensation, unemployment insurance, etc.
4. Contested litigation, judgments (which have not yet resulted in an
Event of Default).
5. Liens arising under law in favor of landlords, extending only to
leased property.
6. Carriers, warehousemen, mechanics, etc.
7. Easements, rights of way, zoning restriction, etc.
8. Liens to the Agent and Lenders under the Facilities.
9. Other liens not otherwise permitted securing indebtedness in an
amount not in excess of $5,000,000.
10. Non-recourse debt issued by Unrestricted Subsidiaries.
C. Investments prohibited except for:
1. Scheduled existing investments.
2. Cash and cash equivalents.
3. The allowable amount of cash resulting from the excess IPO Gross
Proceeds pursuant to an investment policy reasonably acceptable to
the Agent.
4. Permitted Acquisitions.
5. Non-cash consideration from Permitted Asset Sales (must be pledged
to banks).
6. Advances to employees not in excess of $2,000,000 in the aggregate
outstanding at any time.
7. Hedging (specifically not for speculation).
8. Any Guarantees otherwise permitted.
9. Investments in Unrestricted Subsidiaries as follows:
(a) Direct investments in an amount which, when combined with
outstanding real estate Guarantees, does not exceed
$25,000,000. For purposes of this clause (a), the investment
amount shall be defined as (i) the amount of cash originally
invested, plus (ii) the book value of assets (other than land
as contemplated under clause 10 immediately below) originally
contributed, less (iii) cash dividends or distributions
received by the Borrowers or Restricted Subsidiaries from such
Unrestricted Subsidiaries.
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(b) Investments arising solely from the contribution of land not
directly used in the operation of ski resorts of the Borrowers
or Restricted Subsidiaries in an amount not to exceed
$25,000,000. For purposes of this clause (b), the investment
amount shall be defined as (i) the book value of such land at
the time contributed, less (ii) cash dividends or
distributions received by the Borrowers or Restricted
Subsidiaries from such Unrestricted Subsidiaries in excess of
those used to reduce the amount of investments outstanding
under clause 9(a) immediately above, provided, however, that
the sum of the investments outstanding under
clauses 9(a) and 9(b) shall not exceed $40,000,000 in the
aggregate until such time as American Ski has generated
$75,000,000 in Consolidated EBITDA in any fiscal year.
(c) The allowable amount of cash resulting from the excess IPO
Gross Proceeds, provided that any such amounts must be
invested within six months of the Closing Date pursuant to an
investment policy reasonably acceptable to the Agent.
10. Investments acquired in customer bankruptcies/workouts.
11. Other investments not otherwise permitted in an amount not to exceed
$5,000,000.
D. Mergers and acquisitions prohibited except for:
1. Merger of Restricted Subsidiaries with or into other Restricted
Subsidiaries.
2. Acquisitions approved by the Majority Lenders and Permitted
Acquisitions (which will not require prior consent) defined as
follows:
(a) Target shall be a domestic (or Canadian) company in a line of
business substantially similar to the Borrowers' existing
lines.
(b) Proposed acquisitions shall be "friendly."
(c) Management of the Borrowers shall reasonably believe that, as
a result of its ownership and management, the Target will
achieve positive four quarter EBITDA not later than the second
season after acquisition.
(d) Maximum purchase price (exclusive of that portion of the
purchase price that may be payable solely in common shares of
American Ski) for any single acquisition equal to the greater
of (i) $50,000,000 or (ii) 50% of the American Ski's
Consolidated EBITDA before giving effect to the Proposed
Acquisition.
(e) Acquisition structure, including the terms of any seller paper
or subordinated debt, shall meet pre-established minimum
standards or shall be otherwise acceptable to the Lenders.
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(f) Borrowers shall provide notice of the Proposed Acquisition to
the Agent, including an information package outlining the
transaction and its proforma impact on the Borrowers in
reasonable detail at least 30 days in advance of the proposed
closing date. Such package shall include, without limitation,
certification that (and supporting financial detail):
(i) No default or Event of Default shall exist at the time
of or after giving effect to the acquisition on a
proforma basis; and
(ii) The Borrowers will comply with the financial covenants
on a proforma basis, based on combined adjusted trailing
four quarter operating performance, proforma debt and
proforma debt service based on scheduled principal
payments (including the acquisition loan) and proforma
interest on total debt at then prevailing borrowing
rates.
Any pro forma adjustments to historical EBITDA of the Target
shall be acceptable to the Lenders in their reasonable
discretion (provided that contractual and adequately
documented reductions in former owner's compensation and/or
rental expense which will be effective as of the drawdown date
and/or other adjustments that are allowed SEC purposes as
certified by the Borrowers' independent auditors shall be
deemed acceptable).
(g) First perfected security interest (subject to prior liens
associated with assumed debt otherwise permitted) shall be
granted in all of the Target's assets; the Target shall be
merged into one of the Borrowers, or if it is to be a
subsidiary of such Borrower shall become an obligor under the
Facilities.
(h) Appraisals, Phase One environmental surveys and legal opinions
on land use issues satisfactory to the Agent and Lenders if
real estate is involved.
(i) The business and assets to be acquired would not subject the
Agent of Lenders to any regulatory approvals in connection
with the exercise of remedies under the Facilities.
(j) The business and assets to be acquired shall be free and clear
of liens and indebtedness other than as permitted under the
Facilities.
(k) All or any portion of the 50% of the IPO Gross Proceeds
exceeding $275,000,000 to be used in American Ski's ski and
lodging business may be applied to acquisition(s) with
purchase price(s) in excess of the foregoing limits, provided
that the purchase price for any one or a series of related
acquisitions shall in no event exceed an amount equal to 11%
of consolidated total assets of American Ski.
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E. Transactions with Affiliates prohibited except for:
1. The payment of reasonable and customary fees, salaries and bonuses
to officers and directors.
2. Arms-length transactions between Borrowers and Restricted
Subsidiaries.
3. Real estate Guarantees and investments as otherwise permitted by the
Facilities, provided such transactions are on terms not materially
less favorable to the Borrowers and Restricted Subsidiaries than
those available in an arms-length transaction with a third party.
F. Dividends and Distributions:
1. Dividends or distributions by American Ski limited to an aggregate
amount not to exceed 50% of cumulative net income after July 31,
1997, provided that after giving pro forma effect to such dividend
or distribution, Consolidated Total Debt/Consolidated EBITDA does
not exceed 4.0-to-1 and no default exists at the time of or would be
caused by such dividend or distribution.
2. Limitations on creating/allowing restrictions on ability of
Restricted Subsidiaries to make distributions or intercompany
advances, incur debt, grant liens, etc.
G. Capital Expenditures:
Capital Expenditures will be limited each year to the Base Capital
Expenditure Amount plus additional amounts based on the reinvestment of
proceeds of Permitted Asset Sales and on Consolidated Excess Cash Flow.
Capital Expenditures for real estate will be restricted to 25% of the
limit for total Capital Expenditures, provided, however, that this
restriction shall not constrain the ability of the Borrowers or Restricted
Subsidiaries to make real estate investments otherwise permitted by
clauses 9(a) and 9(b) of Section C above. The Capital Expenditure limit
will be tested annually as follows:
1. For the period commencing at closing and ending on April 30, 1998;
and
2. For the trailing four quarter periods ending on each April 30
thereafter.
The limit for each test period will be determined as follows:
(a) Closing to April 30, 1998: $25,000,000;
(b) Thereafter, if the Capital Expenditure Ratio as of April 30,
1998 and each April 30 thereafter is less than 3.0-to-1: no overall
limit shall apply (but real estate Capital Expenditures shall be
restricted to 25% of the Additional Capital Expenditure Amount
calculated pursuant to the formula in clause (c) immediately below);
and
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(c) Thereafter, if the Capital Expenditure Ratio as of April 30 is
equal to or greater than 3.0-to-1: (i) the Base Capital Expenditure
Amount, plus (ii) the Capital Expenditure Reinvestment Amount, plus
(iii) the Additional Capital Expenditure Amount.
H. Asset sales prohibited, except for Permitted Asset Sales:
1. Sales of developed real estate units in the ordinary course.
2. Sales of other assets with an aggregate value not to exceed
$20,000,000 per annum, provided that:
(a) Such sales are for fair market value;
(b) 75% of the proceeds are cash;
(c) Non-cash proceeds are pledged to the Lenders; and
(d) Cash proceeds are, within 365 days, either applied to pre-pay
Term Loans and reduce the Reducing Revolver commitments in
accordance with the Term Sheet, or are reinvested in Capital
Expenditures, permitted real estate investments or Permitted
Acquisitions.
