SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 26, 1998
Commission file number 333-33483
American Skiing Company
(Exact name of registrant as specified in its charter)
Maine 7990
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
04-3373730
(I.R.S. Employer
Identification Number)
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)
Securities registered pursuant to Section 12(b) of the Act:
(Name of exchange on
Title of Each Class which registered)
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Name of exchange on
Title of Each Class which registered)
None None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months or shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-X is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's outstanding common stock held by
non-affiliates of the registrant on October 23, 1998, determined using the per
share closing price thereof on the New York Stock Exchange Composite tape, was
approximately $77.6 million. As of October 23, 1998, 30,285,552 shares of common
stock were issued and outstanding, of which 14,760,530 shares were Class A
common stock.
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American Skiing Company
Form 10-K Annual Report, for the year ended July 26, 1998
American Skiing Company and Consolidated Subsidiaries
Table of Contents
Part I Page
Item 1 Business ............................................... 1
Item 2 Properties ............................................. 24
Item 3 Legal .................................................. 25
Item 4 Submission of Matters to a Vote of Security Holders .... 25
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters .................................... 26
Item 6 Selected Financial Data ................................ 26
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 28
Item 7A Quantitative and Qualitative Disclosures about
Market Risk ............................................ 40
Item 8 Financial Statements and Supplementary Data............. 41
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 41
Part III
Item 10 Directors and Executive Officers of the Registrant...... 42
Item 11 Executive Compensation.................................. 45
Item 12 Security Ownership of Certain Beneficial Owners and
Management.............................................. 54
Item 13 Certain Relationships and Related Transactions.......... 57
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K..................................... 58
Signatures....................................................... 64
(i)
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PART I
Item 1 Business
The Company
The Company is the largest operator of alpine resorts in the United
States. The Company owns and operates nine ski resorts, including two of the
five largest resorts in the United States based on 1997-98 skier visits, with at
least one resort in each major skiing market. During the 1997-98 ski season, the
Company's nine resorts generated approximately 5.3 million skier visits,
representing over 9.8% of total skier visits in the United States (compared with
4.9 million and 9.4%, respectively, for the 1996-97 ski season). The Company's
Resorts include Sunday River and Sugarloaf in Maine; Attitash Bear Peak in New
Hampshire; Killington, Mount Snow/Haystack and Sugarbush in Vermont; The
Canyons, adjacent to Park City, Utah; Steamboat in Colorado; and Heavenly near
Lake Tahoe, California (collectively, the "Resorts"). After giving pro forma
effect to the November 1997 acquisition of Steamboat and Heavenly, the Company's
revenues and earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") for its 1998 Fiscal year were $344.0 million and $73.8
million, respectively.
The Resorts include several of the top resorts in the United States,
including: (i) Steamboat, the number two overall ski resort in the United
States, as ranked in the September 1997 Snow Country magazine survey, and the
fourth largest ski resort in the United States with over 1.0 million skier
visits in the 1997-98 ski season; (ii) Killington, the fourth largest resort in
the United States with over 1.0 million skier visits in the 1997-98 ski season;
(iii) three of the four largest resorts in the Northeast (Killington, Sunday
River and Mount Snow/Haystack) in the 1997-98 ski season; (iv) Heavenly, which
ranked as the second largest resort in the Pacific West region for the 1997-98
season with a resort record 888,000 skier visits; 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 is developing alpine
resort villages at prime locations within five of its resorts designed to fit
that resort's individual characteristics. The Company currently operates six
Grand Summit Hotels -- two hotels at Sunday River and one hotel each at
Attitash, Mount Snow, Sugarloaf and Killington. Two additional Grand Summit
Hotels are under construction at The Canyons and Steamboat. The Company also
operates golf courses at its resorts and conducts other off-season activities
which accounted for approximately 9.5% of the Company's resort revenues for
fiscal 1998.
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 10.7% in the aggregate for the three resorts that it
has owned for more than two 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 25.1% in the
1997-98 ski season (after giving pro forma effect to its acquisition of the
Killington, Mount Snow/Haystack and Sugarloaf ski resorts). In the 1997-98 ski
season, skier visits at The Canyons, Steamboat and Heavenly (collectively, the
"Western Resorts"), each of which the Company acquired in 1997, increased by
11.3% over the prior year. Management believes that the Western Resorts provide
the Company with several significant additional operating benefits, including:
(i) geographic diversity; (ii) enhanced cross-marketing of its resorts on a
national basis; (iii) purchasing and other economies of scale; and (iv)
implementation of the Company's operating strategies across a more diversified
resort base.
1
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In November 1997, the Company consummated an initial public offering of
its common stock, generating net proceeds to the Company of $244.3 million which
were applied, together with available cash and borrowings under the Company's
bank credit facilities, to fund the acquisition of Steamboat and Heavenly for an
aggregate acquisition cost of approximately $294.8 million (excluding amounts
allocated to the Sabal Point Golf Course, which the Company divested in February
1998).
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 1997-98. 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.
The on-mountain accommodations at Killington consist of approximately
5,100 beds, including 532 quartershare interests at the New Grand Summit Hotel.
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, and a driving range.
Since its acquisition in June 1996, the Company has invested $25.6 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, and upgrading of two
additional lifts to high-speed quads, (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, (iii) construction of a new
children's center and related base area improvements, and (iv)a major water and
sewer system expansion.
In December 1997, the Company completed a land exchange with the state of
Vermont whereby Killington acquired 1,050 acres of undeveloped land centrally
located in its principal base area. The Company's three-year capital program
includes the interconnection of lift and trail systems between the Killington
and Pico resorts. The interconnection of the two mountains is expected to result
in a 16% increase in lift capacity and an additional 110 acres (9%) of skiable
terrain.
2
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Sunday River. Sunday River, located in the western mountains of Maine
and approximately a three-hour drive from Boston, is one of New England's
largest ski resorts with over 550,000 skier visits in 1997-98. Extending over
eight interconnected mountain peaks, its facilities consist of approximately 654
acres of skiable terrain and 126 trails serviced by 18 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 5,850 beds including 726 condominium units, 648 quartershare units
at the Grand Summit Resort Hotel and 580 quartershare units at the new Jordan
Grand Resort Hotel. The off-mountain bed base in greater Bethel, Maine totals
approximately 2,000 beds. The resort owns and operates five ski shops, seven
full-service restaurants, four cafeteria-style restaurants and six bars.
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. Sunday River's 1998 capital program included:
(i) installation of a new high-speed quad lift on Barker Mountain which replaces
an earlier lift, (ii) installation of 150 new tower snow guns to enhance
snowmaking, (iii) five new grooming vehicles, (iv) a new welcome center for
condo check-ins and ticket sales, and a new learn to ski/ride discovery center,
and (v) significant upgrades of facilities. A Robert Trent Jones, Jr.
championship golf course is currently under construction for a planned 2001
opening. 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 retail base facilities adjacent to the new
Jordan Grand Resort 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.
Mount Snow/Haystack. Mount Snow, located in Brattleboro, Vermont, is
the second largest ski resort in the Northeast with over 600,000 skier visits in
1997-98. A large percentage of the skier base for Mount Snow derives from
Massachusetts, Connecticut and New York. The resort consists of two mountains
(Mount Snow and Haystack) 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, a 1,700-foot vertical drop, five full-service base lodges.
Mount Snow's on-mountain bed base currently consists of 1,960 beds,
including 544 units at the resort's new Grand Summit Hotel. 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 $15.0 million in capital improvements to the
resort, including the installation of two high-speed quad chairlifts.
The Company is expanding Mount Snow's lodges to provide additional space
for guest services, food and beverage services, retail sales, and a children's
center. During the Summer of 1998, a 20,000 square foot "Discovery Center" was
constructed to service new skiers and snowboarders. In addition, the Company
opened a new restaurant and added over 10,000 square feet of retail space in the
Grand Summit Hotel.
3
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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 including a new
high-speed quad chair to service lower mountain terrain and an additional
fixed-grip quad chair accessing the snowfields. 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
resort 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 vacation homes, restaurants and an extensive recreational path
network.
Sugarbush. Sugarbush, located in Vermont's Mad River Valley, features
the three highest mountain peaks of any single resort in the East. 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 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 $23.7 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.
Attitash Bear Peak. Attitash Bear Peak, located in the Mt. 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 12 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.
4
<PAGE>
The on-mountain accommodations of Attitash Bear Peak consist of
approximately 2,000 beds. In 1997 the Grand Summit Hotel at Attitash was
completed. It consists of 143 rooms, 2 restaurants, a lounge, a health club,
outdoor heated year round pool and 9 conference rooms including a 5,600 square
foot Ballroom. The off-mountain bed base in the Mt. Washington Valley area
totals approximately 16,000 beds. The resort operates three base lodges, four
ski shops, two full-service restaurants, three cafeteria-style restaurants and
two bars.
Since its acquisition in July 1994, the Company has invested
approximately $12.4 million in resort-related capital improvements at Attitash
Bear Peak. The summer of 1998 capital program included the installation of a
high-speed quad lift on Attitash Mountain and the Attitash Adventure Center, a
20,000 square foot base building housing the Discovery Center for beginning
skiers and riders, enhanced space for all children's programs, adaptive programs
and snowboarders. The resort's three year capital improvement program includes a
championship golf course, an additional lift upgrades and further additions to
the summer operations.
The Canyons. When acquired in July, 1997, The Canyons, located in the
Wasatch Range of the Rocky Mountains adjacent to Park City, Utah, was primarily
an undeveloped ski resort with significant potential for future operational and
real estate development. In its first season of operation under the Company's
management, the resort generated over 167,000 skier visits. Currently, the
resort has approximately 2,700 acres of skiable terrain with an elevation of
9,990 feet and a 3,200-foot vertical drop. The area has two new base lodges and
two additional on-mountain restaurants.
Since its acquisition in July, 1997, the Company has invested approximately
$32 million to develop and construct: (i) an eight passenger high-speed gondola,
(ii) seven new quad lifts (including five high-speed quads), (iii) an increase
in skiable terrain to approximately 2,700 acres at the resort, and (iv) two
on-mountain lodges. The resort's 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. 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, involving anticipated capital
expenditures of approximately $30 million, 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 consisting of 14 mountain peaks with a
maximum elevation of 10,000 feet, a vertical drop of approximately 3,200 feet,
20 high-speed quad ski lifts and an eight-passenger high-speed gondola. In
addition to the $32 million of capital improvements at The Canyons over the past
15 months, the Company estimates that it will need approximately $30 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.
5
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Steamboat. Steamboat ski area is located in the Medicine Bow/Routt
National Forest, Routt County, Colorado on the westerly slopes of Mt. Werner,
approximately 2.5 miles southeast of downtown Steamboat Springs, Colorado. The
area consists of 2,694 acres of land under a Special Use Permit issued by the
USFS and 245 acres of private land owned by Steamboat located at the base of the
ski area. The 1998-99 trail network consists of 140 trails covering 2,939 permit
access that is serviced by 22 ski lifts. Steamboat receives a high level of
natural dry snow, averaging 330 inches annually the past 10 ski seasons.
Steamboat has recorded more than 1 million visits each of the past nine seasons.
Restaurant facilities are currently located in the base area and at
three other points throughout the resort (Thunderhead, Four Points Hut, and
Rendezvous Saddle). On the ski area, the Company operates food and beverage
outlets at ten restaurants, bars and outdoor serving facilities with total
indoor seating capacity of approximately 1,944 and outdoor seating capacity of
790. These facilities are complemented by a number of
independently operated bars and restaurants in the base area and in downtown
Steamboat Springs and are considered adequate to meet current skier needs. As
further Pioneer Ridge expansion occurs, an additional on-mountain restaurant may
be constructed at Cyclone Flats.
During the summer of 1998, Steamboat built the new Pony Express quad
detachable chairlift in Pioneer Ridge. The snowmaking system was also extended
this year to reach the very top of the mountain. This expansion allows
top-to-bottom coverage to insure quality snow from the top of the mountain to
the ski area base, and will improve some of Steamboat's most popular trails.
6
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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
the second largest resort in the Pacific West Region with over 880,000 skier
visits for the 1997-98 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/Tahoe 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 ski-in, ski-out
residential units or tourist accommodation units at 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 primary objective of the
master plan is to refocus the primary entrance to the ski resort from the three
existing base areas (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's summer 1998 capital
program included $7.8 million in proposed improvements at Heavenly including two
four-passenger high-speed chairlifts known as "Gunbarrel Express" and
"Stagecoach Express" and a fixed-grip three passenger chairlift known as the
"Perfect Ride" are currently under construction, and are scheduled to open for
the beginning of the 1998-99 ski season.
7
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Alpine Resort Industry
There are approximately 750 ski areas in North America. In the United
States, approximately 521 ski areas generated approximately 54 million skier
visits during the 1997-98 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 521 in 1998, 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.
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 1997-98 ski season:
.........
<TABLE>
<CAPTION>
Geographic Region 1997-98 Percentage of Total Skier Visits at Company Market Company Resorts
Total Skier Skier Visits Company Resorts Share
Visits (in (in millions)
millions)
----------------- --------- ------------------ --------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Northeast 12.7 23.5% 3.2 25.2% Killington,
Sugarbush, Mount
Snow/Haystack,
Attitash/Bear Peak,
Sunday River,
Sugarloaf USA
Southeast 4.3 7.9% --- ---
Midwest 6.7 12.4% --- ---
Rocky Mountain 19.2 35.5% 1.2 6.3% The Canyons,
Steamboat
Pacific West 11.2 20.7% 0.9 8.0% Heavenly
- - ---------------------- -------------------- --------------------- --------------------- -------------------- ---------------------
U.S. Overall 54.1 100.0% 5.3 9.8%
- - --------------------
(*) Source: Kottke National End of Season Survey 1997/98 Final Report
</TABLE>
8
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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 11.2
million in the 1997-98 ski season, a compound annual growth rate of
approximately 20.6%. 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 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.
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.
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.
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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
1997-98 ski season, the Company increased its average yield per skier visit by
approximately 2.2% as compared to the 1996-97 ski season. Season pass revenue
for the 1997-98 ski season at the Resorts increased by 11.0% as compared to the
1996-97 ski season. In addition to its on-mountain activities, the Company has
expanded 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, California, 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
Marriott, Mobil, Budweiser, Pepsi/Mountain Dew, Saab, Motorola, Vermont Pure,
Very Fine, Kodak, Swatch, Airwalk, FILA, Burton 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. 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 web site 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 was approximately $28
million, including the value of contributions from strategic commercial
marketing partners.
10
<PAGE>
High Impact Capital Improvements
The Company attracts skiers to its resorts by creating a superior
skiing and riding 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) expanded glade skiing terrain at most resorts, (ii) expanded
skiable terrain at The Canyons to 2,700 acres making it one of Utah's largest
resorts, and (iii) installed heated eight-passenger high-speed gondolas at
Killington and The Canyons. 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.
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.
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 1,600
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 controls at or near its
resorts and its 15 years of experience in real estate development. 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, but related, components: (i) Grand Summit
quartershare hotels, (ii) alpine resort 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. In addition to its
Grand Summit Hotels, the Company is developing alpine resort villages at five of
its largest resorts. Each village consists of carefully planned communities
integrated with condominiums, luxury townhouses, single family luxury dwellings
or lots and commercial properties. The Company established a strategic
partnership with Marriott Ownership Resorts, Inc. which will bring 200 unit
timeshare resort villas to the center of each resort village. 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.
11
<PAGE>
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.
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 represented approximately 48%
of total resort operations revenue for fiscal 1998, after giving pro forma
effect for the November 1997 acquisition of Heavenly and Steamboat Resorts.
The following chart reflects the Company's sources of resort revenues
across certain revenue categories as well as the percentage of resort revenues
constituted by each category for the fiscal year ended July 26, 1998, on a pro
forma basis.
<TABLE>
<CAPTION>
....
Fiscal Year Ended July 26, 1998
Pro Forma
Revenue Category Resort Revenues Percentage of
(in millions) Resort Revenues
<S> <C> <C>
Lift Tickets .................................... $136.1 48.2%
Food and Beverage ................................. 35.7 12.7%
Retail Sales ...................................... 39.6 14.0%
Lodging and property management.................... 29.7 10.5%
Skier development ................................. 22.3 7.9%
Golf, other summer activities and miscellaneous ... 18.8 6.7%
- - --------------------------------------------------- ----- -----
Total Resort Revenues ............................. $282.2 100.0%
</TABLE>
12
<PAGE>
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.
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.
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 over 80
retail and 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, in 1997,
the Company expanded its retail operations, by expanding and opening new
off-site retail facilities in high traffic areas, such as stores on the
Killington Access Road, in downtown South Lake Tahoe, and in the Freeport, Maine
and North Conway, New Hampshire retail districts.
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 Company's 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.
13
<PAGE>
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. For the 1998-99
season the Company has embarked upon a new skier development program that will
focus on the marketing and sales of the entire mountain resort experience,
rather than simply traditional learn-to-ski concepts.
Marketing Programs
The Company's marketing programs are designed to: (i) increase the skier
and rider market, (ii) build the individual images of the Company's resorts,
(iii) retain customers within the Company's system of resorts through loyalty
programs, (iv) utilize marketing partners to leverage marketing efforts, and
(v) develop new programs in both summer and winter to attract new guests.
Increase the skier and rider market: The company has developed a new
and proprietary skier development system. It combines the unique learning method
of Perfect Turn with graduated length skis, a new sales process and specially
designed discovery centers for first time skiers and riders. Management believes
this new system will significantly increase the retention rate of first time
skiers and riders. In addition to this new system the Company is implementing a
major public relations campaign with Jonny Moseley, 1998 Olympic Gold Medalist
in Freestyle Mogul Skiing, as the official spokesperson of the Company designed
to increase participation in the sport.
Build the individual images of the Company's resorts: The Company's
resorts attract different and distinct market segments. Marketing emphasis is on
building a close relationship with the Company's guests. Management believes
that by establishing a clear, concise and compelling position for each resort,
customer loyalty will be increased.
Retain customers within our system of resorts through loyalty programs: The
Company has developed several loyalty programs to retain customers within the
Company's system: (i) Magnificent 7 which allows frequent skiers to purchase 7
or more days of skiing at a special price, (ii) season passes which are targeted
to the very frequent skiers, (iii) The Edge(R) frequent skier card targeted to
less frequent skiers that can earn points towards future lift ticket purchases,
(iv) the direct to lift Edge card which allows guests to earn frequent skier
points and bypass ticket windows, and (v) The First USA Edge Visa(R) card with a
special bonus points program based on charge volume that enables guests to earn
credits to be used at our resorts.
Utilize marketing partners to leverage our marketing efforts: The Company,
because of the demographics of its customers and its high profile image, is a
very attractive asset to major marketers. The company has entered into
promotional agreements that include television, radio and special events
programs with many major corporations including Marriott, Mobil, Budweiser,
Pepsi/Mountain Dew, SAAB, Motorola, Vermont Pure, Very Fine, Burton, Rossignol,
Kodak, Swatch, and Airwalk.
14
<PAGE>
Develop new programs both summer and winter to attract new guests:
Winter activities at Company resorts have been have greatly expanded with the
addition of new Fun Centers. These Fun Centers include ice skating,
snowmobiling, snow tubing, snowshoeing, luging, snowcat rides, arcades and other
indoor and outdoor activities. As part of an ongoing effort to expand summer
revenues, the Company has created Grand Summer Vacations which package the many
summer activities available at Company resorts including waterslides, canoeing,
mountain biking, climbing walls, chairlift rides, golf, tennis, hay rides,
alpine slides, BMX parks, and swimming.
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 1,600 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 resort 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.
The Company's real estate development program achieved national
prominence in fiscal 1998. This program generated over $105 million in pre-sales
in fiscal 1998, compared with $10.4 million in fiscal 1996 and $38.7 million in
fiscal 1997. The Company opened three 200-room Grand Summit Hotels at New
England resorts and commenced construction of three new hotels at Western
Resorts on the strength of very high pre-sales.
The Company's strategy for real estate development calls for the
completion of at least 12 projects over the next 36 months. Four of these
projects are the new Grand Summit Hotels in New England, where the Company is in
the process of selling out the remaining inventory. More than 50% of the
inventory in those hotels is currently sold.
The next component of the real estate development plan is completion of
three hotels currently under construction at The Canyons in Utah and Steamboat
in Colorado. The Grand Summit Hotel at The Canyons is a 358-room full-service
hotel that has generated more than $40 million in pre-sales since marketing
began in late January 1998. The Grand Summit Hotel at Steamboat is a 325-room
facility that has generated over $26 million in presales since marketing began
in early February 1998. The final western hotel under construction is the
Company's prototype condominium hotel at The Canyons called Sundial Lodge. In
July 1998, the Company pre-sold 100% of this 150-unit facility in only ten
hours, generating $42.5 million in sales contracts.
The remaining five projects include a Grand Summit Hotel at Heavenly,
located in the Park Avenue Redevelopment District in downtown South Lake Tahoe,
and condominium hotels based upon the Company's Sundial Lodge prototype to be
constructed at The Canyons, Heavenly, Steamboat and Sunday River. Any one or
more projects from the Company's existing pipeline could be substituted for any
of these five projects, as market conditions and strategy dictate.
15
<PAGE>
These 12 projects will make up the first phase of Management's
comprehensive development strategy, which envisions the full development of five
alpine resort villages, including one each at Sunday River, Killington,
Steamboat, The Canyons and Heavenly. Pricing strategy within each of these
villages is carefully orchestrated to build pricing momentum as development
progresses. A key measure for this development program is revenue per unit sold,
which is expected to increase as the villages gain critical mass. Each resort
village reflects the Company's carefully crafted plaza design concept, which
creates an energy center at the heart of each resort village.
In July 1998, the Company established a joint venture agreement with
Marriott Vacation Club International to bring a 200-unit timeshare luxury villa
to the center of each resort village. This unique partnership provides the
Company with access to Marriott's distribution capabilities, as well as
increases the profile of the resort villages. The combination of the Company's
alpine resort locations and Marriott's recognized brand name expands the
Company's position in the timeshare industry and is expected to provide a more
visible presence nationwide.
<TABLE>
<CAPTION>
Development
Commencement Reserved
Dates Under Sales Future Under or future
Resort (fiscal year) Sold Development (1) Pre-Sold(2) Inventory(3) Development(4) Completed Development(1) Development(4)
- - ------ ------------- ---- --------------- ----------- ----------- -------------- ---------- ------------- -------------
Residential Units Commercial Space (square ft.)
----------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sunday River 1982 1,625 378 51 284 4,894 248,405 -- 207,995
Sugarbush 1996 -- 352 -- -- 2,150 1,800 40,419 22,581
Attitash
Bear Peak 1996 159 460 5 256 219 40,800 -- 60,000
Killington 1997 276 -- 59 189 11,282 61,614 -- 343,086
Mt. Snow 1997 176 -- 70 294 2,308 54,785 -- 160,015
The Canyons 1997 -- 982 400 -- 5,992 14,900 106,383 299,717
Sugarloaf 1998 -- 358 -- 81 1,820 -- 8,426 120,000
Steamboat 1998 -- 928 276 -- 3,005 -- 62,950 170,350
Heavenly 1998 -- 760 -- -- 30 -- 23,315 99,287
----- ---- ---- ----- ------ ------- ------- ---------
Total 2,236 4,218 861 1,104 31,700
<FN>
(1) Includes all units or commercial space currently under construction or
in the permitting process.
(2) Pre-Sold is defined as units secured with either binding purchase and
sales agreements or non-binding reservation agreements.
(3) Sales Inventory is defined as constructed units remaining unsold.
(4) 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 permits and regulatory approvals.
</FN>
</TABLE>
16
<PAGE>
Grand Summit Hotels. The Company operates six Grand Summit Hotels and
has four additional hotels under development. 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 multi-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 50% 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. The Company
also operates 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
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.
The Company has begun construction of four of its five resort villages at
The Canyons, Killington, Sunday River's Jordan Bowl, Steamboat and Heavenly.
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. Each of the base area and the mid-mountain plateau area are
under long-term leases that provide an option to purchase fee title to parcels
within that area. The base area development is currently in the master planning
process with county authorities and now has fully vested rights for significant
portions of the contemplated development. 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.
17
<PAGE>
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 and will be accessed by a four-mile scenic drive and an eight-passenger,
high-speed heated gondola. 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 servicing this area, the Red Pine Lodge, is
located within the at the mid-mountain development and commenced operations in
the 1997-98 ski season.
The Company commenced construction of the base village during the summer of
1998, with a Grand Summit Hotel and a 150-unit prototype condominium hotel. 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 pursuant to
replanning provisions of the county's general plan. The proposed revision to the
zoning 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.
Killington Base Area. In December 1997, the Company consummated a land
exchange with the State of Vermont exchanging approximately 3,000 acres of
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 IBI, 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 centering on a resort village
core. The 1,050 acres 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. The first phase of the village contemplates 1,600 units and 1.8
million square feet of development.
The Company believes that adequate water is available from nearby wells for
both projects. Sewer capacity will be provided through the Company's recently
completed connection to the City of Rutland 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 the December, 1997 opening of a
ski-in/ski-out 220-unit Grand Summit Hotel. Construction of a Robert Trent
Jones, Jr. championship golf course is also underway. The master plan for the
area also contemplates a high-density pedestrian 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.
18
<PAGE>
Steamboat Base Area. The 375-room Grand Summit Hotel under construction at
Steamboat is the first step in creating a new pedestrian village at the base of
Steamboat. The Company is working closely with local authorities to develop a
comprehensive village plan that will produce up to an estimated 1.6 million
square feet of development. A key feature of the plan is the interconnection of
the Company's largest development site at Steamboat with the resort village.
Heavenly. Immediately following the acquisition of Heavenly, the Company
entered into negotiations for, and acquired, the development rights to the Park
Avenue Development project located in the center of downtown South Lake Tahoe,
California. That area has all necessary entitlements to construct a high-speed
gondola to the summit of the resort, and two large hotel or quartershare
projects consisting of over 1 million square feet and 724 units. The Company
also has received all necessary entitlements for a 120-unit condominium hotel to
be constructed in the Stagecoach base area.
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.
Sugarloaf. Development plans have begun for a high-density condominium
development with commercial space as an expansion to the existing alpine village
at the Bucksaw area. The first townhouses will be marketed in the 1998/1999 ski
season. There are several additional 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.
Sugarbush. Sugarbush has all necessary entitlements for construction of a
Grand Summit Hotel. The Company is in the process of positioning the
re-introduction of that product to the market with higher levels of finish
consistent with the Company's vision for Sugarbush, which is to appeal to the
highest segment of the Eastern market.
Attitash. The Company is in the planning stages of a championship 18-hole
golf course at Attitash. together with that course will come golf/slopeside
development opportunities. This area is well suited for extension of the
Company's townhouse program.
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.
19
<PAGE>
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. This lease was amended
on January 23, 1998 to allow SRSC to purchase portions of the leased property
for real estate development at a predetermined amount per acre. In January 1998,
the Company acquired an undivided one-half interest in the fee title to the
leased parcel.
The Sugarbush resort uses approximately 1,915 acres pursuant to a special
use permit issued by the 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 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.
20
<PAGE>
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, LC. 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 5.5% of the full capitalized
cost of such development in the case of property retained by the Company, or 11%
of such cost in the case of property intended for resale. The Canyons also
leases 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. The lease term
ends in 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 includes a lease of all skiable terrain for a term ending
September 13, 2094.
Heavenly uses approximately 1,543 acres of its skiable terrain located
in California and Nevada pursuant to a special use permit issued by the United
States Forest Service. 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.
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 has substantially implemented a
comprehensive 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) an integrated customer database that tracks
information regarding guest preferences and product purchasing patterns, (iv) an
extensive data communications network linking most point-of-sale locations
through a central database, (v) a central reservations system for use in the
resort's rental management business and (vi) a skier development reservation and
instructor scheduling system that simplifies the booking process and allows for
optimal utilization of instructors.
21
<PAGE>
Snowmaking Systems and Technology. The Company believes it operates the
largest consolidated snowmaking operation in existence, with 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 instrumentation. 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 is available on the World Wide Web at the Company's and its
individual resorts' web sites.
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 7,826 employees at peak season and
approximately 1,600 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.
22
<PAGE>
Government Regulation
The Company's resorts are subject to a wide variety of federal, state,
regional 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 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 ("PRP") 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, on the basis that Killington disputes its designation as
a PRP. 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 capital programs at the resorts will require permits and approvals from
certain federal, state, regional 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.
23
<PAGE>
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.
Item 2
Properties
The Resorts include several of the top resorts in the United States,
including: (i) Steamboat, the number two overall ski resort in the United
States, as ranked in the September 1997 Snow Country magazine survey, and the
fifth largest ski resort in the United States with over 1.0 million skier visits
in the 1997-98 ski season; (ii) Killington, the fourth largest resort in the
United States with over 1.0 million skier visits in the 1997-98 ski season;
(iii) three of the four largest resorts in the Northeast (Killington, Sunday
River and Mount Snow/Haystack) in the 1997-98 ski season; (iv) Heavenly, which
ranked as the second largest resort in the Pacific West region for the 1997-98
season with a resort record 888,000 skier visits; and (v) Sugarloaf, the number
one resort in the Northeast according to the September 1997 Snow Country
magazine survey.
The following table summarizes certain key statistics of the Company's resorts:
<TABLE>
<CAPTION>
Skiable Vertical Snowmaking 1997-98
Terrain Drop Total Coverage Ski Skier
Resort (Year Acquired) (acres) (feet) Trails Lifts (% of acres) Lodges Visits
(high-speed) (000s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Killington (1996) 1,200 3,150 205 33(6) 59.8% 8 1,077
Sunday River (1980) 654 2,340 126 18(4) 93.3 4 552
Mount Snow/Haystack (1996) 763 1,700 134 26(3) 66.0 5 602
Sugarloaf (1996) 1,400 2,820 126 14(2) 35.0 1 358
Sugarbush (1995) 432 2,650 112 18(4) 66.1 5 388
Attitash Bear Peak (1994) 273 1,750 60 13(2) 89.7 2 233
The Canyons (1997) 2,700 3,190 63 13(9) 5.6 2 168
Steamboat (1997) 1,879 3,668 140 24(4) 13.6 4 1,053
Heavenly (1997) 4,800 3,500 82 27(6) 5.7 7 888
----- ----- ----- ----- --- -- -----
Total 14,101 1,048 186(40) 38 5,319
</TABLE>
See the Item 1 Section entitled "Business - Resorts" for a more
detailed description of the Company's resorts.
24
<PAGE>
Item 3
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 Company's subsidiaries which operate resorts have pending
claims and are regularly subject to suits with respect to personal injury claims
related principally to skiing activities at such resort. Each of these 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.
Item 4
Submission of Matters to a Vote of Security Holders
Not applicable.
25
<PAGE>
PART II
Item 5
Market for the Registrant's Common Stock and Related Security Holder
Matters.
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "SKI". The Company's Class A Common Stock is not listed on any
exchange and is not publicly traded, but is convertable into Common Stock of the
Company. As of October 23, 1998, 30,285,552 shares of common stock were issued
and outstanding, of which 14,760,530 shares were Class A Common Stock held by
one holder and 15,525,022 shares of Common Stock held by approximately 5,000
holders.
The following table sets forth, for the fiscal quarters indicated (ended
January 25, 1998, April 26, 1998, and July 26, 1998, the range of high and low
sale prices of the Company's common stock as reported on the NYSE Composite
Tape. Prior to the offering on November 6, 1997, there was no established
public trading market for the common stock of the Company.
Fiscal 1998 Common Stock
High Low
1st Quarter --- ---
2nd Quarter $18.25 $12.00
3rd Quarter $17.00 $12.50
4th Quarter $16.00 $12.13
Market Information
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 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 Indenture governing the Company's 12%
Senior Subordinated Notes due 2002 contains certain restrictive covenants that,
among other things, limit the payment of dividends or the making of
distributions on equity interests of the Company.
Item 6
Selected Financial Data
The following selected historical financial data of the Company have been
derived from the financial statements of the Company audited by
PricewaterhouseCoopers LLP, independent accountants as of and for each of the
fiscal years ended July 30, 1995, July 28, 1996, July 27, 1997 and July 26,
1998; and for the year ended July 31, 1994 have been derived from the financial
statements of the Company audited by Berry, Dunn, McNeil & Parker, independent
accountants.
26
<PAGE>
<TABLE>
<CAPTION>
Historical Year Ended (1)
-----------------------------------------------------------------
July 31, July 30, July 28, July 27, July 26,
1994 1995 1996 1997 1998
-----------------------------------------------------------------
(in thousands, except per share, real estate units,
and skier visit amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues:
Resort.................................................... $26,544 $ 46,794 $ 63,489 $166,923 $278,577
Real estate............................................... 6,682 7,953 9,933 8,468 61,843
------- ------- -------- -------- --------
Total net revenues................................... 33,226 54,747 73,422 175,391 340,420
------- ------- -------- -------- --------
Operating expenses:
Resort.................................................... 15,787 29,725 41,799 109,774 169,865
Real estate............................................... 3,179 3,994 5,844 6,813 44,292
Marketing, general and administrative (2)................. 5,940 9,394 11,289 26,126 42,554
Stock compensation charge.................................. -- -- -- -- 14,254
Depreciation and amortization............................. 2,421 3,910 6,783 18,293 37,966
------- ------- ------- -------- -------
Total operating expenses............................. 27,327 47,023 65,715 161,006 308,931
------- ------- ------- -------- -------
Income from operations......................................... 5,899 7,724 7,707 14,385 31,489
Other expenses:
Commitment fee............................................ -- -- 1,447 -- --
Interest expense.......................................... 1,026 2,205 4,699 23,730 34,575
------- ------- ------- ------- -------
Income (loss) before provision (benefit) for income taxes and
minority interest in loss of subsidiary..................... 4,873 5,519 1,561 (9,345) (3,086)
Provision (benefit) for income taxes........................... -- 400 3,906 (3,613) (774)
Minority interest in loss of subsidiary................. ..... -- -- (108) (250) (445)
------- ------- ------- ------- -------
Income (loss) from continuing operations...................... 4,873 5,119 (2,237) (5,482) (1,867)
Extraordinary loss, net of income tax benefit ................ -- -- -- -- 5,081
------- ------- ------- ------- -------
Net income (loss).............................................. 4,873 5,119 (2,237) (5,482) (6,948)
------- ------- ------- ------- -------
Accretion of discount and issuance costs and dividends accrued
on mandatorily redeemable preferred stock.................... -- -- -- 444 5,346
------- ------- ------- ------- -------
Net income (loss) available to common shareholders............. $ 4,873 $ 5,119 $(2,237) $(5,926) $(12,294)
======= ======= ======= ======= ========
Basic and diluted loss per common share:
Continuing operations....................... ................ -- -- $ (2.37) $ (5.61) $(0.07)
Extraordinary loss .......................................... -- -- -- -- (0.20)
Net loss available to common shareholders ................... -- -- (2.37) (6.06) (0.48)
Weighted average common shares outstanding .................... -- -- 942 978 25,832
------- ------- ------- ------- ------
Other Data:
Resort:
Skier visits (000's)(3)................................... 528 1,060 1,290 3,025 5,322
Season pass holders (000's)............................... 3.7 11.2 13.2 30.9 44.1
Resort revenues per skier visit........................... $ 50.26 $ 44.15 $ 49.22 $ 55.18 $52.34
Resort EBITDA(4)(5)....................................... $ 4,817 $ 7,675 $ 10,401 $ 31,023 $66,158
Real estate:
Number of units sold...................................... 155 163 177 123 1,009
Number of units pre-sold(6)............................... -- -- 109 605 861
Real estate EBIT(5)(7).................................... $ 3,503 $ 3,959 $ 4,089 $ 1,655 $17,551
Statement of Cash Flows Data:
Cash flows from operations................................ $ 5,483 $ 12,593 $ 7,465 $ 6,788 3,621
Cash flows from investing activities...................... (9,041) (13,843) (122,583) (14,070)(384,303)
Cash flows from financing activities...................... 3,764 2,399 116,941 19,655 380,494
Balance Sheet Data:
Total assets.............................................. $51,784 $ 72,434 $298,732 $ 337,340 780,899
Mandatorily redeemable preferred stock ................... -- -- -- 16,821 39,464
Long term debt, including current maturities.............. 22,724 35,056 210,720 236,330 383,220
Common shareholders' equity............................... 26,212 30,502 21,903 15,101 268,204
</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 Mount Cranmore ski resort from its acquisition in
June 1995 through its divestiture in November 1996, the results of operation of
S-K-I Ltd. since its acquisition in June 1996 and the results of operation 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 recognized a one-time compensation charge of $14.3 million in 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)Presold 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.
27
<PAGE>
Item 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
We are pleased to present to you management's discussion and analysis
of financial condition and results of operations for the twelve months ended
July 26, 1998. The results include the Steamboat and Heavenly resorts which were
acquired on November 12, 1997. As you read the material below, we urge you to
carefully consider the audited Consolidated Financial Statements and related
notes contained elsewhere in this report.
Liquidity and Capital Resources
Short-Term. The Company's primary short-term liquidity needs are
funding seasonal working capital requirements, continuing the real estate
development, completing projects initiated in the Company's summer 1998 capital
improvement program, and servicing indebtedness. Cash requirements for
ski-related and real estate development activities are provided by separate
sources. The Company's primary sources of liquidity for working capital and
ski-related capital improvements are cash flow from operations of its
subsidiaries and borrowings under the New Credit Facility (as hereinafter
defined). Real estate development is funded primarily through construction
financing facilities established for major real estate development projects and
through the mezzanine facilities established or to be established through the
Company's real estate development holding company, American Skiing Company
Resort Properties, Inc. ("Resort Properties"). The construction financing
facility and Resort Properties mezzanine facilities are without recourse to
American Skiing Company and its resort operating subsidiaries.
The Company established a new credit facility on November 12, 1997 (as
amended to date, the "New Credit Facility"). The New Credit Facility is divided
into two sub-facilities, $65 million of which ($4.5 million of which was
available at July 26, 1998) is available for borrowings by ASC East, Inc. and
its subsidiaries (the "East Facility") and $150 million of which ($15.8 million
of which was available at July 26, 1998) is available for borrowings by the
Company excluding ASC East, Inc. and its subsidiaries (the "West Facility"). The
East Facility consists of a six-year revolving credit facility in the amount of
$35 million and an eight-year term facility in the amount of $30 million. The
West Facility consists of a six-year revolving facility in the amount of $75
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 that $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. Beginning in July 1999, the New Credit
Facility requires mandatory prepayment of 50% of the Company's 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 New Credit
Facility contains affirmative, negative and financial covenants customary for
this type of senior credit facility, including maintenance of customary
financial ratios. Except for a leverage test, compliance with financial
covenants is determined on a consolidated basis notwithstanding the bifurcation
of the New Credit Facility into sub-facilities. The East Facility is secured by
substantially all the assets of ASC East, Inc. and its subsidiaries, except its
real estate development subsidiaries, which are not borrowers under the New
Credit Facility. The West Facility is secured by substantially all the assets of
the Company and its subsidiaries, except ASC East, Inc. and its subsidiaries.
28
<PAGE>
The Company retained approximately $15 million of unexpended proceeds
from its initial public offering. As of July 26, 1998, these proceeds were
invested in Resort Properties. In the fourth quarter of the Company's fiscal
1998, these proceeds were treated as capital contribution to real estate.
ASC East, Inc. is prohibited under the indenture governing its $120
million 12% Senior Subordinated Notes due 2006 from paying dividends or making
other distributions to the Company, except under certain circumstances.
Therefore, ASC East, Inc.'s ability to distribute excess cash to the Company for
use by the Company or its other subsidiaries is limited.
The Company issued $17.5 million of convertible, preferred stock and
$17.5 million convertible notes in July, 1997 to fund development at The
Canyons. These securities were converted on November 12, 1997, into 10 1/2%
Mandatorily Redeemable Preferred Stock of the Company.
In the fourth quarter of 1998, the Company withdrew an offer to holders of
ASC East, Inc.'s $120 million 12% Senior Subordinated Notes to exchange those
obligations for $120 million of 12% Senior Subordinated Notes of the Company
("Exchange Offer"), and also canceled a planned $100 million bond offering (the
"Bond Offering"). Each of these offerings were canceled due to adverse market
conditions. The Company had planned to use the proceeds of the Bond Offering to
fund Summer 1998 capital improvements and make an equity investment in the
Company's real estate holding subsidiary, Resort Properties.
Following cancellation of the Exchange Offer and the Bond Offering,
management of the Company opted to fund Summer 1998 capital improvements through
the New Credit Facility and a $31 million leasing facility arranged by
BancBoston Leasing, Inc. Interim funding of working capital for Resort
Properties and its planned 1998 real estate development program was obtained
through a loan from BankBoston, N.A. and Morgan Stanley Capital Funding in the
amount of $30 million, which closed on September 4, 1998 (the "Bridge Loan").
The Bridge Loan bears interest at a rate of 14% per annum (payable monthly in
arrears) and matures on December 4, 1998. The Bridge Loan is secured by security
interests in and mortgages on substantially all of Resort Properties' assets, on
which security interests and mortgages will not be perfected or recorded until
and unless a default occurs under the terms of the loan. Resort Properties
expects to repay the Bridge Loan with the proceeds of an $85 million
subordinated debt financing ("Mezzanine Facility"), which it is currently in the
process of privately placing. No assurance can be given that the $85 million
Mezzanine Facility will be successfully placed or that the terms of the
Mezzanine Facility will not be costly, restrictive to Resort Properties'
operations or dilutive of the Company's existing shareholders. Failure to place
the Mezzanine Facility would require curtailing a major portion of future real
estate development and refinancing the Bridge Loan to provide longer term
funding for Resort Properties' existing seven development projects. The Bridge
Loan is non-recourse to American Skiing Company and its resort operating
subsidiaries. The Mezzanine Facility is expected to be non-recourse to American
Skiing Company and its resort operating subsidairies.
29
<PAGE>
The Company runs its real estate development through single purpose
subsidiaries, each of which is a wholly-owned subsidiary of Resort Properties.
In its fourth fiscal quarter of 1998, the Company commenced construction on
three new hotel projects (two at The Canyons in Utah and one at Steamboat in
Colorado). Two of these new hotel projects are Grand Summit Hotels which are
being financed through a $145 million construction loan facility between Grand
Summit Resort Properties, Inc., ("GSRP", the Company's Grand Summit development
subsidiary) and TFC Textron Financial, which closed on September 25, 1998 (the
"Textron Facility"). A portion of the proceeds of the Textron Facility were also
used to refinance an existing facility with TFC Textron used to finance
construction of Grand Summit Hotels at Killington, Mt. Snow, Sunday River and
Attitash Bear Peak, which had $31.4 million outstanding as of July 26, 1998. The
Textron Facility bears interest at the rate of prime plus 1.5% per annum
(payable monthly in arrears), subject to a 9.25% floor, and matures on September
24, 2002. The principal is payable incrementally as quartershare sales are
closed at the rate of 80% of the net proceeds of each closing. The Textron
Facility is secured by mortgages against the project sites, is subject to
customary covenants, representations and warranties for this type of
construction facility, and is non-recourse to American Skiing Company and its
operating subsidiaries. The Textron Facility, together with funds invested by
the Company, is sufficient to fund all of the Company's Grand Summit Hotel
projects for which the Company is currently in pre-sales.
The remaining hotel project commenced by the Company in 1998, the
Sundial Lodge project at The Canyons, is expected to be financed through a
construction loan facility with KeyBank, N.A. in a principal amount equal to 90%
of the total project cost (the "Key Facility"), and the remaining proceeds of
the Bridge Loan. The Company anticipates that this facility will close in the
Company's second fiscal quarter of 1999. No assurance can be given that the Key
Facility will close as currently contemplated.
Due to the seasonality of the Company's business, the Company's
maximum annual leverage occurs during the months of November and December.
During fiscal 1999, the Company expects to reach its maximum leverage point in
December, 1998 at which time borrowings (exclusive of real estate borrowings
with recourse only to Resort Properties and/or its subsidiaries) are expected to
approximate $380 million. During this period, the Company expects to have
little, if any, borrowing availability under the New Credit Facility and will
have limited ability to fund extraordinary expenses.
Long-Term. The Company's primary long-term liquidity needs are to fund
skiing related capital improvements at certain of its resorts, extensive
development of its slopeside real estate, and any future acquisitions of resort
properties. The Company has invested over $130 million in skiing related
facilities in fiscal years 1997 and 1998 combined. As a result, the Company
expects its resort capital programs for the next several fiscal years to be more
limited in size. The fiscal 1999 resort capital program is expected to total
approximately $55 million, with the summer 1999 resort capital program estimated
at between $25 million and $35 million. The Company anticipates its annual
maintenance capital needs to be approximately $12 million.
30
<PAGE>
The Company's largest long-term capital needs relate to The Canyons resort
in Utah and the Company's real estate development program. The Canyons resort
will require an estimated $30 million over the next three years to fully develop
on-mountain facilities in time for the 2002 Winter Olympic Games. Other major
capital expenditures anticipated during the next several fiscal years include
the interconnection of its Killington and Pico resorts, at an estimated cost of
$7.0 million, and water projects at its Killington and Mount Snow resorts, at an
estimated cost of $4.0 million each and at The Canyons at an estimated cost of
$12.3 million.
There is a considerable degree of flexibility in the timing and, to a
lesser degree, scope of these capital improvements. Although specific capital
expenditures can be deferred for extended periods, continued growth of skier
visits, revenues and profitability will require continued capital investment in
on-mountain improvements. The Company's practice is to finance on-mountain
capital improvements through resort cash flow and its senior credit facility.
The size and scope of the capital improvement program will generally be
determined annually depending upon future availability of cash flow from each
season's resort operations and future borrowing availability under the New
Credit Facility.
The Company's business plan anticipates the development of both Grand
Summit hotels and condominium hotels at several resorts, and resort villages at
Sunday River, Killington, The Canyons, Steamboat and Heavenly. All real estate
development is undertaken through the Company's real estate development
subsidiary, Resort Properties. Recourse on indebtedness incurred to finance real
estate development is limited to Resort Properties and/or its subsidiaries.
Resort Properties' seven existing development projects are currently funded by
the Bridge Loan, the Textron Facility and the anticipated Key Facility. The
Bridge Loan matures December 4, 1998, and is anticipated to be refinanced with a
portion of the proceeds of the Mezzanine Facility. No assurance can be provided
that the Mezzanine Facility will close prior to the maturity of the Bridge Loan.
The Company expects to undertake future real estate development projects
through special purpose subsidiaries with financing provided principally on a
limited recourse basis. Required equity contributions for approximately the next
five of these projects are expected to be made using the remaining proceeds of
the Mezzanine Facility and sales proceeds from the Company's four existing Grand
Summit Hotel projects. Financing commitments for future real estate development
do not currently exist, and no assurance can be given that they will be
available or established. The Company will be required to establish construction
facilities or other financing arrangements for these projects before undertaking
each development.
The Company from time to time considers potential acquisitions which would
be accretive to earnings. There are not currently any funding sources
immediately available to the Company for such acquisitions, however, and the
Company would need to establish such sources prior to consummating any such
acquisition.
31
<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
--------------------------------------------
July 28, 1996 July 27, 1997 July 26, 1998
--------------------------------------------
<S> <C> <C> <C>
Revenues:
Resort ................................................ 86.5% 95.2% 81.8%
Real estate ........................................... 13.5 4.8 18.2
----- ----- -----
Total revenues ................................... 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Resort .................................................. 56.9 62.6 49.9
Cost of real estate sold................................. 8.0 3.9 13.0
Marketing, general and administrative ................... 15.4 14.9 12.5
Stock compensation charge................................ 4.2
Depreciation and amortization ........................... 9.2 10.4 11.1
----- ----- -----
Total operating expenses ......................... 89.5 91.8 90.7
----- ----- -----
Income from operations ..................................... 10.5 8.2 9.3
Commitment fee ............................................. 2.0 -- --
Interest expense ........................................... 6.4 13.5 10.2
----- ----- -----
Income (loss) before provision for income taxes
and minority interest in loss of subsidiary ........... 2.1 (5.3) (0.9)
Provision (benefit) for income taxes ....................... 5.3 (2.1) (0.2)
----- ----- -----
Income (loss) before minority interest in loss of
subsidiary ............................................ (3.2) (3.2) (0.7)
Minority interest in loss of subsidiary .................... 0.2 0.1 0.1
----- ----- -----
Net income (loss) from continuing operations................ (3.0)% (3.1)% (0.6)%
----- ----- -----
Extraordinary expense....................................... 1.4
Net Loss ................................................... (3.0)% (3.1)% (2.0)%
Accretion of discount and dividends on
mandatorily redeemable preferred stock...................... 1.6
----- ----- -----
Net loss available to common shareholders (3.0)% (3.1)% (3.6)%
</TABLE>
32
<PAGE>
Fiscal Year Ended July 26, 1998 ("Fiscal 1998")
Versus Fiscal Year Ended July 27, 1997 ("Fiscal 1997")
The actual results of Fiscal 1998 versus the actual results of Fiscal
1997 discussed below are not comparable due to the acquisition of the Steamboat
and Heavenly resorts on November 12, 1997, and the acquisition of The Canyons
resort in July 1997. Accordingly, the usefulness of the comparisons presented
below is limited, as the Fiscal 1998 results include the results of Steamboat
and Heavenly since November 12, 1997, while the Fiscal 1997 results do not
include any results for Steamboat and Heavenly. Likewise, the Fiscal 1998
results include the results of The Canyons for the entire year while the Fiscal
1997 results do not include any results for The Canyons. Please see the pro
forma comparisons elsewhere in this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Resort revenues increased $111.7 million or 66.9% from $166.9 million
for Fiscal 1997 to $278.6 million for Fiscal 1998. The Steamboat and Heavenly
resorts acquired on November 12, 1997, and The Canyons resort acquired in July
1997, accounted for $98.3 million of the increase. The remaining $13.4 million
represents an increase of 8.0% and is principally attributable to increases in
skier visits, the acquisition of new retail and food and beverage outlets, the
opening of three new hotels, and increased yields per skier visit at the
Company's pre-acquisition group of resorts.
Real estate revenues increased $53.3 million for Fiscal 1998 as
compared to Fiscal 1997. The increase is attributable to completion of the
Company's new quartershare condominium hotels at Killington, Mount Snow and
Sunday River and closings of quartershare sales at those projects.
Cost of resort operations increased $60.1 million or 54.7% from $109.8
million to $169.9 million. The acquisition of Steamboat, Heavenly, and The
Canyons resorts accounted for $49.6 million of the increase. The remaining $10.5
million represents an increase of 9.6% and is principally attributable to the
increases in skier visits, business volume, and new operations at the Company's
pre-acquisition resorts.
Cost of real estate sold increased $37.5 million in Fiscal 1998
compared to Fiscal 1997. The increase is attributable principally to increased
sales, as outlined above, and to non-capitalizeable costs associated with new
projects under development at Killington, The Canyons and Steamboat.
Marketing, general and administrative expenses increased 62.9% from
$26.1 million to $42.6 million. The inclusion of Steamboat, Heavenly and The
Canyons accounted for approximately $8.1 million of this increase. The remaining
$8.4 million represents a 32.2% increase attributable to increased costs
associated with the establishment of public holding company corporate functions,
including legal, accounting, shareholder relations, financial analysis,
management information system support functions, corporate marketing initiatives
involving the Edge card direct to lift and corporate wide sponsorship programs.
The Company incurred a stock compensation charge of $14.3 million in
Fiscal 1998, associated with the grant of non-qualified stock options to certain
key members of senior management.
33
<PAGE>
Depreciation and amortization increased $19.7 million for Fiscal 1998
compared to Fiscal 1997. The increase is principally attributable to the
acquisitions of Steamboat, Heavenly and The Canyons and the additional plant and
equipment related to the summer 1997 capital improvement program.
Interest expense increased from $23.7 million for Fiscal 1997 to $34.6
million for Fiscal 1998. The increase is principally attributable to the
Company's New Credit Facility, which was established contemporaneously with the
closing of its initial public offering and the acquisition of Steamboat and
Heavenly on November 12, 1997.
The benefit for income taxes decreased from $3.6 million for Fiscal
1997 to $.8 million for Fiscal 1998 due to a decrease in the loss before income
taxes. The effective income tax rate decreased from 38.7% in Fiscal 1997 to
25.1% in Fiscal 1998 due to the non-recurring stock option compensation charge
of $14.3 million, not all of which is deductible for income tax purposes.
The extraordinary loss recorded by the Company results from the early
retirement of certain indebtedness in conjunction with the Company's initial
public offering in November, 1997, including the Company's then-existing
revolving line of credit, junior subordinated discount notes, and certain
indebtedness established upon acquisition of Sugarbush.
Accretion of discounts and dividends accrued on the mandatorily
redeemable preferred stock of $5.3 million in Fiscal 1998 represents the
accretion of the exchange feature, the amortization of the issuance costs and
the accrual of dividends relating to the Series A Exchangeable Preferred Stock
prior to its exchange. The activity in this component for Fiscal 1998 also
includes $2.8 million of dividends accrued on the 10 1/2% Mandatorily Redeemable
Preferred Stock subsequent to its exchange for the Series A Exchangeable
Preferred Stock on November 12, 1997.
34
<PAGE>
Pro Forma Results For Fiscal 1998 Versus Fiscal 1997
The following unaudited pro forma results of operations of the Company
for Fiscal 1998 and Fiscal 1997 assume that the acquisitions of The Canyons and
of Steamboat and Heavenly occurred on July 29, 1996 and that the Company's
initial public offering and its New Credit Facility became effective on that
date as well. These proforma results are not necessarily indicative of the
actual results that would have been achieved nor are they necessarily indicative
of future results of operations.
Resort revenues increased $26.7 million or 10.5% from $255.5 million
to $282.2 million. This increase is primarily attributable to an 8.1% increase
in total skier visits, which increased from 4.9 million to 5.3 million on a
proforma basis, as well as the acquisition of new retail and food and beverage
outlets and the opening of three new hotels at the Company's eastern resorts.
Real estate revenues increased $53.3 million from $8.5 million to $61.8
million. This increase is attributable to the completion of the Company's new
quartershare condominium hotels at Killington, Mount Snow and Sunday River, and
the closing of quartershare sales at those projects.
Cost of resort operations increased $14.8 million or 9.0% from $163.7
million to $178.5 million. This increase is primarily attributable to increased
business volume and the acquisition of new food and beverage and retail outlets
and the opening of three new hotels at the Company's eastern resorts.
Cost of real estate sold increased $37.5 million in Fiscal 1998
compared to Fiscal 1997. The increase is attributable principally to increased
sales, as outlined above, and to non-capitalizeable costs associated with new
projects under development at Killington, The Canyons, and Steamboat.
Marketing, general and administrative expenses increased $9.5 million
or 25% from $38.0 million to $47.5 million. This increase is primarily due to
the establishment of public holding company corporate functions including legal,
accounting, shareholder relations, financial analysis, management information
support functions, corporate marketing initiatives involving the Edge card,
direct to lift and corporate-wide sponsorship programs, and the initiation of a
professional management and marketing program at The Canyons.
Depreciation and amortization expense increased $4.2 million or 11.9%
from $35.4 million in Fiscal 1997 to $39.6 million in Fiscal 1998. This increase
is attributable to capital expenditures which totaled $106.9 million in Fiscal
1998.
Interest expense increased $8.7 million or 32.6% from $26.7 million in
Fiscal 1997 to $35.4 million in Fiscal 1998. This increase is due primarily to
higher levels of debt outstanding associated with completed quartershare units
held for sale by the Company, and with the Company's intensive capital
program in the past year.
35
<PAGE>
The benefit for income taxes increased $3.0 million from $2.6 million
in Fiscal 1997 to $5.6 million in Fiscal 1998. This is attributable primarily to
the increase in the loss before income taxes on a pro forma basis.
The extraordinary loss recorded by the Company results from the early
retirement of certain indebtedness in conjunction with the Company's initial
public offering in November, 1997, including the Company's then-existing
revolving line of credit, junior subordinated discount notes, and certain
indebtedness established upon the acquisition of Sugarbush.
Accretion of discounts and dividends accrued on the Company's 10 1/2%
Mandatorily Redeemable Preferred Stock of $5.3 million represents the accretion
of the exchange feature, the amortization of issuance costs and the accrual of
dividends relating to the Series A Exchangeable Preferred Stock prior to its
exchange. The activity in this component for Fiscal 1998 also includes $2.8
million of dividends accrued on the 10 1/2% Mandatorily Redeemable Preferred
Stock subsequent to its exchange for the Series A Exchangeable Preferred Stock
on November 12, 1997.
Fiscal Year Ended July 27, 1997 Compared to Fiscal Year Ended July 28, 1996
Resort revenues in fiscal 1997 were $166.8 million, an increase of
$103.3 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 14.7%, 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
at that Project on April 6, 1997. As of July 27, 1997 the Grand Summit at
Attitash Bear Peak had $5.0 million in quartershare unit sales.
36
<PAGE>
Cost of resort operations in fiscal 1997 was $109.7 million, an
increase of $68.0 million, or 162.5%, 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 was $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.
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 169.7%, 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.
Interest expense in fiscal 1997 was $23.7 million an increase of $19
million or 505% as compared to interest expense of $4.7 million in fiscal 1996.
This increase was due to increased indebtedness associated with the acquisition
of the S-K-I Resorts, and the Company's extensive capital programs during the
summer of 1996.
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 19,000 skier
visits, or approximately 10%, at Attitash Bear Peak, (iii) an increase of
approximately 20,000 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.
37
<PAGE>
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 was $41.8 million, an increase of
$12.1 million, or 40.7%, as compared to cost of operations of $29.7 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 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 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 in fiscal 1995.
This increase was due to (i) increased borrowings to support 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.
38
<PAGE>
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.
Year 2000
The Company has devoted substantial resources to year 2000 compliance
(Y2K) in the last two years. The Company has formed a task force which has
developed a comprehensive strategy to systematically evaluate and update systems
as appropriate.
The Company has made substantial investments to upgrade to information
systems which are Y2K compliant. The task force has also identified systems
which are not Y2k compliant and has scheduled upgrades to these systems which
are to be completed by September of 1999.
The task force is also assessing internal non-IS systems
(telecommunications, security, etc.) for Y2K compliance, This assessment will be
completed by December 31, 1998, and the recommended remediations will be
implemented by September of 1999.
Furthermore, the task force is completing a risk assessment and
contingency plans in regards to third party vendors. This is expected to be
completed by March of 1999.
39
<PAGE>
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act Of 1995
The above information includes forward-looking statements, the
realization of which may be impacted by the factors discussed below. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 (the "Act"). This report
contains forward looking statements that are subject to risks and uncertainties,
including, but not limited to, uncertainty as to future financial results,
substantial leverage of the Company, the capital intensive nature of development
of the Company's ski resorts; rapid and substantial growth that could place a
significant strain on the Company's management, employees and operations;
uncertainties associated with obtaining financing with which to repay the Bridge
Loan and undertake future capital improvements; demand for and costs associated
with real estate development; change in market conditions affecting the interval
ownership industry; regulation of marketing and sales of the Company's
quartershare interests; seasonality of resort revenues; fluctuations in
operating results; dependence on favorable weather conditions; the discretionary
nature of consumers' spending for skiing and resort real estate; competition;
regional and national economic conditions; laws and regulations relating to the
Company's land use, development, environmental compliance and permitting
obligations; renewal or extension terms of the Company's leases and permits; the
adequacy of water supply; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission. These risks could
cause the Company's actual results for fiscal year 1999 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. The foregoing list of factors should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the date hereof or the effectiveness of said Act.
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
The Company's market risk sensitive instruments do not subject the
Company to material market risk exposures, except for such risks related to
interest rate fluctuations. As of July 26, 1998, the Company has long term debt
and subordinated notes outstanding with a carrying value of $383 million and an
estimated fair value of $398 million. The Company has entered into two interest
rate protection agreements. These agreements are in connection with the
Company's New Credit Facility and effectively swap variable interest rate
borrowings to fixed rate borrowings. The total amount of the New Credit Facility
that is effected by this agreement is $102.5 million. The rate for this portion
of the New Credit Facility is fixed at is 5.68% plus an incremental rate based
on the Company's leverage, and expires November 17, 2005. Total borrowings under
the New Credit Facility are $194.2 million, leaving $91.7 million at a variable
rate and, depending on the Company's leverage, the interest rate will be LIBOR
plus 2.5% to 3.5%.
Fixed interest rate debt outstanding as of July 26, 1998, excluding
the New Credit Facility debt, was $190.0 million, carries an average interest
rate of 10.86%, and matures as follows: $89 million in fiscal 1999, $11.9
million in fiscal 2000, $30.9 million in fiscal 2001, $6.6 million in fiscal
2002, $5.3 million in fiscal 2003, and $127.3 million in fiscal 2004 and after.
The Company has also entered into two noncancellable interest rate
swap agreements. The notional amount of both agreements is $120 million. The
first swap agreement matures on July 15, 2001. In respect to this swap
agreement, the Company receives interest at a rate of 12% per annum and pays
interest out at a variable rate based on the notional amount of the swap
agreement. The second swap agreement expires July 15, 2006 and requires the
Company pay interest at a rate of 9% and receive interest at a variable rate
based on the notional amount of the swap agreement. The two variable portions of
the swap agreements offset each other until July 15, 2001. After that date the
Company will be paying interest at a fixed rate of 9% and receiving interest at
a variable rate. The variable rate of interest the Company would receive is
based on the six month Libor, as of October 23, 1998 that rate was 4.965%.
40
<PAGE>
Item 8
Financial Statements
Selected Quarterly Operating Results
The following table presents certain unaudited quarterly financial
information of the Company for the eight quarters ended July 26, 1998. 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
Form 10K 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.
Quarter Ended
<TABLE>
<CAPTION>
Oct. 27, Jan. 26, Apr. 27, Jul. 27, Oct. 26, Jan. 25, Apr. 26, Jul. 26,
1996 1997 1997 1997 1997 1998 1998 1998
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Resort ...................... $ 11,728 $59,418 $86,601 $ 9,176 $13,811 $107,425 $144,641 $12,700
Real estate ................. 1,569 1,740 2,674 2,485 810 7,890 40,914 12,229
------- ------- ------- -------- -------- ------- ------- --------
Total revenues .............. 13,297 61,158 89,275 11,661 14,621 115,315 185,555 24,929
------- ------- ------- -------- -------- ------- ------- --------
Operating expenses:
Cost of operations ........ 15,034 38,995 42,163 13,583 17,808 64,244 65,413 22,400
Cost of real estate sold .. 1,032 935 2,913 1,933 925 5,223 28,334 9,810
Marketing, general and
administrative .......... 4,792 7,709 9,097 4,528 6,845 13,621 12,623 9,465
Stock compensation charge.. --- --- --- --- 14,254 --- --- ---
Depreciation and
amortization ............ 1,527 7,344 8,075 1,347 1,506 15,009 17,960 3,491
------- ------- ------- -------- -------- ------- ------- --------
Total operating expenses .... 22,385 54,983 57,320 21,390 41,338 98,097 124,330 45,166
------- ------- ------- -------- -------- ------- -------- --------
Income (loss) from operations $( 9,088) $ 6,175 $27,027 $ (9,729) ($26,717) $17,218 $ 61,225 ($20,237)
------- ------- ------- -------- -------- ------- ------- --------
</TABLE>
Item 9
Changes in and Disagreements with Accountants over
Accounting and Financial Disclosures
None
41
<PAGE>
PART III
Item 10
Directors and Executive Officers
The Charter and the bylaws of the Company provide that two-thirds of
the Board of Directors of the Company shall be comprised of directors elected by
the holders of the Class A Common Stock (the "Class A Directors") and one-third
shall be comprised of directors elected by the holders of the Common Stock (the
"Common Directors"). The directors are to serve staggered terms, with one-third
of the directors elected for a one year term, one-third of the directors elected
for a two year term, and one-third of the directors elected for a three year
term. Currently, the Board of Directors is comprised of six members, four of
which are Class A Directors and two of which are Common Directors. At the
Company's December 8, 1998 annual meeting four Class A Directors will be elected
by the holders of the Company's Class A Common Stock and three Common Directors
will be elected by the holders of the Company's Common Stock.
Directors
Nominees for Common Directors
Joel B. Alvord, Director. 60. Mr. Alvord was appointed a director of
the Company on February 9, 1998. Mr. Alvord is currently President and Managing
Director of Shawmut Capital Partners, Inc. Prior to joining Shawmut in 1996, he
was Chairman of Fleet Financial Group for two years, after it was merged with
Shawmut National Corporation. Mr. Alvord began his banking career in 1963. He
became President of Hartford National Corporation in 1978 and served as Chief
Executive Officer of Shawmut National Corporation from 1987 to 1995. He is a
director of Hartford Steam Boiler Inspection & Insurance Company (HSB Group),
CUNO, Inc., and Fleet Financial Group. He has been a member of the Board of the
Federal Reserve Bank of Boston and Swiss Reinsurance Company of North America.
He is a trustee of the Wang Center for the Performing Arts, a trustee of The
A.R.T., and an overseer of the Boston Symphony Orchestra and the Museum of Fine
Arts.
Christopher J. Nassetta, Director. 36. Mr. Nassetta was appointed a
director of the Company on February 9, 1998. Mr. Nassetta is Executive Vice
President and Chief Operating Officer for Host Marriott Corporation. Before
joining Host Marriott in 1995, Mr. Nassetta co-founded Bailey Capital
Corporation in 1991, where he was responsible for the operations of the real
estate investment and advisory firm. Prior to founding Bailey Capital
Corporation, Mr. Nassetta spent seven years with The Oliver Carr Company,
serving as Chief Development Officer and as Development Director, as well as
Vice President and Regional Partner. Currently, Mr. Nassetta serves on the Board
of Trustees for Prime Group Realty Trust, and as a member of the McIntire School
of Commerce Advisory Board for the University of Virginia.
42
<PAGE>
David B. Hawkes. 54. David B. Hawkes is a nominee to join the Board of
Directors of the Company. He is currently a co-owner, consultant and business
advisor of Cloudhawk, Inc., a management consulting firm which has offices in
Maine and New Hampshire. He is also a part owner in New England Internet
Services, Inc. Before founding Cloudhawk in 1993, Mr. Hawkes served as partner
with KPMG Peat Marwick from 1970 to 1993, in charge of the firm's Portland,
Maine tax practice. Mr. Hawkes is a member of the Board of Directors of several
companies, including AAA of Northern New England, Bancroft & Martin, Inc., Mark
Stimson Associates and Northland Health Group.
Nominees For Class A Directors
Leslie B. Otten, Director, President and Chief Executive Officer. 49.
Mr. Otten has served in his present capacity since the inception of the Company
in July, 1997. 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 its predecessors) since 1980. Mr. Otten is currently
a director and was previously chairman of the Portland Museum of Art, and is
also a director of the Maine Chamber and Business Alliance, Maine Handicap
Skiing, Gould Academy (a private secondary school) and Project Opportunity (a
higher education scholarship program).
Christopher E. Howard, Director, Senior Vice President, Acting Chief
Financial Officer, General Counsel and Clerk. Chief Operating Officer and Senior
Vice President, American Skiing Company Resort Properties, Inc. 41. Mr. Howard
has been a director and officer of the Company since its inception in July,
1997. Mr. Howard joined the Company's subsidiary, ASC East, Inc., in 1996 after
serving as its outside counsel. From 1982 to October, 1996, Mr. Howard practiced
with Pierce Atwood, northern New England's largest law firm, where he was a
partner and senior member of the firm with a practice emphasizing on corporate
and real estate development. Mr. Howard organized and was the interim Chief
Executive Officer of Maine's Employer's Mutual Insurance Company, Maine second
largest insurance company. He serves on the Board of the Maine Governmental
Facilities Authority and is a former member of the Board of the Maine Chamber of
Commerce.
43
<PAGE>
Gordon M. Gillies, Director. 54. Mr. Gillies was appointed as a
director of the Company in February 9, 1998. Mr. Gillies retired as a Coast
Guard Officer in 1970, attended the University of New Mexico (M.A. 1972) and
Wake Forest University (J.D. 1976). Mr. Gillies practiced law in Maine from 1976
to 1991, when he retired from practice to join the faculty of Hebron Academy, a
private boarding-day secondary school in Maine.
Martel D. Wilson, Jr., Director. 61. Mr. Wilson was appointed as a
director of the Company in August, 1998. Mr. Wilson is the former Vice
President, Chief Financial Officer and Director of S-K-I Ltd., the owner and
operator of the Killington, Mount Snow and Sugarloaf ski resorts, in which
capacities he served from 1988 to 1996. He graduated from the University of
Colorado and received an M.B.A. from Cornell University. Mr. Wilson is a
Director and Chairman of the Board of Building Material Distributors, Inc. of
Stockton, California, a building material wholesaler in California and Nevada
,and a director of Chittenden Corp., a bank holding company with subsidiaries in
Massachusetts and Vermont. He is a past President and Director of the Rutland
Region Chamber of Commerce, a past Trustee of the College of St. Joseph the
Provider, a past President and Director of the Rutland Regional Medical Center,
and past Chairman of the Board of Trustees of Comprehensive Health Resources, a
health care holding company.
44
<PAGE>
Executive Officers
The following table sets forth the executive officers of the Company
and its primary subsidiaries as of the date hereof:
Name/Age Position
Leslie B. Otten, 49 Director, President and Chief Executive Officer
Christopher E. Howard, 41 Director, Senior Vice President,
Acting Chief Financial Officer,
General Counsel and Clerk of American Skiing
Company; Chief Operating Officer and
Senior Vice President of American Skiing Company
Resort Properties, Inc.
G. Christopher Brink, 45 Senior Vice President--Marketing
Warren C. Cook, 53 Chief Operating Officer,
Senior Vice President--Resort Operations
W. Scott Oldakowski, 35 Senior Vice President--Marketing and Sales of
American Skiing Company Resort Properties, Inc.
Michael Meyers, 44 Senior Vice President--Project Delivery of
American Skiing Company Resort Properties, Inc.
Gregory Spearn, 45 Senior Vice President--Planning and Development
of American Skiing Company Resort Properties, Inc.
For biographical information about Messrs. Otten and Howard, see
"Directors."
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, Chief Operating Officer, Senior Vice President--Resort
Operations. Mr. Cook joined the Company in 1996 as Managing Director of
Sugarloaf Mountain Corporation, upon ASC East's acquisition of that Company. Mr.
Cook has served as Senior Vice President - Resort Operations of the Company
since January, 1997, and as the Company's Chief Operating Officer since July
1998. Mr. Cook was President and Chief Executive Office of Sugarloaf Mountain
Corporation from 1986 to 1996.
W. Scott Oldakowski, Senior Vice President--Marketing and Sales,
American Skiing Company Resort Properties, Inc. Mr. Oldakowski joined 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.
45
<PAGE>
Michael Meyers, Senior Vice President--Project Delivery, American
Skiing Company Resort Properties, Inc. Mr. Meyers joined the Company in April
1995 and has led the development of five hotels for Grand Summit Resort
Properties, Inc., a subsidiary of the Company. From 1989 to 1993, Mr. Meyers was
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.
Gregory Spearn, Senior Vice President--Planning and Development,
American Skiing Company Resort Properties, Inc. Mr. Spearn joined the Company in
the fall of 1997, specializing in master planning, entitlements and
on-time/on-budget project delivery. From 1995 to 1997, he held the position of
Senior Vice President of Intrawest Corporation. Prior to joining Intrawest he
served as Senior Vice President, Development for the Polygon Group of Companies,
a large private corporation engaged in the multi-family development and
construction business in the Pacific Northwest, beginning in 1993.
46
<PAGE>
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who own more than ten
percent of a registered class of the Company's equity securities to file initial
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") and the New York Stock Exchange. Such officers, directors and
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of the copies of
such forms furnished to the Company, all persons subject to the reporting
requirements of Section 16(a) filed the required reports on a timely basis for
Fiscal 1998, except that Messrs. Otten, Howard, Brink, Cook, Richardson and
Mills each filed one late report on Form 3, and Mesrs. Alvord, Nassetta and
Gillies each failed to make one required filing on Form 3.
47
<PAGE>
Item 11. Executive Compensation.
Executive Compensation And Other Information
Summary Compensation Table
The following table provides information concerning compensation paid
by the Company to the Chief Executive Officer and the other four highest paid
executive officers of the Company whose compensation was at least $100,000 for
Fiscal 1998 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Principal Fiscal Annual Compensation Long-Term Compensation
Position Year
Salary Bonus Other annual Restricted Securities All other
compensation Stock underlying Compensation
Awards Options/SARs
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie B. Otten 1998 $386,538.56 $--- $10,000.00(2) --- 1,853,197 ---
President and Chief 1997 $350,000.00 $--- $--- --- --- ---
Executive Officer
Thomas M. Richardson 1998 $218,846.22 $30,000.00 $10,000.00(2) --- 100,300 ---
Chief Financial 1997 $170,000.00 $--- $--- --- --- ---
Officer
Christopher E. Howard, 1998 $223,076.83 $61,271.25 $10,000.00(2) --- 150,450 ---
Chief Administrative 1997 $150,000.00 $ -- $ -- --- --- ---
Officer
Burton R. Mills 1998 $191,923.11 $-- $227,955.52(1) --- 80,240 ---
Senior Vice President 1997 $170,000.00 $--- $--- --- --- ---
- Mountain Operations
G. Christopher Brink 1998 $191,923.11 $-- $-- --- 80,240 ---
Senior Vice President 1997 $170,000.00 $--- $--- --- --- ---
- Marketing
<FN>
(1) Represents compensation resulting from cash payment made by the Company to
cover individual Federal and State income tax liability generated by exercising
stock options.
(2) Represents compensation for attendance at meetings at the Board of
Directors.
</FN>
</TABLE>
48
<PAGE>
The following table sets forth information concerning individual grants
of stock options made under the 1997 Stock Option Plan during Fiscal 1998 for
services rendered during Fiscal 1998 by each of the Named Executive Officers.
<TABLE>
<CAPTION>
Option Grants During Fiscal 1998
Individual Grants Potential realizable value at
assumed annual rates of stock price
appreciation for option term (1)
NUMBER OF
SECURITIES % OF TOTAL OPTIONS/ EXERCISE
UNDERLYING SARS GRANTED TO OR
OPTIONS/SARS EMPLOYEES DURING BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL 1998 ($/SH) DATE 0% ($) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie B. Otten 1,853,197 71.7% $18.00 08/01/07 $--- $20,978,381.00 $53,163,337.00
Christopher E. 150,450 5.8% $2.00 08/01/07 $2,407,200.00 $4,110,310.00 $6,723,214.00
Howard (2)
Thomas M. Richardson (2) 100,300 3.9% $2.00 08/01/07 $1,604,800.00 $2,740,206.00 $4,482,143.00
Burton R. Mills (2) 80,240 3.1% $2.00 08/01/07 $1,283,840.00 $2,192,165.00 $3,585,714.00
G. Christopher Brink (2) 80,240 3.1% $2.00 08/01/07 $1,283,840.00 $2,192,165.00 $3,585,714.00
<FN>
(1) The potential realizable value uses the hypothetical rates specified by
the Securities and Exchange Commission and is not intended to forecast
future appreciation, if any, of the Company's Common Stock price.
(2) The options granted to these Named Executive Officers include a cash
payment on the date that the options are exercised to cover individual
Federal and State income tax liability generated by exercising the
options.