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Exhibit 2
SUMMARY OF CERTAIN AFFIRMATIVE COVENANTS
1. Maintenance of office, records and accounts.
2. Financial Reporting.
3. Notices: Events of Default, environmental events, ERISA events, claims on
collateral, additional real estate, litigation, etc.
4. Maintenance of existence, material rights, franchises, permits, leases,
rights to do business, etc.
5. Compliance with laws, contracts, permits, licenses; continuation in
existing business or similar businesses.
6. Maintenance of properties.
7. Insurance; key man life insurance in the amount of $14 million to be
assigned to the Agent.
8. Taxes.
9. Inspection: general, collateral, environmental assessments, appraisals,
accountants.
10. Additional Mortgaged Properties.
11. Depository arrangements.
12. New Subsidiaries - guarantees, stock pledge, and at the Agent's request,
joinder as co-borrower.
13. Interest rate protection.
14. Punctual payments.
15. Further assurances.
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Exhibit 3
GENERAL CONDITIONS
1. Loan Documents. The Loan Documents will describe the terms and
conditions of the Facilities in detail. The Loan Documents will contain
customary representations and warranties, conditions, covenants, indemnities and
events of default required by the Lenders. The form and substance of all
documents to be delivered to the Lenders at or prior to closing, including but
not limited to, the Loan Documents and any required legal opinions, shall in all
respects be satisfactory to the Agent and the Agent's counsel.
2. Conditions to Closing. The obligation to provide the initial extensions
of credit under the Facilities shall be subject to the satisfaction of usual and
customary conditions, including, without limitation, the following conditions:
(a) Delivery of the Loan Documents executed by the Borrowers and
each other obligor in respect to the Facilities;
(b) Receipt of other closing documents reasonably satisfactory in
form and substance to the Agent;
(c) Legal opinions of counsel to the Borrowers satisfactory in
form and substance to the Agent;
(d) The Borrowers shall have paid to the Agent and the Lenders all
fees then payable as referenced in the Fee Letter and the Loan
Documents;
(e) The Agent completing all aspects of its legal due diligence
with respect to the Borrowers and their assets and determining
that no fact or circumstance exists that would have or may
cause a Material Adverse Effect;
(f) The Agent's satisfaction with the terms of the Facilities
specified in this commitment as to be agreed upon;
(g) All corporate proceedings and all instruments and agreements
in connection with the transactions among the Borrowers and
the Agent and the Lenders contemplated by the Loan Documents
shall be reasonably satisfactory in form and substance to the
Agent and the Agent shall have received all information and
copies of all documents or papers reasonably requested by the
Agent; and
(h) After the date hereof there shall not have occurred any change
in or disruption of general financial, bank or capital market
conditions which
<PAGE>
materially and adversely affects the ability of financial
institutions in the United States to extend credit or
syndicate loans.
3. Termination. The Agent may terminate this commitment prior to closing
if (a) any Borrower shall fail or refuse to comply in a timely manner with any
of the terms or conditions set forth in such commitment, (b) any material
adverse change shall occur with respect to any Borrower at any time prior to
closing, (c) any Borrower shall be insolvent or involved as debtor in any
arrangement, bankruptcy, reorganization or insolvency proceeding, or (d) the
Agent determines that the funding of the Facilities or performance of its, the
Lenders' or the Borrowers' duties or obligations under this commitment or the
Loan Documents would violate, or be prohibited by, applicable Federal, state or
local law, including usury limitations, or any applicable rule, order, statute,
judgment or decree of any legislative body, board, court, tribunal, commission,
or governmental authority or agency having jurisdiction over the Agent or the
Lenders. Further, any commitment issued to the Borrowers will be based on
certain information and materials provided by the Borrowers to the Agent and the
Lenders and all representations information, exhibits, data and other material
submitted with and other material submitted with and in support of the
Borrowers' loan application. Any misinformation or withholding of material
information incident thereto shall, at the option of the Agent or the Lenders
without limiting any other right or remedy of the Agent or the Lenders, void the
obligations of the Agent and the Lenders hereunder.
4. Integration. No statements, agreements or representations, oral or
written, which may have been made by the Agent or any Lender, or by any
employee, agent or broker acting on behalf of the Agent or any Lender, with
respect to this commitment or the Facilities, shall be of any force or effect,
except to the extent stated in this letter, and all prior agreements and
representations in respect of this commitment and the Facilities are merged
herein so that this letter shall contain the entire agreement with respect to
the Facilities. The provisions of this letter may not be changed except by
written agreement signed by the Borrowers and the Agent and the Lenders, except
that the Agent reserves the right to waive, in whole or in part, any of the
terms or conditions herein which are for the Agent's benefit (including but not
limited to the right to extend any outside date for the Closing Date), but no
such waiver shall be effective unless in writing signed by the Agent. This
commitment may not be assigned by any Borrower.
5. Agent's Counsel. The responsibility of counsel to the Agent is limited
to protection of the interests of the Agent and the Lenders, notwithstanding the
fact that the Borrowers shall be obligated, jointly and severally, to pay the
legal fees of the such counsel. Further, the Agent and the Lenders assume no
responsibility to the Borrowers for the acts or omissions of the such counsel.
6. Applicable Law. To the maximum extent permitted by law, the
transactions contemplated by this letter and the enforceability of all Loan
Documents shall be governed by the laws of The Commonwealth of Massachusetts,
and all documentation incident to closing
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the Facilities contemplated by this letter shall be accepted, approved or
acknowledged, as the case may be, at the offices of the Agent's counsel in
Boston, Massachusetts.
7. Time. Time is of the essence of each and every term, condition and
provision of the terms hereof.
8. Miscellaneous. The invalidity or enforceability of any one or more
provisions of this commitment will in no way effect the other provisions. No
waiver will be implied from any delay or failure by the Agent or the Lenders to
take action on account of any default by Borrowers. This commitment may be
executed in counterparts, but all counterparts shall constitute but one and the
same document. Whenever the context requires, all words used in the singular
herein will be construed to have been used in the plural and vice versa and, any
gender will include any other. In any case where provisions of the commitment
letter to which these General Conditions are attached appear to differ from
provisions of these General Conditions, such provisions shall be construed, to
the maximum extent possible, to give full effect to both provisions. If both
such provisions may not be construed to eliminate inconsistencies, then the
Agent shall determine their intended effect, in the Agent's sole discretion.
9. Not A Joint Venture. Notwithstanding anything to the contrary contained
herein, the Agent, by making this commitment or by any action pursuant to this
commitment, will not be deemed a partner or joint venturer with any Borrower and
the Borrowers agree, jointly and severally, to hold the Agent and the Lenders
harmless from any damages and expenses resulting from such a construction of the
relationship of the parties.
10. Yield Protection and Increased Costs; Taxes. Standard yield protection
and indemnification, including capital adequacy requirements, will be
incorporated in the Loan Documents that will satisfactorily compensate the
Lenders in the event that any present or future law, requirement, guideline or
request of relevant authorities shall increase costs, reduce payments or
earnings, or increase capital requirements, or in the event that the Borrowers
shall repay any portion of the principal of the Facilities bearing interest with
reference to the LIBOR Rate (voluntarily, as a result of acceleration, or for
any other reason).
11. Costs and Expenses. All reasonable out-of-pocket costs and expenses of
the Agent and its business and legal advisors (including, without limitation,
legal fees (including fees and expenses of the Agent's local counsel in
California, Colorado, Nevada and Utah), appraisals, title insurance, syndication
expenses, expenses in connection with periodic collateral/financial control
field examinations, the monitoring of assets, enforcement of rights and
publicity, and other miscellaneous disbursements) and legal review costs of the
Agent shall be payable by the Borrowers, jointly and severally, on demand
whether or not the transactions contemplated by this commitment are consummated.
12. Indemnity. The Borrowers, jointly and severally, shall indemnify and
hold harmless the Agent, the Lenders and their respective officers, directors,
employees, affiliates,
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agents and controlling persons from and against any and all losses, claims,
damages and liabilities to which any such person may become subject arising out
of, or in connection with, this commitment, the transactions contemplated hereby
or any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any of such indemnified persons is a party thereto,
and to reimburse each of such indemnified persons, from time to time upon their
demand, for any reasonable legal or other expenses incurred in connection with
investigating or defending any of the foregoing, whether or not the transactions
contemplated hereby are consummated, provided that the foregoing indemnity will
not, as to any indemnified person, apply to losses, claims, damages, liabilities
or related expenses to the extent that they are determined by a final,
nonappealable court order to have resulted from the willful misconduct or gross
negligence of such indemnified person.