</FN>
</TABLE>
49
<PAGE>
The following table sets forth information concerning each exercise of
stock options during Fiscal 1998 by each of the Named Executive Officers and the
value of unexercised options at July 26, 1998.
<TABLE>
<CAPTION>
Aggregated Options/SAR Exercises During Fiscal Year Ended
July 26, 1998, and Option/SAR Values as of July 26, 1998
NAME SHARES ACQUIRED VALUE NUMBER OF VALUE OF
ON EXERCISE REALIZED SECURITIES UNEXERCISED
(#) ($) UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS (2)
OPTIONS/SARS (2)
<S> <C> <C> <C> <C>
Leslie B. Otten N/A --- 1,853,197/0 $ ---
Christopher E. Howard N/A --- 150,450/0 $1,589,128.13
Thomas M. Richardson N/A --- 100,300/0 $1,059,418.75
Burton R. Mills 20,000 $246,103.40 60,240/0 $ 636,285.00
G. Christopher Brink N/A --- 80,240/0 $ 847,535.00
<FN>
(1) The "Value of Unexercised In-the-Money Options/SARs at July 26, 1998"
was calculated by determining the difference between the closing price
on the New York Stock Exchange of the underlying Common Stock at July
24, 1998, of $12 9/16 and the exercise price of the option. An option
is "In-the-Money" when the fair market value of the underlying Common
Stock exceeds the exercise price of the option.
(2) All of such Options/SARs are exerciseable.
</FN>
</TABLE>
50
<PAGE>
Employment Agreements
The Company does not currently have any employment agreements in place
with its executive officers. The Compensation Committee of the Board of
Directors is currently considering proposed employment agreements between the
Company and Messrs. Otten and Howard.
Director Compensation and Fees
The Company reimburses each member of the Board of Directors for
expenses incurred in connection with attending Board and committee meetings.
Directors receive $5,000 for attendance at each meeting of the Board, unless
attendance is via telephone. The Company grants 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 are fully vested at the time of
granting and have a term of 10 years with an exercise price not less than fair
market value as of the date of the grant.
Report On Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee")
is comprised of Messrs. Alvord and Wilson, with Mr. Otten acting as an
ex-officio member. The Committee is responsible for establishing and
administering the Company's executive compensation programs and determining
awards under the Company's 1997 Stock Option Plan.
The report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
51
<PAGE>
Compensation Philosophy
The Committee's compensation philosophy is designed to support the
Company's primary objective of creating long term value for shareholders. The
Committee follows a three-prong compensation strategy applicable to the
Company's executive officers, including the Chief Executive Officer ("CEO"),
whereby each executive officer of the Company is compensated through three
separate but related compensation schemes:
First, each executive officer receives a base salary
consistent with his or her core responsibilities;
Second, a short term bonus, generally determined annually,
is established to provide reward and incentive for shorter term
productivity;
Third, stock options are awarded under the Company's 1997
Stock Option Plan to provide a longer term incentive and reward longer
term Company loyalty and performance.
This strategy is intended to: (i) attract and retain talented
executives; (ii) emphasize pay for performance; and (iii) encourage management
stock ownership.
The Internal Revenue Code imposes a limitation on the deduction for
certain executive officers' compensation unless certain requirements are met.
The Committee has carefully considered the impact of these tax laws and has
taken certain actions intended to preserve the Company's tax deduction with
respect to any affected compensation. The Company's 1997 Stock Option Plan
qualifies for tax deductibility. The following are descriptions of the Company
compensation programs for executive officers, including the CEO.
Base Salary
The Company generally establishes base salary ranges by considering
compensation levels in similarly sized companies in the
resort/leisure/hospitality industry and the real estate development industry.
The base salary and performance of each executive officer is reviewed
periodically (at least annually) by his or her immediate supervisor (or the
Committee, in the case of the CEO) resulting in salary actions as appropriate.
An executive officer's level of responsibility is the primary factor used in
determining base salary. Individual performance and industry information are
also considered in determining any salary adjustment. The Committee reviews and
approves all executive officer salary adjustments as recommended by the CEO. The
Committee reviews the performance of the CEO and establishes his base salary.
52
<PAGE>
Bonus Plan
The Company has established an incentive compensation plan for
executive officers of the Company, which is designed to provide rewards for
shorter term productivity by key employees. The plan provides for payment of
cash bonuses to executive officers if certain performance objectives established
for each individual are met. Such objectives include maximization of the
Company's EBITDA, development and sale of real estate assets, and consummation
of strategic acquisitions which are accretive to earnings of the Company.
Stock Option Plan
The Company's 1997 Stock Option Plan is designed to align management
interests with those of shareholders. In furtherance of this objective, the
level of stock option grants for executive officers is determined by the
Committee each year, typically in consultation with the CEO except with respect
to the CEO himself. Awards for all employees (including all executive officers)
are determined by giving equal consideration to base salary, level of
responsibility and industry long-term compensation information.
Compensation Committee
/s/ Joel Alvord
/s/ Martel Wilson
Performance Graph
The following graph compares the performance of the Company's Common
Stock to the Russell 2000 and the Company's Peer Group Index*.
GRAPHIC
SKI Russell 2000 Peer Group*
11/4/97 100 100 100
11/30/97 85 97 99
12/31/97 88 99 97
1/31/98 81 97 97
2/28/98 88 104 108
3/31/98 99 109 116
4/30/98 91 109 114
5/31/98 79 103 109
6/30/98 76 103 113
7/24/98 74 99 102
*The Company's Peer Group Index performance is weighted according to
market capitalization.
53
<PAGE>
The total return graphic is presented for the approximate eight-month
period since the Company's initial public offering. The total stockholder return
assumes that $100 is invested at the beginning of the period in the Common Stock
of the Company, The Russell 2000, and the Company's Peer Group. The Company's
Peer Group, as selected by the Company, is comprised of Vail Resorts, Inc.,
Intrawest Corp., Fairfield Communities, Inc., Vistana Inc., Florida Panthers
Holdings, Premier Parks, Inc., and Cedar Fair, L.P. The Company has selected
this Peer Group because these companies operate in the
Resort/Leisure/Hospitality sector or the Resort Real Estate Development sector.
The Company included The Russell 2000 in the graph because the Company is
included in such index and because there is no industry index for the Company's
business. Total shareholder return is weighted according to market
capitalization so that companies with a larger market capitalization have a
greater impact on the Peer Group index results. Historical stock performance
during this period may not be indicative of future stock performance.
Item 12
Security Ownership of Certain Beneficial Owners and Management.
Set forth in the following table is the beneficial ownership of the
Company's Common Stock and Class A Common Stock as of October 1, 1998, for all
directors, nominees and the executive officers listed on the Summary
Compensation Table and all directors, nominees and executive officers as a
group. No director, nominee or executive officer owns more than 1% of the
outstanding shares of Common Stock of the Company (including exercisable
options), with the exception of Mr. Otten who owns approximately 15.6% of the
total outstanding shares of Common Stock of the Company (including exercisable
options) and all of the outstanding shares of Class A Common Stock of the
Company. All directors and executive officers as a group own approximately 17.6%
of the total outstanding shares of Common Stock of the Company (including
exercisable options). No director or executive officer of the Company, other
than Mr. Otten, owns any Class A Common Stock of the Company.
54
<PAGE>
<TABLE>
<CAPTION>
Common Stock Class A Common Percent Of Class A
Beneficially Owned Stock Beneficially Owned Common Stock And
Common Stock
Beneficially Owned
Directors and Named Executive Officers Percent of Percent of
Shares Class Shares Class
<S> <C> <C> <C> <C> <C>
Leslie B. Otten (1)(6) 2,716,530 15.6% 14,760,530 100% 54.4%
Christopher E. Howard (2) 150,450 1.0% --- --- *
Thomas M. Richardson (5) 101,600 * --- --- *
Burton R. Mills (2) 60,240 * --- --- *
G. Christopher Brink(2) 80,240 * --- --- *
Martel D. Wilson, Jr.(4) 10,500 * --- --- *
Gordon M. Gillies(2) 2,500 * --- --- *
Christopher J. Nassetta(2) 2,500 * --- --- *
Joel B. Alvord(4) 6,500 * --- --- *
David B. Hawkes 500 * --- --- *
Directors and Executive Officers as a 3,131,560 17.6% 14,760,530 100% 55.0%
Group (10 persons) (3)
- - -----------------------------------------
* Less than one percent
<FN>
(1) Includes 1,853,197 shares of Common Stock issuable under exercisable
options granted under the Company's Stock Option Plan. Also includes
30,000 shares owned by Albert Otten Trust f/b/o Mildred Otten, as to
which Mr. Otten is trustee and co-beneficiary. Does not include 20,060
shares of Common Stock issuable under exercisable options granted
under Stock Option Plan to Mr. Otten's spouse, Christine Otten, as to
which Mr. Otten disclaims beneficial ownership.
(2) All shares of Common Stock beneficially owned by such person are
issuable under exercisable options granted under the Stock Option
Plan.
(3) Includes 2,254,427 shares of Common Stock issuable under exercisable
options granted under the Stock Option Plan.
(4) Includes 2,500 shares of Common Stock issuable under exercisable
options granted under the Stock Option Plan.
(5) Includes 100,300 shares of Common Stock issuable under exercisable
options granted under the Stock Option Plan.
(6) As of October 15, 1998, all of Mr. Otten's Common Shares and 9,200,000
of Mr. Otten's Class A shares were pledged to secure a margin loan
from ING (U.S.) Capital Corporation, the proceeds of which were used
by Mr. Otten to purchase approximately 833,333 shares of Common Stock
of the Company in the Company's IPO on November 6, 1997. A default
under this loan which is not cured within any applicable grace period
would entitle ING to realize on this pledge and could result in a
change in control of the Company.
</FN>
</TABLE>
55
<PAGE>
Information As To Certain Shareholders
Set forth below is certain information with respect to the only persons
known to the Company who owned beneficially more than five percent of any class
of the Company's voting securities as of October 1, 1998.
<TABLE>
<CAPTION>
Common Stock Class A Common Percent Of Class A
Beneficially Owned Stock Beneficially Owned Common Stock And
Common Stock
Beneficially Owned
Five Percent Percent of Percent of
Shareholders___________________ Shares Class Shares Class
<S> <C> <C> <C> <C> <C>
Leslie B. Otten (1) 2,716,530 15.0% 14,760,530 100% 53.0%
American Skiing Company
P.O. Box 450
Bethel, ME 04217
Madeleine LLC (2) 2,348,746 13.1% --- --- 7.3%
c/o Cerberus
450 Park Avenue
New York, NY 10022
State of Wisconsin Investment Board 2,525,000 16.3% --- --- 8.3%
P.O. Box 7842
Madison, WI 53707
Fusion Capital Management Inc. 1,063,700 6.9% --- --- 3.5%
237 Park Avenue
Suite 801
New York, New York 10012
<FN>
(1) Includes 1,853,197 shares of Common Stock issuable under exercisable
options granted under the Stock Option Plan. Also includes 30,000 shares
owned by Albert Otten Trust f/b/o Mildred Otten, as to which Mr. Otten is
trustee and co-beneficiary. Does not include 20,060 shares of Common Stock
issuable under exercisable options granted under Stock Option Plan to Mr.
Otten's spouse, Christine Otten, as to which Mr. Otten disclaims beneficial
ownership.
(2) Includes 2,348,746 shares of Common Stock issuable upon the conversion of
such holder's shares of 10 1/4% Convertible Preferred Stock. Does not
include up to 1,323,982 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 to the scheduled maturity of
the redemption of such preferred stock.
</FN>
</TABLE>
56
<PAGE>
Item 13
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 expected 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 the
income of SRSC as an S corporation which was converted to a C corporation. The
remaining principal amount of such note, as of July 26, 1998, was approximately
$1.8 million.
Christine Otten, Mr. Otten's spouse, is employed by the Company as its
director of retail purchasing and is actively involved in its retail sales
activities. During fiscal years 1996, 1997 and 1998, Ms. Otten received total
compensation of $54,577, $51,600 and $51,600, respectively. In the first quarter
of fiscal 1998, the Company granted Ms. Otten options to purchase up to 20,060
shares of Common Stock at a price of $2.00 per share. Ms. Otten is fully vested
with respect to these shares. The options granted to Ms. Otten include a cash
payment on the date of exercise to cover Federal and State income tax liability
generated by exercising the options.
Western Maine Leasing Co., a corporation wholly owned by Mr. Otten,
presently leases items of heavy equipment to SRSC under short-term leases on
terms believed by management to be comparable to those that could be obtained by
SRSC from unaffiliated lessors of such equipment. In fiscal 1996, 1997 and 1998,
payments under such leases totaled $37,000, $24,000 and $17,000, respectively.
SRSC 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 SRSC to unaffiliated entities. In fiscal 1996,
1997 and 1998, payments by Ski Dorm, Inc., to SRSC totaled $90,000, $258,000 and
$2,000, respectively. In addition, Ski Dorm, Inc., issued to SRSC a promissory
note in 1995 in the principal amount of $265,000, of which $250,000 was
outstanding at October 1, 1998. Such note is secured by a mortgage on real
estate and related improvements owned by Ski Dorm, Inc. 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.
Mr. Otten borrowed funds from ING (U.S.) Capital Corporation to
purchase Common Stock in the Company's IPO, and has pledged shares of Common
Stock and Class A Common Stock to secure the loan. In connection with the loan,
the Company entered into a registration rights agreement with the lender
containing customary provisions pursuant to which the lender will have the right
to require the Company to register with the Securities and Exchange Commission,
at the Company's expense, the shares pledged by Mr. Otten to secure the loan.
57
<PAGE>
PART IV
Item 14
<TABLE>
<CAPTION>
Exhibits, Financial Statement Schedules and Reports on Form 8-K
<S> <C> <C>
(a) Documents filed as part of this report: Page
1. Index to financial statements, financial statement schedules,
and supplementary data, filed as part of this report:
Report of Independent Accountants......................................... F-1
Consolidated Statement of Operations...................................... F-2
Consolidated Balance Sheet ............................................... F-2
Consolidated Statement of Changes in Shareholders' Equity ................ F-4
Consolidated Statement of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................ F-8
2. Financial Statement Schedules: All other schedules are omitted because
they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
3. Exhibits filed as part of this report:
</TABLE>
Exhibit
No. Description
3.1 Articles of Incorporation of the Company, as amended (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form S-1, Registration No. 333-33483).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, Registration No.
333-33483).
4.1 Specimen Certificate for shares of Common Stock, $.01 par value, of
the Company (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Registration No. 333-33483).
4.2 Form of Statement of Resolution Establishing Shares of 10 1/2%
Repriced Convertible Exchangeable Preferred Stock (incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement on
Form S-1, Registration No. 333-33483).
58
<PAGE>
4.3 Form of Indenture relating to 10 1/2% Repriced Convertible
Subordinated Debentures (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-1 Registration No.
333-33483).
10.1 Stock Purchase Agreement dated as of August 1, 1997, among Kamori
International Corporation, ASC West and the Company (incorporated by
reference to Exhibit 2.1 of the Company's Registration Statement on
Form S-1 Registration No. 333-33483).
10.2 Assignment dated May 30, 1997, between Wold Mountain Resorts, L.C. and
ASC Utah (incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 Registration No. 333-33483).
10.3 Loan and Security Agreement dated as of October 1, 1984, among the
State of Vermont (acting by and through the Vermont Industrial
Development Authority), Sherburne Corporation, Proctor Bank and
BankBoston, N.A. (incorporated by reference to Exhibit 10.16 to ASC
East's Registration Statement on Form S-4, Registration No. 333-9763).
10.4 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. (incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1 Registration No. 333-33483).
10.5 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).
10.6 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).
10.7 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).
10.8 Purchase Agreement dated as of April 13, 1994, among Mt. Attitash Lit
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).
59
<PAGE>
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
60
<PAGE>
10.19 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).
10.20 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).
10.21 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).
10.22 Ground Lease Agreement dated July 3, 1997, between ASC Utah and Wolf
Mountain Resorts, L.C. (incorporated by reference to Exhibit 10.64 to
the Company's Registration Statement on Form S-1, Registration No.
333-33483).
10.23 Ground Lease Guaranty dated July 3, 1997, from the Company to Wolf
Mountain Resorts, L.C. (incorporated by reference to Exhibit 10.65 to
the Company's Registration Statement on Form S-1, Registration No.
333-33483).
10.24 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
(incorporated by reference to Exhibit 10.71 to the Company's
Registration Statement on Form S-1, Registration No. 333-33483).
10.25 $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 (incorporated by
reference to Exhibit 10.72 to the Company's Registration Statement on
Form S-1, Registration No. 333-33483).
10.26 Purchase and Sale Agreement dated July 3, 1997, between Wolf Mountain
Resorts, L.C., and ASC Utah (incorporated by reference to Exhibit
10.74 to the Company's Registration Statement on Form S-1,
Registration No. 333-33483).
61
<PAGE>
10.27 Stock Option Plan (incorporated by reference to Exhibit 10.89 to the
Company's Registration Statement on Form S-1, Registration No.
333-33483).
10.28 Form of Non-Qualified Stock Option Agreement (Five-Year Vesting
Schedule) (incorporated by reference to Exhibit 10.90 to the Company's
Registration Statement on Form S-1, Registration No. 333-33483).
10.29 Form of Non-Qualified Stock Option Agreement (Fully-Vested)
(incorporated by reference to Exhibit 10.91 to the Company's
Registration Statement on Form S-1, Registration No. 333-33483).
10.30 Form of Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.92 to the Company's Registration Statement on Form S-1,
Registration No. 333-33483).
10.31 Letter of Agreement dated August 27, 1996, among SKI 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).
10.32 Amended and Restated Credit Agreement dated as of November 12, 1997,
among ASC East, certain Subsidiaries as Borrowers and the Company, ASC
West and certain Subsidiaries as Guarantors, the Lenders party
thereto, BankBoston, N.A. as Agent for the Lenders and DLJ Capital
Funding, Inc. as Documentation Agent for the Lenders (incorporated by
reference to Exhibit 1 to the Company's quarterly report on Form 10-Q
for the quarter ended October 26, 1997).
10.33 Amended and Restated Credit Agreement dated as of November 12, 1997,
among ASC Utah, ASC West and certain Subsidiaries as Borrowers, the
Company as Guarantor, the Lenders party thereto, BankBoston, N.A. as
Agent for the Lenders and DLJ Capital Funding, Inc. as Documentation
Agent for the Lenders (incorporated by reference to Exhibit 2 to the
Company's quarterly report on Form 10-Q for the quarter ended October
26, 1997).
10.34 Registration Rights Agreement dated November 10, 1997 by and between
American Skiing Company and ING (U.S.) Capital Corporation
(incorporated by reference to Exhibit 3 to the Company's quarterly
report on Form 10-Q for the quarter ended October 26, 1997).
62
<PAGE>
10.35 Contract on Sale by and between Orlando Resort Corporation and ELW
Golf Group, Inc. (incorporated by reference to Exhibit 4 to the
Company's quarterly report on Form 10-Q for the quarter ended October
26, 1997).
10.36 First Amendment to Amended and Restated Credit Agreement dated as of
July 20, 1998, among ASC East, certain Subsidiaries as Borrowers and
the Company and certain Subsidiaries as Guarantors, the lenders party
thereto and BankBoston, N.A. as agent for the lenders.
10.37 First Amendment to Amended and Restated Credit Agreement dated as of
July 20, 1998, among ASC Utah, ASC West, and certain of its
Subsidiaries as Borrowers, the Company as Guarantor, the lenders party
thereto and BankBoston, N.A. as agent for the lenders
10.38 ISDA Master Lease Agreement between BankBoston, N.A. and the Company
dated as of May 12, 1998.
10.39 Credit Support Annex to ISDA Master Agreement between BankBoston, N.A.
and the Company dated as of May 12, 1998.
10.40 Unlimited Guaranty by the Company in favor of BancBoston Leasing,
Inc., dated as of July 20, 1998.
10.41 Form of Master Lease Agreement dated as of various dates among
BancBoston Leasing, Inc. as Lessor and Heavenly Valley Limited
Partnership, Killington, Ltd., Mount Snow, Ltd., ASC Leasing, Inc.,
Steamboat Ski & Resort Corporation, and Sunday River Skiway Corp. as
Lessees.
10.42 Purchase and Development Agreement by and among the Company, American
Skiing Company Resort Properties, Inc., and Marriott Ownership
Resorts, Inc., dated as of July 22, 1998 (incorporated by reference to
Exhibit 1 to the Company's Form 8-K dated July 27, 1998).
11.1 Computation of earnings per share.
22.1 Subsidiaries of the Company.
23.1 Consent of Berry, Dunn, McNeil & Parker.
23.2 Consent of PriceWaterhouseCoopers, LLP.
24.1 Power of Attorney
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
During the Company's fourth fiscal quarter of 1998, the Company filed
one report on Form 8-K dated July 27, 1998. In that report, the Company
announced the execution of a joint venture agreement with Marriott Ownership
Resort International pursuant to which Marriott is expected to build at least
five 200 unit timeshare hotels at the Company's resorts. The joint venture
agreement also includes collaborative marketing provisions between the two
companies.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this instrument to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Bethel, State of
Maine, on this 26th day of October, 1998.
American Skiing Company
By: /s/ Leslie B. Otten
--------------------------------
Leslie B. Otten
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Christopher E. Howard
--------------------------------
Christopher E. Howard
Senior Vice President, Chief Administrative
Officer, General Counsel, Clerk and Chief
Financial Officer
(Principal Financial Officer)
By: /s/ Christopher D. Livak
--------------------------------
Christopher D. Livak
Vice President-Accounting
(Principal Accounting Officer)
By: /s/ Christopher E. Howard, attorney-in-fact
--------------------------------
Joel B. Alvord
By: /s/ Christopher E. Howard, attorney-in-fact
--------------------------------
Gordon M. Gillies, Director
By:
--------------------------------
Christopher J. Nassetta, Director
By:
--------------------------------
Martel D. Wilson, Director
64
<PAGE>
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned offices and directors of American Skiing Company
hereby severally constitute and appoint Christopher E. Howard and Leslie B.
Otten, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities
indicated below, the Annual Report on Form 10-K filed herewith and generally to
do all such things in our names and on our behalf in our capacities as offices
and directors to enable American Skiing Company to comply with the provision of
the Securities Exchange Act of 1934, as amended, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Annual Report.
Signature Title Date
Chairman of the Board of Directors,
/s/ Leslie B. Otten President and Chief Executive Officer October 26, 1998
- - ------------------- (Principal Executive Officer)
Leslie B. Otten
Senior Vice President, Chief
/s/ Christopher E. Howard Administrative Officer, General
- - -------------------------- Counsel, Clerk and Chief October 26, 1998
Christopher E. Howard Financial Officer,
(Principal Financial Officer)
/s/ Joel B. Alvord
- - ------------------------ Director October 26, 1998
Joel B. Alvord
- - -------------------------- Director October 26, 1998
Martel D. Wilson, Jr.
/s/ Gordon M. Gillies
- - -------------------------- Director October 26, 1998
Gordon M. Gillies
- - --------------------------- Director October 26, 1998
Christopher J. Nassetta
65
<PAGE>
Report of Independent Accountants
October 14, 1998
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 27, 1997 and July 26, 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended July 26, 1998 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.
F-1
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
(In thousands, except share and per share amounts)
July 27, July 26,
1997 1998
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 15,558 $ 15,370
Restricted cash 2,812 4,946
Accounts receivable 3,801 7,538
Inventory 7,282 13,353
Prepaid expenses 1,579 3,709
Deferred financing costs 1,338 1,246
Deferred income taxes 422 1,413
--------------- ---------------
Total current assets 32,792 47,575
Property and equipment, net 252,346 521,139
Real estate developed for sale 23,540 78,636
Goodwill 10,664 76,301
Intangible assets - 23,706
Deferred financing costs 8,093 7,966
Long-term investments 3,507 7,397
Other assets 6,398 16,865
Restricted cash - 1,314
--------------- ---------------
Total assets $ 337,340 $ 780,899
--------------- ---------------
Liabilities, Mandatorily Redeemable Preferred Stock and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 39,748 $ 43,698
Current portion of subordinated notes and debentures - 455
Accounts payable and other current liabilities 25,738 44,372
Deposits and deferred revenue 4,379 8,895
Demand note, Principal Shareholder 1,933 1,846
--------------- ---------------
Total current liabilities 71,798 99,266
Long-term debt, excluding current portion 46,833 211,570
Subordinated notes and debentures, excluding current portion 149,749 127,497
Other long-term liabilities 7,898 10,484
Deposits and deferred revenue - 1,320
Deferred income taxes 28,514 22,719
Minority interest in subsidiary 626 375
--------------- ---------------
Total liabilities 305,418 473,231
Commitments, lease contingencies and contingent liabilities (Note 13)
Mandatorily redeemable Series A 14% Exchangeable Preferred Stock, par value
$1,000 per share, 70,179 shares authorized; 17,500 shares issued and
outstanding at July 27, 1997; net of unaccreted issuance costs and including
accretion of discount and cumulative dividends in arrears (redemption value of
$18,537 at July 27, 1997) 16,821 -
Mandatorily redeemable 10 1/2% Repriced Convertible Preferred Stock, par value
$1,000 per share, 40,000 shares authorized; 36,626 shares issued and
outstanding at July 26, 1998; including cumulative dividends in arrears
(redemption value of $39,464) at July 26, 1998 - 39,464
Shareholders' Equity
Common stock, Class A, par value of $.01 per share; 15,000,000 shares authorized;
14,760,530 issued and outstanding 10 148
Common stock, par value of $.01 per share; 100,000,000 shares authorized;
15,525,022 issued and outstanding - 155
Additional paid-in capital 2,786 267,890
Retained earnings 12,305 11
--------------- ---------------
Total shareholders' equity 15,101 268,204
--------------- ---------------
Total liabilities, mandatorily redeemable preferred stock and shareholders'
equity $ 337,340 $ 780,899
--------------- ---------------
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations
(In thousands, except share and per share amounts)
Year Ended
July 28, July 27, July 26,
1996 1997 1998
<S> <C> <C> <C>
Net revenues:
Resort $ 63,489 $166,923 $278,577
Real estate 9,933 8,468 61,843
------------- ------------- --------------
Total net revenues 73,422 175,391 340,420
------------- ------------- --------------
Operating expenses:
Resort 41,799 109,774 169,865
Real estate 5,844 6,813 44,292
Marketing, general and administrative 11,289 26,126 42,554
Stock compensation charge - - 14,254
Depreciation and amortization 6,783 18,293 37,966
------------- ------------- --------------
Total operating expenses 65,715 161,006 308,931
------------- ------------- --------------
Income from operations 7,707 14,385 31,489
------------- ------------- --------------
Other expenses:
Commitment fee 1,447 - -
Interest expense 4,699 23,730 34,575
------------- ------------- --------------
Income (loss) before provision (benefit) for income taxes and
minority interest in loss of subsidiary 1,561 (9,345) (3,086)
Provision (benefit) for income taxes 3,906 (3,613) (774)
Minority interest in loss of subsidiary (108) (250) (445)
------------- ------------- --------------
Loss from continuing operations (2,237) (5,482) (1,867)
------------- ------------- ---------------
Extraordinary loss, net of income tax benefit of $3,248 - - 5,081
------------- ------------- --------------
Net loss (2,237) (5,482) (6,948)
------------- ------------- --------------
Accretion of discount and issuance costs and dividends accrued on
mandatorily redeemable preferred stock - 444 5,346
------------- ------------- --------------
Net loss available to common shareholders $(2,237) $(5,926) $(12,294)
------------- ------------ --------------
Basic and diluted loss per common share (Note 2):
Continuing operations $ (2.37) $ (5.61) $ (0.07)
Extraordinary loss - - (0.20)
Net loss available to common shareholders $ (2.37) $ (6.06) $ (0.48)
Weighted average common shares outstanding 942 978 25,832
------------- ------------- --------------
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
(In thousands, except share amounts)
Class A Additional
Common stock Common Stock paid-in Retained
Shares Amount Shares Amount Capital earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 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>
F-4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
(In thousands, except share amounts ) (Continued)
Class A Additional
Common stock Common Stock paid-in Retained
Shares Amount Shares Amount capital earnings Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 27, 1997 - $ - 14,760,530 $ 10 $ 2,786 $12,305 $15,101
Shares issued pursuant to initial public offering 14,750,000 148 - - 244,181 - 244,329
Issuance of Common Stock options - - - - 8,538 - 8,538
Conversion of Class A Common Stock - - - 138 (138) - -
Purchase of minority interest in subsidiary 615,022 6 - - 8,648 - 8,654
Original issue discount on Series A 14% Exchangeable
Preferred Stock and 14% Senior Exchangeable Notes - - - - 1,841 - 1,841
Shares issued to purchase subsidiary 140,000 1 - - 1,994 - 1,995
Exercise of Common Stock options 20,000 - - - 40 - 40
Accretion of discount and issuance costs and dividends
accrued on mandatorily redeemable preferred stock - - - - - (5,346) (5,346)
Net loss - - - - - (6,948) (12,294)
------------- ------ ---------- --------- --------- ------- ---------
Balance at July 26, 1998 15,525,022 $ 155 14,760,530 $ 148 $ 267,890 $ 11 $ 268,204
------------- ------- ---------- ---------- ---------- -------- ---------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(In thousands)
Year Ended
--------------------------------------
July 28, July 27, July 26,
1996 1997 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,237) $ (5,482) $ (6,948)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Minority interest in loss of subsidiary (108) (250) (445)
Depreciation and amortization 6,783 18,293 37,966
Amortization of discount on subordinated notes and debentures and
other liabilities 435 3,300 1,520
Income tax expense on conversion of S Corporation to C corporation 5,552 - -
Deferred income taxes (1,940) (3,332) (3,910)
Series A 14% Exchangeable Preferred Stock and 14% Senior Exchangeable
Notes original issue discount - - 1,639
Stock compensation charge - - 14,254
Extraordinary loss on write-off of deferred financing costs - - 3,242
Gain on sale of assets - - (773)
Decrease (increase) in assets:
Restricted cash and investments held in escrow - 12,587 (3,448)
Accounts receivable 481 (1,343) (3,608)
Inventory (373) (2,257) (2,088)
Prepaid expenses (648) 1,792 (1,644)
Real estate developed for sale 2,523 (21,976) (25,950)
Other assets (836) (872) (10,319)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities (3,601) 6,794 2,413
Deposits and deferred revenue 944 838 (866)
Other long-term liabilities 490 (1,304) 2,586
-------------- ------------- ----------------
Net cash provided by operating activities 7,465 6,788 3,621
-------------- ------------- ----------------
Cash flows from investing activities:
Payments for purchases of businesses, net of cash acquired (97,079) (6,959) (291,773)
Long-term investments (450) 836 1,110
Capital expenditures (25,054) (23,267) (106,917)
Proceeds from sale of property and equipment - 2,626 7,227
Cash payments on note receivable - 250 100
Proceeds from sale of businesses - 14,408 5,702
Other - (1,964) 248
-------------- ------------- ----------------
Net cash used in investing activities $(122,583) $(14,070) $(384,303)
-------------- ------------- ----------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(In thousands) Continued
Year Ended
-------------------------------------
July 28, July 27, July 26,
1996 1997 1998
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from (repayment of) Old Credit Facility $ 40,301 $ 14,766 $ (59,623)
Net borrowings under New Credit Facility - - 194,227
Net repayment of line of credit (5,776) - -
Net repayment of revolving credit loan (17,101) - -
Proceeds from (repayment of) subordinated notes and debentures, net of
investments held in escrow 121,126 - (23,223)
Proceeds from (repayment of) long-term debt (11,806) (6,654) 11,686
Deferred financing costs (8,485) (1,567) (4,355)
Payments on demand note, Principal Shareholder - (3,267) (87)
Advances to Principal Shareholder (156) -
Distributions to shareholder (3,158) - -
Proceeds from issuance of mandatorily redeemable securities - 16,377 17,500
Capital contribution 1,020 - -
Issuance of shares of common stock 976 - -
Proceeds from initial public offering, net - - 244,329
Proceeds from exercise of stock options - - 40
------------- -------------- ---------------
Net cash provided by financing activities 116,941 19,655 380,494
------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,823 12,373 (188)
Cash and cash equivalents, beginning of year 1,362 3,185 15,558
------------- -------------- ---------------
Cash and cash equivalents, end of year $ 3,185 $ 15,558 $ 15,370
------------- -------------- ---------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,408 $ 20,998 $ 36,583
Cash paid (refunded) for income taxes 15 (1,492) 43
Supplemental schedule of noncash investing and financing activities:
Property acquired under capitalized leases $ 435 $ 7,824 $ 9,832
Notes payable issued for purchase of assets - - 14,232
Liabilities assumed associated with purchased companies 58,497 1,826 17,205
Deferred tax asset (liability) associated with purchased companies (28,372) - 1,650
Purchase price adjustments - 1,541 -
Purchase price adjustments related to deferred taxes - 1,317 1,226
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 -
Purchase of minority interest - 626 375
Accretion of discount and issuance costs and dividends accrued on
mandatorily redeemable preferred stock - 444 5,346
Exchange of mandatorily redeemable securities for 10 1/2%
Repriced Convertible Preferred Stock - - 36,626
Intangible asset assumed to purchase subsidiary - - 1,883
</TABLE>
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 in two business segments, ski resorts and real estate
development. ASC East and ASC West are holding companies which are wholly-owned
subsidiaries of ASC. ASC East and its wholly-owned subsidiaries (collectively
"ASC East") operate the following resorts: Sugarloaf and Sunday River in Maine,
Attitash Bear Peak in New Hampshire, and Killington, Mount Snow/Haystack and
Sugarbush in Vermont. ASC West and its subsidiaries (collectively "ASC West")
operate the following resorts: The Canyons in Utah, Steamboat Ski & Resort
Corporation ("Steamboat") in Colorado, and Heavenly Valley Ski & Resort
Corporation ("Heavenly") in California/Nevada. The Company performs its real
estate development through two wholly-owned subsudairies, Grand Summit Rsort
Properties, Inc. ("GSRP") and American Skiing Company Resort Properties, Inc.
The Company owns and operates resort facilities, real estate development
companies, golf courses, ski and golf schools, retail shops and other related
companies. For periods prior to June 17, 1997, the term "the Company" refers to
ASC East and its subsidiaries, and after such date, to American Skiing Company
and its subsidiaries (including ASC East). In 1997, the Company formed ASC Utah,
a wholly-owned subsidiary, for the purpose of acquiring the Wolf Mountain ski
area in Utah, which was subsequently renamed The Canyons. In August 1997, the
Company formed ASC West for the purpose of acquiring Steamboat and Heavenly.
ASC was formed on June 17, 1997, when Les Otten (the "Principal
Shareholder") exchanged his 96% ownership interest in ASC East for 100% of the
Common Stock of ASC. In conjunction with the formation of ASC, the Company
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
January 23, 1998, the Company and the holders of the minority interest in ASC
East entered into an agreement whereby the Company issued 615,022 shares of
Common Stock in exchange for all shares of ASC East common stock held by the
minority shareholders.
On October 10, 1997, the Company approved an increase in authorized
shares of Common Stock, a new issue of Class A Common Stock, the conversion of
100% of the outstanding Common Stock to Class A Common Stock and a 14.76 for 1
stock split of Class A Common Stock. The stock split was given retroactive
effect in the accompanying consolidated financial statements as of July 27,
1997.
The Company consummated an initial public offering (the "Offering") on
November 6, 1997. The Company sold 14.75 million shares of common stock in the
Offering at a price of $18.00 per share. Net proceeds to the Company after
expenses of the Offering totaled $244.3 million. Of the 14.75 million shares
sold in the Offering, 833,000 shares were purchased by the Principal Shareholder
of the Company.
F-8
<PAGE>
1. Basis of Presentation (continued)
The Company acquired Heavenly and Steamboat on November 12, 1997 for
approximately $300.5 million, including closing costs and adjustments. The
acquisition was accounted for using the purchase method of accounting. The
accompanying consolidated financial statements reflect the results of operations
of Steamboat and Heavenly subsequent to November 12, 1997.
2. Summary of Significant Accounting Principles
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 1996, 1997 and 1998
consisted of fifty-two weeks.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
remaining maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash represents deposits that relate to pre-sales of real
estate developed for sale held in escrow and guest advance deposits for lodging
reservations. The cash will be available to the Company when the real estate
units are sold or the lodging services are provided. Restricted cash classified
as long-term represents deposits held in escrow relating to pre-sales with
anticipated closing dates subsequent to fiscal 1999.
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 carried at cost, net of accumulated
depreciation. Depreciation is calculated using the straight-line method over the
assets' estimated useful lives which range from 9 to 40 years for buildings, 3
to 12 years for machinery and equipment, 10 to 50 years for leasehold
improvements and 5 to 30 years for lifts, lift lines and trails. Assets under
capital leases are amortized over the shorter of their useful lives or their
respective lease lives. Due to the seasonality of the Company's business, the
Company records a full year of depreciation relating to its operating assets
over the second and third quarters of its fiscal year.
F-9
<PAGE>
2. Summary of Significant Accounting Principles (continued)
Real Estate Developed for Sale
The Company capitalizes as real estate developed for sale the original
acquisition cost of land, direct construction and development costs, property
taxes, interest incurred on costs related to real estate under development, and
other related costs (engineering, surveying, landscaping, etc.) until the
property reaches its intended use. The cost of sales for individual parcels of
real estate or quartershare units within a project is determined using the
relative sales value method. Selling costs are charged to expense in the period
in which the related revenue is recognized. Interest capitalized on real estate
development projects during fiscal years 1996, 1997, and 1998 totaled $0,
$473,000, and $2.4 million, respectively.
Intangible Assets
Intangible assets consist of goodwill and various other intangibles.
The Company has classified as goodwill the excess of fair value of the net
assets (including tax attributes) of companies acquired in purchase transactions
and also the purchase of a minority interest. Intangible assets are recorded net
of accumulated amortization in the accompanying consolidated balance sheet and
are amortized using the straight-line method over their estimated useful lives
as follows:
Goodwill 40 years
Tradenames 40 years
Other intangibles 16 - 20 years
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. 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. Treasury Securities,
Obligations of U.S. Government corporations and agencies and corporate bonds. 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
27, 1997 and July 26, 1998. Contractual maturities relating to these investments
range from less than one year to five years at July 26, 1998. At July 26, 1998,
long-term investments also include a 50% interest in a residential real estate
partnership that was acquired with the purchase of Steamboat. The partnership
interest, which is accounted for under the equity method, has a carrying value
of $5.2 million at July 26, 1998.
Long-Lived Assets
The Company evaluates potential impairment of long-lived assets and
long-lived assets to be disposed of in accordance with 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"). SFAS 121
establishes procedures for review of recoverability and measurement of
impairment if necessary, of long-lived assets, goodwill and certain identifiable
intangibles held and used by an entity. SFAS 121 requires that those assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 also requires that
long-lived assets and certain identifiable
F-10
<PAGE>
2. Summary of Significant Accounting Principles (continued)
intangibles to be disposed of be reported at the lower of their carrying amount
or fair value less estimated selling costs. As of July 26, 1998, management
believes that there has not been any impairment of the Company's long-lived
assets, real estate developed for sale, goodwill or other identifiable
intangibles.
Revenue Recognition
Resort revenues include sales of lift tickets, tuition from ski
schools, golf course fees and other recreational activities, sales from
restaurants, bars and retail shops, and real estate rentals. Daily lift ticket
revenue is recognized on the day of purchase. Lift ticket season pass revenue is
recognized in equal amounts over the ski season, which is the Company's second
and third quarters of its fiscal year. The Company's remaining revenue is
generally recognized as the services are performed. Real estate revenues are
recognized under the full accrual method when title has been transferred.
Amounts received from pre-sales of real estate are recorded as deposits and
deferred revenue in the accompanying consolidated balance sheet until the
revenue is recognized. Deposits and deferred revenue classified as long-term
represent deposits held in escrow relating to pre-sales with anticipated closing
dates subsequent to fiscal 1999.
Interest
Interest is expensed as incurred except when it is capitalized in
connection with major capital additions and real estate developed for sale. The
amounts of interest capitalized are determined by applying current interest
rates to the funds required to finance the construction. During 1996, 1997 and
1998, the Company incurred total interest cost of $5.1 million, $24.3 million,
and $37.5 million respectively, of which $444,000, $575,000 and $2.9 million,
respectively, have been capitalized to property and equipment and real estate
developed for sale.
Employee Benefits
As of July 27, 1997, the Company maintained a number of profit sharing and
savings plans pursuant to Section 401(k) of the Internal Revenue Code. In August
1997, the Company established the ASC 401(k) Retirement Plan pursuant to Section
401(k) of the Internal Revenue Code (the "Plan") and subsequently rolled the
previously existing plans into the Plan. The Plan allows employees to defer up
to 15% of their income and provides for the matching of participant
contributions at the Company's discretion. The Company made no contributions to
the profit sharing plans for 1996, 1997 and 1998. Contributions to the savings
plans for 1996 and 1997 totaled $87,000 and $301,000, respectively, while
contributions to the Plan for 1998 totaled $225,000, excluding contributions to
the Steamboat and Heavenly plans. On January 1, 1998, the Heavenly profit
sharing plan was merged into the Plan. Management anticipates merging the
Steamboat 401(k) plan into the Plan subsequent to year end. Contributions to the
Steamboat and Heavenly plans for fiscal 1998 totaled $220,000 and $43,000,
respectively.
Advertising Costs
Advertising costs are expensed the first time the advertising takes
place. At July 27, 1997 and July 26, 1998, advertising costs of $384,000 and
$407,000, respectively, were recorded in prepaid expenses in the accompanying
consolidated balance sheet. Advertising expense for the years ended July 28,
1996, July 27, 1997 and July 26, 1998 was $5.7 million, $5.2 million and $7.6
million, respectively.
F-11
<PAGE>
2. Summary of Significant Accounting Principles (continued)
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
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). This pronouncement supersedes the previous methodology for the
calculation of earnings per share as promulgated under APB Opinion No. 15. SFAS
128 requires presentation of "basic" earnings per share (which excludes dilution
as a result of unexercised stock options and the 10 1/2% Repriced Convertible
Preferred Stock) and "diluted" earnings per share. The Company adopted SFAS 128
in fiscal 1998 and all prior periods presented were retroactively restated. For
the years ended July 28, 1996, July 27, 1997 and July 26, 1998, basic and
diluted loss per share are the same.
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 14).
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 value of amounts outstanding under the Company's Senior
Credit Facility and certain other debt instruments approximates their recorded
values in all material respects, as determined by discounting future cash flows
at current market interest rates as of July 26, 1998. The fair value of the
Company's Senior Subordinated Notes has been estimated using quoted market
values. The fair value of the Company's other subordinated debentures have been
estimated using discounted cash flow analyses based on current borrowing rates
for debt with similar maturities and ratings.
F-12
<PAGE>
2. Summary of Significant Accounting Principles (continued)
The estimated fair values of the Senior Subordinated Notes and other
subordinated debentures at July 26, 1998 are presented below (in thousands):
Carrying Fair
amount value
12% Senior Subordinated Notes $ 117,002 $ 134,400
Other subordinated debentures $ 10,950 $ 8,667
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 10, 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 Principal Shareholder. Concurrent with the acquisition of
S-K-I, the subsidiaries' election to be treated as S Corporations terminated.
Reclassifications
Certain amounts in the prior year financial statements and related
notes have been reclassified to conform with the fiscal 1998 presentation.
F-13
<PAGE>
3. Business Acquisitions and Divestments
Kamori Combined Enterprises Acquisition
On November 12, 1997, the Company acquired all of the outstanding
shares of common stock of Kamori Combined Entities (the "Kamori Acquisition")
which included the Steamboat Ski & Resort Corporation in Steamboat Springs,
Colorado ("Steamboat"), the Heavenly Valley Ski & Resort Corporation in Lake
Tahoe, California/Nevada ("Heavenly") and the Sabal Point Golf Course in
Orlando, Florida ("Sabal Point") for approximately $300.5 million, including
closing costs and adjustments. Steamboat and Heavenly are major destination ski
resorts while Sabal Point is a golf, tennis and swimming club. The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
results of operations subsequent to November 12, 1997 are included in the
accompanying consolidated financial statements. The purchase price was allocated
to the assets acquired and the liabilities assumed based on their fair market
values at the date of acquisition as follows (in thousands):
Fair value of
net assets
acquired
Cash $ 8,771
Accounts receivable 129
Inventory 3,983
Prepaid expenses 486
Property and equipment, net 183,922
Asset held for sale 5,780
Real estate developed for sale 25,624
Goodwill 60,177
Intangible assets 22,200
Long-term investments 5,000
Other assets 177
Deferred income taxes 2,443
-----------------
Total assets 318,692
-----------------
Accounts payable and other current liabilities (10,289)
Deposits and deferred revenue (6,702)
Deferred income taxes (793)
Minority interest (364)
-----------------
Total liabilities (18,148)
-----------------
Net assets acquired $ 300,544
-----------------
Amortization of goodwill and intangible assets charged to depreciation
and amortization was $1.3 million and $544,000, respectively, for fiscal 1998.
F-14
<PAGE>
3. Business Acquisitions and Divestments (continued)
The asset held for sale per above of $5.8 million represents the
carrying value of Sabal Point. Sabal Point was subsequently sold on February 2,
1998 for total proceeds of $5.7 million. As Sabal Point was identified as held
for sale as of the Kamori Acquisition date, the operating results of Sabal Point
from that date through February 2, 1998 were excluded from the Company's
consolidated operating results and were included in the determination of the
carrying value of $5.8 million. No gain or loss was recognized from the sale of
Sabal Point as the difference between the carrying value and the proceeds was
treated as an adjustment to the original purchase price allocation.
The minority interest of $375 at July 26, 1998 is comprised of the
balance of $364 as of the Kamori Acquisition date and the minority interest in
the income of the subsidiary of $11 for fiscal 1998. This amount is included in
the minority interest in loss of subsidiary in the accompanying consolidated
statement of operations.
Amortization of goodwill and intangible assets charged to depreciation
and amortization was $1.3 million and $544,000, respectively, for fiscal 1998.
The following unaudited pro forma financial information for the
Company gives effect to the Kamori Acquisition as if the transaction had
occurred on July 29, 1996 (in thousands, except per share amounts):
Year Year
ended ended
July 27, July 26,
1997 1998
(unaudited) (unaudited)
Revenues $ 263,923 $ 344,026
-------------- ---------------
Loss from continuing operations $ (3,874) $ (9,416)
Net loss $ (4,318) $ (19,843)
-------------- ---------------
Basic and diluted loss per common share:
Continuing operations $ (0.13) $ (0.31)
Extraordinary loss - (0.17)
Net loss available to
common shareholders $ (0.15) $ (0.66)
-------------- ---------------
These pro forma comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the transactions occurred on the date
indicated.
S-K-I Acquisition
On June 28, 1996, the Company acquired all the outstanding shares of common
stock of S-K-I (the "S-K-I Acquisition") for approximately $104.6 million,
including direct costs and liabilities assumed (excluding deferred taxes) of
$58.5 million. The significant companies purchased in the S-K-I Acquisition
included SKI Insurance and the Killington, Mount Snow/Haystack, Waterville
Valley and Sugarloaf ski resorts. Subsequent to the S-K-I Acquisition, all
companies were wholly-owned, except for Sugarloaf, which was 51% owned. The
S-K-I Acquisition was accounted for using the purchase method of accounting and,
accordingly, the results of operations subsequent to June 28, 1996 are included
in the accompanying consolidated financial statements.
F-15
<PAGE>
3. Business Acquisitions and Divestments (continued)
Amortization of goodwill charged to depreciation and amortization
amounted to $14,000, $217,000 and $274,000 for 1996, 1997 and 1998,
respectively. Accumulated amortization of goodwill amounted to $231,000 and
$505,000 at July 27, 1997 and July 26, 1998, respectively.
Pursuant to a consent decree with the U.S. Department of Justice in
connection with the S-K-I Acquisition, the Company sold the assets constituting
the Mt. Cranmore and Waterville Valley resorts for $17.2 million on November 27,
1996.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the S-K-I Acquisition, the divestitures
of Mt. Cranmore and Waterville Valley, the purchase of the remaining 49%
minority interest of Sugarloaf, and the termination of the S Corporation status
of certain of the Company's wholly-owned subsidiaries had occurred on July 31,
1995 (in thousands except per share amounts):
Year ended
July 28,
1996
(unaudited)
Revenues $ 171,666
--------------------
Net loss $ (3,785)
--------------------
Net loss per share $ (3.87)
--------------------
These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the transactions occurred on the date
indicated.
Other Acquisitions
On August 30, 1996, the Company purchased the remaining 49% minority
interest in Sugarloaf 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.
During 1998, the Company paid contingent consideration of $331,000. The
remaining balance of the liability at July 26, 1998 of $161,000 is included in
other long-term liabilities in the accompanying consolidated balance sheet. In
connection 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.
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 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.
F-16
<PAGE>
4. Property and Equipment
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
July 27, July 26,
1997 1998
<S> <C> <C>
Buildings and grounds .................................................... $ 69,635 $159,841
Machinery and equipment .................................................. 61,218 108,046
Lifts and lift lines ..................................................... 60,769 158,074
Trails ................................................................... 11,667 36,072
Land improvements ........................................................ 18,096 24,612
-------- --------
221,385 486,645
Less - accumulated depreciation and amortization ......................... 36,940 69,817
-------- --------
184,445 416,828
Land ..................................................................... 49,160 73,755
Construction-in-process .................................................. 18,741 30,556
-------- --------
Property and equipment, net .............................................. $252,346 $521,139
-------- --------
</TABLE>
Property and equipment includes approximately $10.7 million and $19.3
million of machinery and equipment and lifts held under capital leases at July
27, 1997 and July 26, 1998, respectively. At July 27, 1997 and July 26, 1998,
related accumulated amortization on property and equipment under capital leases
was approximately $2.3 million and $3.8 million, respectively. Amortization
expense for property and equipment under capital leases was approximately
$493,000, $1.6 million and $2.2 million for 1996, 1997 and 1998, respectively.
Total depreciation and amortization expense relating to all property and
equipment was $6.7 million, $16.6 million and $34.0 million for 1996, 1997 and
1998, respectively.
5. 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 is payable in annual
installments ranging from $100,000 to $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 and July 26, 1998 was $2.5 million and $2.4 million,
respectively and is included in other assets in the accompanying consolidated
balance sheet.
F-17
<PAGE>
6. Demand Note, Principal Shareholder
In June 1996, prior to the S-K-I Acquisition, the Company delivered to
the Principal 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 the Company's income as an S
Corporation through the date of the S-K-I 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. The amount in the accompanying consolidated
balance sheet at July 26, 1998 of $1.8 million will remain payable until all
related open tax years are closed.
7. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of (dollar amounts in thousands):
July 27, July 26,
1997 1998
<S> <C> <C>
Senior Credit Facility (Note 9) .................................................... $55,067 $194,227
Real estate development note payable with a face value of $55,000. The note
bears interest at 10% per annum which is accrued monthly. Principal and interest
on the note are payable as real estate quartershares are sold. Any remaining
principal and accrued interest are due in January 2001. The note is
collateralized by the real estate developed for sale of GSRP ....................... -- 31,411
Note payable with a face value of $2,250. The note bears interest at 9% per
annum which is payable monthly beginning January 1998 for a
15-year term. The principal is due in full in December 2012 ...................... -- 2,250
Note payable with a face value of $2,000. The note bears interest at 10% per
annum which is payable upon the maturity of the note. A principal payment of $1,000 is
due in June 1999. The remaining principal and
accrued interest are due in June 2000 ............................................. -- 2,000
Subordinated debentures issued with an original face value of $2,151. The
initial coupon rate is 6% per annum and is adjusted annually in accordance with
the agreement. Interest is payable annually in May beginning in 1995, net
debentures mature in April 2002 ................................................... 1,777 1,844
Note payable with a face value of $1,720. The note bears interest at 12% per
annum which is payable quarterly, in arrears, beginning October 1998.
The principal is due in full in July 2000 ......................................... -- 1,720
Note payable with a face value of $1,600. Interest is payable monthly beginning
January 1998 for a 30-year term. The interest rate is 7% per annum for the first
10 years, 8.44% per annum for the second 10 years and 10.55% per annum for the
final 10 years. The principal is due in full in December 2027 ...................... -- 1,600
Note payable with a face value of $1,000. The note bears interest at 14% per
annum which is payable monthly beginning in August 1997. The principal is due in
full in July 2000 ......................................... ...................... -- 1,000
F-18
<PAGE>
7. Long-Term Debt (continued)
July 27, July 26,
1997 1998
Vermont Industrial Development Bonds, with interest rates that fluctuate between
4.03% and 4.50%. Principal is due in varying installments through 1999 and is
secured by certain machinery, equipment and real estate. ..................... $1,005 $ 520
Note payable in an aggregate principal amount of $6,500 to finance the
acquisition of The Canyons resort. The note bore interest at 12% per annum and
was payable monthly. The principal was payable in two installments: $4,200 upon
the effective date of the Company's Offering and $2,300 in January 1998. ..... 6,500 -
Note payable with a face value of $8,500 to finance the acquisition of land for
a hotel at the Attitash Bear Peak resort. The note bore interest at a rate of
9.5% per annum. The debt was paid in full in fiscal 1998...................... 4,250 -
Note payable with an original 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 was payable quarterly beginning in June 1995. A principal
payment of $620 was made in November 1995 and the remaining principal and
accrued interest outstanding were due in December 1999. The note was
collateralized by certain assets as defined in the loan agreement. In connection
with the prepayment of this debt, the Company recorded an extraordinary loss
before income tax benefit of $325 representing the unamortized original issue
discount...................................................................... 5,128 -
Note payable in the amount of $2,311. The note bore interest at the greater
of 9% or prime plus 1%, which was due in June of each year beginning in 1995.
Principal payments of $154 were due in June beginning in 1997 and the balance
was due in June 2003. The Company paid this debt in full in fiscal 1998 prior
to its maturity. ......................... ................................... 2,158 -
Note payable with face value of $1,000 to finance the purchase of a retail
store. The note does not accrue interest. The principal is due as follows: $300
in August 1998; $200 in August 1999; $200 in August 2000 and $300 in August
2001. ..................................................................... - 1,000
Note payable with face value of $2,294. The note bears interest at 7.83% per
annum. Interest and principal payments of $22 are payable monthly beginning
March 1998. The remaining principal and accrued interest are due in February
2003. .................................................................... - 2,255
Obligations under capital leases .......................................... 7,840 12,664
Other notes payable ....................................................... 2,856 2,777
----------- ---------
$ 86,581 $ 255,268
----------- ---------
Less: current portion .................................................... 39,748 43,698
----------- ----------
Long-term debt, excluding current portion ................................ $ 46,833 $ 211,570
----------- -----------
</TABLE>
F-19
<PAGE>
7. Long-Term Debt (continued)
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 26, 1998.
The non-current portion of long-term debt matures as follows (in
thousands):
2000 $ 12,263
2001 31,336
2002 6,042
2003 4,177
2004 and thereafter 159,860
Interest related to capitalized leases (1,768)
Debt discount (340)
--------------------
$ 211,570
--------------------
At July 26, 1998, the Company had letters of credit outstanding
totaling $4.3 million.
8. Subordinated Notes and Debentures
On June 25, 1996, in connection with the S-K-I Acquisition, ASC East
issued $120.0 million of 12% Senior Subordinated Notes (the "Notes"), $39.1
million of 13.75% Subordinated Discount Notes (the "Subordinated Notes") and
39,132 shares of its common stock in a private placement. 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
and Subordinated Notes are general unsecured obligations of ASC East,
subordinated in right of payment to all existing and future senior 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 deferred financing costs, 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, July 27, 1997 and July 26, 1998
amounted to $58,000, $781,000 and $ 712,600, respectively.
The Notes were issued with an original issue discount of $3.4 million.
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 in 1996 and $14.6 million in both 1997 and 1998.
F-20
<PAGE>
8. Subordinated Notes and Debentures (continued)
Concurrently with the Offering, the Company solicited and received the
required consents from the holders of the Notes to amend the Notes indenture to
permit the consummation of the Offering without requiring the Company to make a
Change of Control Offer (as defined). In connection with the consent
solicitation, the Company paid a customary fee to the consenting holders of the
Notes.
The Company entered into two cancelable interest rate swap agreements
(the "Swap Agreements") with BankBoston, N.A. ("BankBoston") with an effective
date of February 9, 1998 (the "Effective Date") to manage the interest rate risk
associated with the Notes. The notional amount of both Swap Agreements of $120.0
million is equal to the face value of the Notes. The first Swap Agreement
matures on July 15, 2001, the date on which the related Notes first become
redeemable at the option of the Company. The second Swap Agreement matures on
July 15, 2006, the date on which the related Notes mature. From the Effective
Date through July 15, 2001, the Swap Agreements effectively reduce the Company's
cash outflow relating to the payment of interest on the Notes from 12% to 9.01%,
with the Company's payment of interest to BankBoston at 9.01% of the notional
amount and BankBoston's payment of interest to the Company at 12% of the
notional amount. The reduction in the net cash outflow for interest had no
impact on the accompanying consolidated statement of operations as the net swap
receipt from BankBoston of $1.6 million for the period from the Effective Date
through July 26, 1998 is included in other long-term liabilities in the
accompanying consolidated balance sheet. The Company will accrue interest
expense on the cumulative net swap receipt over the period of the first Swap
Agreement. This other long-term liability, including accrued interest thereon,
will be amortized as a credit to interest expense over the period from July 15,
2001 to July 15, 2006. Under the second Swap Agreement, which will remain in
effect for the period from July 15, 2001 to July 15, 2006, the Company will make
interest payments to BankBoston at 9.01% of the notional amount while BankBoston
will make interest payments back to the Company at the LIBOR rate in effect at
that time. Depending on the LIBOR rate in effect during the second Swap
Agreement, the Company's interest rate exposure and its related impact on
interest expense and net cash outflow may increase or decrease from the fixed
rate under the Notes of 12%. The Company is exposed to credit loss in the event
of nonperformance by the other party to the Swap Agreements; however,
nonperformance is not anticipated.
The Subordinated Notes were issued with an original issue discount of
$19.0 million. Under the terms of the indenture, interest on the Subordinated
Notes was not to accrue prior to July 15, 2001; thereafter, interest was to
accrue at the rate of 13.75% per annum and was to 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, $2.9 million and $1.4
million in 1996, 1997 and 1998, respectively. The shares of common stock issued
with the Subordinated Notes represented 4% of the total common stock outstanding
of ASC East and were valued at $976,000 as of June 28, 1996.
On January 26, 1998, the Company and the holders of the 4% of the
outstanding shares of ASC East entered into an agreement whereby the Company
issued 615,022 shares of its Common Stock in exchange for all ASC East common
stock shares not owned by the Company. In connection with the exchange, the
Company recorded $8.5 million of goodwill which represented the excess of the
fair market value of the common stock exchanged relative to the carrying value
of the minority interest. Amortization expense relating to the goodwill was
$127,000 for the year ended July 26, 1998.
F-21
<PAGE>
8. Subordinated Notes and Debentures (continued)
A portion of the proceeds from the New Credit Facility (Note 9) were
used to redeem all of the outstanding Subordinated Notes. The indenture relating
to the Subordinated Notes provided for a redemption price equal to 113.75% of
the carrying value of the Subordinated Notes on the redemption date. The Company
recorded extraordinary losses before any benefit for income taxes of
approximately $4.3 million related to the prepayment of the Subordinated Notes
and $1.0 million related to the write-off of deferred financing costs. These
losses are included in the total extraordinary loss in the accompanying
consolidated statement of operations for the year ended July 26, 1998.
Other subordinated debentures owed by the Company at July 26, 1998 are
due as follows (in thousands):
Interest Principal
Year Rate Amount
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
------------
9. Senior Credit Facility
In connection with the Offering, the Company entered into a new credit
facility (the "New Credit Facility") with BankBoston on November 12, 1997 and
repaid the indebtedness under the Company's then existing credit facility (the
"Old Credit Facility"). In connection with the repayment of the Old Credit
Facility, the Company wrote-off deferred financing costs of $1.2 million and
incurred prepayment penalties of $433,000. These amounts are included in the
total extraordinary loss in the accompanying consolidated statement of
operations. On November 13, 1997, BankBoston, as agent, syndicated the New
Credit Facility to a group of participating lenders (the "Banks").
The New Credit Facility is divided into two sub-facilities, $75.0
million of which is available for borrowings by ASC East and its subsidiaries
(the "East Facility") and $140.0 million of which is available for borrowings by
the Company excluding ASC East and its subsidiaries (the "West Facility"). The
East Facility consists of a six-year revolving credit facility in the amount of
$45.0 million and an eight-year
F-22
<PAGE>
9. Senior Credit Facility (continued)
term facility in the amount of $30.0 million. The West Facility consists of a
six-year revolving facility in the amount of $75.0 million and an eight-year
term facility in the amount of $75.0 million.
The revolving facilities are subject to an annual requirement to
reduce the outstanding debt to a balance of not more than $10.0 million for the
East Facility and not more that $45.0 million for the West Facility for a period
of 30 days. 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. Beginning July 1999,
the New Credit Facility requires mandatory prepayment of 50% of excess cash
flows during any period in which the ratio of the Company's total senior debt to
earnings before interest expense, income taxes, depreciation and amortization
("EBITDA") exceeds 3.50 to 1. In no event, however, will such mandatory
prepayments reduce either revolving facility commitment below $35.0 million. The
New Credit Facility contains affirmative, negative and financial covenants
including maintenance of debt to EBITDA, minimum net worth, EBITDA to interest
expense, and cash flow to debt service financial ratios. Except for the debt to
EBITDA and minimum net worth ratios, which are calculated at both the ASC
consolidated level and at the ASC East and ASC West levels, compliance with
financial covenants is determined on a consolidated basis notwithstanding the
bifurcation of the New Credit Facility into sub-facilities.
At July 26, 1998, the revolving portion of the East and West
Facilities had outstanding borrowings of $28.0 million and $54.0 million,
respectively under LIBOR contracts which bear interest at rates ranging from
8.09% to 8.48% per annum. At July 26, 1998, both the East and West Facilities
had outstanding borrowings of $1.0 million in Money Market accounts which bear
interest at rates ranging from 8.06% to 8.47%. The balance of the borrowings
outstanding at year end under the East and West Facilities of $537,000 and
$895,000, respectively, bear interest at the greater of BankBoston's base rate
or the Federal Funds Rate plus 1% per annum. At July 26, 1998, the LIBOR, Money
Market and Base rates were 8.16%, 8.06% and 9.5%, respectively. At July 26,
1998, the term portion of the East and West Facilities had outstanding
borrowings of $30.0 million and $75.0 million, respectively, and bear interest
at rates ranging from 8.59% to 8.98%. Both the revolving and term portions of
the New Credit Facility accrue interest daily and pay interest quarterly, in
arrears, commencing January 31, 1998. At July 26, 1998, accrued interest for the
East and West Facilities were $1.2 million and $2.6 million, respectively. The
East Facility is secured by substantially all the assets of ASC East and its
subsidiaries, except the real estate development subsidiaries, which are not
borrowers under the New Credit Facility. The West Facility is secured by
substantially all the assets of ASC West and its subsidiaries.
In November 1997, the Company paid financing fees with respect to the
New Credit Facility of 1.75% of the total commitment, or $3.8 million to the
Banks. The Company has capitalized these fees and certain other debt related
costs and is amortizing them over the term of the New Credit Facility. Total
unamortized financing fees relating to the New Credit Facility recorded in
deferred financing costs in the accompanying consolidated balance sheet were
$3.9 million at July 26, 1998.
F-23
<PAGE>
10. Income Taxes
Prior to June 28, 1996, certain subsidiaries of the Company (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 was made for these companies for the period July 31, 1995
to June 28, 1996. For federal and state income tax purposes, taxable income,
losses, and tax credits were passed through to the Principal Shareholder, who
was individually responsible for reporting his share of such items. The Company
distributed to the Principal Shareholder amounts sufficient to pay his personal
income taxes based on the S Corporations' earnings.
In conjunction with the S-K-I Acquisition, the S Corporations changed
from S Corporation status to C Corporation status. As a result, the income or
loss of the former S Corporations from June 29, 1996 will be subject to
corporate income tax. The income tax provisions described below include the
income taxes related to the S Corporations since June 29, 1996.
At the time of the 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 the conversion.
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 provision (benefit) represents the change
in the net deferred tax asset or liability balance.
F-24
<PAGE>
10. Income Taxes (continued)
The provision (benefit) for income taxes charged to continuing
operations was as follows (in thousands):
Year ended
July 28, July 27, July 26,
1996 1997 1998
Current tax provision
Federal $ - $ - $ -
State - - -
-------------- -------------- --------------
- - -
-------------- -------------- --------------
Deferred tax provision (benefit)
Federal (1,330) (2,815) 580
State (316) (798) (1,354)
-------------- -------------- --------------
(1,646) (3,613) (774)
-------------- -------------- --------------
Change in tax status from S Corporation
to C Corporation 5,552 - -
-------------- -------------- --------------
Total provision (benefit) $ 3,906 $ (3,613) $ (774)
-------------- -------------- --------------
F-25
<PAGE>
10. Income Taxes (continued)
Deferred tax liabilities (assets) are comprised of the following at
July 27, 1997 and July 26, 1998 (in thousands):
<TABLE>
<CAPTION>
July 27, July 26,
1997 1998
<S> <C> <C>
Property and equipment basis differential ......................... $ 40,040 $ 43,992
Other ............................................................. 907 880
-------------- --------------
Gross deferred tax liabilities .................................... 40,947 44,872
-------------- --------------
Tax loss and credit carryforwards ................................. (16,766) (15,017)
Capitalized cost .................................................. (543) (1,042)
Original issue discount on Subordinated Notes ..................... (1,212) -
Stock option compensation ......................................... - (4,939)
Reserves and accruals ............................................. (1,361) (3,527)
Other ............................................................. (228) (1,488)
-------------- --------------
Gross deferred tax assets ......................................... (20,110) (26,013)
Valuation allowance ............................................... 7,255 2,447
-------------- --------------
$ 28,092 $ 21,306
-------------- --------------
</TABLE>
The provision (benefit) for income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory income tax rate
of 35% to income (loss) before provision (benefit) for income taxes, minority
interest in loss of subsidiary and extraordinary loss as a result of the
following differences (in thousands):
<TABLE>
<CAPTION>
Year ended
July 28, July 27, July 26,
1996 1997 1998
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory U.S. tax rates ... $ 546 $ (3,271) $ (1,080)
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 ......................................... (2,371) - -
State taxes, net .............................................. - (798) (1,354)
Change in valuation allowance ................................. - 71 250
Stock compensation ............................................ - - 1,019
Nondeductible items ........................................... 41 243 634
Other ......................................................... 138 142 (243)
-------------- -------------- -------------
Income tax provision (benefit) at the effective tax rates ....... $ 3,906 $(3,613) $ (774)
-------------- -------------- -------------
</TABLE>
F-26
<PAGE>
10. Income Taxes (continued)
At July 26, 1998, the Company has federal net operating loss ("NOL")
carryforwards of approximately $29.8 million which expire in varying amounts
through the year 2013 and a federal capital loss carryover of $900,000 that
expires in the year 2003. Internal Revenue Code Section 382 limits the amount of
net operating loss carryforwards incurred before a change in ownership, as
defined, that can be used annually against income generated after the change in
ownership. In November 1997 as a result of the Offering, the Company experienced
a change in ownership. The Company's overall annual limitation under Section 382
is approximately $15.0 million. Because of recent acquisitions, the limitation
is required to be allocated to the various subsidiaries based on their relative
fair market values. In addition, certain subsidiaries have separate pre-change
in ownership losses which are subject to lower annual limitations as a result of
previous changes in ownership. Subsequent changes in ownership could further
affect the limitations in future years.
In addition to the limitations under Section 382, approximately $11.4
million of the federal NOL carryovers are from the separate return years, as
defined in the regulations to the Internal Revenue Code, of certain subsidiaries
(or sub-groups), and may only be used to offset each subsidiary's (or sub-group)
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 $2.5 million at July 26, 1998 is
appropriate because, due to the change of ownership and the resulting annual
limitations, the Company will not be able to use all the potential tax benefits
from existing NOLs and investment tax credits as of July 26, 1998.
The Company has elected to treat a substantial portion of the loss
carryforwards acquired in the acquisition of Sugarloaf as expiring immediately
prior to its purchase of Sugarloaf. Due to the limitations on loss carryforwards
discussed above, the Company did not expect to utilize any of the tax benefits
associated with these loss carryforwards and a full valuation allowance was
established. In computing the deferred tax liabilities (assets) as of July 26,
1998, both the asset related to the loss carryforward and the corresponding
valuation allowance have been eliminated. This election was made to avoid a
reduction in the tax basis of Sugarloaf's stock when the loss carryforwards
expire.
11. 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 14% 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
were recorded as a reduction of the carrying value of the Preferred Stock in the
accompanying consolidated balance sheet at July 27, 1997.
F-27
<PAGE>
11. Mandatorily Redeemable Securities (continued)
Pursuant to the Agreement, the Company issued $17.5 million aggregate
principal amount of its 14% Senior Exchangeable Notes Due 2002 (the
"Exchangeable Notes") on July 28, 1997 in a private offering to an institutional
investor. The Company incurred deferred financing costs totaling $1.1 million in
connection with the issuance of the Exchangeable Notes. These costs were
recorded as deferred financing costs in the accompanying consolidated balance
sheet at July 27, 1997. The Exchangeable Notes bore interest at a rate of 14%
per annum and mature on July 28, 2002. Inteest on the Exchangeable Notes was
payable in cash or additional Exchangeable Notes, at the option of the Company.
On November 15, 1997, subsequent to the completion of the Offering,
each share of Preferred Stock and the Exchangeable Notes were converted into
shares of 10 1/2% Repriced Convertible Preferred Stock. The total number of 10
1/2% Repriced Convertible Preferred Stock shares issued in association with the
exchange were 36,626 and have a face value of $1,000 per share. The carrying
value of the Preferred Stock and Exchangeable Notes just prior to the conversion
were $18.4 million and $18.2 million, respectively. The Company incurred an
extraordinary loss before income tax benefit of $1.0 million upon the conversion
of the Preferred Stock and Exchangeable Notes as a result of the write-off of
unamortized deferred financing costs relating to the Exchangeable Notes.
Under the Agreement, the 10 1/2% Repriced Convertible Preferred Stock
shares are exchangeable at the option of the holder into shares of the Company's
Common Stock at a conversion price of $17.10 for each common share. In the event
the 10 1/2% Repriced Convertible Preferred Stock is held to the maturity date of
November 15, 2002, the Company will be required to pay the holder in cash the
face value of $36.6 million plus cumulative dividends in arrears.
In the event of a default, as defined in the Agreement, there shall be
a mandatory redemption of the 10 1/2% Repriced Convertible Preferred Stock by
the Company unless the holder of the stock elects instead to have visitation
rights to meetings of both the Board of Directors and Management Committees
until the event of default is cured.
The 10 1/2% Repriced Convertible Preferred Stock ranks senior in
liquidation preference to all Common Stock and Class A Common Stock outstanding
at July 26, 1998 as well as any Common Stock and Class A Common Stock issued in
the future.
12. Related Party Transactions
The Principal Shareholder's wife is employed by the Company as
director of retail purchasing and is actively involved in the Company's retail
sales activities. During fiscal 1996, 1997 and 1998, the Principal Shareholder's
wife received total compensation of $55,000, $52,000 and $52,000, respectively.
During the first quarter of fiscal 1998, the Company granted the Principal
Shareholder's wife fully vested options to purchase up to 20,060 shares of
Common Stock at a price of $2.00 per share.
Western Maine Leasing Co., a corporation wholly-owned by the Principal
Shareholder, leases heavy equipment to Sunday River under short-term leases. In
fiscal 1996, 1997 and 1998, payments under such leases totaled $37,000, $24,000
and $17,000, respectively.
F-28
<PAGE>
12. Related Party Transactions (continued)
Sunday River provided lodging management services for Ski Dorm, Inc. ("Ski
Dorm"), a corporation owned by the Principal Shareholder and his mother, which
owns a ski dorm located near the Sunday River resort. During fiscal 1996, 1997
and 1998, payments by Ski Dorm to Sunday River totaled $90,000, $258,000 and
$2,000, respectively. In addition, Ski Dorm issued to Sunday River a promissory
note in 1995 with a principal amount of $265,000, of which $250,000 was
outstanding at July 26, 1998. This note is secured by a mortgage on real estate
and related improvements owned by Ski Dorm. 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.
The Principal Shareholder borrowed funds from ING (U.S.) Capital
Corporation to purchase Common Stock in the Offering and has pledged shares of
Common Stock and Class A Common Stock to secure the loan. In connection with the
loan, the Company entered into a registration rights agreement with the lender
containing customary provisions pursuant to which the lender has the right to
require the Company to register with the Securities and Exchange Commission, at
the Company's expense, the shares pledged by the Principal Shareholder to secure
the loan.
13. 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 1996, 1997 and 1998
was $744,000, $2.2 million and $2.5 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 Attitash Bear
Peak, Sugarbush, Mount Snow/Haystack and Steamboat 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 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 with the seller for the lease of certain
land 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 a fee of $1.0
million for each
F-29
<PAGE>
13. Commitments, Lease Contingencies and Contingent Liabilities (continued)
extension period. Lease payments are based on a percentage of gross
skiing and lodging revenues. The arrangement also provides for additional
one-time payments ranging from $250,000 to $3.0 million upon achievement of
annual skier visit level increases in 100,000 visit increments up to 1,000,000.
Total rent expense under this arrangement, as recorded in resort operating
expenses in the accompanying consolidated statement of operations for 1997 and
1998 was $0 and $473,000, respectively. In addition, the Company has the option
to purchase parcels of land covered under the operating lease for real estate
development. Payments for these options total $20.6 million and are payable at
various times and in varying amounts, at the Company's discretion, through July
2001. The Company is not required to make the option payments for all parcels of
land in order to develop and sell real estate on the land covered under the
lease. Option payments for the year ended July 27, 1997 and July 26, 1998 were
$0 and $7.6 million, respectively, and are included in other assets in the
accompanying consolidated balance sheet.
In addition to the leases described above, the Company is committed
under several operating and capital leases for various facilities, machinery and
equipment. Rent expense under all operating leases was $994,000, $4.2 million
and $6.4 million for the years ended 1996, 1997 and 1998, respectively.
Future minimum lease payments for lease obligations at July 26, 1998
are as follows (in thousands):
Capital Operating
leases leases
1999 ................... $ 4,073 $ 11,234
2000 ................... 3,944 9,789
2001 ................... 3,419 3,716
2002 ................... 2,255 1,325
2003 and thereafter..... 1,679 11,259
--------------- --------------
Total payments ......... $ 15,370 $ 37,323
--------------
Less interest .......... 2,706
---------------
Present value of net
minimum payments ....... 12,664
Less current portion ... 4,862
---------------
Long-term obligations .. $ 7,802
---------------
In the fourth quarter of fiscal 1998, the Company began construction
on two hotel projects at The Canyons and one at Steamboat. Total construction
costs under these three projects are estimated to be $190.0 million. Two of
these hotel projects are being financed through a $145.0 million construction
loan facility with TFC Textron and a $30.0 million bridge financing arrangement
(See Note 18). The Company expects to finance substantially all of the third
hotel project through an additional construction loan facility with the balance
financed under a bridge loan arrangement. The Company anticipates repaying the
bridge loans with the proceeds from an $85.0 million subordinated debt, private
placement financing arrangement ("Private Placement Financing") which the
Company is currently pursuing. In the event the Company is unable to obtain the
Private Placement Financing, the Company will seek alternative financing or
reduce its future real estate development, and will be required to refinance the
bridge loans.