13. Appraisals. On or before thirty (30) days prior to closing, the Agent
shall have received, at the Borrower's expense, appraisals from reputable
appraiser(s) acceptable to the Agent showing a value of not less than $350
million for all real properties owned or leased by the Borrowers, acceptable to
the Agent.
14. Insurance. The Borrowers shall keep their real and personal property
covered by the mortgages and security interests insured with fire and broad form
extended coverage insurance policies written by a companies satisfactory to the
Agent for an amount not less than the full replacement value thereof and in no
event less than the amount of the Facilities. If any policy contains a
co-insurance clause (80-100 percent permitted) the amount of insurance must
conform to the stated percentage of full insurable value as certified by
insurer's appraisal. The Borrowers will deposit with the Agent policies
containing terms and conditions satisfactory to the Agent for such insurance
naming the Agent as loss payee under a standard mortgagee clause. The Agent
reserves the right to request additional insurance coverage including but not
limited to business interruption, demolition, flood, earthquake and contingent
liability from the operation of any building laws as they may pertain to
non-conforming property. All policies shall contain a provision requiring at
least 30 days' advance notice to the Agent before any policy cancellation or
modification. The Borrowers shall carry prudent amounts of liability insurance
satisfactory to the Agent protecting the Borrowers, the Agent and the Lenders to
their respective satisfaction against any accident or occurrence in or on their
properties, and certificates of insurance shall be furnished to the Agent on
demand.
15. Title Insurance. The Borrowers shall provide the Agent with
commitments from Lawyer's Title Insurance Corporation to issue ALTA standard
form of mortgage loan policies with respect to all real property of the
Borrowers both as owned in fee or held as a leasehold estate (the "Mortgaged
Property") in an aggregate amount of not less than $215,000,000, such policies
to be in form and substance satisfactory to the Agent, including without
limitation, such endorsements and affirmative insurance as the Agent shall
require with the standard tenant's and mechanic's liens exceptions deleted and
with such portions of the survey coverage deleted as the Agent may require, and
the receipt by the Agent shall also have received proof of full payment of all
fees and premiums for said policies and copies of all
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documents listed as exceptions on Schedule B to each such policy. The Agent
shall release its appraisals to the title insurer for purposes of acquiring this
coverage.
16. Surveys. At least 10 days prior to closing, the Borrower shall provide
the Agent with site plans or other maps acceptable to the Agent showing the
Mortgaged Properties, the dimensions and the area thereof, together with a
licensed surveyor's or civil engineer's certificate in a form acceptable to the
Agent, certifying that all existing improvements necessary for the operation of
each Mortgaged Property as presently operated in all material respects (the
"Material Improvements"), including without limitation all utilities, sewer and
water systems, snowmaking equipment (including necessary water delivery
systems), lodges, ski lifts, parking areas, driveways and any other material
improvements are located within the boundaries of such Mortgaged Property, or if
applicable, within the boundaries of property that the Borrowers have the right
to use pursuant to its rights under United States Forest Service special use
permits. The Borrowers shall provide the Agent with a list of Material
Improvements acceptable to the Agent at least 20 days prior to closing, together
with a certificate of the Borrowers in form acceptable to the Agent certifying
that the Material Improvements constitute all of the improvements necessary to
fully operate the Mortgaged Properties as currently operated and as contemplated
to be operated. The certificate shall also indicate those portions of the
Mortgaged Properties, if any, falling within a federally designated flood hazard
area; if any portion falls within such area, flood hazard insurance will be
required by federal regulations. The surveys shall be subject to the approval of
the Agent.
17. Compliance with Zoning and Other Laws. At least 10 days prior to
closing, the Borrowers shall submit opinions of counsel or other evidence in
form and substance satisfactory to the Agent's counsel that the Mortgaged
Properties, all existing and proposed improvements thereon and the use or
proposed use thereof, are in complete compliance with all zoning laws, building
codes, environmental laws and other laws and regulations applicable to the
Mortgaged Properties and the use and proposed use thereof, and that all
licenses, permits and certificates of occupancy or building permits have been
issued to permit the lawful use or improvement of the Mortgaged Properties as
contemplated by the Borrowers. In addition, Borrower shall submit to the Agent,
at least 10 days prior to closing, environmental site assessment reports on the
Heavenly Valley, Steamboat Springs and Canyons resorts.
THE BORROWERS HEREBY AGREE THAT THIS IS A COMMERCIAL TRANSACTION AND HEREBY
WAIVE ALL RIGHTS TO NOTICE EXCEPT FOR NOTICES PROVIDED FOR IN THE LOAN DOCUMENTS
AND PRIOR COURT HEARING OR COURT ORDER IN CONNECTION WITH ANY AND ALL
PREJUDGMENT REMEDIES AGENT AND LENDERS MAY BECOME ENTITLED TO BY VIRTUE OF ANY
DEFAULT OR PROVISION OF THIS COMMITMENT OR ANY LOAN DOCUMENT. THE BORROWERS
HEREBY IRREVOCABLY WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY PROCEEDING
HEREAFTER INSTITUTED BY OR AGAINST THE BORROWERS IN RESPECT HEREOF OR OF ANY
LOAN DOCUMENT.
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APPENDIX B
DEFINED TERMS
"Additional Capital Expenditure Amount" shall mean the product of (a)
Consolidated Excess Cash Flow for the four-quarter period ending each April 30,
multiplied by (b) 50% when the Capital Expenditure Ratio as of such April 30
equals or exceeds 3.5-to-1 and 100% otherwise.
"Affiliate" shall mean (a) any director or executive officer of any
Borrower or any Person owning more than 5% of the outstanding common stock of
any Borrower and (b) any Person that controls, is controlled by or is under
common control with such a Person or any Affiliate of such Person. For purposes
of this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"Alternate Base Rate" shall mean the greater of (a) the rate of interest
announced from time to time by the Agent at its head office in Boston,
Massachusetts as its Base Rate and (b) the Federal Funds Effective Rate plus 1/2
of 1% per annum (rounded upwards, if necessary, to the next 1/8 of 1%).
"Base Capital Expenditure Amount" shall mean $30,000,000.
"Capital Assets" shall mean fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as patents,
copyrights, trademarks, franchises and goodwill); provided, however, that
Capital Assets shall not include any item customarily charged directly as an
expense or depreciated over a useful life of twelve (12) months or less in
accordance with generally accepted accounting principles.
"Capital Expenditure 1998 Adjustment Amount" shall mean (a) the sum of (i)
the amount of cash or cash equivalents on the consolidated balance sheet of
American Ski and its Restricted Subsidiaries as of April 30, 1998 and (ii) the
amount of permitted investments made by American Ski in Unrestricted
Subsidiaries after the Closing Date from the excess net proceeds of the IPO
Gross Proceeds, less $25,000,000 if the sum of (i) and (ii) is less than
$50,000,000 or (b) 50% of the sum of (a)(i) and (ii) above if the sum of (a)(i)
and (ii) above exceeds $50,000,000.
"Capital Expenditure Ratio" shall mean the ratio, as of April 30 of each
fiscal year, of (a) Consolidated Senior Secured Debt plus unused Reducing
Revolver commitments as of such date to (b) Consolidated EBITDA for the
four-quarter period ending on such date; provided, however, that in calculating
the Capital Expenditure
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Ratio as of April 30, 1998, there shall be deducted from Consolidated Senior
Secured Debt the Capital Expenditure 1998 Adjustment Amount.
"Capital Expenditure Reinvestment Amount" shall mean the amount of
proceeds of Permitted Asset Sales that is reinvested in Capital Expenditures
within 365 days of such Permitted Asset Sale.
"Capital Expenditures" shall mean amounts paid or incurred, including
indebtedness incurred, by any Borrower or any of its Subsidiaries in connection
with the purchase or lease by any Borrower or any of its Subsidiaries of Capital
Assets that would be required to be capitalized and shown on the balance sheet
of such Borrower or Subsidiary in accordance with generally accepted accounting
principles.