On July 22, 1998, the Company entered into an agreement with Marriott
Ownership Resorts, Inc. ("Marriott") for the future sale of land parcels at the
Company's Killington, Sunday River, The Canyons, Steamboat and Heavenly resorts
(the "Marriott Agreement"). Under the Marriott Agreement, Marriott intends to
develop luxury vacation ownership properties at each of the five aforementioned
properties. In accordance with the Marriott Agreement, the Company has granted
to Marriott certain development and marketing rights at the related resorts. In
return, the Company will receive proceeds for the sale of the land parcels and
will receive a percentage of
F-30
<PAGE>
13. Commitments, Lease Contingencies and Contingent Liabilities (continued)
the Marriott sales of the luxury vacation ownership properties. The
land parcels to be sold had not been identified as of July 26, 1998. Prior to
year end, the Company received a cash deposit of $1.6 million from Marriott
relating to the future land sales. The deposit is recorded as deposits and
deferred revenue in the accompanying consolidated balance sheet at July 26,
1998.
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 or cash flows of the
Company if disposed of unfavorably.
14. Stock Option Plan
Effective August 1, 1997, the Company established a fixed stock option
plan, the American Skiing Company Stock Option Plan (the "Plan"), to provide for
the grant of incentive and non-qualified stock options for the purchase of up to
5,688,699 shares of the Company's common stock by officers, management employees
of the Company and its subsidiaries and other key persons (eligible for
nonqualified stock options only) as designated by the Options Committee. The
Options Committee, which is appointed by the Board of Directors, 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 exercisable. 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 shall be granted at an exercise price as determined
by the Options Committee.
The Company accounts for stock-based compensation using the method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". During fiscal 1998, the Company granted nonqualified
options under the Plan to certain key members of senior management to purchase
501,500 shares of common stock with an exercise price of $2.00 per share when
the fair market value of the stock was estimated to be $18.00 per share.
Accordingly, the Company recognized stock compensation expense of $8.1 million
relating to the grants based on the intrinsic value of $16.00 per share. Under
these grant agreements, the Company agreed to pay the optionees a fixed tax
"bonus" in the aggregate of $5.7 million to provide for certain fixed tax
liabilities that the optionees will incur upon exercise. In addition, the
Company granted options under the Plan to certain members of management to
purchase 160,480 shares of common stock with an exercise price of $2.00 per
share when the fair market value of stock was estimated to be $18.00 per share.
These options vested 20% on the date of grant and will vest ratably to 100% over
the following four years. For fiscal 1998, the Company recognized $500,000 of
stock compensation expense relating to these options. The total stock
compensation charge including the tax bonus recorded for fiscal 1998 of $14.3
million is reflected in the accompanying consolidated statement of operations.
The liability of $5.7 million for the fixed tax bonus to be paid to the
optionees is reflected in accounts payable and other current liabilities in the
accompanying consolidated balance sheet at July 26, 1998.
F-31
<PAGE>
14. Stock Option Plan (continued)
Immediately following the Offering, the Company granted the Principal
Shareholder and certain employees incentive stock options under the Plan to
purchase 1,853,197 and 168,350 shares, respectively, of common stock with an
exercise price equal to the fair market value on the date of grant of $18.00 per
share. Also during fiscal 1998, the Company granted to members of the Board of
Directors nonqualified options to purchase 22,500 shares of common stock under
the Plan with an exercise price equal to the fair market value on the date of
grant of $14.19 per share. These incentive and nonqualified stock options were
all 100% vested on the date of grant. As all these options were granted with an
exercise price equal to the fair market value at the date of grant, no
compensation expense has been recorded in the accompanying consolidated
statement of operations for fiscal 1998.
<TABLE>
<CAPTION>
Weighted
average
Exercise exercise
Number of price price
options per share per share
<S> <C> <C> <C>
Granted ............................................. 2,706,027 $ 2.00-$18.00 $ 14.05
Exercised (20,000) $ 2.00 $ 2.00
.................................................... -------------
Outstanding at July 26, 1998 ........................ 2,686,027 $ 2.00-$18.00 $ 14.14
------------- -------------
Exercisable at July 26, 1998 ........................ 2,557,643 $ 14.75
------------- -------------
Available for future grants ......................... 2,982,672
-------------
</TABLE>
The following table summarizes information about the stock options
outstanding under the Stock Plan at July 26, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options
Exercisable
----------------------------------------- ---------------------------
Number Weighted Number
outstanding average Weighted exercisable Weighted
at remaining average at average
July 26, contractual exercise July 26, exercise
Exercise Prices 1998 life price 1998 price
(years)
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.00 ..................... 641,980 9 $ 2.00 513,596 $ 2.00
$14.19 .................... 22,500 9 $14.19 22,500 $ 14.19
$18.00 .................... 2,021,547 9 $18.00 2,021,547 $ 18.00
------------ -------------
2,686,027 2,557,643
------------ -------------
</TABLE>
F-32
<PAGE>
14. Stock Option Plan (continued)
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Had stock compensation expense been determined based on the fair value at
the grant dates for the fiscal 1998 option grants consistent with the provisions
of SFAS 123, the Company's net loss and loss per share for the year ended July
26, 1998 would have been increased to the pro forma amounts indicated below
(dollar amounts in thousands):
July 26,
1998
Net loss - as reported ................................... $ (12,294)
Net loss - pro forma ..................................... (36,984)
Basic and diluted loss per share as reported ............. (.48)
Basic and diluted loss per share pro forma ............... (1.43)
The fair value of options granted at date of grant was estimated using
the Black-Scholes model with the following weighted average assumptions:
July 26,
1998
Expected life (years) .................................. 10.0
Interest rate .......................................... 5.6%
Volatility ............................................. 47.1%
Dividend yield ......................................... -
The weighted average grant date fair value for the options granted in fiscal
1998 with an exercise price of $2.00 per share was $16.92. The weighted average
grant date fair value for the options granted in fiscal 1998 with an exercise
price of $14.19 to $18.00 per share was $11.92.
15. Capital Stock
The Company has two classes of Common Stock outstanding, Class A
Common Stock and Common Stock. The rights and preferences of holders of Class A
Common Sock and Common Stock are substantially identical, except that, while any
Class A Common Stock is outstanding, 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 (i) at the option of the holder at
any time, (ii) automatically upon transfer to any person that is not an
affiliate of the Principal Shareholder and (iii) automatically if, at any time,
the number of shares of Class A Common Stock outstanding represents less than
20% of outstanding shares of Common Stock and Class A Common Stock. The
Principal Shareholder holds 100% of the Class A Common Stock, representing
approximately 51% of the combined voting power of all outstanding shares of
Common Stock and Class A Common Stock.
F-33
<PAGE>
16. Business Segment Information
The Company currently operates in two business segments, Resorts and
Real Estate. Data by segment is as follows:
<TABLE>
<CAPTION>
Year ended
July 28, July 27, July 26,
1996 1997 1998
<S> <C> <C> <C>
Net revenues:
Resorts ........................................... $ 63,489 $ 166,923 $ 278,577
Real estate ....................................... 9,933 8,468 61,843
------------- ------------- -------------
$ 73,422 $ 175,391 $ 340,420
------------- ------------- -------------
Income from operations:
Resorts ........................................... $ 3,680 $ 19,782 $ 40,698
Real estate ....................................... 4,089 1,655 17,551
Corporate ......................................... (62) (7,052) (26,760)
------------- ------------- -------------
$ 7,707 $ 14,385 $ 31,489
------------- ------------- -------------
Depreciation and amortization:
Resorts ........................................... $ 6,678 $ 16,934 $ 35,579
Real estate ....................................... - - 385
Corporate ......................................... 105 1,359 2,002
------------- ------------- -------------
$ 6,783 $ 18,293 $ 37,966
------------- ------------- -------------
Capital expenditures:
Resorts ........................................... $ 25,054 $ 23,267 $ 106,917
Real estate ....................................... 3,321 28,789 70,242
------------- ------------- -------------
$ 28,375 $ 52,056 $ 177,159
------------- ------------- -------------
Identifiable assets:
Resorts ........................................... $ 272,541 $ 621,633
Real estate ....................................... 30,249 120,957
Corporate ......................................... 34,128 36,896
-------------- -------------
$ 336,918 $ 779,486
------------- -------------
</TABLE>
F-34
<PAGE>
17. Quarterly Financial Information (Unaudited)
Following is a summary of unaudited quarterly information (amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Year ended July 27, 1997:
<S> <C> <C> <C> <C>
Net sales $ 13,297 $ 61,158 $ 89,275 $ 11,661
Income (loss) from operations .................. (9,088) 6,175 27,027 (9,729)
Income (loss) from continuing operations ....... (10,293) 383 13,079 (8,651)
Net income (loss) available to common shareholders (10,293) 383 13,079 (9,095)
Basic and diluted earnings (loss) per common share:
Continuing operations ....................... (10.52) 0.39 13.37 (8.85)
Net income (loss) available to common shareholders (10.52) 0.39 13.37 (9.30)
Year ended July 26, 1998:
Net sales ...................................... 14,621 115,315 185,555 24,929
Income (loss) from operations .................. (26,717) 17,218 61,225 (20,237)
Extraordinary loss, net of income tax benefits . - 5,081 - -
Income (loss) from continuing operations ....... (20,995) 4,955 32,781 (18,608)
Net income (loss) available to common
shareholders ................................ (23,426) (866) 31,690 (19,692)
Basic earnings (loss) per common share:
Continuing operations ....................... (1.59) 0.18 1.08 (0.61)
Extraordinary loss .......................... - (0.18) - -
Net income (loss) available to common shareholders (1.59) (0.03) 1.05 (0.65)
Diluted earnings (loss) per common share:
Continuing operations ...................... (1.59) 0.17 1.07 (0.61)
Extraordinary loss ......................... - (0.18) - -
Net income (loss) available to common shareholders (1.59) (0.03) 1.03 (0.65)
</TABLE>
F-35
<PAGE>
18. Subsequent Event (Unaudited)
Real Estate Development Financing
On September 25, 1998, GSRP entered into a $145 million construction
loan facility with TFC Textron (the "Textron Facility). The Textron Facility
bears interest at the rate of prime plus 1.5% per annum, payable monthly in
arrears, subject to a 9.25% floor, and matures on September 24, 2002. The
principal is payable based on 80% of the net proceeds from the sales of GSRP
quartershare units at the time of each closing. The Textron Facility is secured
by mortgages against the project sites and is subject to customary covenants,
representations and warranties for this type of construction facility.
On September 30, 1998, the Company entered into a $30 million credit
arrangement with BankBoston and Morgan Stanley Capital Funding (the "Bridge
Financing"). The Bridge Financing bears interest at a rate of 14% per annum,
payable monthly in arrears and matures on December 4, 1998. The Bridge Financing
is collateralized by security interests in, and mortgages on, substantially all
assets financed under the credit arrangement. Management expects to repay the
Bridge Financing with the proceeds from an $85 million subordinated debt private
placement financing arrangement, which the Company is currently pursuing.
F-36
Exhibit 10.36
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 20, 1998
Among
ASC EAST, INC.
SUNDAY RIVER SKIWAY CORPORATION
SUNDAY RIVER, LTD.
PERFECT TURN, INC.
SUNDAY RIVER TRANSPORTATION, INC.
L.B.O. HOLDING, INC.
SUGARBUSH RESORT HOLDINGS, INC.
SUGARBUSH LEASING COMPANY
SUGARBUSH RESTAURANTS, INC.
MOUNTAIN WASTEWATER TREATMENT, INC.
S-K-I, LTD.
KILLINGTON, LTD.
MOUNT SNOW, LTD.
PICO SKI AREA MANAGEMENT COMPANY
RESORTS SOFTWARE SERVICES, INC.
KILLINGTON RESTAURANTS, INC.
RESORTS TECHNOLOGIES, INC.
DOVER RESTAURANTS, INC.
SUGARLOAF MOUNTAIN CORPORATION
MOUNTAINSIDE
SUGARTECH
as Borrowers,
AMERICAN SKIING COMPANY,
as Guarantor,
THE LENDERS PARTY HERETO,
BANKBOSTON, N.A.,
as Agent for the Lenders
and
DLJ CAPITAL FUNDING, INC.
as Documentation Agent for the Lenders
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is
entered into as of July 20, 1998 by and among ASC East, Inc., a Maine
corporation ("ASC East"), SUNDAY RIVER SKIWAY CORPORATION, a Maine corporation,
SUNDAY RIVER, LTD., a Maine corporation, PERFECT TURN, INC., a Maine
corporation, SUNDAY RIVER TRANSPORTATION, INC., a Maine corporation, L.B.O.
HOLDING, INC., a Maine corporation, SUGARBUSH RESORT HOLDINGS, INC., a Vermont
corporation , SUGARBUSH LEASING COMPANY, a Vermont corporation, SUGARBUSH
RESTAURANTS, INC., a Vermont corporation, MOUNTAIN WASTEWATER TREATMENT, INC., a
Vermont corporation, S-K-I, LTD., a Delaware corporation ("S-K-I"), KILLINGTON,
LTD., a Vermont corporation ("Killington"), MOUNT SNOW, LTD., a Vermont
corporation, PICO SKI AREA MANAGEMENT COMPANY, a Vermont corporation, RESORTS
SOFTWARE SERVICES, INC., a Vermont corporation, KILLINGTON RESTAURANTS, INC., a
Vermont corporation, RESORTS TECHNOLOGIES, INC., a Vermont corporation, DOVER
RESTAURANTS, INC., a Vermont corporation, SUGARLOAF MOUNTAIN CORPORATION, a
Maine corporation, MOUNTAINSIDE, a Maine corporation and SUGARTECH, a Maine
corporation (each a "Borrowers" and collectively, the "Borrowers"), AMERICAN
SKIING COMPANY, a Maine corporation ("American Ski"), the lenders from time to
time party hereto (the "Lenders"), BANKBOSTON, N.A., a national banking
association, as Agent for the lenders from time to time party hereto (the
"Agent") and DLJ CAPITAL FUNDING, INC., as Documentation Agent for the lenders
from time to time party hereto (the "Documentation Agent") under the Credit
Agreement referred to below.
Recitals
The Borrowers, American Ski, the Lenders, the Documentation Agent and
the Agent are parties to a Credit Agreement dated as of November 12, 1997 (as
amended, the "Credit Agreement"). The Borrowers and American Ski desire to amend
the Credit Agreement in various respects, including amending the definition of
Maximum Revolving Credit Amount to decrease the amount available by $10,000,000.
The Agent, the Documentation Agent and the Lenders are willing to amend the
Credit Agreement on the terms and conditions set forth herein. All capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
NOW, THEREFORE, subject to the satisfaction of the conditions to
effectiveness specified in Section 4, American Ski, the Borrowers, the Lenders,
the Documentation Agent and the Agent hereby agree as follows:
Section 1. Definitions. Section 1.1 of the Credit Agreement is hereby
amended by deleting the definition of Maximum Revolving Credit Amount in its
entirety and substituting therefor the following:
<PAGE>
5
"Maximum Revolving Credit Amount" shall mean as of any date of
determination, the lesser of (a) the applicable amount set forth below
(as each such amount may be reduced from time to time pursuant to the
mandatory reduction requirements of Section 4.1(c)):
Closing Date through May 30, 1999 $35,000,000
May 31, 1999 through May 30, 2000 34,850,000
May 31, 2000 through May 30, 2001 34,350,000
May 31, 2001 through May 30, 2002 32,600,000
May 31, 2002 through May 30, 2003 30,450,000
May 31, 2003 through May 30, 2004 28,250,000
or (b) the amount to which the Maximum Revolving Credit Amount may have
been reduced pursuant to Section 2.12; provided that if the obligation
of the Lenders to make further Loans is terminated upon the occurrence
of an Event of Default, the Maximum Revolving Credit Amount as of any
date of determination thereafter shall be deemed to be $0.
Section 2. Events of Default. Section 10.1 of the Credit Agreement is
hereby amended by deleting paragraph (e) clause (ii) in its entirety and
substituting therefor the following:
(ii) shall fail to observe or perform its covenants, agreements and
obligations under any other material lease or other agreement by which
it is bound, including the $25,000,000 leasing facility with BankBoston
Leasing, Inc., dated as of July 20, 1998.
Section 3. Interest Rate Protection Agreements. In addition to the
permitted Indebtedness under Section 9.1(k), the Agent, the Documentation Agent,
the Lenders, American Ski and the Borrowers hereby acknowledge that ASC East has
entered into Interest Rate Protection Agreements with BankBoston, N.A., on the
$120,000,000 Senior Subordinated Notes, effective as of ASC East's second
quarter end in 1998, and the Agent and the Lenders hereby consent to such
transaction.
Section 4. Effectiveness; Conditions to Effectiveness. This First
Amendment to Amended and Restated Credit Agreement shall become effective as of
July 20, 1998 upon execution hereof by the Borrowers, the Lenders, the
Documentation Agent and the Agent and satisfaction of the following conditions:
(a) Officers' Certificate. The Borrowers and American Ski
shall have delivered to the Agent an Officers' Certificate in the form
of Exhibit A hereto.
(b) Execution of the First Amendment to Credit Agreement.
Execution of the First Amendment to Credit Agreement among the American
Ski - West Borrowers, the Agent, the Documentation Agent and the
Lenders party thereto simultaneously herewith and the compliance by the
American Ski - West Borrowers with all agreements contained in the
First Amendment to Credit Agreement, including satisfaction of all
conditions precedent to effectiveness thereunder.
Section 5. Representations and Warranties; No Default. American Ski and
the Borrowers, jointly and severally, hereby confirm to the Agent and the
Lenders, the representations and warranties of American Ski and the Borrowers
set forth in Article 5 of the Credit Agreement (as amended hereby) as of the
date hereof, as if set forth herein in full. American Ski and the Borrowers
hereby certify that, after giving effect to this First Amendment to Credit
Agreement, no Default exists under the Credit Agreement (unless stated to relate
solely to an earlier date, in which case they were true and correct as of such
earlier date).
Section 6. Miscellaneous. The Borrowers agree to pay on demand all the
Agent's reasonable expenses in preparing, executing and delivering this First
Amendment to Amended and Restated Credit Agreement, and all related instruments
and documents, including, without limitation, the reasonable fees and
out-of-pocket expenses of the Agent's special counsel, Goodwin, Procter & Hoar
LLP. All references to the Credit Agreement in the Credit Agreement, the other
Lender Agreements or any other document shall be deemed to refer to the Credit
Agreement as amended hereby. This First Amendment to Credit Agreement shall be a
Lender Agreement and shall be governed by and construed and enforced under the
laws of The Commonwealth of Massachusetts.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, American Ski, the Borrowers, the Lenders, the
Documentation Agent, and the Agent have caused this First Amendment to Amended
and Restated Credit Agreement to be executed by their duly authorized officers
as of the date first set forth above.
ASC EAST, INC.
SUNDAY RIVER SKIWAY CORPORATION
SUNDAY RIVER, LTD.
PERFECT TURN, INC.
SUNDAY RIVER TRANSPORTATION, INC.
L.B.O. HOLDING, INC.
SUGARBUSH RESORT HOLDINGS, INC.
SUGARBUSH LEASING COMPANY
SUGARBUSH RESTAURANTS, INC.
MOUNTAIN WASTEWATER TREATMENT, INC.
S-K-I, LTD.
KILLINGTON, LTD.
MOUNT SNOW, LTD.
PICO SKI AREA MANAGEMENT COMPANY
RESORTS SOFTWARE SERVICES, INC.
KILLINGTON RESTAURANTS, INC.
RESORTS TECHNOLOGIES, INC.
DOVER RESTAURANTS, INC.
SUGARLOAF MOUNTAIN CORPORATION
MOUNTAINSIDE
SUGARTECH
By:/s/ Thomas M. Richardson
----------------------------
Name: Thomas M. Richardson
Title:CFO and Senior Vice President
AMERICAN SKIING COMPANY, as Guarantor
By:/s/ Thomas M. Richardson
---------------------------
Name: Thomas M. Richardson
Title:CFO and Senior Vice President
<PAGE>
BANKBOSTON, N.A., as Agent
By: /s/ Carlton F. Williams
----------------------------
Name: Carlton F. Williams
Title: Director
DLJ CAPITAL FUNDING, INC., as Documentation Agent
By: /s/ illegible
-----------------------------
Name:
Title:
BANKBOSTON, N.A.
By: /s/ Carlton F. Williams
----------------------------
Name: Carlton F. Williams
Title: Director
DLJ CAPITAL FUNDING, INC.
By: /s/ illegible
-----------------------------
Name:
Title:
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/ illegible
--------------------------------
Name:
Title:
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Daniel G. Admans
---------------------------------
Name: Daniel G. Adams
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION d/b/a COLORADO NATIONAL
BANK
By: /s/ William J. Sullivan
----------------------------------
Name: William J. Sullivan
Title: Vice President
FIRST SECURITY BANK, N.A.
By: Dick Van Klaveren
--------------------------------
Name:Dick Van Klaveren
Title: Vice President
FLOATING RATE PORTFOLIO
By: INVESCO SENIOR SECURED MANAGEMENT, INC.,
As Attorney in Fact
By: /s/ Anne McCarthy
--------------------------------
Name: Anne McCarthy
Title: Authorized Signatory
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By:/s/ John M. Johnson
--------------------------
Name: John M. Johnson
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By:/s/ John M. Johnson
--------------------------
Name: John M. Johnson
Title: Authorized Signatory
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
By: Jeffrey M. Maillet
--------------------------
Name: Jeffrey M. Maillet
Title: Senior Vice President & Director
<PAGE>
EATON VANCE SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as
Investment Advisor
By: Payson F. Swaffield
-------------------------
Name: Payson F. Swaffield
Title: Vice President
CAPTIVA II FINANCE, LTD.
By:/s/ illegible
--------------------------
Name:
Title:
HOWARD BANK
By:/s/ illegible
--------------------------
Name:
Title:
STANFIELD CAPITAL PARTNERS
By:/s/ illegible
--------------------------
Name:
Title:
KZH-PAMCO CORPORATION
By:/s/ illegible
--------------------------
Name:
Title:
PAM CAPITAL FUNDING, L.P.
By: Highland Capital Management L.P., as
Collateral Manager
By:/s/ illegible
--------------------------
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: Cypress Tree Investment Management Company, Inc., as
Portfolio Manager
By:/s/ illegible
--------------------------
Name:
Title:
KZH Holding Corporation III
By:/s/ illegible
--------------------------
Name:
Title:
FIRST AMENDMENT TO
CREDIT AGREEMENT
Dated as of July 20, 1998
Among
ASC UTAH
ASC WEST, INC.
STEAMBOAT SKI & RESORT CORPORATION
STEAMBOAT DEVELOPMENT CORPORATION
HEAVENLY VALLEY SKI & RESORT CORPORATION
HEAVENLY CORPORATION
HEAVENLY VALLEY, LIMITED PARTNERSHIP
as Borrowers,
AMERICAN SKIING COMPANY,
as Guarantor,
THE LENDERS PARTY HERETO,
BANKBOSTON, N.A.,
as Agent for the Lenders
and
DLJ CAPITAL FUNDING, INC.
as Documentation Agent for the Lenders
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT is entered into as of July 20,
1998 by and among ASC UTAH, a Maine corporation ("ASC Utah"), ASC WEST, INC., a
Maine corporation ("ASC West"), STEAMBOAT SKI & RESORT CORPORATION, a Delaware
corporation, STEAMBOAT DEVELOPMENT CORPORATION, a Delaware corporation, HEAVENLY
VALLEY SKI & RESORT CORPORATION, a Delaware corporation, HEAVENLY CORPORATION, a
Delaware corporation, HEAVENLY VALLEY, LIMITED PARTNERSHIP, a Nevada limited
partnership of which Heavenly Valley Ski & Resort Corporation and Heavenly
Corporation own all of the partnership interests (each a "Borrower" and
collectively, the "Borrowers"), AMERICAN SKIING COMPANY, a Maine corporation
("American Ski"), the lenders from time to time party hereto (the "Lenders"),
BANKBOSTON, N.A., a national banking association, as Agent for the lenders from
time to time party hereto (the "Agent") and DLJ CAPITAL FUNDING, INC., as
Documentation Agent for the lenders from time to time party hereto (the
"Documentation Agent") under the Credit Agreement referred to below.
Recitals
The Borrowers, American Ski, the Lenders, the Documentation Agent and
the Agent are parties to a Credit Agreement dated as of November 12, 1997 (as
amended, the "Credit Agreement"). The Borrowers and American Ski desire to amend
the Credit Agreement in various respects, including amending the definition of
Maximum Revolving Credit Amount to increase the amount available by $10,000,000.
The Agent, the Documentation Agent and the Lenders are willing to amend the
Credit Agreement on the terms and conditions set forth herein. All capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
NOW, THEREFORE, subject to the satisfaction of the conditions to
effectiveness specified in Section 5, the Borrowers, American Ski, the Lenders,
the Documentation Agent and the Agent hereby agree as follows:
Section 1. Definitions. Section 1.1 of the Credit Agreement is hereby
amended by deleting the definition of Maximum Revolving Credit Amount in its
entirety and substituting therefor the following:
"Maximum Revolving Credit Amount" shall mean as of any date of
determination, the lesser of (a) the applicable amount set forth below
(as each such amount may be reduced from time to time pursuant to the
mandatory reduction requirements of Section 4.1(c)):
<PAGE>
Closing Date through May 30, 1999 $75,000,000
May 31, 1999 through May 30, 2000 74,650,000
May 31, 2000 through May 30, 2001 73,650,000
May 31, 2001 through May 30, 2002 68,150,000
May 31, 2002 through May 30, 2003 62,400,000
May 31, 2003 through May 30, 2004 56,550,000
or (b) the amount to which the Maximum Revolving Credit Amount may have
been reduced pursuant to Section 2.12; provided that if the obligation
of the Lenders to make further Loans is terminated upon the occurrence
of an Event of Default, the Maximum Revolving Credit Amount as of any
date of determination thereafter shall be deemed to be $0.
Section 2. Revised Revolving Credit Notes. The Agent, the Documentation
Agent, the Lenders, American Ski, and the Borrowers hereby agree that the
Borrowers shall execute and deliver to the Lenders the Revolving Credit Notes in
the form of Exhibit A hereto to evidence the Revolving Credit Advances, which
notes, from and after the date hereof, shall be deemed to be the Revolving
Credit Notes under the Credit Agreement. Accrued interest on the Borrowers'
Revolving Credit Notes dated November 12, 1997, through the date hereof shall be
paid on the dates for payment thereof under the Credit Agreement.
Section 3. Sale and Leaseback. Section 9.11 of the Credit Agreement is
hereby amended by inserting the following at the end of that section:
Provided, however, that on or before July 31, 1998, ASC West, Inc. may
sell or transfer non-essential equipment to American Ski and ASC East,
in an aggregate amount of not greater than $500,000, with the intention
of taking back a lease of the same property, so long as the rights in
such lease are granted to the Agent, all on terms acceptable to the
Agent. Such equipment shall be transferred or sold subject to the
continuing security interest of the Agent and the Lenders and shall
continue to be Collateral.
Section 4. Events of Default. Section 10.1 of the Credit Agreement is
hereby amended by deleting paragraph (e) clause (ii) in its entirety and
substituting therefor the following:
(ii) shall fail to observe or perform its covenants, agreements and
obligations under any other material lease or other agreement by which
it is bound, including the $25,000,000 leasing facility with BankBoston
Leasing, Inc., dated as of July 20, 1998.
Section 5. Effectiveness; Conditions to Effectiveness. This First
Amendment to Credit Agreement shall become effective as of July 20, 1998 upon
execution hereof by the Borrowers, the Lenders, and the Agent and satisfaction
of the following conditions:
(a) Revolving Credit Notes. The Borrowers shall have delivered
to the Lenders revised Revolving Credit Notes in the aggregate principal
amount of $75,000,000, in the form of Exhibit A hereto, in exchange for
the outstanding Revolving Credit Notes dated November 12, 1997.
(b) Officers' Certificate. The Borrowers and American Ski
shall have delivered to the Agent an Officers' Certificate in the form
of Exhibit B hereto.
(c) Opinion of Counsel. The Borrowers and American Ski shall
have delivered to the Agent an opinion of Pierce Atwood, counsel to
American Ski and the Borrowers, in form and substance satisfactory to
the Agent.
(d) Execution of the First Amendment to Amended and Restated
Credit Agreement. Execution of the First Amendment to Amended and
Restated Credit Agreement among the ASC East Borrowers, the Agent, the
Documentation Agent and the Lenders party thereto simultaneously
herewith and the compliance by the ASC East Borrowers with all
agreements contained in the First Amendment to Amended and Restated
Credit Agreement, including satisfaction of all conditions precedent to
effectiveness thereunder.
Section 6. Amendments to Mortgages. American Ski and the Borrowers
hereby covenant that promptly following the execution and delivery of this First
Amendment to Credit Agreement, American Ski and the Borrowers shall duly and
properly record and file amendments to the Mortgages, Collateral Assignments of
Leases, Collateral Assignments of Income, Assignments in Trust and Assignments
of Licenses, reflecting the increase in the amount secured by $10,000,000, in
form and substance acceptable to the Agent.
Section 7. Representations and Warranties; No Default. American Ski and
the Borrowers, jointly and severally, hereby confirm to the Agent and the
Lenders, the representations and warranties of American Ski and the Borrowers
set forth in Article 5 of the Credit Agreement (as amended hereby) as of the
date hereof, as if set forth herein in full. American Ski and the Borrowers
hereby certify that, after giving effect to this First Amendment to Credit
Agreement, no Default exists under the Credit Agreement (unless stated to relate
solely to an earlier date, in which case they were true and correct as of such
earlier date).
Section 8. Miscellaneous. The Borrowers agree to pay on demand all the
Agent's reasonable expenses in preparing, executing and delivering this First
Amendment to Credit Agreement, and all related instruments and documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
the Agent's special counsel, Goodwin, Procter & Hoar LLP. All references to the
Credit Agreement in the Credit Agreement, the other Lender Agreements or any
other document shall be deemed to refer to the Credit Agreement as amended
hereby. This First Amendment to Credit Agreement shall be a Lender Agreement and
shall be governed by and construed and enforced under the laws of The
Commonwealth of Massachusetts.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, American Ski, the Borrowers, the Lenders, the
Documentation Agent, and the Agent have caused this First Amendment to Credit
Agreement to be executed by their duly authorized officers as of the date first
set forth above.
ASC UTAH
ASC WEST, INC.
STEAMBOAT SKI & RESORT CORPORATION
STEAMBOAT DEVELOPMENT CORPORATION
HEAVENLY VALLEY SKI & RESORT CORPORATION
HEAVENLY CORPORATION
By:/s/ Christopher E. Howard
----------------------------
Name: Christopher E. Howard
Title: Senior Vice President
HEAVENLY VALLEY, LIMITED PARTNERSHIP
By: Heavenly Corporation, its general partner
By:/s/ Christopher E. Howard
----------------------------
Name: Christopher E. Howard
Title: Senior Vice President
AMERICAN SKIING COMPANY
By:/s/ Christopher E. Howard
----------------------------
Name: Christopher E. Howard
Title: Senior Vice President
BANKBOSTON, N.A., as Agent
By: /s/ Carlton F. Williams
----------------------------
Name: Carlton F. Williams
Title: Director
DLJ CAPITAL FUNDING, INC., as Documentation Agent
By: /s/ illegible
-----------------------------
Name:
Title:
BANKBOSTON, N.A.
By: /s/ Carlton F. Williams
----------------------------
Name: Carlton F. Williams
Title: Director
DLJ CAPITAL FUNDING, INC.
By: /s/ illegible
-----------------------------
Name:
Title:
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/ illegible
--------------------------------
Name:
Title:
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Daniel G. Admans
---------------------------------
Name: Daniel G. Adams
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION d/b/a COLORADO NATIONAL
BANK
By: /s/ William J. Sullivan
----------------------------------
Name: William J. Sullivan
Title: Vice President
FIRST SECURITY BANK, N.A.
By: Dick Van Klaveren
--------------------------------
Name:Dick Van Klaveren
Title: Vice President
FLOATING RATE PORTFOLIO
By: INVESCO SENIOR SECURED MANAGEMENT, INC.,
As Attorney in Fact
By: /s/ Anne McCarthy
--------------------------------
Name: Anne McCarthy
Title: Authorized Signatory
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By:/s/ John M. Johnson
--------------------------
Name: John M. Johnson
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By:/s/ John M. Johnson
--------------------------
Name: John M. Johnson
Title: Authorized Signatory
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
By: Jeffrey M. Maillet
--------------------------
Name: Jeffrey M. Maillet
Title: Senior Vice President & Director
<PAGE>
EATON VANCE SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as
Investment Advisor
By: Payson F. Swaffield
-------------------------
Name: Payson F. Swaffield
Title: Vice President
CAPTIVA II FINANCE, LTD.
By:/s/ illegible
--------------------------
Name:
Title:
HOWARD BANK
By:/s/ illegible
--------------------------
Name:
Title:
STANFIELD CAPITAL PARTNERS
By:/s/ illegible
--------------------------
Name:
Title:
KZH-PAMCO CORPORATION
By:/s/ illegible
--------------------------
Name:
Title:
PAM CAPITAL FUNDING, L.P.
By: Highland Capital Management L.P., as
Collateral Manager
By:/s/ illegible
--------------------------
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: Cypress Tree Investment Management Company, Inc., as
Portfolio Manager
By:/s/ illegible
--------------------------
Name:
Title:
KZH Holding Corporation III
By:/s/ illegible
--------------------------
Name:
Title:
(Multicurrency-Cross Border)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of May 12,1998
BankBoston, N.A. and American Skiing Company
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:-
1. Interpretation
(a) Definitions. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified. in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments in
the required currency. Where settlement is by delivery (that is, other
than by payment), such delivery will be made for receipt on the due
date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of Each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified
in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:-
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that
party ("X") will:-
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required
to be deducted or withheld (including the full amount required
to be deducted or withheld from any additional amount paid by
X to Y under this Section 2(d) promptly upon the earlier of
determining that such deduction or withholding is required or
receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition
to the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure
that the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will
equal the full amount Y would have received had no such
deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that
it would not be required to be paid but for:-
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure
would not have occurred but for (I) any action taken by
taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is
entered into (regardless of whether such action is taken or
brought with respect to a party to this Agreement) or (II) a
Change in Tax Law.
(ii) Liability. If:-
(1) X is required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, to make any deduction or
withholding in respect of which X would not be required to pay an additional
amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against
X, then. except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such liability
(including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) The date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until The
termination of this Agreement) that:-
(a) Basic Representations.
(i) Status. It is duly organized and validly existing under the laws of
the jurisdiction of its Organization or incorporation and, if relevant
under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it has
under any Credit Support Document to which it is a party and has taken
all necessary action to authorize such execution, delivery and
performance;
(iii) No Violation or Conflict. Such execution, delivery and performance
do not violate or conflict with any law applicable to it, any provision
of its constitutional documents, any order or judgment of any court or
other agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in
full force and effect and all conditions of any such consents have been
complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a
proceeding in equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) Payer Tax Representation. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) Payee Tax Representations. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. Agreements
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:-
(a) Furnish Specified Information. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:-
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) - upon reasonable demand by such other party, any form or
document that may be required or reasonably requested in writing in order to
allow such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any deduction
or withholding for or on account of any Tax or with such deduction or
withholding at a reduced rate (so long as the completion, execution or
submission of such form or document would not materially prejudice the legal or
commercial position of the party in receipt of such demand), with any such form
or document to be accurate and completed in a manner reasonably satisfactory to
such other party and to be executed and to be delivered with any reasonably
required certification, n each case by The date specified in the Schedule or
such Confirmation or, if none is specified, as soon as reasonably practicable.
(b) Maintain Authorizations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated, organized, managed and
controlled, or considered to have its seat, or in which a branch or office
through which it is acting for the purpose of this Agreement is located ("Stamp
Tax Jurisdiction") and will indemnify the other party against any Stamp Tax
levied or imposed upon the other party or in respect of the other party's
execution or performance of this Agreement by any such Stamp Tax Jurisdiction
which is not also a Stamp Tax Jurisdiction with respect to the other party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:-
(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) required to be made by it if. such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied
with or performed by the party in accordance with this Agreement if
such failure is not remedied on or before the thirtieth day after
notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of
such party to comply with or perform any agreement or
obligation to be complied with or performed by it in
accordance with any Credit Support Document if such failure is
continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of
this Agreement (in either case other than in accordance with
its terms) prior to the satisfaction of all obligations of
such party under each Transaction to which such Credit Support
Document relates without the written consent of the other
party; or
(3) The party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party
in this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material resect when made or repeated or
deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to
any applicable notice requirement or grace period, there occurs a
liquidation of, an acceleration of obligations under, or an early
termination of, that Specified Transaction, (2) defaults, after giving
effect to any applicable notice requirement or grace period, in making
any payment or delivery due on the last payment, delivery or exchange
date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local
Business Days if there is no applicable notice requirement or grace
period) or (3) disaffirms, disclaims, repudiates or rejects, in whole
or in part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act on its
behalf)-,
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
described) in respect of such party, any Credit Support Provider of
such party or any applicable Specified Entity of such party under one
or more agreements or instruments relating to Specified Indebtedness of
any of them (individually or collectively) in an aggregate amount of
not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable
under such agreements or instruments, before it would otherwise have
been due and payable or (2) a default by such party, such Credit
Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in
an aggregate amount of not less than the applicable Threshold Amount
under such agreements or instruments (after giving effect to any
applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:-
(1) is dissolved (other than pursuant to a consolidation, amalgamation
or merger);
(2) becomes insolvent or is unable to pay its debts or fails or admits
in writing its inability generally to pay its debts as they become
due;
(3) makes a general assignment, arrangement or composition with or for
the benefit of its creditors;
(4) institutes or has instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors'
rights, or a petition is presented for its winding-up or liquidation,
and, in the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in a
judgment of insolvency or bankruptcy or the entry of an order for
relief or the making of an order for its winding-up or liquidation or
(E) is not dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof;
(5) has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation or
merger);
(6) seeks or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian or
other similar official for it or for all or substantially all its
assets;
(7) has a secured party take possession of all or substantially all
its assets or has a distress, execution, attachment, sequestration or
other legal process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged, stayed
or restrained, in each case within 30 days thereafter;
(8) causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect to
any of the events specified in clauses (1) to (7) (inclusive); or
(9) takes any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:-
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit
Support Provider under this Agreement or any Credit Support
Document to which it or its predecessor was a party by
operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its
obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event Upon Merger if the event is
specified pursuant to (iv) below or an Additional Termination Event if the event
is specified pursuant to (v) below:-
(i) Illegality. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent jurisdiction
of any applicable law after such date, it becomes unlawful (other than
as a result of a breach by the party of Section 4(b)) for such party
(which will be the Affected Party):-
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other
material provision of this Agreement relating to such
Transaction; or
(2) to perform, or for any Credit Support Provider of such
party to perform, any contingent or other obligation which the
party (or such Credit Support Provider) has under any Credit
Support Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will,
or there is a substantial likelihood that it will, on the next
succeeding Scheduled Payment Date (1) be required to pay to the other
party an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except
in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no
additional amount is required to be paid in respect of such Tax under
Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or
(B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on The
next succeeding Scheduled Payment Date will either (1) be required to
pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account of any Indemnifiable Tax in
respect of which the other party is not required to pay an additional
amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in
either case as a result of a party consolidating or amalgamating with,
or merging with or into, or transferring all or substantially all its
assets to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If Credit Event Upon Merger is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate,
will be the Affected Party); or
(v) Additional Termination Event. If any "Additional Termination Event'
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in The Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, borrower,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) Transfer to A void Termination Event. If either an Illegality
under Section 5(b)(i)(1) or a Tax Event occurs and There is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
Party is the Affected Party, the Affected Party will, as a condition to
its right to designate an Early Termination Date under Section
6(b)(iv), use all reasonable efforts (which will not require such party
to incur a loss, excluding immaterial, incidental expenses) to transfer
within 20 days after it gives notice under Section 6(b)(i) all its
rights and obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such
Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give notice to
the other party to that effect within such 20 day period, whereupon the other
party may effect such a transfer within 30 days after the notice is given under
Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and
conditional upon the prior written consent of the other party, which consent
will not be withheld if such other party's policies in effect at such time would
permit it to enter into transactions with the transferees on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or
a Tax Event occurs and there are two Affected Parties, each party will
use all reasonable efforts to each agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iv) Right to Terminate. If:-
(1) a transfer under Section 6(b)(ii) or an agreement under Section
6(b)(iii), as the case may be, has not been effected with respect to
all Affected Transactions within 30 days after an Affected Party gives
notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger
or an Additional Termination Event occurs, or a Tax Event Upon Merger
occurs and the Burdened Party is not the Affected Party, either party
in the case of an Illegality, the Burdened Party in the case of a Tax
Event Upon Merger, any Affected Party in the case of a Tax Event or an
Additional Termination Event if there is more than one Affected Party,
or the party which is not The Affected Party in the case of a Credit
Event Upon Merger or an Additional Termination Event if there is only
one Affected Party may, by not more Than 20 days notice to the other
party and provided that the relevant Termination Event is then
continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving details
of the relevant account to which any amount payable to it is to be paid.
In the absence of written confirmation from the source of a quotation
obtained in determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the existence
and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment) in the Termination Currency, from (and including) the
relevant Early Termination Date to (but excluding) the date such amount
is paid, at the Applicable Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an
Event of Default:-
(1) First Method and Market Quotation if the First Method and Market
Quotation apply the Defaulting Party will pay to the Non-defaulting
Party the excess, if a positive number, of (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect
of the Terminated Transactions and the Termination Currency
Equivalent of the Unpaid Amounts owing to the Non-Defaulting Party
over (B) the Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party.
(2) First Method and Loss. If The First Method and Loss apply, the
Defaulting Party will pay to The Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) The
sum of the Settlement Amount (determined by the Non-defaulting Party)
in respect of the Terminated Transactions and the Termination
Currency Equivalent of the Unpaid Amounts owing to The Non-defaulting
Party less (B) the Termination Currency Equivalent of the Unpaid
Amounts owing to the Defaulting Party. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting Party;
if it is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:-
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:-
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with
the bigger Settlement Amount ("X") and the Settlement Amount of
the party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B)if Loss applies, each party will determine its Loss in respect
of this Agreement (or, if fewer than all the Transactions are
being terminated, in respect of all Terminated Transactions) and
an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will I pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies
in respect of a party, the amount determined under this Section 6(e)
will be subject to such adjustments as are appropriate and permitted by
law to reflect any payments or deliveries made by one party to the
other under this Agreement (and retained by such other party) during
the period from the relevant Early Termination Date to the date for
payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in, a reasonable manner
and in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of The Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and The rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
9. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes The entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under This Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and Each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or, the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organization of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early termination of
any Transaction, including, but not limited to, costs of collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:-
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answer back is
received;
(iii) if sent by facsimile transmission (on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered
or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received, unless the date of that delivery (or attempted
delivery) or that receipt, as applicable, is not a Local Business Day or
that communication is delivered (or attempted) or received, as
applicable, after the close of business on a Local Business Day, in which
case that communication shall be deemed given and effective on the first
following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan in
New York City, if this Agreement is expressed to be governed by the
laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of The Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent acceptable to
the other party. The parties irrevocably consent to service of process given in
the manner provided for notices in Section 12. Nothing in this Agreement will
affect the right of either party to serve process in any other manner permitted
by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use, all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. Definitions
As used in this Agreement:-
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:-
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1 % per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organized, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except so as to avoid duplication, if Section 6(e)(i)(1) or (3) or
6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from. Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a Transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was. absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group of
Terminated Transactions are to be excluded but, without limitation, any payment
or delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement Transaction would
be subject to such documentation as such party and the Reference Market-maker
may, in ,good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the extent
reasonably practicable as of the same day and time (without regard to different
time zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be
obtained will be selected in good faith by the party obliged to make a
determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if more
than one quotation has the same highest value or lowest value, then one of such
quotations shall be disregarded. If fewer than three quotations are provided, it
will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head or
home office.
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at t he time in deciding whether to offer or to
make an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organized, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:-
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such-party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for Each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these Transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in Each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined by the party obliged to
make the determination under Section 6(e) or, if Each party is so obliged, it
shall be the average of The Termination Currency Equivalents of the fair market
values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
BankBoston, N.A. American Skiing Company
................................ .....................................
(Name of Party) (Name of Party)
/s/ Robert G. Scott /s/ Thomas M. Richardson
By: .......................... By: ..................................
Name: Robert G. Scott Name: Thomas Richardson
Title: Managing Director Title: Chief Financial Officer
Date: Date: August 1, 1998
Approval (for BankBoston, N.A. intemal purposes only):
(Multicurrency - Cross Border)
SCHEDULE
to the
ISDA Master Agreement
dated as of May 12,1998
between
BANKBOSTON, N.A.
("Party A")
and
AMERICAN SKIING COMPANY
("Party B")
Part 1. Termination Provisions.
(a) "Specified Entity" means in relation to Party A for the purpose of:
Section 5(a)(v): Not Applicable
Section 5(a)(vi): Not Applicable
Section 5(a) (vii): Not Applicable
Section 5(b)(iv): Not Applicable
and in relation to Party B for the purpose of:
Section 5(a)(v): All Affiliates
Section 5(a)(vi): All Affiliates
Section 5(a) (vii): All Affiliates
Section 5(b)(iv): All Affiliates
(b) "Specified Transaction" will have the meaning specified in Section 14.
(c) The "Cross Default" provisions of Section 5(a)(vi) will not apply to Party A
and will apply to Party B, subject to the following proviso being inserted at
the end thereof:
";provided, however, that notwithstanding the foregoing, an Event of Default
shall not occur under either (1) or (2) above, if (a) the event or condition
referred to in (1) or the failure to pay referred to in (2) is a failure to pay
caused by an error or omission of an administrative or operational nature, (b)
funds were available to such party to enable it to make the relevant payment
when due, and (c) such relevant payment is made within three Local Business Days
following receipt of written notice from an interested party of such failure to
pay".
If such provisions apply:
"Specified Indebtedness" will have the meaning specified in Section 14.
"Threshold Amount" shall mean, with respect to Party B, USD 100,000.
(d) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will apply to
Party A and will apply to Party B.
The "Automatic Early Termination" provisions of Section 6(a) will not apply to
Party A and will not apply to Party B, provided, however, that where the Event
of Default specified in Sections 5 (a)(vii)(1), (3), (4), (5), (6) or, to the
extent analogous thereto, (8) is governed by a system of law which does not
permit termination to take place after the occurrence of the relevant Event of
Default, the Automatic Early Termination provisions of Section 6(a) will apply
to the relevant party. If Automatic Early Termination of the Agreement does
occur as a result of this provision, the Defaulting Party shall fully indemnify
the Non-Defaulting Party on demand against all expense, loss, damage or
liability that the Non-Defaulting Party may incur in respect of the Agreement
and each transaction as a consequence of movements in interest, currency,
exchange or other relevant rates or prices between the Business Day on which
such Automatic Early Termination occurs and the Business Day on which the
Non-Defaulting Party first becomes aware that the Agreement has been terminated
pursuant to this provision. The Non-Defaulting Party may for this purpose
convert any such expense, loss, damage or hability to the Termination Currency.
Payments on Early Termination. For the purpose of Section 6(e) of this
Agreement:
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "Termination Currency" means U.S. dollars.
(h) Additional Termination Event will not apply.
Part 2. Tax Representations.
(a) Payer Representations. For the purpose of Section 3(e), Party A and Party B
will make the following representation:
It is not required by any applicable law, as modified by the practice of any
relevant governmental revenue authority of any Relevant jurisdiction to make any
deduction or withholding for or on account of any tax from any payment (other
than interest under Sections 2(e), 6(d)(ii) or 6(e) of this Agreement) to be
made by it to the other party under this Agreement. In making this
representation, it may rely on:-
(i) the accuracy of any representation made by the other party pursuant
to Section 3(f);
(ii) the satisfaction of the agreement of the other party contained in
Section 4(a)(i) or 4(a)(iii) and the accuracy and effectiveness of any
document provided by the other party pursuant to Section 4(a)(i) or
4(a)(iii); and
(iii) the satisfaction of the agreement of the other party contained in
Section 4(d) provided that it shall not be a breach of this
representation where reliance is placed on clause (ii) and the other
party does not deliver a form or document under Section 4 (a) (iii) by
reason of material prejudice to its legal or commercial position.
(b) Payee Representations. For the purpose of Section 3(f) of this Agreement,
Party A and Party B make the representations specified below, if any:
(i) Party A represents that it is a national banking association
organized under the laws of the United States of America.
(ii) Party B represents that it is a corporation organized under the
laws of the State of Maine.
Part 3. Agreement to Deliver Documents.
<TABLE>
<CAPTION>
For the purposes of Section 4(a) of the Agreement the other documents to be
delivered are:
<S> <C> <C> <C>
Party required to deliver Form/Document/ Date by which to be Covered by Section 3(d)
document Certificate delivered Representation
Party A, Party B and any Evidence of the authority, Upon execution of this Yes.
Credit Support Provider incumbency and specimen Agreement, any Credit
signature of each person Support Document and, upon
executing this Agreement, request, any Confirmation.
any Credit Support Document
and any Confirmation on its
behalf.
Party B and any Credit A legal opinion in form and Upon execution of this No.
Support Provider of Party B. substance acceptable to Agreement.
Party A.
Party A. A copy of BankBoston Promptly upon request by Yes.
Corporation's most recent Party B.
annual report containing
consolidated year end
financial statements
certified by independent
public accountants.
Party B. A copy of Party B's most Promptly upon request by Yes.
recent annual report Party A.
containing year end
financial statements
certified by independent
public accountants.
Party B. A copy of Party B's Promptly upon request by Yes.
quarterly financial Party A.
statements.
</TABLE>
Part 4. Miscellaneous.
(a) Address for Notices. For the purpose of Section 12(a) of this
Agreement:
I. Address for notices to Party A:
For Confirmations/Settlements/Collateral Transfers/Resets:
(i) acting through its Boston Head Office
Address: BankBoston, N.A. 100 Federal Street Boston, MA 02110
Attn: Senior Manager, Derivatives Operations, 01-13-08
Tel No: (617) 434-7221
Fax No: (617) 434-4284
For all notices or communications given in respect of Section 5, 6, 7, 11 or 13
of this Agreement:
Address: BankBoston, N.A. 100 Federal Street Boston, MA 02110
Attn: Managing Director, Derivatives, 01-13-08
Tel No: (617) 434-7529
Fax No: (617) 434-1149 or 639-9342
with a copy to:
BankBoston, N.A.
Attn: General Counsel
100 Federal Street, 01-25-01
Boston, MA 02110
Tel No: (617) 434-2870
Fax No: (617) 434-6525
II. Address for notices or communications to Party B:
Address: American Skiing Company Sunday River Road P.O. Box 450
Bethel, Maine 04217
Attention: Thomas M. Richardson, Sr. VP
Tel No: 207-824-5160
Fax No: 207-824-5158
(b) Process Agent. For the purpose of Section 13(c) of this Agreement:
Party A Appoints as its Process Agent:
BankBoston International 590 Madison Avenue, 22nd Floor New York, NY 10022
with a copy to:
BankBoston, N.A.
100 Federal Street, 01-25-01
Boston, MA 02110
Attn: General Counsel
Party B appoints as its Process Agent:.
Not applicable.
(c) Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(c) of this Agreement: Party
A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) Calculation Agent. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) Credit Support Document. In relation to Party B, Credit Support Document
means the Credit Support Annex attached hereto.
(g) Credit Support Provider. Credit Support Provider means (x) in relation to
Party A, not applicable, and (y) in relation to Party B.
(h) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York, without reference to choice
of law doctrine.
(i) Netting of Payments. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to any Transactions under this Agreement.
(J) "Affiliate" will have the meaning specified in Section 14. Part 5. Other
Provisions. (a) Set-Off.
Any amount (the "Early Termination Amount") payable to one party (the
Payee) by the other party (the Payer) under Section 6(e), in
circumstances where there is a Defaulting Party or one Affected Party in
the case where a Termination Event under Section 5(b)(iv) has occurred,
will, at the option of the party ("X") other than the Defaulting Party
or the Affected Party (and without prior notice to the Defaulting Party
or the Affected Party), be reduced by its set-off against any amount(s)
(the "Other Agreement Amount") payable (whether at such time or in the
future or upon the occurrence of a contingency) by the Payee to the
Payer (irrespective of the currency, place of payment or booking office
of the obligation) under any other agreement(s) between the Payee and
the Payer or instrument(s) or undertaking(s) issued or executed by one
party to, or in favor of, the other party (and the Other Agreement
Amount will be discharged promptly and in all respects to the extent it
is so set-off X will give notice to the other party of any set-off
effected under this Section 5(a).
For this purpose, either the Early Termination Amount or the Other Agreement
Amount (or the relevant portion of such amounts) may be converted by X into the
currency in which the other is denominated at the rate of exchange at which such
party would be able, acting in a reasonable manner and in good faith, to
purchase the relevant amount of such currency.
If an obligation is unascertained, X may in good faith estimate that obligation
and set-off in respect of the estimate, subject to the relevant party accounting
to the other when the obligation is ascertained.
Nothing in the Section 5(a) shall be effective to create a charge or other
security interest. This Section 5 (a) shall be without prejudice and in addition
to any right of set-off, combination of accounts, lien or other right to which
any party is at any time otherwise entitled (whether by operation of law,
contract or otherwise).
(b) Definitions.
(i) This Agreement, each Confirmation and each Transaction are subject
to the 1991 ISDA Definitions (as published by the International Swaps
and Derivatives Association, Inc.) as amended, supplemented or restated
from time to time (the "Definitions"), and will be governed in all
respects by the provisions set forth in the Definitions. The Definitions
are incorporated by reference in, and shall be deemed to be part of,
this Agreement and each Confirmation, as if set forth in full in this
Agreement or in each such Confirmation. In the event of any
inconsistency between the provisions of this Agreement and the
Definitions, this Agreement will prevail. In the event of any
inconsistency between the provisions of any Confirmation and this
Agreement, such Confirmation will prevail for the purpose of the
relevant Transaction.
(ii) With effect from and including the date of this Agreement (A) any
reference to a "Swap Transaction" in the Definitions is deemed to be a
reference to a "Transaction" for the purpose of interpreting this
Agreement or any Confirmation and (B) any reference to a "Transaction"
in this Agreement or any Confirmation is deemed to be a reference to a
"Swap Transaction" for the purpose of interpreting the Definitions.
(c) Procedures for Entering into Confirmations.
With respect to each Transaction entered into pursuant hereto, Party A
shall, on or promptly after the Trade Date thereof, send Party B a
Confirmation confirming such Transaction, and Party B shall promptly
thereafter confirm the accuracy of, or request the correction of, such
Confirmation.
Where a Transaction is confirmed by means of (i) an exchange of electronic
messages on an electronic messaging system, (ii) another form of document or
(iii) other confirming evidence exchanged between the parties confirming such
Transaction, such messages, document or evidence will constitute a Confirmation
for the purposes of this Agreement even where not so specified therein.
(d) Additional Party B Event of Default.
It shall constitute an additional Event of Default under Section 5(a)
of this Agreement in respect of which Party B shall be the Defaulting Party upon
the failure by Party B to observe, perform and fulfill each and every covenant,
term and provision applicable to it in that certain Amended and Restated Credit
Agreement, dated as of November 12, 1997, as amended and/or restated from time
to time, by and among the various parties listed therein as Borrowers; Party B
as Guarantor; the Lenders party thereto; Party A as Agent for the Lenders; and
DLJ Capital Funding, Inc. as Documentation Agent for the Lenders (the "Credit
Agreement"), provided that in the event that the Credit Agreement terminates
prior to the performance in full by Party B of all of its duties and obligations
under this Agreement, the covenants, terms and provisions of the Credit
Agreement applicable to Party B which were in effect as of the date of such
termination, other than those requiring payments in respect of amounts owed
under the Credit Agreement, shall remain in full force and effect for purposes
of this Agreement as though until such time as all of Party B's duties and
obligations under this Agreement are fully performed.
The aforementioned covenants, terms, and provisions of the Credit Agreement are
hereby incorporated into this Agreement by reference as if fully set forth
herein.
(e) Accuracy of Specified Information.
Section 3(d) of this Agreement is hereby amended by adding in the third
line thereof, after the word "respect" and before the period, the words
"or, in the case of audited or unaudited financial statements or balance
sheets, a fair presentation of the financial condition of the relevant
person".
(f) Additional Representations.
For purposes of Section 3 of this Agreement, the following shall be added
immediately following paragraph (f) thereof:
"(g) This Agreement and each Transaction constitutes a "swap agreement"
within the meaning of Commodity Futures Trading Commission ("CFTC")
Regulations Section 35.1(b)(1).
(h) It is an "eligible swap participant" within the meaning of CFTC
Regulations Section 35.1 (b) (2).
(i) Neither this Agreement nor any Transaction is one of a fungible
class of agreements that are standardized as to their material economic
terms, within the meaning of CFTC Regulations Section 35.2(b).
j) The creditworthiness of the other party was or will be a material
consideration in entering into or determining the terms of this
Agreement and each Transaction, including pricing, cost or credit
enhancement terms of the Agreement or Transaction, within the meaning
of CFTC Regulations Section 35.2(c).
(k) It has entered into this Agreement (including each Transaction
evidenced hereby) in conjunction with its line of business (including
financial intermediation services) or the financing of its business.
(l) It engages, will engage and holds itself out as engaging in
"financial contracts", as defined in Regulation EE of the Federal
Reserve Board, as a counterparty on both sides of one or more
"financial markets" (as defined in such regulation) and it fulfills at
least one of the quantitative tests contained in such regulation.
(m) Relationship Between Parties. Each party will be deemed to
represent to the other party on the date on which it enters into a
Transaction that (absent a written agreement between the parties that
expressly imposes affirmative obligations to the contrary for the
Transaction):
(i) Non-Reliance. It is acting for its own account, and it has
made its own independent decisions to enter into that Transaction and
as to whether that Transaction is appropriate or proper for it based
upon its own judgment and upon advice from such advisors as it has
deemed necessary. It is not relying on any communication (written or
oral) of the other party as investment advice or as a recommendation to
enter into that Transaction; it being understood that information and
explanations related to the terms and conditions of a Transaction shall
not be considered investment advice or a recommendation to enter into
that Transaction. It has not received from the other party any
assurance or guarantee as to the expected results of that Transaction.
(ii) Assessment and Understanding. It is capable of assessing
the merits of and understanding (on its own behalf or through
independent professional advice), and understands and accepts, the
terms, conditions and risks of that Transaction. It is also capable of
assuming, and assumes, the risks of that Transaction.
(iii) Status of Parties. The other party is not acting as a
fiduciary for or as an advisor to it in respect of that Transaction.
(g) Recording.
Each party hereto consents to the monitoring or recording, at any time
and from time to time, by the other party of any and all communications
between officers or employees of the parties, waives any further notice
of such monitoring or recording, and agrees to notify its officers and
employees of such monitoring or recording.
(h) Escrow.
(i) If the parties are each required to make payments pursuant to
Section 2(a) on the same day in respect of a Transaction but the
payments are to be made in different currencies, the party that
receives the payment due to it first shall hold an amount equal to the
payment it received in trust (with the right to commingle that amount
with its general funds) for the benefit of the other party until that
other party receives the corresponding payment due to it.
If, by reason of the time difference between the cities in which
payments are to be made, it is not possible for simultaneous payments to be made
on any date on which both parties are required to make payments hereunder,
either party may at its option and in its sole discretion notify the other party
that payments on that date are to be made in escrow. In this case deposit of the
payment due earlier on that day shall be made by 2:00 p.m. (local time at the
place for the earlier payment) on that date with an escrow agent selected by the
party giving the notice, accompanied by irrevocable payment instructions (i) to
release the deposited payment to the intended recipient upon receipt by the
escrow agent of the required deposit of the corresponding payment from the other
party on the same date accompanied by irrevocable payment instructions to the
same effect, or (ii) if the required deposit of the corresponding payment is not
made on that same date, to return the payment deposited by the party that paid
it into escrow. The party that elects to have payments made in escrow shall pay
the costs of the escrow arrangements and shall cause those arrangements to
provide that the intended recipient of the payment due to be deposited first
shall be entitled to interest on that deposited payment for each day in the
period of its deposit at the rate offered by the escrow agent.
(i) Negative Interest Rates.
(i) Floating Amounts. "Swap Transaction" means, for the purposes of
this provision concerning Negative Interest Rates, a rate exchange or
swap transaction, including transactions involving a single currency or
two or more currencies. Party A and Party B agree that, if with respect
to a Calculation Period for a Swap Transaction
either party is obligated to pay a Floating Amount that is a negative
number (either due to a quoted negative Floating Rate or by operation
of a Spread that is subtracted from the Floating Rate), the Floating
Amount with respect to that party for that Calculation Period will be
deemed to be zero, and the other party will pay to that party the
absolute value of the negative Floating Amount as calculated, in
addition to any amounts otherwise owed by the other party for that
Calculation Period with respect to that Swap Transaction, on the
Payment Date that the Floating Amount would have been due if it had
been a positive number. Any amounts paid by the other party with
respect to the absolute value of a negative Floating Amount will be
paid to such account as the receiving party may designate (unless such
other party gives timely notice of a reasonable objection to such
designation) in the currency in which that Floating Amount would have
been paid if it had been a positive number (and without regard to the
currency in which the other party is otherwise obligated to make
payments).
(ii) Compounding. Party A and Party B agree that, if with respect to
one or more Compounding Periods for a Swap Transaction where
"Compounding" or "Flat Compounding" is specified to be applicable, the
Compounding Period Amount, the Basic Compounding Period Amount or the
Additional Compounding Period Amount is a negative number (either due
to a quoted negative Floating Rate or by operation of a Spread that is
subtracted from the Floating Rate), then the Floating Amount for the
Calculation Period in which that Compounding Period or those
Compounding Periods occur will be either the sum of all the Compounding
Period Amounts or the sum of all the Basic Compounding Period Amounts
and all the Additional Compounding Period Amounts in that Calculation
Period (whether positive or negative). If such sum is positive, then
the Floating Rate Payer with respect to the Floating Amount so
calculated will pay that Floating Amount to the other party. If such
sum is negative, the Floating Amount with respect to the party that
would be obligated to pay that Floating Amount will be deemed to be
zero, and the other party will pay to that party the absolute value of
the negative Floating Amount as calculated, such payment to be made in
accordance with (i) above.
Part 6. EMU; Continuity of Contract.
(a) The parties confirm that, except as provided in subsection (b) below,
the occurrence or non-occurrence of an event associated with economic
and monetary union in the European Community will not have the effect
of altering any term of, or discharging or excusing performance under,
this Agreement or any Transaction, give a party the right unilaterally
to alter or terminate this Agreement or any Transaction or, in and of
itself, give rise to an Event of Default, Termination Event or
otherwise be the basis for the effective designation of an Early
Termination Date.
"An event associated with economic and monetary union in the European
community" includes, without limitation, each (and any combination) of
the following:
(i) the introduction of, changeover to or operation of a single or
unified European currency (whether known as the euro or otherwise);
(ii) the fixing of conversion rates between a member state's currency and
the new currency or between the currencies of member states;
(iii) the substitution of that new currency for the ECU as the unit of
account of the European Community;
(iv) the introduction of that new currency as lawful currency in a member
state;
(v) the withdrawal from legal tender of any currency that, before the
introduction of the new currency, as lawful currency in one of the member
states; or
(vi) the disappearance or replacement of a relevant rate option or other
price source for the ECU or the national currency of any member state, or
the failure of the agreed sponsor (or a successor sponsor) to publish or
display a relevant rate, index, price, page or screen.
(b) Any agreement between the parties that amends or overrides the
provisions of this Section in respect of any Transaction will be
effective if it is in writing and expressly refers to this Section or
to European monetary union or to an event associated with economic and
monetary union in the European Community and would otherwise be
effective in accordance with Section 9(b).
IN WITNESS WHEREOF, the parties have executed this Schedule as of the
date specified on the first page hereof.
BANKBOSTON, N.A. AMERICAN SKIING COMPANY
By: /s/ Robert G. Scott By: /s/ Thomas M. Richardson
-------------------- ------------------------
Name: Robert G. Scott Name: Thomas Richardson
Title: Managing Director Title: Chief Financial Officer
Approval (for BankBoston, N.A. internal purposes only):
(Bilateral Form) (ISDA Agreements Subject to New York Law Only)
ISDA(R)
International Swaps and Derivatives Association, Inc.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA Master Agreement
..........................................................
May 12,1998
dated as of ...........................
between
BankBoston, N.A. and American Skiing Company
("Party A") ("Party B")
This Annex supplements, form part of, and is subject to, the above-referenced
Agreement, is part of its Schedule and is a Credit Support Document under this
Agreement with respect to each party.
Accordingly, the parties agree as follows:-
Paragraph I. Interpretation
(a) Definitions and Inconsistency. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified pursuant to
Paragraph 12, and all References in this Annex to Paragraphs are to Paragraphs
of this Annex. In the event of any inconsistency between this Annex and the
other provisions of this Schedule, this Annex will prevail, and in the event of
any inconsistency between Paragraph 13 and the other provisions of this Annex,
Paragraph 13 will prevail.
(b) Secured Party and Pledgor. All references in this Annex to the "Secured
Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party when acting
in that capacity; provided, however, that if Other Posted Support is held by a
party to this Annex, all references herein to that party as the Secured Party
with respect to that Other Posted Support will be to that party as the
beneficiary thereof and will not subject that Support or that party as the
beneficiary thereof to provisions of law generally relating to security
interests and secured parties.
Paragraph 2. Security Interest
Each party, as the Pledgor, hereby pledges to the other party, as the Secured
Party, as security for its Obligations, and grants to the Secured Party a first
priority continuing security interest in, lien on and right of Set-off against
all Posted Collateral Transferred to or received by the Secured Party hereunder.
Upon the Transfer by the Secured Party to the Pledgor of Posted Collateral, the
security interest and lien granted hereunder on that Posted Collateral will be
released immediately and, to the extent possible, without any further action by
either party.
Paragraph 3. Credit Support Obligations
(a) Delivery Amount Subject to Paragraphs 4 and 5, upon a demand made by the
secured Party on or promptly following a Valuation Date, if the Delivery Amount
for that Valuation Date equals or exceeds the Pledgor's will Transfer Amount,
then the Pledgor will Transfer to the Secured Party Eligible Credit Support
having a Value as of the date of Transfer at least equal to the applicable
Delivery Amount (rounded pursuant to Paragraph 13). Unless otherwise specified
in Paragraph 13, the "Delivery Amount applicable to the Pledgor for any
Valuation Date will equal the amount by which:
(i) the Credit Support Amount exceeds
(ii) the Value as of that Valuation Date of all Posted Credit Support
held by the Secured Party.
(b) Return Amount Subject to Paragraphs 4 and 5, upon a demand made by the
Pledgor on or promptly following a Valuation Date, if the Return Amount for that
Valuation Date equals or exceeds the Secured Party's Minimum Transfer Amount,
then the Secured Party will Transfer to the Pledgor Posted Credit Support
specified by the Pledgor in that demand having a Value as of the date of
Transfer as close as practicable to the applicable Return Amount (rounded
pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the
"Return Amount' applicable to the Secured Party for any Valuation Date will
equal the amont by which:
(i) the Value as of that Valuation Date of all Posted Credit Support
held by the Secured Party exceeds
(ii) the Credit Support Amount.
"Credit Support Amount" means, unless otherwise Specified in Paragraph 13, for
any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus
(ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any,
minus (iii) all Independent Amounts applicable to the Secured Party, if any,
minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support
Amount will be deemed to be zero whenever the calculation of Credit Support
Amount yields a number less than zero.
Paragraph 4. Conditions Precedent, Transfer Timing, Calculations and
Substitutions
(a) Conditions Precedent Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5 and
6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified
Condition has occurred and is continuing with respect to the other
party, and
(ii) no Early Termination Date for which any unsatisfied payment
obligations exist has occurred or been designated as the result of an
Event of Default or Specified Condition with respect to the other
party.
(b) Transfer Timing. Subject to Paragraphs 4(a) and 5 and unless otherwise
specified, if a demand for the Transfer of Eligible Credit supply, or posted
Credit Support is made by the Notification Time, then the relevant Transfer will
be made not later than the close of business on the next Local Business Day; if
a demand is made after the Notification Time, then the relevant Transfer will be
made not later than the close of business on the second Local Business Day
thereafter.
(c) Calculations. All calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the Valuation
Time. The Valuation Agent will notify each party (or the other party, if the
Valuation Agent is a party) of its calculations not later than the Notification
Time on the Local Business Day following the applicable Valuation Date (or in
the case of Paragraph 6(d), following the date of calculation).
(d) Substitutions
(i) Unless otherwise specified in Paragraph 13, upon notice to the
Secured Party specifying the items of Posted Credit Support to be
exchanged, the Pledgor may, on any Local Business Day, Transfer to the
secured Party substitute Eligible Credit Support (the "Substitute Credit
Support"); and
(ii) subject to Paragraph 4(a), the secured Party will Transfer to the
Pledgor the items of Posted Credit Support specified by the Pledgor in
its notice not later than the Local Business Day following the date on
which the Secured Party receives the Substitute Credit Support, unless
otherwise specified in Paragraph 13 (the "Substitution Date"); provided
that the Secured Party will only be obligated to Transfer Posted Credit
Support with a Value as of the date of Transfer of that Posted Credit
Support equal to the Value as of that date of the Substitute Credit
Support.
Paragraph 5. Dispute Resolution
If a party (a "Disputing Party") disputes (1) the Valuation Agent's calculation
of a Delivery Amount or a Return Amount or (II) the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, then (1) the Disputing Party
will notify the other party and the Valuation Agent (if the Valuation Agent is
not the other party) not later than the close of business on the Local Business
Day following (X) the date that the demand is made under Paragraph 3 in the case
of (I) above or (Y) the date of Transfer in the case of (.U) above, (2) subject
to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to
the other party not later than the close of business on the Local Business Day
following (X) the date that the demand is made under Paragraph 3 in the case of
(1) above Or (Y) the date of Transfer in the case of (II) above, (3) the parties
will consult with each other in an attempt to resolve the dispute and (4) if
they fail to Resolve the dispute by the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or Return
Amount, unless otherwise Specified in Paragraph 13, the Valuation Agent
will recalculate the Exposure and the Value as of the Recalculation
Date by:
(A) utilizing any calculations of Exposure for the
Transactions (or Swap Transactions) that the parties have
agreed are not in dispute;
(B) calculating the Exposure for the Transactions (or Swap
Transactions) in dispute by seeking four actual quotations at
mid-market from Reference Market-makers for purposes of
calculating Market Quotation, and taking the arithmetic
average of those obtained; provided that if four quotations
are not available for a particular Transaction (or Swap
Transaction), then fewer than four quotations may be used for
that Transaction (or Swap Transaction); and if no quotations
are available for a particular Transaction (or Swap
Transaction), then the Valuation Agent's original calculations
will be used for that Transaction (or Swap Transaction); and
(C) utilizing the procedures specified in. Paragraph 13 for
Calculating the Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, the Valuation Agent
will recalculate the Value as of the date of Transfer pursuant to)
Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
by the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate transfer.
Paragraph 6. Holding and Using Posted Collateral
(a) Care Posted Collateral Without limiting the Secured Parties rights
under Paragraph 6(c), the Secured Party will exercise reasonable care
to assure the safe custody of all Posted Collateral to the extent
required by applicable law, and in any event the secured Party will be
deemed to have exercised reasonable care if it exercises at least the
same degree of care as it would exercise with respect to its own
property. Except as specified in the preceding sentence, the Secured
Party will have no duty with respect to Posted Collateral, including,
without limitation, any duty to collect any Distributions, or enforce
or preserve any rights pertaining thereto.
(b) Eligibility to Hold Posted Collateral; Custodians.
(i) General Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be
entitled to hold Posted Collateral or to appoint an agent (a
"Custodian") to hold Posted Collateral for the Secured Party. Upon
notice by the Secured Party to the Pledgor of the appointment of a
Custodian, the Pledgor's obligations to make any Transfer will be
discharged by making the Transfer to that Custodian. The holding of
Posted Collateral by a Custodian will be deemed to be the holding of
that Posted Collateral by the Secured Party for which the Custodian is
acting.
(ii) Failure to Satisfy Conditions. If the Secured Party or its
Custodian fails to satisfy any conditions for holding Posted
Collateral, then upon a demand made by the Pledgor, the Secured party
will, not later than five Local Business Days after the demand,
Transfer or cause its Custodian to Transfer all Posted Collateral held
by it to a Custodian that satisfies those conditions or to the Secured
Party if it satisfies those conditions.
(iii) Liability. The Secured Party will be liable for the acts or
omissions of its Custodian to the extent that the Secured Party would
be liable hereunder for its own acts or omissions.
(c) Use of Posted Collateral Unless otherwise specified in Paragraph 13 and
without limiting the rights and obligations of the parties under Paragraphs 3,
4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party or an
Affected Party with Respect to a Specified Condition and no Early Termination
Date has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then the secured Party
will, notwithstanding Section 9-207 of the New York Uniform Commercial Code,
have the right to:
(i) sell, pledge, rehypothecate, assign, invest use, commingle or
otherwise dispose of, or otherwise use in its business any Posted
Collateral it holds, free from any claim or right of any nature
whatsoever of the Pledgor, including any equity or right of redemption
by the Pledgor, and
(ii) register any Posted Collateral in the name of the Secured Party,
its Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue to
hold all Posted Collateral and to receive Distributions made thereon, regardless
of whether the Secured Party has exercised any rights with respect to any Posted
Collateral pursuant to (i) or (ii) above.
(d) Distributions and Interest Amount,
(i) Distributions. Subject to Paragraph 4(a), if the Secured Party
receives or is deemed to receive Distributions on 2 Local Business Day,
it will Transfer to the Pledgor not later than the following Local
Business Day any Distributions it receives or is deemed to receive to
the extent that a Delivery Amount would not be created or increased by
that Transfer, as calculated by the Valuation Agent (and the date of
calculation will be deemed to be a Valuation Date for this purpose).
(iii) Interest amount Unless otherwise specified in Paragraph 13 and
subject to Paragraph 4(a), in lieu of any interest, dividends or other
amounts paid or deemed to have been paid with respect to Posted
Collateral in the form of Cash (all of which may be Retained by the
Secured Party), the Secured Party will Transfer to the Pledgor at the
times specified in Paragraph 13 the Interest Amount to the extent that
a Delivery Amount would not be created or increased by that Transfer,
as calculated by the Valuation Agent (and the date of calculation will
be deemed to be a Valuation Date for this purpose). The Interest Amount
or portion thereof not Transferred pursuant to this Paragraph will
constitute Posted Collateral in the form of Cash and will be subject to
the security interest granted under Paragraph 2.