"Capitalized Lease" shall mean any lease which is or should be capitalized
on the balance sheet of the lessee in accordance with generally accepted
accounting principles and Statement of Financial Accounting Standards No.13.
"Consolidated" and "Consolidating," when used with reference to any term,
mean that term (or the terms "combined" and "combining," as the case may be, in
the case of partnerships, joint ventures and Affiliates that are not
Subsidiaries) as applied to the accounts of the Borrowers (or other specified
Person) and all of their Restricted Subsidiaries (or other specified Persons),
or such of their Restricted Subsidiaries as may be specified, consolidated (or
combined) in accordance with generally accepted accounting principles and with
appropriate deductions for minority interests in Subsidiaries, as required by
generally accepted accounting principles.
"Consolidated Adjusted Cash Flow" shall mean (a) Consolidated EBITDA
(before any adjustments to reflect acquisitions, sales and exchanges of property
during such period) for each fiscal year of the Borrowers and their Restricted
Subsidiaries less (b) the sum of (i) the lesser of actual total Capital
Expenditures or $9,000,000, representing the Borrowers' and their Restricted
Subsidiaries estimated Capital Expenditures required to maintain their existing
ski resorts, and (ii) cash taxes paid.
"Consolidated Debt Service" shall mean the sum of (a) Consolidated
Interest Expense, (b) scheduled principal payments on Indebtedness for borrowed
money and (c) without duplication with clause (b), scheduled reductions in the
amount of the Reducing Revolvers, in each case for the period under review.
"Consolidated EBITDA" shall mean for the most recently completed four
fiscal quarters, (a) net income or (loss) of American Ski, the Borrowers and
their Restricted Subsidiaries on a consolidated basis determined in accordance
with generally accepted accounting principles without giving effect to
extraordinary gains and losses from sales, exchanges and other dispositions of
property not in the ordinary course of business, and
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nonrecurring items, plus to the extent deducted in calculating net income, (b)
the sum of, without duplication, (i) depreciation expense, (ii) amortization
expense, (iii) Consolidated Interest Expense plus the non-cash portion of
consolidated interest expense on Consolidated Funded Debt, (iv) income tax
expense, and (v) other non-cash items including, within fiscal year 1998 only,
the 1998 Stock Options.
"Consolidated Excess Cash Flow" shall mean, for any period, Consolidated
EBITDA less the sum of (a) Consolidated Interest Expense, (b) cash taxes paid,
(c) required principal payments of Indebtedness and (d) the Base Capital
Expenditure Amount, each determined for such period.
"Consolidated Funded Debt" means, as of each date of determination,
without duplication (a) all Indebtedness for borrowed money of American Ski, the
Borrowers and their Restricted Subsidiaries on that date (including without
limitation all obligations with respect to Capitalized Leases), (b) the
aggregate amount available for drawing under all letters of credit outstanding
on that date (including the Letters of Credit) for which American Ski, any
Borrower or any Restricted Subsidiary is the account party (excluding however,
the aggregate amount available for drawing under letters of credit issued to
lenders and lessors of Indebtedness of the type described in clause (a) in
support of such Indebtedness), and (c) the aggregate amount drawn under all
letters of credit (including the Letters of Credit) for which American Ski, any
Borrower or any Restricted Subsidiary is the account party and for which the
issuer of such letters of credit has not been reimbursed on that date.
"Consolidated Interest Expense" shall mean the cash portion of
consolidated interest expense (including commitment and letter of credit fees)
on Consolidated Funded Debt, as determined in accordance with generally accepted
accounting principles consistently applied.
"Consolidated Net Income" shall mean the net income (or deficit) from
operations of the Borrowers and their Restricted Subsidiaries, after taxes,
determined in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Senior Secured Debt" shall mean the principal amounts
outstanding under the Facilities, the Swing Line Loans and all other
Consolidated Funded Debt (other than Subordinated Indebtedness).
"Consolidated Total Debt" shall mean the sum of (a) the principal amounts
outstanding under the Facilities and the Swing Line Facilities, (b) any claim
required to be paid pursuant to Guaranties, (c) the Senior Subordinated Notes,
(d) all other funded Indebtedness of American Ski, the Borrowers and their
Restricted Subsidiaries on a consolidated basis and (e) without duplication, the
stated amount of all letters of credit issued for the account of American Ski,
any Borrower or any Restricted Subsidiary.
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"Development Subsidiary" shall mean LBO Development Company, a Maine
corporation and such other Subsidiaries not engaged in ski and lodging
operations that may be established from time to time and identified to the
Agent.
"Environmental Law" means any judgment, decree, order, law, code,
ordinance, permit, license, rule or regulation pertaining to environmental
matters, or any federal, state, county or local statute, regulation, code,
ordinance, order or decree relating to public health, welfare, the environment,
or to the storage, handling, treatment, transportation, use or generation of
hazardous substances in or at the workplace, worker health or safety, whether
now existing or hereafter enacted.
"Federal Funds Effective Rate" shall mean for any day, a fluctuating
interest rate per annum equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
business day, for the next preceding business day) by the Federal Bank of New
York or, if such rate is not so published for any day that is a business day,
the average of the quotations for such day on such transactions received by the
Bank from three Federal funds brokers of recognized standing selected by the
Agent.
"Generally accepted accounting principles" shall mean generally accepted
accounting principles as defined by controlling pronouncements of the Financial
Accounting Standards Board, as from time to time supplemented and amended.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" or "Guarantee" or "Guaranties" shall include any arrangement
whereby a Person is or becomes liable in respect of any Indebtedness or other
obligation of another and any other arrangement whereby credit is extended to
another obligor on the basis of any promise of a guarantor, whether that promise
is expressed in terms of an obligation to pay the Indebtedness of such obligor,
or to purchase or lease assets under circumstances that would enable such
obligor to discharge one or more of its obligations, or to maintain the capital,
the working capital, solvency or general financial condition of such obligor,
whether or not such arrangement is listed in the balance sheet of the guarantor
or referred to in a footnote thereto.
"Hotel Subsidiary" shall mean Grand Summit Resort Properties, Inc. and
such other Unrestricted Subsidiaries not engaged in ski and lodging operations
that may be established from time to time and identified to the Agent.
"Indebtedness" shall mean, as to any Person, without duplication: (a) all
obligations of such Person for borrowed money or evidenced by bonds, debentures,
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notes or similar instruments; (b) all obligations of such Person for the
deferred purchase price of property or services (including without limitation
deferred payment obligations which are part of the consideration provided for in
agreements not to compete), except trade accounts payable and accrued
liabilities arising in the ordinary course of business which are not overdue by
more than 60 days or which are being contested in good faith by appropriate
proceedings; (c) all capital lease obligations of such Person; (d) all
Indebtedness of others secured by a lien on any properties, assets or revenues
of such Person; (e) all Indebtedness of others guaranteed by such Person; and
(f) all obligations of such Person, contingent or otherwise, in respect of
letters of credit or bankers' acceptances or similar instruments.
"Insurance Subsidiary" shall mean S-K-I Insurance Company, a Vermont
corporation.
"Killington West" shall mean Killington West Ltd., a California
corporation.
"Letter of Credit" shall mean a letter of credit issued by the Issuing
Bank for the account of the Borrowers.
"Letter of Credit Exposure" shall mean, at any time, with respect to the
Facility I Borrowers or the Facility II Borrowers, as applicable, the sum of (a)
the Maximum Drawing Amount with respect to all Letters of Credit and (b) all
unpaid Reimbursement Obligations.
"Leverage Ratio" shall mean as of the end of any fiscal quarter the ratio
of Consolidated Total Debt as of such date to Consolidated EBITDA for the four-
quarter period ending on such date.
"Majority Lenders" shall mean, at any time, any two or more Lenders
holding at least 51% of the outstanding principal amount of the Facilities and
unused commitments thereunder.
"Material Adverse Effect" shall mean any adverse change (or occurrence or
condition reasonably likely to produce an adverse change) in the financial
condition, properties, business, operations or prospects which is material to
(a) American Ski, the Borrowers and their Restricted Subsidiaries taken as a
whole, (b) the Facility I Borrowers and their Restricted Subsidiaries taken as a
whole and (c) the Facility II Borrowers and their Restricted Subsidiaries taken
as a whole.
"Maximum Drawing Amount" shall mean the maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
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"Mountain Water" shall mean Mountain Water Company, a Vermont corporation.