Paragraph 7. Events of Default
For purposes of Section 5(a)(iii)(1) of this Agreement, an Event of Default will
exist with respect to a party if.
(i) that party fails (or fails to cause its Custodian) to make, when
due, any Transfer of Eligible Collateral, Posted Collateral or the
Interest amount, as applicable, required to be made by it and that
failure continues for two Local Business Days after notice of that
failure is given to that party;
(ii) that party fails to comply with any Restriction or prohibition
specified in this Annex with respect to any of the rights specified in
Paragraph 6(c) and that failure continues for five Local Business Days
after notice of that failure is given to that party; or
iii) that party fails to comply with or perform any agreement or obligation
other than those specified in Paragraphs 7(i) and 7(ii) and that failure
continues for 30 days after notice of that failure is given to that party.
Paragraph 8. Certain Rights and Remedies
(a) Secured Party's Rights and Remedies. If at any time (1) an Event of
Default or Specified Condition with respect to the Pledgor has and is
continuing or (2) an Early Termination Date has occurred or been
designated as the result of an Event of Default or Specified Condition
with respect to the Pledgor, then, unless the Pledgor has paid in full
all of its Obligations that are then due, the Secured Party may exercise
one or more of the following rights and remedies:
(i) all rights and remedies available to a secured party under
applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) any other rights and remedies available to the Secured Party under
the terms of Other Posted Support, if any-,
(iii) the right to Set-off any amounts payable by the Pledgor with
respect to any Obligations against any Posted collateral or the Cash
equivalent of any Posted Collateral held by the Secured Party (or any
obligation of the Secured Party to Transfer that Posted Collateral);
and
(iv) the right to liquidate any Posted Collateral held by the Secured
Party through one or more public or private sales or other dispositions
with such notice, if any, as may be required under applicable law, free
from any claim or right of any nature whatsoever of the Pledgor,
including any equity or right of redemption by the Pledgor (with the
Secured Party having the right to purchase any or all of the Posted
Collateral to be sold) and to apply the proceeds (or the Cash
equivalent thereto from the liquidation of the Posted Collateral to any
amounts payable by the Pledgor with respect to any Obligations in that
order as the Secured Party may elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior notice
of any sale of that Posted Collateral by the Secured Party, except any notice
that is Required under applicable law and cannot be waived.
(b) Pledgor's Rights and Remedies if at any time an Early Termination Date has
occurred or been designated as the result of an Event of Default or Specified
Condition with respect to the Secured Party, then (except in the case of an
Early Termination Date relating to less than all Transaction (or Swap
Transactions) where the Secured Party has paid in full all of its obligations
that are then due under Section 6(e) of this Agreement):
(i) the Pledgor may exercise all rights and remedies available to a
pledgor under applicable law with respect to Posted Collateral held by
the Secured Party;
(ii) the Pledgor may exercise any other rights and remedies available
to the Pledgor under the terms of Other Posted Support, if any;
(iii) the Secured Party will be obligated immediately to Transfer all
Posted Collateral and the Interest Amount to the Pledgor, and
(iv) to the extent that Posted Collateral or the Interest Amount is not
so Transferred pursuant to (iii) above, the Pledgor may-.
(A) Set-off any amounts payable by the Pledgor with respect to any
Obligations against any Posted Collateral or the Cash equivalent of any Posted
Collateral held by the Secured Party (or any obligation of the secured Party to
Transfer that Posted Collateral); and
(B) to the extent that the Pledgor does not Set-off under (iv)(A)
above, withhold payment of any remaining amounts payable by the Pledgor with
respect to any Obligations, up to the Value of any remaining Posted Collateral
held by the Secured Party, until that Posted Collateral is Transferred to the
Pledgor.
(c) Deficiencies and Excess Proceeds. The Secured Party will Transfer to the
Pledgor any proceeds and Posted Credit Support remaining after liquidation,
Set-off and/or application under Paragraphs 8(a) and 8(b) after satisfaction in
full of all amounts payable by the Pledgor with respect to any Obligations; the
Pledgor in all events will remain liable for any amounts remaining unpaid after
any liquidation, Set-off and/or application under Paragraphs 8(a) and g(b).
(d) Final Returns. When no amounts are or thereafter may become payable by the
Pledgor with Respect to any Obligations (except for any potential liability
under Section 2(d) of this Agreement), the Secured Party will Transfer to the
Pledgor all Posted Credit Support and the Interest Amount, if any.
Paragraph 9. Representations
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on, which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on any
Eligible Collateral it Transfers as the Pledgor and has taken all necessary
actions to authorize the granting of that security interest will lien;
(ii) it is the sole owner of or otherwise has the right to transfer all
Eligible Collateral it Transfers to the secured Party hereunder, free and clear
of any security interest, lien, encumbrance or other restrictions other than the
security interest and lien granted under Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured Party
under the term of this Annex, the Secured Party will have a valid and perfected
first priority security interest therein (assuming that any central clearing
corporation or any third-party financial intermediary or other entity not within
the control of the Pledgor involved in the Transfer of that Eligible Collateral
gives the notices and takes the action Required of it under applicable law for
perfection of that interest); and
(iv) the performance by it of its obligations under this Annex will not
result in the creation of any security interest, lien or other encumbrance on
any Posted Collateral other than the security interest and lien granted under
Paragraph 2.
Paragraph 10. Expenses
(a) General Except as otherwise provided in Paragraphs 10(b) and 10(c), each
party will pay its own costs and expenses in connection with performing
its obligations under this Annex and neither party will be liable for
any costs and expenses incurred by the other party in connection
herewith.
(b) Posted Credit Support. The Pledgor will promptly pay when due all taxes,
assessments or charges of any nature that are imposed with respect to Posted
Credit Support held by the secured Party becoming aware of the same, regardless
of whether any portion of that Posted Credit Support is subsequently disposed of
under Paragraph 6(c), except for those taxes, assessments and charges that
result from the exercise of the Secured Party's Rights under Paragraph 6(c).
(c) Liquidation/Application of Posted Credit Support All reasonable costs
and expenses incurred by or on behalf of the Secured Party or the
Pledgor in connection with the liquidation and/or application of any
Posted Credit Support under Paragraph 8 will be payable, on demand
and pursuant to the Expenses Section of this Agreement, by the
Defaulting Party or, if there is no Defaulting Party, equally by the
parties.
Paragraph 11. Miscellaneous
(a) Default Interest. A Secured Party that fails to make, when due, any Transfer
of Posted Collateral or the Interest Amount will be obligated to pay the Pledgor
(to the extent permitted under applicable law) an amount equal to interest at
the Default Rate multiplied by the Value of the items of property that were
required to be Transferred, from (and including) the date that Posted Collateral
or interest Amount was required to be Transferred to (but excluding) the date of
Transfer of that Posted Collateral or Interest Amount. This interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed.
(b) Further Assurances. Promptly following a demand made by a party, the other
party will execute, deliver, file and record any financing statement, specific
assignment or other document and take any other action that may be necessary or
desirable and reasonably requested by that party to create, preserve, perfect or
validate any security interest or lien granted under Paragraph 2, to enable that
party to exercise or enforce its rights under this Annex with respect to Posted
Credit Support or an Interest Amount or to effect or document a release of a
security interest on Posted Collateral or an Interest Amount.
(c) Further Protection. The Pledgor will promptly give notice to the Secured
Party of, and defend any suit, action, proceeding or lien that involves Posted
Credit Support Transferred by the Pledgor or that could adversely affect the
security interest and lien granted by it under Paragraph 2, unless that suit,
action, proceeding or lien results from the exercise of the Secured Party's
rights under Paragraph 6(c).
(d) Good Faith and Commercally.Reasonable Manner. Performance of all obligations
under this Annex, including, but not limited to, all calculations, valuations
and determinations made by either party, will be made in good faith and in a
commercially reasonable manner.
(e) Demands and Notices. All demands and notices made by a party under this
Annex will be made as specified in the Notices Section of this Agreement, except
as otherwise provided in Paragraph 13.
(f) Specifications of Certain Matters. Anything referred to in this Annex as
being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed accordingly.
Paragraph 12. Definitions
As used in this Annex,-
"Cash' means the lawful currency of the United States of America.
"Credit Support Amount, has the meaning specified in Paragraph 3. "Custodian"
has the meaning specified in
Paragraphs 6(b)(i) and 13.
"Delivery Amount' has the meaning specified in Paragraph 3(a),
"Disputing,Party" has the meaning specified in Paragraph 5.
"Distributions' means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, Regardless of whether the Secured Party has
disposed of that Posted Collateral under paragraph 6(c). Distributions will
not include any item of property acquired by the Secured Party upon any
disposition or liquidation of Posted Collateral or, with Respect to any Posted
Collateral in the form of Cash, any distributions on that collateral, unless
otherwise specified herein.
"Eligible Collateral" means, with respect to a party, the items. if any,
specified as such for that party in Paragraph 13.
'Eligible Credit Support means Eligible Collateral and Other Eligible Support.
"Exposure " means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount if
any, that would be payable to a party that is the Secured Party by the other
party (expressed as a positive number) or by a party that is the Secured Party
to the other party (expressed as a negative number) pursuant to Section
6(c)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions)
were being terminated as of the relevant Valuation Time; provided that Market
Quotation will be determined by the Valuation Agent using its estimates at
mid-market of the amounts that would be paid for Replacement Transactions (as
that term is defined in the definition of "Market Quotation).
'Independent Amount' means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
'Interest Amount" means, with respect to an Interest Period, the aggregate sum
of the Amounts of interest calculated for each day in that interest period on
the principal amount of Posted Collateral in the form of Cash held by the
secured Party on that day, determined by the secured Party for each such day as
follows:
(x) the amount of that Cash on that; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 360.
"Interest Period' means the period from (and including) the last Local Business
Day on which an Interest Amount was Transferred (or, if no Interest Amount has
yet been Transferred, the Local Business Day on which Posted Collateral in the
form of Cash was Transferred to or received by the Secured Party) to (but
excluding) the Local Business Day on which the current Interest Amount is to be
Transferred.
'Interest -Rate' means the rate specified in Paragraph 13.
"Local Business Day,', unless otherwise specified in Paragraph 13, has the
meaning specified in the Definitions Section of this Agreement, except that
references to a payment in clause (b) thereof will be deemed to include a
Transfer under this Annex.
"Minimum Transfer Amount" means, with respect to a party, the amount specified
as such for that party in Paragraph 13; if no amount is specified, zero.
"Notification Time' has the meaning specified in Paragraph 13.
"Obligations" means, with respect to a party, all present and future obligations
of that party under this Agreement and any additional obligations specified for
that party in Paragraph 13.
"Other Eligible Support" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"Other Posted Support 'means all Other Eligible Support Transferred to the
Secured Party that remains in effect for the benefit of that Secured Party.
'Pledgor' means either party, when that party (i) receives a demand for or is
required to Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has
Transferred Eligible Credit Support under Paragraph 3(a).
'Posted Collateral" means all Eligible Collateral, other property,
Distributions, and all proceeds thereof that have been transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(E) or 6(d)(i) or released by the
Secured party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral in
the form of Cash.
"Posted Credit Support" means Posted Collateral and Other Posted Support.
"Recalculation Date" means the Valuation Date that gives rise to the dispute
under Paragraph 5; provided, however, that if a subsequent Valuation Date occurs
under Paragraph 3 prior to the resolution of the dispute, then the
"Recalculation Date" means the most recent Valuation Date under Paragraph 3.
"Resolution Time" has the meaning specified in Paragraph 13.
'Return Amount" has the meaning specified in Paragraph 3(b).
'Secured Party' means either party, when that Party (i) makes a demand for or is
entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) bolds
or is deemed to hold Posted Credit Support
'Specified Condition' means, with respect to a party, any event specified as
such for that party in Paragraph 13. "Substitute Credit Support" has the meaning
specified in Paragraph 4(d)(i).
"Substitution Date has the meaning Specified in Paragraph 4(d)(ii).
"Threshold" means, with respect to a party, the amount specified as such for
that party in Paragraph 13; if no amount is specified, zero.
'Transfer' means, with respect to any Eligible Credit Support, Posted Credit
Support or Interest Amount, and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
(i) in the case of Cash, payment or delivery by wire into one or more bank
accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid OT delivered by
book-entry, payment or delivery in appropriate physical form to the recipient or
its account accompanied by any duly executed instruments of transfer,
assignments in blank, transfer tax stamps and any other documents necessary to
constitute a legally valid transfer to the recipient;
(iii) in the case of securities that can be paid or delivered by bookentry, the
giving of written instructions to the relevant depository institution or other
entity specified by the recipient, together with a written copy thereof to the
recipient sufficient if complied with to result in a legally effective transfer
of the relevant interest to the recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support, as specified
in Paragraph 13.
"Valuation Agent" has the meaning specified in Paragraph 13.
"Valuation Date" means each date specified in or otherwise determined pursuant
to Paragraph 13. "Valulation Percentage means, for any item of Eligible
Collateral, the percentage specified in Paragraph 13.
"Valuation Time" has the meaning specified in Paragraph 13.
"Value means for any Valuation Date or other date for which Value is calculated
and subject to Paragraph 5 in the case of a dispute, with respect to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent multiplied by the
applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified as Eligible
Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specified in Paragraph
13.
Paragraph 13 to the ISDA Credit Support Annex
BankBoston, N.A. and American Skiing Company
("Party A") ("Party B")
Paragraph 13. Elections and Variables
(a) Security Interest for "Obligations". The term "Obligations" as used
in this Annex means all present and future obligations under this
Agreement or any other contractual arrangement between the Pledgorand
the Secured Party or between the Pledgor and any Affiliate of the
Secured Party.
(b) Credit Support Obligations.
(i) Delivery Amount, Return Amount and Credit Support Amount.
(A) "Delivery Amount" has the meaning specified in Paragraph 3(a).
(B) "Return Amount" has the meaning specified in Paragraph 3(b).
(C) "Credit Support Amount" has the meaning specified in Paragraph 3.
(D) Addition to Paragraph 3. The following subparagraph (c) is hereby
added to Paragraph 3 of this Annex:
(c) No offset. On any Valuation Date, if (i) each party is required to make a
Transfer under Paragraph 3(a) or (ii) each party is required to make a Transfer
under Paragraph 3(b), then such obligations will not offset each other.
(ii) Eligible Collateral. The following items will qualify as "Eligible
Collateral" for Party B:
Valuation
Percentage
(A) Cash 100%
(B) negotiable debt obligations issued by the 98% U.S. Treasury Department
having an original maturity
at issuance of not more than one year ("Treasury Bills")
(C) negotiable debt obligations issued by the U.S. Treasury 95% Department
having an original maturity at issuance of more than one year but not more than
10 years ("Treasury Notes")
(D) negotiable debt obligations issued by the 95%
Department having an original
maturity at issuance of more than 10 years
("Treasury Bonds")
(E) Other:
(aa) Agency Securities regardless 95%
of original maturity at issuance
As used herein, "Agency Securities" means negotiable debt obligations
which are fully guaranteed as to both principal and interest by the Federal
National Mortgage Association, the Government National Mortgage Association or
the Federal Home Loan Mortgage Corporation, but shall exclude (i) interest only
and principal only securities and (ii) Collateralized Mortgage Obligations (i.e.
CMOs), Real Estate Mortgage Investment Conduits (i.e. REMICS) and similar
derivative securities.
(bb) Any other securities as may be acceptable to the Secured Party in its sole
discretion with such Valuation Percentage as determined by the Secured Party, in
its sole discretion, at the time such other securities are offered as Eligible
Credit Support by the Pledgor.
(iii) Other Eligible Support. Except as provided above, there shall be
no "Other Eligible Support" for purposes of this Annex.
(iv) Thresholds.
(A) "Independent Amount" means (i) with respect to Party A, zero and (ii) with
respect to Party B and any Transaction, the amount specified as such in the
relevant Confirmation.
(B) "Threshold" means $13,500,000.
(C) "Minimum Transfer Amount" means $ 100,000.
(D) Rounding. The Delivery Amount and the Return Amount will be rounded up and
down, respectively, to the nearest integral multiple of $ 10,000.
(c) Valuation and Timing.
(i) "Valuation Agent' means Party A.
(ii) "Valuation Date" means any Local Business Day.
(iii)"Valuation Time" means the close of business on the Local Business Day
immediately preceding the Valuation Date or date of calculation, as applicable,
provided that the calculations of Value and Exposure will be made as of
approximately the same time on the same date.
(iv) "Notification Time' means 11:00 a.m., New York time, on a Local Business
Day.
(d) Conditions Precedent and Secured Party's Right and Remedies. The following
Termination Event(s) will be a "Specified Condition " for the party specified
(that party being the Affected Party if the Termination Event occurs with
respect to that party):
Party A Party B
Illegality [X] [X]
Credit Event Upon Merger [X] [X]
(e) Substitution.
(i) "Substitution Date" has the meaning specified in Paragraph 4(d)(ii).
(ii) Consent. Inapplicable; provided that the Pledgor may only request a
substitution if the amount of Posted Credit Support to be substituted for
exceeds the Minimum Transfer Amount applicable to the Pledgor.
(f) Dispute Resolution.
(i) "Resolution Time" means 1:00 p.m., New York time, on the Local
Business Day following the date on which the notice is given that gives
rise to a dispute under Paragraph 5.
(ii) Value- For the purpose of Paragraphs 5(i)(C) and 5(ii), the
Value of Posted Credit Support consisting of (x) Cash will be the face amount
thereof, and (y) securities will be calculated based on the bid quotations of
any generally recognized dealer in the relevant securities (which may include an
affiliate of Party A) and adding thereto any accrued interest (except to the
extent such accrued interest has been Transferred to a party pursuant to this
Annex or included in the applicable bid quotation), in each case (x) and (y),
multiplied by the applicable Valuation Percentage.
(iii) Alternative. The provisions of Paragraph 5 will apply.
(g) Holding and Using Posted Collateral.
(i) Eligibility to Hold Posted Collateral; Custodians. Party A will be
entitled to hold Posted Collateral pursuant to Paragraph 6(b) without
using a Custodian provided Party A is not a Defaulting Party.
(ii) Use of Posted Collateral The provisions of Paragraph 6(c) will
apply to both parties.
(h) Distributions and Interest Amount.
(i) Interest Rate. The "Interest Rate" for any day will be zero.
(ii) Transfer of interest Amount. The provisions of Paragraph 6(d)(ii) will not
apply.
(i) Additional Representation(s).
Not applicable.
Other Eligible Support and Other Posted Support.
(i) "Value" with respect to Other Eligible Support and Other Posted
Support shall not be applicable.
(ii) "Transfer' with respect to Other Eligible Support and Other Posted
Support shall not be applicable.
(k) Demands and Notices:
All demands, specifications and notices under this Annex will be made
pursuant to the Notices Section of this Agreement, unless otherwise
specified here:
Party A: 100 Federal Street
Boston, Massachusetts 021 1 0
Attention: Derivatives Operations - Collateral
(Mail Stop 01-12-02)
Fax No.: (617) 434-0505
Party B: Sunday River Road, P.O. Box 450
Bethel, Maine 04217
Attention: Mr. Thomas M. Richardson, Sr. Vice President
Fax No.: (207) 824-5158
(1) Other Provisions.
(i) Severability. Any provision of this Annex which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability, without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(ii) Successors. This Annex and all obligations of the Pledgor hereunder
shall be binding upon the successors and assigns of the Pledgor and shall,
together with the rights and remedies of the Secured Party hereunder, inure to
the benefit of the Secured Party and its respective successors and assigns.
(iii)No Third Party Rights. This Annex has been and is made solely for the
benefit of Party A and Party B and their respective successors and assigns, and
no other person or entity shall acquire or have any right under or by virtue of
this Annex.
(iv) Local Business Day. Notwithstanding anything to the contrary contained
in this Annex or the Agreement, the term Local Business Day shall, in addition
to any other meaning specified herein, also include a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) in New York, New York and Boston, Massachusetts.
(v) Agreement as to Single Secured Party and Pledgor. Party A and Party B
agree that, notwithstanding anything to the contrary in the recital to this
Annex, Paragraph l(b) or in Paragraph 2 or the definitions in Paragraph 12, (A)
the term "Secured Party" as used in this Annex means only Party A, (B) the term
"Pledgor" as used in this Annex means only Party B, (C) only Party B makes the
pledge and grant in Paragraph 2, the acknowledgment in the final sentence of
Paragraph g(a) and the representations in Paragraph 9 and otherwise herein, and
(D) only Party B will be required to make Transfers of Eligible Credit Support
hereunder.
(vi) Liquidation of Equity Collateral.
(x) If the Secured Party wishes to sell any or all Posted Collateral
consisting of equity securities ("Equity Collateral") pursuant to Paragraph 8,
and determines, in its sole and absolute discretion, that it is necessary or
advisable to effect a public registration of all or any of such Equity
Collateral pursuant to the Securities Act of 1933, as amended (or any similar
statutes then in effect) (the "Act"), then Pledgor will, at its own expense:
(A) execute and deliver, and use its best efforts to cause each issuer of the
shares comprising such Equity Collateral (and such issuer's directors and
officers) to execute and deliver, all such instruments and documents, and do or
cause to be done all such other acts and things as may, in the reasonable
judgment of the Secured Party, be necessary or advisable to register the shares
comprising such Equity Collateral under the Act and to cause the related
registration statement to become effective and to remain effective for such
period as may be required by law, and to make all amendments thereto and/or to
the related prospectus that, in the reasonable judgment of the Secured Party,
are necessary or advisable, all in conformity with the Act and the rules and
regulations promulgated thereunder; and
(B) use its best efforts to (1) qualify such shares under, and cause each such
issuer to comply with, the provisions of the securities or "Blue Sky" laws of
any jurisdiction designated by the Secured Party and (2) cause each such issuer
to make available to its security holders, as soon as practicable, an earnings
statement that will satisfy the provisions of Section 11 (a) of the Act.
(y) Notwithstanding anything herein to the contrary, upon an Event of
Default by the Pledgor, the Secured Party may, in its sole and absolute
discretion (subject only to applicable requirements of law), sell all or any of
the Equity Collateral by private sale in such manner and under such
circumstances as the Secured- Party may deem necessary or advisable and
notwithstanding that a registration statement for all or any of such Equity
Collateral could be or shall have been filed under the Act. Without limitation
on the foregoing, the Secured Party may approach and negotiate with a single
possible purchaser to effect such sale and/or require that any such sale
(including one held by auction) be subject to restrictions as to (A) the
financial sophistication and ability of any person permitted to bid or purchase
at such sale, (B) the content of legends to be placed upon any certificates
representing the shares comprising the Equity Collateral sold in such sale,
including restrictions on future transfer thereof, (C) the representations to be
made by each person bidding or purchasing at such sale relating to that person's
access to financial information about the Pledgor, the issuer or the Secured
Party, and such person's intentions as to the holding of the shares comprising
the Equity Collateral so sold for investment, for its own account, and not with
a view to the distribution thereof, and (D) such other matters as the Secured
Party may deem necessary or advisable in order that such sale, notwithstanding
any failure so to register, may be effected in compliance with the Uniform
Commercial Code as in effect in any relevant jurisdiction and other laws
affecting the enforcement of creditors' rights, the Act and all applicable state
securities laws.
IN WITNESS WHEREOF, the parties hereto have executed this Annex on the
respective dates set forth below and with effect from the date of the Agreement
unless otherwise indicated in Paragraph 13(a).
BankBoston, N.A. American Skiing Company
By: /s/ Robert G. Scott By:/s/ Thomas Richardson
-------------------------- ----------------------------
Name: Robert G. Scott Name: Thomas Richardson
Title: Managing Director Title: Chief Financial Officer
Approval (for BankBoston, N.A. internal purposes only):
UNLIMITED GUARANTY
GUARANTY, dated as of July 20, 1998, by American Skiing Company, (the
"Guarantor"), in favor of BancBoston Leasing Inc., a Massachusetts corporation,
with its principal place of business at 100 Federal Street, Boston,
Massachusetts 02110 (the "Lessor"). In consideration of the Lessor's providing
certain leasing accommodations to ASC Leasing, Inc., ASC Transportation, Inc.,
Killington, LTD., Sugarloaf Mountain Corp., Heavenly Valley Ski and Resort
Corporation and Steamboat Ski and Resort Corporation because the Guarantor will
benefit from the leasing accommodations provided to the Lessees, the Guarantor
agree as follows:
1. Guaranty of Payment and Performance. The Guarantor hereby guarantees to
the Lessor the full and punctual payment when due (whether at maturity,
by acceleration or otherwise), and performance by each Lessee of all
liabilities, indemnities, agreements and other obligations under any form
of lease agreement with the Lessor and under any document executed in
connection therewith, whether direct or indirect, primary or secondary,
absolute or contingent, due or to become due, secured or unsecured, now
existing or hereafter arising or acquired (the "Obligations"). The
Guaranty is an absolute, unconditional and continuing guaranty of the
full and punctual payment and performance of the Obligations and not of
their collectibility only and is in no way conditioned upon any
requirement that the Lessor first attempt to collect any of the
Obligations from any Lessee or resort to any security or other means of
obtaining their payment. If any Lessee defaults in the payment or
performance of any of the Obligations, the obligations of the Guarantor
under this Guaranty shall become immediately due and payable to the
Lessor, without demand or notice of any nature, all of which are
expressly waived by the Guarantor. Payments by the Guarantor hereunder
may be required by the Lessor on any number of occasions.
2. Guarantor's Agreement to Pay. The Guarantor further agrees, as the
principal obligor and not as a guarantor only, to pay to the Lessor, on
demand, all costs and expenses (including court costs and legal expenses)
incurred or expended by the Lessor in connection with the Obligations, this
Guaranty and the enforcement thereof, together with interest on amounts
recoverable under this Guaranty, from the time such amounts become due
until payment, at the rate per annum equal to 18% or, if higher, the rate
of interest announced, from time to time, by BankBoston, N.A. ("BankBoston,
N.A.") at its head office as its Base Rate, plus 4%; provided that if such
interest exceeds the maximum amount permitted to be paid under applicable
law, then such interest shall be reduced to such maximum permitted amount.
3. Waiver by Guarantor; Lessor' Freedom to Act. The Guarantor agrees that
the Obligations will be paid and performed strictly in accordance with
their respective terms regardless of any law, regulation or order, now or
hereafter in effect in any jurisdiction which affects any term or
provision of such Obligations or the rights of the Lessor with respect
thereto. The Guarantor waives presentment, demand, protest, notice of
acceptance, notice of Obligations incurred and all other notices of any
kind, all defenses which may be available by virtue of any valuation,
stay, moratorium law or other similar law, now or hereafter in effect,
any right to require the marshaling of assets of any Lessee, the benefit
of all exemption and homestead laws, and all suretyship defenses
generally. Without limiting the generality of the foregoing, the
Guarantor agrees to the provisions of any instrument evidencing, securing
or otherwise executed in connection with any Obligation and agrees that
the obligations of the Guarantor under this Guaranty shall not be
released or discharged, in whole or in part, or otherwise affected by (i)
the failure of the Lessor to assert any claim or demand or to enforce any
right or remedy against any Lessee, (ii) any extensions or renewals or
any Obligation including, without limitation, the leasing of additional
equipment to any Lessee or entering into additional leases any Lessee,
(iii) any rescissions, waivers, amendments or modifications of any of the
terms or provisions of any agreement evidencing, securing or otherwise
executed in connection with any Obligation, (iv) the substitution or
release of any entity primarily or secondarily liable for any Obligation,
(v) the adequacy of any rights the Lessor may have against any collateral
or other means of obtaining repayment of the Obligations, (vi) the
impairment of any collateral securing the obligations including, without
limitation, the failure to perfect or to preserve any rights the Lessor
might have in such collateral, or (vii) any other act or omission which
might, in any manner or to any extent, vary the risk of the Guarantor or
otherwise operate as a release or discharge of the Guarantor, all of
which may be done without notice to the Guarantor.
4. Unenforceability of Obligations Against Lessees. If for any reason any
Lessee has no legal existence or is under no legal obligation to discharge
any of the Obligations, or if any of the Obligations have become
irrecoverable from any Lessee by operation of law or for any other reason,
this Guaranty shall nevertheless be binding on the Guarantor to the same
extent as if the Guarantor, at all times, had been the principal obligor on
all such Obligations. In the event that any acceleration of the time for
payment of the Obligations is stayed upon the insolvency, bankruptcy or
reorganization of any Lessee, or for any other reason, all such amounts,
which may otherwise be subject to acceleration under the terms of any
agreement evidencing, securing or otherwise executed in connection with any
Obligation, shall be immediately due and payable by the Guarantor.
5. Subrogation; Subordination. Until the payment and performance in full of
all Obligations and any and all obligations of any Lessee to any
affiliate of the Lessor, the Guarantor shall not exercise any rights
against such Lessee arising as a result of any payment by the Guarantor
under this Guaranty, by way of subrogation or otherwise, and will not
assert or prove any claim in competition with the Lessor or its
affiliates with respect to any payment hereunder in bankruptcy or
insolvency proceedings of any nature; the Guarantor will not claim any
set-off or counterclaim against such Lessee with respect to any liability
of the Guarantor to such Lessee; and the Guarantor waives any benefit of
and any right to participate in any collateral which may be held by the
Lessor or any affiliate of the Lessor. The payment of any amounts due
with respect to any indebtedness of any Lessee, now or hereafter held by
the Guarantor, is hereby subordinated to the prior payment in full of the
Obligations, provided, however, that the Guarantor may accept scheduled
payments of amounts due from as set forth in the documents evidencing
such indebtedness, prior to a default in the payment and performance of
the Obligations. The Guarantor agrees that, after the occurrence of any
default in the payment or performance of the Obligations, the Guarantor
will not demand, sue for or otherwise attempt to collect any such
indebtedness of the Lessee to the Guarantor until the Obligations shall
have been paid in full. If, notwithstanding the foregoing sentence, the
Guarantor shall collect, enforce or receive any amounts with respect to
such indebtedness, such amounts shall be collected, enforced and received
by the Guarantor as trustee for the Lessor, and shall be paid over to the
Lessor on account of the Obligations, without affecting in any manner the
liability of the Guarantor under the other provisions of this Guaranty.
6. Security; Set-Off. Regardless of the adequacy of any collateral or other
means of obtaining repayment of the Obligations, the Lessor is hereby
authorized, at any time and from time to time, without notice to the
Guarantor (any such notice being expressly waived by the Guarantor), and
to the fullest extent permitted by law, to set off and to apply all
deposits (general or special, time or demand, provisional or final) and
other sums credited by or due from the Lessor to the Guarantor against
the obligations of the Guarantor under this Guaranty, whether or not the
Lessor shall have made any demand under this Guaranty.
7. Further Assurances. The Guarantor agrees that it will, from time to time
at the request of the Lessor, provide to the Lessor its most recent
audited and unaudited balance sheets and related statements of income and
changes in financial condition (prepared on a consolidated basis with the
Guarantor's subsidiaries, if any) and such other information relating to
the business and affairs of the Guarantor as the Lessor may reasonably
request. The Guarantor also agrees, upon demand by the Lessor, after any
change in the condition or affairs (financial or otherwise) of the
Guarantor deemed by the Lessor to be adverse and material, to secure the
payment and performance of its obligations under this Guaranty by
delivering, assigning, transferring or granting to the Lessor a security
interest in additional collateral of a value and character reasonably
satisfactory to the Lessor. In connection therewith, the Guarantor hereby
authorizes the Lessor to file any financing statement deemed by the
Lessor to be necessary or desirable to perfect any security interest
granted by the Guarantor to the Lessor, and as agent for the Guarantor,
to sign the name of the Guarantor thereto. The Guarantor also agrees to
do all such things and execute all such documents, including financing
statements, as the Lessor may consider necessary or desirable to give
full effect to this Guaranty and to perfect and preserve the rights and
powers of the Lessor under this Guaranty.
8. Termination; Reinstatement. This Guaranty shall remain in full force and
effect until the Lessor is given written notice of the Guarantor's
intention to discontinue this Guaranty, notwithstanding any intermediate
or temporary payment or settlement of the whole or any part of the
Obligations. No such notice shall be effective unless it is received and
acknowledged by an officer of the Lessor at its principal place of
business. No such notice shall affect any rights of the Lessor under this
Guaranty or of any affiliate of the Lessor including, without limitation,
rights with respect to (i) Obligations incurred prior to the receipt of
such notice, (ii) Obligations incurred after receipt of such notice but
pursuant to a contract or commitment in existence prior to such receipt,
and (iii) all equipment schedules, lease agreements, instruments,
documents, invoices, bills of sale, and writings made by or for the
account of any Lessee with the Lessor or with any of its agents or
employees, purporting to be dated on or before the date of the receipt of
such notice, although presented to, paid or accepted by the Lessor after
that date, all of which shall constitute part of the Obligations. This
Guaranty shall continue to be effective, or shall be reinstated in the
event of any notice of termination, if, at any time, any payment made or
value received with respect to the Obligations is rescinded or must
otherwise be returned by the Lessor to any Lessee, or to any other person
or entity, upon the insolvency, bankruptcy or reorganization of any
Lessee or of any other guarantor of the Obligations, or otherwise, all as
though such payment had not been made or value received.
9. Successors and Assigns. This Guaranty shall be binding upon the Guarantor
and shall inure to the benefit of and be enforceable by the Lessor and its
successors, transferees and assigns. Each reference to the Guarantor in
this Guaranty shall be deemed to include the heirs, executors,
administrators, legal representatives and assigns of the Guarantor, all of
whom shall be bound by the provisions of this Guaranty. Without limiting
the generality of the foregoing sentence, the Lessor may assign or
otherwise transfer any lease agreement with any Lessee, any equipment or
equipment schedule subject thereto, or other agreement held by it
evidencing, securing or otherwise executed in connection with the
Obligations, or sell participations in any interest in such Obligations, to
any other person or entity, and such other person or entity shall thereupon
become vested, to the extent set forth in the agreement evidencing such
assignment, transfer or participation, with all the rights with respect
thereto granted to the Lessor in the Guaranty.
10. Amendments and Waivers. No amendment or waiver of any provision of this
Guaranty nor any consent to any departure by the Guarantor from any
provision of this Guaranty shall be effective unless the same shall be in
writing and signed by the Lessor. No failure on the part of the Lessor to
exercise, and no delay in exercising, any rights hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of
any other right.
11. Notices. All notices and other communications required or permitted under
this Guaranty shall be made in writing and, unless otherwise specifically
provided herein, shall be deemed to have been duly made or given when
delivered by hand or mailed first class mail, postage prepaid, addressed to
the Guarantor, at the address set forth at the end of this Guaranty, or to
the Lessor at its principal place of business as set forth at the beginning
of this Guaranty, or at such address as either party may designate in
writing.
12. Governing Law; Consent to Jurisdiction. This Guaranty is intended to take
effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts without
giving effect to any conflict of laws provisions thereof. The Guarantor
agrees that any suit for the enforcement of this Guaranty may be brought in
the courts of the Commonwealth of Massachusetts or any Federal Court
sitting therein and consents to the non-exclusive jurisdiction of such
court and to service of process in any such suit being made upon the
Guarantor by mail in the manner specified in Section 12 hereof. The
Guarantor hereby waives any objection that it may now or hereafter have to
the venue of any such suit or any such court or that such suit was brought
in an inconvenient court.
13. Miscellaneous. This Guaranty constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and
remedies herein provided are cumulative and not exclusive of any remedies
provided by law or any other agreement, and this Guaranty shall be in
addition to any other guaranty of the Obligations. The invalidity or
unenforceability of any one or more sections of this Guaranty shall not
affect the validity or unenforceability of its remaining provisions.
Captions are for the ease of reference only and shall not affect the
meaning of the relevant provisions. The meanings of all defined terms used
in this Guaranty shall be equally applicable to the singular and plural
forms of the terms defined.
IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this Guaranty
which is intended to take effect as a sealed instrument, as of the day and year
first written above.
AMERICAN SKIING COMPANY, Guarantor
By: /s/ Christopher E. Howard
------------------------------
Title:
[GRAPHIC OMITTED]
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT, dated as of the 19th day of August, 1998("Lease
Agreement") is made at Boston, Massachusetts by and between BancBoston Leasing
Inc. ("Lessor"), a Massachusetts corporation with its principal place of
business at 100 Federal Street, Boston, Massachusetts 02110 and ASC Leasing,
Inc. ("Lessee"), a Maine with its principal place of business at Sunday River
Access Road, Bethel, Maine 04217.
IN CONSIDERATION OF the mutual promises and covenants contained herein,
Lessor and Lessee hereby agree as follows:
1. Property Leased. At the request of Lessee and subject to the terms
and conditions of this Lease Agreement, Lessor shall lease to Lessee and Lessee
shall lease from Lessor such personal property ("Equipment") as may be mutually
agreed upon by Lessor and Lessee. The Equipment shall be selected by or ordered
at the request of Lessee, identified in one or more equipment schedules
substantially in the form of Exhibit A attached hereto ("Equipment Schedule")
and accepted by Lessee in one or more certificates of acceptance ("Certificate
of Acceptance") in the form of Exhibit B attached hereto. Each Equipment
Schedule executed by Lessor and Lessee and each Certificate of Acceptance
executed by Lessee shall constitute a part of this Lease Agreement.
2. Certain Definitions.
2.1 The "Acquisition Cost" shall mean the total cost of the Equipment
paid by Lessor as set forth in the applicable Equipment Schedule.
2.2 The "Commencement Date" shall mean the date on which the Equipment
identified in the applicable Equipment Schedule is accepted and placed in
service by Lessee under this Lease Agreement. Each Commencement Date shall be
evidenced by the Certificate of Acceptance applicable to such Equipment
Schedule.
2.3 The "Rent Start Date" shall mean either (i) the first day of the
month following the month in which the Commencement Date occurs or (ii) the
Commencement Date, if the Commencement Date occurs on the first day of the
month.