"1996 Credit Agreement" shall mean that certain Credit Agreement dated as
of June 28, 1996 by and among ASC East and certain of its Subsidiaries, the
lenders party thereto and Fleet National Bank, as Agent, as amended from time to
time.
"Person" shall mean an individual, corporation, partnership, joint
venture, association, estate, joint stock company, trust, organization,
business, or a government or agency or political subdivision thereof.
"Reimbursement Obligations" shall mean (a) the Borrowers' obligations to
reimburse the Issuing Bank on account of any drawing under any Letter of Credit
and (b) any Borrower's obligation to reimburse any Lender on account of any
drawing under any existing Letter of Credit.
"Reserve Requirement" shall mean the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed under Regulation D on the Banks against "Euro-currency Liabilities" as
defined in said Regulation D.
"Restricted Subsidiaries" shall mean the Borrowers' Subsidiaries other
than the Unrestricted Subsidiaries.
"Senior Subordinated Notes" shall mean the $120,000,000 Senior
Subordinated Notes of American Skiing Company, due July 16, 2006, issued
pursuant to the Senior Subordinated Notes Indenture.
"Senior Subordinated Notes Indenture" shall mean the Indenture of Trust
dated as of June 28, 1996 by and between American Skiing Company and U.S. Trust
Company of New York, as Trustee.
"Solvent" or "Solvency" shall mean, as to any Person, that such Person (a)
has assets having a fair value in excess of its liabilities, (b) has assets
having a fair value in excess of the amount required to pay its liabilities on
existing debts as such debts become absolute and matured, and (c) has, and
expects to continue to have, access to adequate capital for the conduct of its
business and the ability to pay its debts from time to time incurred in
connection with the operation of its business as such debts mature.
"Subordinated Indebtedness" shall mean (a) the Senior Subordinated Notes,
(b) the Indebtedness identified as Subordinated Indebtedness to the Agent and
(c) all other Indebtedness of any Borrower which is subordinated to the
Indebtedness of the Borrowers to the Agent and the Lenders on terms and
conditions approved in writing by the Agent.
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"Subsidiary" shall mean any Person of which any Borrower or other
specified parent shall now or hereafter at the time own, directly or indirectly
through one or more Subsidiaries or otherwise, sufficient voting stock (or other
beneficial interest) to entitle it to elect at least a majority of the board of
directors or trustees or similar managing body.
"Unrestricted Subsidiaries" shall mean Killington West, Mountain Water,
the Development Subsidiary, the Hotel Subsidiary and the Insurance Subsidiary.
"Wholly-Owned Subsidiary" shall mean any Person of which any Borrower or
other specified parent shall now or hereafter at the time own, directly or
indirectly through one or more Subsidiaries or otherwise, one hundred percent
(100%) of such Person's capital stock or other beneficial interest.
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EXHIBIT 10.105
IRREVOCABLE OPTION AND REAL ESTATE PURCHASE AGREEMENT UPON EXERCISE OF OPTION
In consideration of TWENTY FIVE THOUSAND DOLLARS ($25,000.00) paid to Harry
P. Condas, John P. Condas, George P. Condas, Tessie P. Condas, Margarita C.
Ellis and Jack W. Ellis (hereinafter referred to as "sellers") receipt of which
is acknowledged, hereby jointly and severally grant to Wolf Mountain Resorts,
L.C., (its successors and assigns, hereinafter referred to as "buyer"), the
exclusive irrevocable option to purchase the real and personal property
described as:
PARCEL NO. 1: Lot 4, the West half of Southeast quarter, the Southwest 1/4 of
Section 12, Township 2 South, Range 3 East of the Salt Lake Base and Meridian.
PARCEL NO. 2: The West half of the Northwest quarter of Section 13, Township 2
South, Range 3 East of the Salt of the Salt Lake Base and Meridian, PARCEL NO.
3: That portion of the following lying within the bounds of Summit County,
State of Utah. The Northeast quarter of the Northeast quarter, the West half of
the Northeast quarter and the Northwest quarter of Section 14, Township 2 South,
Range 3 East of the Salt Lake Base and Meridian, totaling 649.73 acres, subject
to and including all easements, rights of way, water rights (including, but not
limited to, water rights #489 and #490 appropriated on or about November 12,
1930), and appurtenances, and all of the sellers right title and interest in all
public ways adjoining the property (hereinafter referred to as "subject
property"). See Exhibit "A".
OPTION MONEY AS NON REFUNDABLE: In consideration for the promises made herein,
buyer and seller acknowledge and agree that all money paid for and during the
period of this option by buyer, to seller, are considered non refundable.
Seller agrees to credit any option monies paid against the purchase price upon
exercise of the option.
PERIOD OF OPTION: This option may be exercised by giving notice of exercise to
George P. Condas, at any time within any option period. The option periods
include: January 28, 1997 through February 28, 1997 for the initial payment of
TWENTY FIVE THOUSAND DOLLARS ($25,000.00). For the payment of an additional sum
of TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), per each thirty (30) day option
period, the option period shall be extended as follows: February 28, 1997
through March 28, 1997; March 28, 1997 through April 28, 1997; and April 28,
1997 through May 28, 1997. Payments shall be made to seller prior to the first
day of the extended option periods.
PRICE AND TERMS OF PAYMENT: Upon exercise of the this option during any option
period described above, buyer agrees to buy and sellers agree to sell the
subject property described above upon the following terms:
The price to purchase the subject property shall be the principal sum of FOUR
MILLION DOLLARS ($4,000,000.00) payable BY BUYER to SELLERS as follows:
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ONE MILLION DOLLARS ($1,000,000.00) upon the exercise of this irrevocable
option ("the exercise date");
ONE MILLION DOLLARS ($1,000,000.00) upon each of the three (3) subsequent
annual anniversaries of the "exercise date".
Interest at the rate of TEN (10) percent per annum on any unpaid principal,
accruing from the "exercise date". Said interest shall be due and payable upon
the third anniversary of the "exercise date".
The three (3) annual payments of ONE MILLION DOLLARS ($1,000,000.00) each and
the interest due thereon shall be secured by irrevocable letters of credit in
favor of the sellers issued by a financial institution possessing a Best rating
of "A" or better, mutually acceptable to buyer and sellers.
TITLE: Title to be conveyed as provided in this option shall be by warranty
deed, with merchantable title free and clear of all liens and encumbrances,
other than those liens, encumbrances and exceptions of record, as disclosed in a
preliminary title report issued by Founders' Title on 7/31/95. Sellers shall
provide title insurance to buyer at sellers expense.
NOTICE OF EXERCISE: Buyer shall give written notice of the exercise of this
option by hand delivery or by certified mail to:
GEORGE P. CONDAS
4474 So. Larch Way
Salt Lake City, Utah 84123
Said exercise of this option, and the "exercise date" shall be either the date
that the written notice of exercise of the option is hand delivered, or the date
the notice is mailed, whichever is applicable.
INTEGRATION OF AGREEMENT: This document, consisting of three (3) pages, and
exhibit constitutes the entire agreement between buyer and sellers. No
modification of this agreement shall be valid unless done in writing and signed
by both buyer and sellers
Executed this 28th day of January, 1997, at Park City, Utah.
BUYER: SELLERS:
WOLF MOUNTAIN RESORTS, L.C. GEORGE P. CONDAS, et al
BY /s/ Kenneth Griswold BY /s/ George P. Condas
-------------------------- ------------------------------------
Kenneth W. Griswold George P. Condas
President and C.E.O. Authorized Family Representative
(Page 2 of 3)
<PAGE>
STATE OF UTAH
ss
COUNTY OF SUMMIT
On the 28th day of January, 1997, personally appeared before me Kenneth W.
Griswold who, being by me duly sworn, did say that he is the managing member of
WOLF MOUNTAIN RESORTS, L.C., and that the forgoing instrument was signed on
behalf of said company, and said Kenneth W. Griswold acknowledged to me that
said company executed the same.
NOTARY PUBLIC
CATHERINE DALYAI
1912 Sidewinder Dr. #104
Park City, UT 84060
My Commission Expires /s/ Catherine Dalyai
----------------------------------
May 25, 2000 Notary Public in and for said County and State
STATE OF UTAH
STATE OF UTAH
ss
COUNTY OF SUMMIT
On the 28th day of January, 1997, personally appeared before me George P. Condas
who, being by me duly sworn, did say that he is the authorized representative
for the CONDAS FAMILY, sellers, and that the forgoing instrument was signed on
behalf of said family, and said George P. Condas acknowledged to me that said
family have agreed to the same.
NOTARY PUBLIC
CATHERINE DALYAI
1912 Sidewinder Dr. #104
Park City, UT 84060
My Commission Expires /s/ Catherine Dalyai
-----------------------------------
May 25, 2000 Notary Public in and for said County and State
STATE OF UTAH
(Page 3 of 3)
<PAGE>
MODIFICATION OF IRREVOCABLE AND REAL ESTATE PURCHASE AGREEMENT UPON EXERCISE OF
OPTION DATED JANUARY 28, 1997
In consideration of TEN DOLLARS, receipt of which is hereby acknowledged, the
parties hereto modify the Irrevocable Option and Real Estate Purchase Agreement
between them dated January 28, 1997 (the "Agreement") as follows (terms defined
therein having the same meaning in this document):
1. That the date upon which the Buyer may exercise its option to purchase
the Property shall be extended to June 2, 1997;
2. That Buyer may, in is discretion, by paying to Sellers the initial
payment described in the Agreement, in lieu of delivering the letters
of credit ton or before June 2, 1997, cause Sellers to enter into an
escrow agreement on or before such date whereby Sellers shall deliver
the warranty deed for the Property covered by the Agreement into
escrow to be delivered to Buyer upon such escrow agent's receipt of
the letters of credit referred to in the Agreement; provided, however,
that such deed shall be returned to Sellers if such letters of credit
are not delivered on or before September 2, 1997, and that after said
date, such escrow may be canceled by Sellers without further
instructions or consent of Buyer and Sellers shall have no further
obligation to Buyer under this Agreement;
3. That the initial payment, as described in the Agreement and referred
to in Paragraph 2 above, shall be, when made, deemed by the parties to
be non-refundable, even should Buyer fail to deposit into escrow the
three (3) letters of credit called for in the Agreement and this
Modification;
4. That the cost of the escrow described above shall be borne by Buyer;
and
5. That all other terms and conditions stated in the Agreement shall
remain the same.
AGREED AND ENTERED INTO this 27th date of May, 1997.
SELLERS:
By: /s/ George P. Condas
----------------------------------
GEORGE P. CONDAS
Authorized Representative
on Behalf of Sellers
BUYERS:
By: /s/ Kenneth Griswold
--------------------------------
KENNY GRISWOLD
Authorized Representative
for Wolf Mountain
<PAGE>
SECOND MODIFICATION OF IRREVOCABLE OPTION AND EXERCISE OF OPTION
The parties hereto, in consideration for the mutual promises made herein, modify
the Irrevocable Option and Real Estate Purchase Agreement between them dated
January 28, 1997 as modified May 27, 1997 (the "Agreement") as follows (the
terms defined therein having the same meaning in this document):
1. The Agreement is subject to the Assignment of May 30, 1997, by and
between Wolf Mountain Resorts and ASC Utah, a Maine corporation;
2. That Buyer intends on maintaining the Green Belt exemption currently
enjoyed by Sellers. Should Buyer no longer maintain said exemption, Buyer and
Seller shall pay their proportionate share of any taxes or retroactive taxes
assessed as determined by the exercise date of June 2, 1997; with any payments
made by Buyers for Sellers pro-rata share to be offset against any future
payment due Sellers from Buyers.
3. That the property is sold by seller as raw land, with Buyer taking
said property in its "AS IS PHYSICAL CONDITION";
4. That Buyers will not make or allow any improvements of the property
until such time as title passes from Sellers to Buyer;
5. That Sellers and Buyers hereby appoint First American Title Company of
Utah to act as escrow holder for the consummation of the Agreement;
6. Escrow holder is hereby instructed to:
a. Hold in escrow a duly executed Warranty Deed granting the subject
property, Grantee is to be left blank, with the name of Grantee to be
filled in at the direction of the holder of the Agreement upon delivery of
the Letters of Credit;
b. Escrow holder shall release said Warranty Deed upon the delivery
into escrow the Letters of Credit required pursuant to the Agreement;
c. That the Agreement of January 28, 1997, and all relative
documents and modifications thereto are expressly incorporated and are a
part of this escrow;
d. Seller shall deposit into escrow the premium for the title
insurance policy. Said insurance policy is to be issued upon delivery of
the Warranty Deed to Buyer.
The Buyer herein, by its signature below, hereby exercises the Irrevocable
Option and Real Estate Purchase Agreement dated January 28, 1997, on and as of
the date indicated below.
Dated: June 2, 1997
Sellers:
By: /s/ George P. Condas
-----------------------------------
GEORGE P. CONDAS
Authorized Representative
on Behalf of Sellers
Buyers:
By: /s/ Kenneth Griswold
-----------------------------------
KENNY GRISWOLD
Authorized Representative
for Buyer Wolf Mountain
Resorts, L.C. - Managing Member
<PAGE>
See Acknowledgment attached hereto and made a part hereof.
STATE OF UTAH )
(ss.
COUNTY OF SUMMIT )
On the 2nd day of June, 1997, personally appeared before me Kenneth W. Griswald,
who being by me duly sworn did say that he is the Authorized Representative of
Wolf Mountain Resorts, L.C. and Managing Member, the corporation that executed
the foregoing instrument, and acknowledged to me that the within and foregoing
instrument was signed in behalf of said corporation by authority of a resolution
of its Board of Directors, and the said Kenneth W. Griswald duly acknowledged to
me that said corporation executed the same.
NOTARY PUBLIC
SUSAN L. TOLLIVER
1745 Sidewinder Drive
Park City, UT 84068
My Commission Expires /s/ Susan L. Tolliver
-----------------------------------
June 7, 2000 Susan L. Tolliver, Notary Public
STATE OF UTAH My Commission Expires June 7, 2000
STATE OF UTAH )
(ss.
COUNTY OF SUMMIT )
On the 2nd day of June, 1997, personally appeared before me George P. Condas,
the signer of the within instrument, who duly acknowledged to me that he
executed the same.
NOTARY PUBLIC
SUSAN L. TOLLIVER
1745 Sidewinder Drive
Park City, UT 84068
My Commission Expires /s/ Susan L. Tolliver
------------------------------------
June 7, 2000 Susan L. Tolliver, Notary Public
STATE OF UTAH My Commission Expires June 7, 2000
<PAGE>
EXHIBIT 10.106
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
CONSENT SOLICITATION ADVISORY AGREEMENT
October 7, 1997
PRIVATE AND CONFIDENTIAL
American Skiing Company
Sunday River Access Road
Bethel, Maine 04217
Attention: Christopher E. Howard, Esq.
Ladies and Gentlemen:
The Company (as defined) hereby retains Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") to render financial advisory services to the
Company on the terms and subject to the conditions set forth herein in
connection with the proposed solicitation (the "Consent Solicitation") of
consents, waivers or authorizations ("Consents") from holders ("Holders") of 12%
Senior Subordinated Notes due 2006 (the "Securities") of ASC East ("ASC East")
to a proposed amendment (the "Proposed Amendment") to the indenture (the
"Indenture") relating to the Securities. The documents and related information
provided to Holders by the Company relating to the Consent Solicitation
(including the Proposed Amendment), and each amendment or supplement thereto,
are hereinafter collectively referred to as the "Consent Solicitation
Documents."
1. RETENTION. The Company hereby retains DLJ, and DLJ agrees to
act, as sole financial advisor and solicitation agent to the Company, in
connection with the Consent Solicitation and the other matters referred to
herein. DLJ will:
(a) advise the Company with respect to the terms and timing of the Consent
Solicitation;
(b) assist the Company in preparing the required Consent Solicitation
Documents (to the extent such documents relate to the terms of the Consent
Solicitation);
(c) advise the officers and employees of the Company with regard to the
procedures to be used in connection with the Consent Solicitation; and
(d) use its reasonable best efforts to assist the Company in soliciting
Consents to the Proposed Amendment from the Holders.
In connection with any solicitations of Consents from Holders, DLJ will
solicit such Consents only pursuant to the Consent Solicitation Documents and
will not make any statement or representation
<PAGE>
2
regarding the Company or the Proposed Amendment that is not set forth in the
Consent Solicitation Documents.
2. COMPENSATION. In consideration of the obligations of DLJ as exclusive
financial advisor and solicitation agent hereunder, the character and
sufficiency of which the Company hereby acknowledges, the Company agrees to pay
DLJ a cash fee equal to .25% of the aggregate principal amount of the Securities
whose Holders Consent to the Proposed Amendment to the Indenture (the
"Solicitation Fee"). The Solicitation Fee shall be payable in cash upon
execution and delivery by the trustee under the Indenture (the "Trustee") of a
supplemental indenture (the "Supplemental Indenture") evidencing the Proposed
Amendment. In addition, the Company agrees to pay to DLJ, promptly as billed,
all reasonable out-of-pocket expenses incurred by DLJ in connection with the
performance of its services hereunder including, without limitation, all
reasonable fees and expenses of counsel to DLJ in connection with the
transactions contemplated hereby.
3. USE OF NAME. The Company agrees that any reference to DLJ in any
Consent Solicitation Document or any other release or communication, is subject
to DLJ's prior written approval. If DLJ resigns prior to the dissemination of
any Consent Solicitation Document or any other release or communication, no
reference shall be made therein to DLJ.
4. CONFIDENTIALITY. Any financial advice rendered by DLJ pursuant to
this Agreement (as defined) may not be disclosed publicly (unless required by
law) in any manner without DLJ's prior written approval and will be treated as
confidential. The Company will provide DLJ with all financial and other
information reasonably requested by DLJ for the purpose of rendering its
services pursuant to this Agreement. All non-public information given to DLJ by
the Company will be treated by DLJ as confidential (except as required by law).
DLJ may rely, without independent verification, on the accuracy and completeness
of all information furnished to DLJ by the Company, including the Consent
Solicitation Documents. This Agreement and its contents will be treated by the
Company as confidential (except as required by law).
5. INDEMNIFICATION. The Company agrees to the indemnification and other
obligations set forth in Schedule I attached hereto which Schedule I is
incorporated in this letter agreement and made a part hereof. All references
herein to the "Agreement" shall be to this letter agreement together with
Schedule I attached hereto.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to DLJ that at the commencement, and throughout the continuance, of
the Consent Solicitation:
(a) None of the Consent Solicitation Documents will contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
(b) Each of the Consent Solicitation Documents will comply in all material
respects with all applicable laws and any applicable rules and regulations of
the Securities and Exchange Commission, and of any other governmental or
regulatory authority or body, including applicable "blue sky" or similar
securities laws or statutes, and no consent or approval of, or filing with, any
governmental or regulatory authority or body (including, without limitation,
under the Securities Act of 1933, as amended, the Securities Exchange Act of
1934,
<PAGE>
3
as amended, or the Trust Indenture Act of 1939, as amended (the "TIA")) is
required in connection with the commencement or consummation of the Consent
Solicitation other than those consents or approvals that have been made prior
to, or within the permitted filing period following, the commencement or
consummation, as the case may be, of the Consent Solicitation.
(c) The Supplemental Indenture evidencing the Proposed Amendment will,
prior to its execution, have been duly authorized by ASC East and consented to
by the Holders of not less than a majority in principal amount of the Securities
outstanding pursuant to the provisions of the Indenture, and, upon execution and
delivery thereof by ASC East and the Trustee at the consummation of the Consent
Solicitation, such Indenture, as amended by the Supplemental Indenture, and the
Securities (as so amended) will be the legal, valid and binding obligations of
ASC East, enforceable against ASC East in accordance with their respective
terms.
(d) The Consents, the Consent Solicitation and the Supplemental Indenture
will comply with the Indenture and, upon execution and delivery of the
Supplemental Indenture by ASC East and the Trustee, the Indenture (as modified
by the Proposed Amendment) will comply in all material respects with the TIA.
(e) The Proposed Amendment will conform in all material respects to the
description thereof in the Consent Solicitation Documents.
(f) The Consent Solicitation will not, and the execution of the
Supplemental Indenture at the time of such execution and the consummation of all
other transactions contemplated by the Consent Solicitation Documents at the
time of such consummation will not, (i) result in a violation of any provision
of the charter or bylaws of the Company or (ii) result in a breach of any of the
terms or provisions of, or constitute a default or cause an acceleration of any
obligation under, any bond, note, debenture or other evidence of indebtedness,
or any indenture, mortgage, deed of trust or other agreement or instrument to
which the Company is a party or by which the Company or any of its properties
is bound, which breaches, defaults or accelerations, individually or in the
aggregate, would have a material adverse effect on the Company or violate any
statute, or any rule, regulation or order of any court or governmental agency or
authority entered in any proceeding to which the Company is a party or by which
the Company or any of its properties is bound.
(g) This Agreement has been duly authorized and validly executed and
delivered by American Skiing Company and ASC East and constitutes a legal, valid
and binding agreement of American Skiing Company and ASC East, enforceable
against American Skiing Company and ASC East in accordance with its terms.
7. OPINION OF COUNSEL. As promptly as practicable after first mailing of
any Consent Solicitation Document to any Holder, and in no event later than the
time of execution of the Supplemental Indenture, counsel to the Company shall
deliver to DLJ an opinion or opinions reasonably satisfactory to DLJ and its
counsel substantially to the effect that (a) this Agreement has been duly
authorized, executed and delivered by American Skiing Company and ASC East and
constitutes a legal, valid and binding agreement of American Skiing Company and
ASC East, enforceable against American Skiing Company and ASC East in accordance
with its terms (subject to usual and customary qualifications); (b) the
consummation of the Consent Solicitation and the execution of the Supplemental
Indenture on
<PAGE>
4
the part of ASC East will not violate federal or state securities laws or any
rules and regulations of the Securities and Exchange Commission applicable to
the Company; (c) no consent or approval of, or filing with, any federal
governmental or regulatory authority or body is required on the part of the
Company in connection with the Consent Solicitation, other than those consents
or approvals that have been obtained or any filings that have been made prior to
commencement of the Consent Solicitation; (d) the consummation of the
transactions contemplated by the Consent Solicitation Documents will not result
in a violation of any provision of the charter or bylaws of the Company, or, to
the best of such counsel's knowledge, any statute or any rule, regulation or
order of any court or governmental agency or authority entered in any proceeding
to which the Company was or is a party or by which the Company is bound or
result in a breach of any of the terms or provisions of, or constitute a default
or cause an acceleration of any obligation under any material bond, note,
debenture or other evidence of indebtedness, or any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound; (e) the Supplemental
Indenture has been duly authorized by ASC East and, when executed and delivered
by ASC East as contemplated by the Consent Solicitation Documents, will
constitute the legal, valid and binding obligation of ASC East, enforceable
against it in accordance with its terms (subject to usual and customary
qualifications); and (f) the Indenture, as modified by the Proposed Amendment,
will comply as to form with all requirements of the TIA.
8. SURVIVAL OF CERTAIN PROVISIONS. The agreements contained in Sections
3, 4 and 5 of this Agreement, the provisions of this Agreement relating to the
payment of fees and expenses in Section 2 and Section 15, the representations
and warranties of the Company contained in Section 6 of this Agreement and the
indemnification and other obligations set forth in Schedule I of this Agreement
shall remain operative and in full force and effect regardless of (a) any
investigation made by or on behalf of DLJ, or by or on behalf of any other
Indemnified Person (as defined), (b) consummation of the Consent Solicitation or
(c) any termination of this Agreement, and shall be binding upon, and shall
inure to the benefit of, any successors, heirs and personal representatives of
the Company, DLJ, the other Indemnified Persons and any such successors, heirs
and personal representatives.
9. CONSTRUCTION AND JURISDICTION. This Agreement incorporates the entire
understanding of the parties and (except as otherwise provided herein)
supersedes all previous agreements, and shall be governed by, and construed in
accordance with, the laws of the State of New York as applied to contracts made
and performed in such State without regard to principles of conflicts of laws.
The Company and DLJ each irrevocably and unconditionally submits to the
jurisdiction of any State or Federal court sitting in New York City over any
suit, action or proceeding arising out of or relating to this Agreement. The
Company and DLJ each hereby agrees that service of any process, summons, notice
or document by U.S. registered mail addressed to the Company shall be effective
service of process for any action, suit or proceeding brought in any such court.
The Company and DLJ each irrevocably and unconditionally waives any objection to
the laying of venue of any such suit, action or proceeding brought in any such
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum. The Company and DLJ each
agrees that a final judgment in any such suit, action or proceeding brought in
any such court shall be conclusive and binding upon it and may be enforced in
any other courts to whose jurisdiction it is or may be subject by suit upon such
judgment.
<PAGE>
5
10. SEVERABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute one and the same instrument.
12. AMENDMENT AND ASSIGNMENT. Amendments or modifications to this
Agreement shall be made only in writing, duly executed by American Skiing
Company, ASC East and DLJ. None of American Skiing Company, ASC East and DLJ
shall have the right to assign any of its rights under this Agreement and any
such assignment shall be null and void.
13. HEADINGS. The section headings in this Agreement have been inserted
as a matter of convenience or reference and are not part of this Agreement.
14. THIRD PARTY BENEFICIARIES. This Agreement has been made solely for
and shall be binding upon and inure only to the benefit of American Skiing
Company, ASC East, DLJ and the Indemnified Persons and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement.
15. TERMINATION. This Agreement may be terminated by the Company or by
DLJ at any time without liability or continuing obligations on the part of
either party, other than as set forth in Section 8; PROVIDED, HOWEVER, that,
unless this Agreement shall have been terminated by DLJ, the Company shall be
obligated to pay DLJ the fees provided in Section 2 hereof if the Trustee
executes and delivers the Supplemental Indenture at any time during the period
commencing on the date hereof and ending on the date that is 12 months following
the date of termination of this Agreement.
Please note that DLJ is a full service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of DLJ's
trading and brokerage activities, DLJ or its affiliates may at any time hold
long or short positions, and may trade or otherwise effect transactions, for its
own account or on the accounts of customers, in debt or equity securities of the
Company or other entities that may be involved in the transactions contemplated
hereby. We recognize our responsibility for compliance with Federal laws in
connection with any such activities.
<PAGE>
6
Please confirm that the foregoing terms correctly set forth our agreement
by signing and returning to DLJ the duplicate copy of this Agreement enclosed
herewith. Thereupon this Agreement shall constitute our binding agreement on
the subject matter herein.
Sincerely yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Thomas McGonagle
------------------------------------
Name: Thomas McGonagle
Title: Managing Director
Confirmed and Agreed to as of
October 7, 1997.
AMERICAN SKIING COMPANY
By: /s/ Christopher E. Howard
------------------------------------
Name: Christopher E. Howard
Title: Chief Administrative Officer
ASC EAST
By:
------------------------------------
Name:
Title:
<PAGE>
7
SCHEDULE 1
This Schedule I is a part of and is incorporated into that certain letter
agreement (which letter agreement is collectively referred to herein with this
Schedule I as the "Agreement"), dated October 7, 1997 by and among American
Skiing Company and ASC East (which together with their subsidiaries and
affiliates are hereinafter referred to collectively as the "Company") and DLJ.
The Company agrees to indemnify and hold harmless DLJ, its affiliates and
its parent and its affiliates, and the respective directors, officers, agents
and employees of DLJ, its affiliates and its parent and its affiliates (DLJ and
each such entity or person, an "Indemnified Person") from and against any
losses, claims, damages, judgments, assessments, costs and other liabilities
(collectively, "Liabilities"), and will reimburse each Indemnified Person for
all fees and expenses (including the reasonable fees and expenses of counsel)
(collectively, "Expenses") as they are incurred in investigating, preparing,
pursuing or defending any claim, action, proceeding or investigation, whether or
not in connection with pending or threatened litigation or arbitration and
whether or not any Indemnified Person is a party (collectively, "Actions"), (i)
caused by, or arising out of or in connection with, any untrue statement or
alleged untrue statement of a material fact contained in the Consent
Solicitation Documents or by any omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (other than untrue
statements or alleged untrue statements in, or omissions or alleged omissions
from, information relating to an Indemnified Person furnished in writing by or
on behalf of such Indemnified Person expressly for use in the Consent
Solicitation Documents) or (ii) otherwise arising out of or in connection with
advice or services rendered or to be rendered by any Indemnified Person pursuant
to this Agreement, the transactions contemplated hereby or any Indemnified
Person's actions or inactions in connection with any such advice, services or
transactions; provided that, in the case of clause (ii) only, the Company will
not be responsible for any Liabilities or Expenses of any Indemnified Person
that are determined by a judgment of a court of competent jurisdiction which is
no longer subject to appeal or further review to have resulted solely from any
Indemnified Person's gross negligence or willful misconduct in connection with
any of the advice, actions, inactions or services referred to above. The
Company also agrees to reimburse each Indemnified Person for all Expenses as
they are incurred in connection with enforcing such Indemnified Person's rights
under this Agreement. In the event that it is determined in accordance with
the foregoing sentence that an Indemnified Person is not entitled to indemnity
hereunder, DLJ shall promptly reimburse or shall cause such Indemnified Person
to reimburse the Company for all amounts paid to or on behalf of any Indemnified
Person under this Agreement.
Upon receipt by an Indemnified Person of actual notice of an Action against
such Indemnified Person with respect to which indemnity may be sought under this
Agreement, such Indemnified Person shall promptly notify the Company in writing;
provided that failure to so notify the Company shall not relieve the Company
from any liability which the Company may have on account of this indemnity or
otherwise, except to the extent that the Company shall have been prejudiced by
such failure. The Company shall have the right to assume the defense of any
such Action including the employment of counsel reasonably satisfactory to DLJ.
Any Indemnified Person shall have the right to employ separate counsel in any
such Action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person, unless: (i)
the Company has failed promptly to
<PAGE>
8
assume the defense and employ counsel or (ii) the named parties to any such
Action (including any impleaded parties) include such Indemnified Person and the
Company, and such Indemnified Person shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or in addition to those available to the Company; provided that the Company
shall not in such event be responsible hereunder for the fees and expenses of
more than one firm of separate counsel in connection with any Action in the same
jurisdiction in addition to any local counsel. The Company shall not be liable
for any settlement of any Action affected without its written consent (which
shall not be unreasonably withheld). In addition, the Company shall not,
without prior written consent of DLJ, settle, compromise or consent to the entry
of any judgment in or otherwise seek to terminate any pending or threatened
Action in respect of which indemnification or contribution may be sought
hereunder (whether or not any Indemnified Person is a party thereto) unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Person from all Liabilities arising out of such Action.
In the event that the foregoing indemnity is unavailable to an Indemnified
Person other than due to the gross negligence or willful misconduct of any
Indemnified Person, the Company shall contribute to the Liabilities and Expenses
paid or payable by such Indemnified Person in such proportion as is appropriate
to reflect (i) the relative benefits to the Company and its shareholders, on the
one hand, and to DLJ, on the other hand, of the matters contemplated by this
Agreement or (ii) if the allocation provided by the immediately preceding clause
is not permitted by applicable law, not only such relative benefits but also the
relative fault of the Company, on the one hand, and DLJ, on the other hand, in
connection with the matters as to which such Liabilities or Expenses relate, as
well as any other relevant equitable considerations; provided that in no event
shall the Company contribute less than the amount necessary to ensure that all
Indemnified Persons, in the aggregate, are not liable for any Liabilities and
Expenses in excess of the amount of fees actually received by DLJ pursuant to
this Agreement. For purposes of this paragraph, the relative benefits to the
Company and its shareholders, on the one hand, and to DLJ, on the other hand, of
the matters contemplated by this Agreement shall be deemed to be in the same
proportion as (i) the total value paid or contemplated to be paid or received or
contemplated to be received by the Company or the Company's shareholders, as the
case may be, in the transaction or transactions that are within the scope of
this Agreement, whether or not any such transaction is consummated, bears to
(ii) the fees paid to DLJ under this Agreement.
The Company also agrees that no Indemnified Person shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with advice or services rendered or to be rendered by any
Indemnified Person pursuant to this Agreement, the transactions contemplated
hereby or any Indemnified Person's actions or inactions in connection with any
such advice, services or transactions except for Liabilities (and related
Expenses) of the Company that are determined by a judgment of a court of
competent jurisdiction which is no longer subject to appeal or further review to
have resulted solely from (i) any Indemnified Person's gross negligence or
willful misconduct in connection with any such advice, actions, inactions or
services, or (ii) the material breach by DLJ of an express provision of this
Agreement which was not cured by DLJ within 10 business days of DLJ having
received written notice of such breach from the Company.
The reimbursement, indemnity and contribution obligations of the Company
set forth herein shall apply to any modification of this Agreement and shall
remain in full force and
<PAGE>
9
effect regardless of any termination of, or the completion of any Indemnified
Person's services under or in connection with, this Agreement.
<PAGE>
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
October 29, 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
October 29, 1997