2.4 The "Monthly Rent" shall mean the amount set forth in the
applicable Equipment Schedule as Monthly Rent for the Equipment identified on
such Equipment Schedule.
2.5 The "Daily Rent" shall mean one-thirtieth (1/30) of the Monthly
Rent.
2.6 The words "herein", "hereof", and "hereunder" shall refer to this
Lease Agreement as a whole and not to any particular section. All other
capitalized terms defined in this Lease Agreement shall have the meanings
assigned thereto.
<PAGE>
3. Initial Term of Lease; Payment of Rent.
3.1 The term of lease for the Equipment ("Initial Term") shall begin on
the Commencement Date set forth in the applicable Certificate of Acceptance and
shall continue during and until the expiration of the number of full calendar
months set forth in the applicable Equipment Schedule, measured from the Rent
Start Date. The Initial Term may not be cancelled or terminated except as set
forth in Section 10.2 below.
3.2 At the expiration of the Initial Term, Lessor and Lessee may extend
the lease of the Equipment for any period as they may agree upon in writing
("Extended Term") at the then fair market rental value of the Equipment, as
determined in good faith by Lessor.
3.3 Aggregate Daily Rent shall be due and payable by Lessee on the Rent
Start Date in an amount equal to the Daily Rent multiplied by the actual number
of days elapsed from, and including, the Commencement Date to, but excluding,
the Rent Start Date. The Monthly Rent shall be due and payable on the Rent Start
Date and, thereafter on the first day of each month of the Initial Term or any
Extended Term. All Daily Rents and Monthly Rents shall be paid to Lessor at its
office in Boston, Massachusetts.
4. Acceptance of Equipment; Exclusion of Warranties.
4.1 Lessee shall signify its acceptance of the Equipment identified in
the applicable Equipment Schedule by promptly executing and delivering to Lessor
a Certificate of Acceptance. Lessee acknowledges that its execution and delivery
of the Certificate of Acceptance shall conclusively establish, as between Lessor
and Lessee, that the Equipment has been inspected by Lessee, is in good repair
and working order, is of the design, manufacture and capacity selected by
Lessee, and is accepted by Lessee under this Lease Agreement.
4.2 In the event the Equipment is ordered by Lessor from a manufacturer
or supplier at the request of Lessee, Lessor shall not be required to pay the
Acquisition Cost for such Equipment unless and until the applicable Certificate
of Acceptance has been received by Lessor. Lessee hereby agrees to indemnify,
defend and hold Lessor harmless from any liability to any manufacturer or
supplier arising from the failure of Lessee to lease any Equipment which is
ordered by Lessor at the request of Lessee or for which Lessor has assumed an
obligation to purchase.
4.3 Lessor leases the Equipment to Lessee and Lessee leases the
Equipment from Lessor "AS IS" and "WITH ALL FAULTS". Lessee hereby acknowledges
that (i) Lessor is not a manufacturer, supplier or dealer of such Equipment nor
an agent thereof; and (ii) LESSOR HAS NOT MADE, DOES NOT MAKE, AND HEREBY
DISCLAIMS ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE EQUIPMENT INCLUDING, BUT NOT LIMITED TO, ITS DESIGN, CAPACITY,
CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE.
Lessee further acknowledges that Lessor is not responsible for any repairs,
maintenance, service, latent or other defects in the Equipment or in the
operation thereof, or for compliance of any Equipment with requirements of any
laws, ordinances, governmental rules or regulations including, but not limited
to, laws with respect to environmental matters, patent, trademark, copyright or
trade secret infringement, or for any direct or consequential damages arising
out of the use of or inability to use the Equipment.
4.4 Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, Lessor agrees to cooperate with Lessee, at the sole
cost and expense of Lessee, in making any claim against a manufacturer or
supplier of the Equipment arising from a defect in such Equipment. At the
request of Lessee, Lessor shall assign to Lessee all warranties on the Equipment
available from any manufacturer or supplier to the full extent permitted by the
terms of such warranties and by applicable law.
5. Ownership; Inspection; Maintenance and Use.
5.1 The Equipment shall at all times be the sole and exclusive property
of Lessor. Any Equipment subject to titling and registration laws shall be
titled and registered by Lessee on behalf of and in the name of Lessor at the
sole cost and expense of Lessee. Lessee shall cooperate with and provide Lessor
with any information or documents necessary for titling and registration of the
Equipment. Upon the request of Lessor, Lessee shall execute any documents or
instruments which may be necessary or appropriate to confirm, to record or to
give notice of the ownership of the Equipment by Lessor including, but not
limited to, financing statements under the Uniform Commercial Code. Lessee, at
the request of Lessor, shall affix to the Equipment, in a conspicuous place, any
label, plaque or other insignia supplied by Lessor designating the ownership of
the Equipment by Lessor.
5.2 The Equipment shall be located at the address specified in the
applicable Equipment Schedule and shall not be removed therefrom without the
prior written consent of Lessor. Lessor, its agents or employees shall have the
right to enter the premises of Lessee, upon reasonable notice and during normal
business hours, for the purpose of inspecting the Equipment.
5.3 Lessee shall pay all costs, expenses, fees and charges whatsoever
incurred in connection with the use and operation of the Equipment. Lessee
shall, at all times and at its own expense, keep the Equipment in good repair
and working order, reasonable wear and tear excepted. Any maintenance contract
required by a manufacturer or supplier for the care and upkeep of the Equipment
shall be entered into by Lessee at its sole cost and expense. Lessee shall
permit the use and operation of the Equipment only by personnel authorized by
Lessee and shall comply with all laws, ordinances or governmental rules and
regulations relating to the use and operation of the Equipment.
6. Alterations and Modifications. Lessee may make, or cause to be made
on its behalf, any improvement, modification or addition to the Equipment with
the prior written consent of Lessor, provided, however, that such improvement,
modification or addition is readily removable without causing damage to or
impairment of the functional effectiveness of the Equipment. To the extent that
such improvement, modification or addition is not so removable, it shall
immediately become the property of Lessor and thereupon shall be considered
Equipment for all purposes of this Lease Agreement.
7. Quiet Enjoyment; No Defense, Set-Offs or Counterclaims.
7.1 Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, Lessee shall have the quiet enjoyment and use of the
Equipment in the ordinary course of its business during the Initial Term or any
Extended Term without interruption by Lessor or any person or entity claiming
through or under Lessor.
7.2 Lessee acknowledges and agrees that ANY DAMAGE TO OR LOSS,
DESTRUCTION, OR UNFITNESS OF, OR DEFECT IN THE EQUIPMENT, OR THE INABILITY OF
LESSEE TO USE THE EQUIPMENT FOR ANY REASON WHATSOEVER, SHALL NOT (i) GIVE RISE
TO ANY DEFENSE, COUNTERCLAIM, OR RIGHT OF SET-OFF AGAINST LESSOR, OR (ii) PERMIT
ANY ABATEMENT OR RECOUPMENT OF, OR REDUCTION IN DAILY OR MONTHLY RENT, OR (iii)
RELIEVE LESSEE OF THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS LEASE AGREEMENT
INCLUDING, BUT NOT LIMITED TO, ITS OBLIGATION TO PAY THE FULL AMOUNT OF DAILY
RENT AND MONTHLY RENT, WHICH OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL, unless
and until this Lease Agreement is terminated with respect to such Equipment in
accordance with the provisions of Section 10.2 below. Any claim that Lessee may
have which arises from a defect in or deficiency of the Equipment shall be
brought solely against the manufacturer or supplier of the Equipment and Lessee
shall, notwithstanding any such claim, continue to pay Lessor all amounts due
and to become due under this Lease Agreement.
8. Adverse Claims and Interests.
8.1 Except for any liens, claims, mortgages, pledges, encumbrances or
security interests created by Lessor, Lessee shall keep the Equipment, at all
times, free and clear from all liens, claims, mortgages, pledges, encumbrances
and security interests and from all levies, seizures and attachments. Without
limitation of the covenants and obligations of Lessee set forth in the preceding
sentence, Lessee shall immediately notify Lessor in writing of the imposition of
any prohibited lien, claim, levy or attachment on or seizure of the Equipment at
which time Lessee shall provide Lessor with all relevant information in
connection therewith.
8.2 Lessee agrees that the Equipment shall be and at all times shall
remain personal property. Accordingly, Lessee shall take such steps as may be
necessary to prevent any person from acquiring, having or retaining any rights
in or to the Equipment by reason of its being affixed or attached to real
property.
9. Indemnities; Payment of Taxes.
9.1 Lessee hereby agrees to indemnify, defend and hold harmless Lessor,
its agents, employees, successors and assigns from and against any and all
claims, actions, suits, proceedings, costs, expenses, damages and liabilities
whatsoever arising out of or in connection with the manufacture, ordering,
selection, specifications, availability, delivery, titling, registration,
rejection, installation, possession, maintenance, ownership, use, leasing,
operation or return of the Equipment including, but not limited to, any claim or
demand based upon any STRICT OR ABSOLUTE LIABILITY IN TORT and upon any
infringement or alleged infringement of any patent, trademark, trade secret,
license, copyright or otherwise. All costs and expenses incurred by Lessor in
connection with any of the foregoing including, but not limited to, reasonable
legal fees, shall be paid by Lessee on demand.
9.2 Lessee hereby agrees to indemnify, defend and hold Lessor harmless
against all Federal, state and local taxes, assessments, licenses, withholdings,
levies, imposts, duties, assessments, excise taxes, registration fees and other
governmental fees and charges whatsoever, which are imposed, assessed or levied
on or with respect to the Equipment or its use or related in any way to this
Lease Agreement ("Tax Assessments") except for taxes on or measured by the net
income of Lessor determined substantially in the same manner as under the
Internal Revenue Code of 1986, as amended. Lessee shall file all returns,
reports or other such documents required in connection with the Tax Assessments
and shall provide Lessor with copies thereof. If, under local law or custom,
Lessee is not authorized to make the filings required by a taxing authority,
Lessee shall notify Lessor in writing and Lessor shall thereupon file such
returns, reports or documents. Without limiting any of the foregoing, Lessee
shall indemnity, defend and hold Lessor harmless from all penalties, fines,
interest payments, claims and expenses including, but not limited to, reasonable
legal fees, arising from any failure of Lessee to comply with the requirements
of this Section 9.2.
9.3 The obligations and indemnities of Lessee under this Section 9 for
events occurring or arising during the Initial Term or any Extended Term shall
continue in full force and effect, notwithstanding the expiration or other
termination of this Lease Agreement.
10. Risk of Loss; Loss of Equipment.
10.1 Lessee hereby assumes and shall bear the entire risk of loss for
theft, damage, seizure, condemnation, destruction or other injury whatsoever to
the Equipment from any and every cause whatsoever. Such risk of loss shall be
deemed to have been assumed by Lessee from and after such risk passes from the
manufacturer or supplier by agreement or pursuant to applicable law.
10.2 In the event of any loss, seizure, condemnation or destruction of
the Equipment or damage to the Equipment which cannot be repaired by Lessee,
Lessee shall immediately notify Lessor in writing. Within thirty (30) days of
such notice, during which time Lessee shall continue to pay Monthly Rent, Lessee
shall, at the option of Lessor, either (i) replace the Equipment with equipment
of the same type and manufacture and in good repair, condition and working
order, transfer title to such equipment to Lessor free and clear of all liens,
claims and encumbrances, whereupon such equipment shall be deemed Equipment for
all purposes of this Lease Agreement, or (ii) pay to Lessor an amount equal to
the present value of both the aggregate of the remaining unpaid Monthly Rents
and the anticipated residual value of the Equipment plus any other costs
actually incurred by Lessor. Lessor and Lessee agree that the residual value of
the Equipment at the expiration of the Initial Term is reasonably anticipated to
be not less than twenty (20) percent of the Acquisition Cost of the Equipment.
The present value shall be determined by discounting the aggregate of the
remaining unpaid Monthly Rents and the anticipated residual value of the
Equipment to the date of payment by Lessee at the rate of five (5) percent per
annum. When and as requested by Lessor, Lessee shall also pay to Lessor amounts
due pursuant to Section 18 below, if any, arising as a result of the loss,
seizure, replacement, condemnation or destruction of the Equipment. Any
insurance or condemnation proceeds received by Lessor shall be credited to the
obligation of Lessee under this Section 10.2 and the remainder of such proceeds,
if any, shall be paid to Lessee by Lessor in full compensation for the loss of
the leasehold interest in the Equipment by Lessee.
10.3 Upon any replacement of or payment for the Equipment as provided
in Section 10.2 above, this Lease Agreement shall terminate only with respect to
the Equipment so replaced or paid for, and Lessor shall transfer to Lessee title
only to such Equipment "AS IS," "WITH ALL FAULTS", and WITH NO WARRANTIES
WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE.
Lessee shall pay any sales or use taxes due on such transfer.
11. Insurance.
11.1 Lessee shall keep the Equipment insured against all risks of loss
or damage from every cause whatsoever occurring during the Initial Term, or any
Extended Term for an amount not less than the higher of the full replacement
value of the Equipment or the aggregate of unpaid Daily Rent and Monthly Rent
for the balance of the Initial Term, or the Extended Term. Lessee shall also
carry public liability insurance, both personal injury and property damage,
covering the Equipment, and Lessee shall be liable for any deductible portions
of all required insurance.
11.2 All insurance required under this Section 11 shall name Lessor as
additional insured and loss payee. Such insurance shall also be with such
insurers and shall be in such forms and amounts as are satisfactory to Lessor.
All applicable policies shall provide that no act, omission or breach of
warranty by Lessee shall give rise to any defense against payment of the
insurance proceeds to Lessor. Lessee shall pay the premiums for such insurance
and, at the request of Lessor, deliver to Lessor duplicates of such policies or
other evidence satisfactory to Lessor of such insurance coverage. In any event,
Lessee shall provide Lessor with endorsements upon the policies issued by the
insurers which evidence the existence of insurance coverage required by this
Section 11 and by which the insurers agree to give Lessor written notice at
least twenty (20) days prior to the effective date of any expiration,
modification, reduction, termination or cancellation of any such policies.
11.3 The proceeds of insurance required under this Section 11 and
payable as a result of loss or damage to the Equipment shall be applied as set
forth in Section 10.2 above. Upon the occurrence of an Event of Default as
defined in Section 16 below, Lessee hereby irrevocably appoints Lessor as its
attorney-in-fact, which power shall be deemed coupled with an interest, to make
claim for, receive payment of, execute and endorse all documents, checks or
drafts received in payment for loss or damage under any insurance policies
required by this Section 11.
11.4 Notwithstanding anything herein, Lessor shall not be under any
duty to examine any evidence of insurance furnished hereunder, or to ascertain
the existence of any policy or coverage, or to advise Lessee of any failure to
comply with the provisions of this Section 11.
12. Surrender To Lessor. Immediately upon the expiration of the Initial
Term or any Extended Term or at any other termination of this Lease Agreement,
Lessee shall surrender the Equipment to Lessor in good repair and working order,
reasonable wear and tear excepted, by assembling and delivering the Equipment,
ready for shipment, to a place or carrier, as Lessor may designate, within the
state in which the Equipment was originally delivered to Lessee or to which the
Equipment was thereafter moved with the written consent of Lessor. All costs of
removal, assembly, packing and delivery of such Equipment to the place
designated by Lessor shall be borne by Lessee.
13. Fair Market Value Purchase Option. Lessor hereby grants to Lessee
the option to purchase all, but not less than all, Equipment set forth on any
Equipment Schedule at the expiration of the applicable Initial Term or Extended
Term. Any such purchase shall be for cash in an amount equal to the then fair
market value of such Equipment, as determined in good faith by Lessor. This
purchase option may be exercised by Lessee, provided that no Event of Default,
as defined in Section 16 below, has occurred and is continuing. Lessee shall
notify Lessor in writing of its intention to exercise its purchase option at
least thirty (30) days prior to the expiration of the Initial Term or any
Extended Term. Upon payment of the fair market value by Lessee to Lessor, Lessor
shall transfer title to the Equipment to Lessee "AS IS", "WITH ALL FAULTS", and
WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY
PARTICULAR PURPOSE.
14. Financial Statements. Lessee shall annually, within ninety (90)
days after the close of the fiscal year for Lessee, furnish to Lessor financial
statements of Lessee, including a balance sheet as of the close of such year and
statements of income and retained earnings for such year, prepared in accordance
with generally accepted accounting principles, consistently applied from year to
year, and certified by independent public accountants for Lessee. If requested
by Lessor, Lessee shall also provide quarterly financial statements of Lessee,
similarly prepared for each of the first three quarters of each fiscal year,
certified (subject to normal year-end audit adjustments) by the chief financial
officer of Lessee and furnished to Lessor within sixty (60) days following the
end of the quarter, and such other financial information as may be reasonably
requested by Lessor.
15. Delayed Payment Charge. Lessee shall pay to Lessor interest upon
the amount of any Daily Rent, Monthly Rent or other sums not paid by Lessee when
due and owing under this Lease Agreement, from the due date thereof until paid,
at the rate of one and one half (1-1/2) percent per month, but if such rate
violates applicable law, then the maximum rate of interest allowed by such law.
<PAGE>
16. Default.
16.1 The occurrence of any of the following events shall constitute an
event of default ("Event of Default") under this Lease Agreement.
(a) Lessee fails to pay any Daily Rent or any Monthly Rent
when due and such failure to pay continues for ten (10) consecutive
days; or
(b) Lessee fails to pay any other sum required hereunder, and
such failure continues for a period of ten (10) days following written
notice from Lessor; or
(c) Lessee fails to maintain the insurance as required by
Section 11 above and such failure continues for ten (10) days after
written notice from Lessor; or
(d) Lessee violates or fails to perform any other term,
covenant or condition of this Lease Agreement or any other document,
agreement or instrument executed pursuant hereto or in connection
herewith, which failure is not cured within thirty (30) days after
written notice from Lessor; or
(e) Lessee ceases to exist or terminates its independent
operations by reason of any discontinuance, dissolution, liquidation,
merger, sale of substantially all of its assets, or otherwise ceases
doing business as a going concern; or
(f) Lessee (i) applies for or consents to the appointment of,
or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar official for itself or for all or a substantial
part of its property, (ii) is generally not paying its debts as such
debts become due, (iii) makes a general assignment for the benefit of
its creditors, (iv) commences a voluntary case under the United States
Bankruptcy Code, as now or hereafter in effect, seeking liquidation,
reorganization or other relief with respect to itself or its debts, (v)
files a petition seeking to take advantage of any other law providing
for the relief of debtors, (vi) takes any action under the laws of its
jurisdiction of incorporation or organization similar to any of the
foregoing, or (vii) takes any corporate action for the purpose of
effecting any of the foregoing; or
(g) A proceeding or case is commenced, without the application
or consent of Lessee, in any court of competent jurisdiction, seeking
(i) the liquidation, reorganization, dissolution, winding up of Lessee
or composition or readjustment of the debts of Lessee, (ii) the
appointment of a trustee, receiver, custodian, liquidator or similar
official for Lessee or for all or any substantial part of its assets,
or (iii) similar relief with respect to Lessee under any law providing
for the relief of debtors; or an order for relief is entered with
respect to Lessee in an involuntary case under the United States
Bankruptcy Code, as now or hereafter in effect, or an action under the
laws of the jurisdiction of incorporation or organization of Lessee,
similar to any of the foregoing, is taken with respect to Lessee
without its application or consent; or
(h) Lessee makes any representation or warranty herein or in
any statement or certificate at any time given in writing pursuant to
or in connection with this Lease Agreement, which is false or
misleading in any material respect; or
(i) defaults under any promissory note, credit agreement, loan
agreement, conditional sales contract, guaranty, lease, indenture,
bond, debenture or other material obligation whatsoever, and a party
thereto or a holder thereof is entitled to accelerate the obligations
of thereunder; or defaults in meeting any of its trade, tax or other
current obligations as they mature, unless such obligations are being
contested diligently and in good faith; or
(j) Any party to any guaranty, letter of credit, subordination
or credit agreement or other undertaking, given for the benefit of
Lessor and obtained in connection with this Lease Agreement, breaches,
fails to continue, contests, or purports to terminate or to disclaim
such guaranty, letter of credit, subordination or credit agreement or
other undertaking; or such guaranty, letter of credit, subordination
agreement or other undertaking becomes unenforceable; or a guarantor of
this Lease Agreement shall die, cease to exist or terminate its
independent operations.
16.2 No waiver by Lessor of any Event of Default shall constitute a
waiver of any other Event of Default or of the same Event of Default at any
other time.
17. Remedies.
17.1 Upon the occurrence of an Event of Default and while such Event of
Default is continuing, Lessor, at its sole option, upon its declaration, and to
the extent not inconsistent with applicable law, may exercise any one or more of
the following remedies:
(a) Lessor may terminate this Lease Agreement whereupon all
rights of Lessee to the quiet enjoyment and use of the Equipment shall
cease;
(b) Whether or not this Lease Agreement is terminated, Lessor
may cause Lessee, at the sole cost and expense of Lessee, to return any
or all of the Equipment promptly to the possession of Lessor in good
repair and working order, reasonable wear and tear excepted. Lessor, at
its sole option and through its employees, agents or contractors, may
peaceably enter upon the premises where the Equipment is located and
take immediate possession of and remove the Equipment, all without
liability to Lessor, its employees, agents or contractors for such
entry. LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHTS TO NOTICE AND/OR HEARING PRIOR TO THE REPOSSESSION
OR REPLEVIN OF THE EQUIPMENT BY LESSOR, ITS EMPLOYEES, AGENTS OR
CONTRACTORS;
(c) Lessor may proceed by court action to enforce performance
by Lessee of this Lease Agreement or pursue any other remedy Lessor may
have hereunder, at law, in equity or under any applicable statute, and
recover such other actual damages as may be incurred by Lessor;
(d) Lessor may recover from Lessee damages, not as a penalty
but as liquidation for all purposes and without limitation of any other
amounts due from Lessee under this Lease Agreement, in an amount equal
to the sum of (i) any unpaid Daily Rents and/or Monthly Rents due and
payable for periods prior to the repossession of the Equipment by
Lessor plus any interest due thereon pursuant to Section 15 above, (ii)
the present value of all future Monthly Rents required to be paid over
the remaining Initial Term or any Extended Term after repossession of
the Equipment by Lessor, determined by discounting such future Monthly
Rents to the date of payment by Lessee at a rate of five (5) percent
per annum, and (iii) all costs and expenses incurred in searching for,
taking, removing, storing, repairing, restoring, refurbishing and
leasing or selling such Equipment; or
(e) Lessor may sell, lease or otherwise dispose of any or all
of the Equipment, whether or not in the possession of Lessor, at public
or private sale and with or without notice to Lessee, which notice is
hereby expressly waived by Lessee, to the extent permitted by and not
inconsistent with applicable law. Lessor shall then apply against the
obligations of Lessee hereunder the net proceeds of such sale, lease or
other disposition, after deducting therefrom (i) the present value of
the residual value of the Equipment at the expiration of the Initial
Term, which is anticipated by Lessor and Lessee to be not less than
twenty (20) percent of the Acquisition Cost, such present value to be
determined by discounting the residual value to the date of sale, lease
or other disposition at a rate of five (5) percent per annum, and (ii)
all costs incurred by Lessor in connection with such sale, lease or
other disposition including, but not limited to, costs of
transportation, repossession, storage, refurbishing, advertising or
other fees. Lessee shall remain liable for any deficiency, and any
excess of such proceeds over the total obligations owed by Lessee shall
be retained by Lessor. If any notice of such sale, lease or other
disposition of the Equipment is required by applicable law, ten (10)
days written notice to Lessee shall be deemed reasonable.
17.2 No failure on the part of Lessor to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof. No
single or partial exercise of any right or remedy hereunder shall preclude any
other or further exercise thereof or the exercise of any other right or remedy.
Each right and remedy provided hereunder is cumulative and not exclusive of any
other right or remedy including, without limitation, any right or remedy
available to Lessor at law, by statute or in equity.
17.3 Lessee shall pay all costs and expenses including, but not limited
to, reasonable legal fees incurred by Lessor arising out of or in connection
with any Event of Default or this Lease Agreement. Lessee shall also be liable
for any amounts due and payable to Lessor under any other provision of this
Lease Agreement including, but not limited to, amounts due and payable under
Section 18 below.
18. Tax Indemnification.
18.1 Lessee represents and warrants that the Equipment is and will
remain, during the entire Initial Term and any Extended Term, property used in a
trade or business or for the production of income within the meaning of Section
167 of the Internal Revenue Code of 1986, as amended ("Code"). Lessee further
acknowledges and agrees that, pursuant to the Code, Lessor or its affiliated
group, as defined in Section 1504 of the Code ("Affiliated Group"), shall be
entitled to deductions for the recovery of the Acquisition Cost of the Equipment
over the recovery period as set forth in the applicable Equipment Schedule,
using the Accelerated Cost Recovery System as provided by Section 168 (b) (1) of
the Code ("ACRS Deductions").
18.2 If as a result of any reason or circumstance whatsoever, except as
specifically set forth in Section 18.3 below, Lessor or its Affiliated Group
shall not be entitled to, shall not be allowed, shall suffer recapture of or
shall lose any ACRS Deductions, then Lessee shall pay to Lessor, upon demand, a
sum to be computed by Lessor in the following manner. Such sum, after deduction
of all federal, state and local income taxes payable by Lessor as a result of
the receipt of such sum, shall be sufficient to restore Lessor or its Affiliated
Group to substantially the same position, on an after-tax basis, as it would
have been in but for the loss of such ACRS Deductions. In making its
computation, Lessor or its Affiliated Group shall Considers but shall not be
limited to, the following factors: (i) the amounts and timing of any net loss of
tax benefits resulting from any such lack of, entitlement to or loss, recapture,
or disallowance of ACRS Deductions but offset by any tax benefits derived from
any depreciation or other capital recovery deductions or exclusions from income
allowed to Lessor or its Affiliated Group with respect to the same Equipment;
(ii) penalties, interest or other charges imposed; (iii) differences in tax
years involved; and (iv) the time value of money at a reasonable rate
determined, in good faith, by Lessor. For purposes of computation only, the
amount of indemnification payments hereunder shall be calculated on the
assumption that Lessor and its Affiliated Group have or will have, in all tax
years involved, sufficient taxable income and the tax liability to realize all
tax benefits and incur all losses of tax benefits at the highest marginal
Federal corporate income tax rate in each year. Upon request, Lessor shall
provide Lessee with the methods of computation used in determining any sum that
may be due and payable by Lessee under this Section 18.
18.3 Lessee shall not be obligated to pay any sums required under this
Section 18 in the event that lack of entitlement to, or loss, recapture or
disallowance of any ACRS Deductions results from one or more of the following
events: (i) a disqualifying disposition due to the sale of the Equipment by
Lessor when no Event of Default, as defined in Section 16 above, has occurred,
(ii) a failure of Lessor or its Affiliated Group to timely claim any ACRS
Deductions for the Equipment in its tax return, and/or (iii) the fact that
Lessor or its Affiliated Group does not have, in any taxable year or years,
sufficient taxable income or tax liability to realize the benefit of any ACRS
Deductions that are otherwise allowable to Lessor or its Affiliated Group.
18.4 The representations, obligations and indemnities of Lessee under
this Section 18 shall continue in full force and effect, notwithstanding the
expiration or other termination of this Lease Agreement.
19. Assignment; Sublease.
19.1 Lessor may sell, assign or otherwise transfer all or any part of
its right, title and interest in and to the Equipment and/or this Lease
Agreement to a third-party assignee, subject to the terms and conditions of this
Lease Agreement including, but not limited to, the right to the quiet enjoyment
of the Equipment by Lessee as set forth in Section 7.1 above. Such assignee
shall assume all of the rights and obligations of Lessor under this Lease
Agreement and shall relieve Lessor therefrom. Thereafter, all references to
Lessor herein shall mean such assignee. Notwithstanding any such sale,
assignment or transfer, the obligations hereunder shall remain absolute and
unconditional as set forth in Section 7.2 above.
19.2 Lessor may also pledge, mortgage or grant a security interest in
the Equipment and assign this Lease Agreement as collateral. Each such pledgee,
mortgagee, lienholder or assignee shall have any and all rights as may be
assigned by Lessor but none of the obligations of Lessor hereunder. Any pledge,
mortgage or grant of security interest in the Equipment or assignment of this
Lease Agreement shall be subject to the terms and conditions hereof including,
but not limited to, the right to the quiet enjoyment of the Equipment by Lessee
as set forth in Section 7.1 above. Lessor, by reason of such pledge, mortgage,
grant of security interest or collateral assignment, shall not be relieved of
any of its obligations hereunder which shall remain absolute and unconditional
as set forth in Section 7.2 above. Upon the written request of Lessor, Lessee
shall acknowledge such obligations the pledgee, mortgagee, lienholder or
assignee.
19.3 LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR
PLEDGE ANY OF ITS INTEREST IN THIS LEASE AGREEMENT OR ANY OF THE EQUIPMENT,
WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Any such sale, transfer,
assignment, sublease, conveyance or pledge, whether by operation of law or
otherwise, without the prior written consent of Lessor, shall be void.
20. Optional Performance By Lessor. If an Event of Default, as defined
in Section 16 above, occurs and is continuing, Lessor in its sole discretion may
pay or perform such obligation in whole or in part, without thereby becoming
obligated to pay or to perform the same on any other occasion or to pay any
other obligation of Lessee. Any payment or performance by Lessor shall not be
deemed to cure any Event of Default hereunder. Upon such payment or performance
by Lessor, Lessee shall pay forthwith to Lessor the amount of such payment or an
amount equal to all costs and expenses of such performance, as well as any
delayed payment charges on such amounts as set forth in Section 15 above.
21. Compliance and Approvals. Lessee warrants and agrees that this
Lease Agreement and the performance by Lessee of all of its obligations
hereunder have been duly authorized, do not and will not conflict with any
provision of the charter or bylaws of Lessee or of any agreement, indenture,
lease or other instrument to which Lessee is a party or by which Lessee or any
of its property is or may be bound. Lessee warrants and agrees that this Lease
Agreement does not and will not require any governmental authorization,
approval, license or consent except those which have been duly obtained and will
remain in effect during the entire Initial Term and any Extended Term.
22. Miscellaneous.
22.1 The section headings are inserted herein for convenience of
reference and are not part of and shall not affect the meaning or interpretation
of this Lease Agreement.
22.2 Any provision of this Lease Agreement which is unenforceable in
whole or in part in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such unenforceability without invalidating any
remaining part or other provision hereof and shall not be affected in any manner
by reason of such enforceability in any other jurisdiction. The validity and
interpretation of this Lease Agreement and the rights and obligations of the
parties hereto shall be governed in all respects by the laws of The Commonwealth
of Massachusetts without giving effect to the conflicts of laws provisions
thereof.
22.3 This Lease Agreement, including all Equipment Schedules and
Certificates of Acceptance, constitutes the entire agreement between Lessor and
Lessee. Lessor and Lessee agree that this Lease Agreement shall not be amended,
altered or changed except by a written agreement signed by the parties hereto.
LESSEE ACKNOWLEDGES THAT THERE HAVE BEEN NO REPRESENTATIONS, EXPRESS OR IMPLIED,
BY LESSOR OTHER THAN AS SET FORTH HEREIN AND LESSEE EXPRESSLY CONFIRMS THAT IT
HAS NOT RELIED UPON ANY REPRESENTATIONS BY LESSOR, EXCEPT THOSE SET FORTH
HEREIN, AS A BASIS FOR ENTERING INTO THIS LEASE AGREEMENT.
22.4 Any notice required to be given by Lessee or Lessor hereunder
shall be deemed adequately given if sent by registered or certified mail, return
receipt requested, to the other party at their respective addresses stated
herein or at such other place as either party may designate in writing to the
other.
22.5 Lessee agrees to execute and deliver such additional documents and
to perform such further acts as may be reasonably requested by Lessor in order
to carry out and effectuate the purposes of this Lease Agreement. Upon the
written request of Lessor, Lessee further agrees to execute any instrument
necessary for filing or recording this Lease Agreement or to confirm the
ownership of the Equipment by Lessor. Lessor is hereby authorized to insert in
any Equipment Schedule the serial numbers of the Equipment and other identifying
marks or similar information and to sign, on behalf of Lessee, any Uniform
Commercial Code financing statements.
22.6 This Lease Agreement cannot be cancelled or terminated except as
expressly provided herein.
22.7 Whenever the context of this Lease Agreement requires, the
singular includes the plural and the plural includes the singular. Whenever the
word Lessor is used herein, it includes all assignees and successors in interest
of Lessor. If more than one Lessee are named in this Lease Agreement, the
liability of each shall be joint and several.
22.8 All agreements, indemnities, representations and warranties of
Lessee made herein and all rights and remedies of Lessor shall survive the
expiration or other termination of this Lease Agreement, whether or not
expressly provided herein.
22.9 Any waiver of any power, right, remedy or privilege of Lessor
hereunder shall not be effective unless in writing signed by Lessor.
22.10 This Lease Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized
officer or agent, have duly executed and delivered this Lease Agreement, which
is intended to take effect as a sealed instrument, as of the day and year first
written above.
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC. ASC Leasing, Inc.
By: /s/ illegible By:/s/ Christopher E. Howard
- - ---------------------------------- -----------------------------
Title: Title: Senior Vice President
JULY 26,1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JULY 26,
1998
PRIMARY AND FULLY DILUTED CALCULATION
Net loss from continuing operations (1,867)
Extraordinary loss (5,081)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock (5,346)
--------------
Net loss available to common shareholders
(12,294)
--------------
Weighted average shares outstanding:
Common Stock 11,071,073
Common Stock, Class A 14,760,530
--------------
25,831,603
--------------
Loss per common share (basic and fully diluted):
Net loss from continuing operations (0.07)
Extraordinary loss (0.20)
Net loss available to common shareholders (0.48)
Subsidiaries of American Skiing Company, a Maine corporation:
ASC Utah, a wholly-owned Maine corporation;
ASC West, Inc. a wholly-owned Maine corporation;
ASC East, Inc. a wholly-owned Maine corporation;
ASC Leasing, Inc., a wholly-owned Maine corporation
Orlando Resort Corporation, a wholly-owned Delaware corporation
Blunder Bay Development, Inc., a wholly-owned Maine corporation
ASC Transportation, a wholly-owned Maine corporation
Subsidiaries of ASC West, Inc.
Steamboat Ski and Resort Corporation, a wholly-owned Delaware corporation
Steamboat Development Corporation, a wholly-owned Delaware corporation
Heavenly Valley Ski & Resort Corporation, a wholly-owned Delaware corporation
Heavenly Corporation, a wholly-owned Delaware corporation
Subsidiaries of Steamboat Ski and Resort Corporation
Walton Pond Apartments, Inc., a 95% owned Delaware corporation
Subsidiaries of Heavenly Valley Ski and Resort Corporation
Heavenly Valley Limited Partnership, a 50% owned Delaware limited
partnership
Subsidiary of Heavenly Corporation
Heavenly Valley Limited Partnership, a 50% owned Delaware limited
partnership
Subsidiaries of ASC East, Inc.:
Sunday River Skiway Corporation, a wholly-owned Maine corporation;
Sunday River Transportation, Inc. a wholly-owned Maine corporation;
Sunday River, Ltd., a wholly-owned Maine corporation;
Perfect Turn, Inc., a wholly-owned Maine corporation;
L.B.O. Holding, Inc., a wholly-owned Maine corporation;
Sugarbush Resort Holdings, Inc. a wholly-owned Vermont corporation;
S-K-I, Ltd., a wholly-owned Delaware corporation;
American Skiing Company Resort Properties, Inc. a wholly-owned Maine
corporation
Subsidiary of L.B.O. Holding, Inc.:
AJT, Inc. (fka Cranmore, Inc.) a wholly-owned Maine corporation
Subsidiaries of Sugarbush Resort Holdings, Inc.
Sugarbush Restaurants, Inc., a wholly-owned Vermont corporation; and
Sugarbush Leasing Company, a wholly-owned Vermont corporation;
Club Sugarbush, a wholly-owned Vermont corporation; and
Mountain Water Company, a wholly-owned Vermont corporation; and
Mountain Wastewater Treatment, Inc., a wholly-owned Vermont corporation.
Subsidiaries of S-K-I, Ltd.:
Killington, Ltd., a wholly-owned Vermont corporation
Sugarloaf Mountain Corporation, a wholly-owned Maine corporation
SKI Insurance Company, a wholly-owned Vermont corporation
Mount Snow, Ltd, a wholly-owned Vermont corporation
Pico Ski Area Management Company, a wholly-owned Vermont corporation
Killington West Ltd. a wholly-owned California corporation
WVSAL, Inc.(fka Waterville Valley Ski Area, Ltd.), a wholly-owned
New Hampshire corporation
Resorts Software services, Inc., a wholly-owned Vermont corporation
Subsidiaries of Killington, Ltd.:
Killington Restaurants, Inc., a wholly-owned Vermont corporation
Resorts Technologies, Inc., a wholly-owned Vermont corporation
Subsidiaries of Sugarloaf Mountain Corporation:
Mountainside, a wholly-owned Maine corporation
Sugartech, a wholly-owned Maine corporation
Subsidiaries of Mount Snow, Ltd.:
Deerfield Operating Company, a wholly-owned Vermont corporation
Dover Restaurants, Inc., a wholly-owned Vermont corporation
Subsidiaries of American Skiing Company Resort Properties, Inc.
Grand Summit Resort Properties, Inc., a wholly-owned Maine corporation
Steamboat Resort Properties, Inc. a wholly-owned Maine corporation
The Canyons Resort Properties, Inc., a wholly-owned Maine corporation
Heavenly Resort Properties, Inc., a wholly-owned Maine corporation
Sugarloaf Resort Properties, Inc., a wholly-owned Maine corporation
Killington Resort Properties, Inc. a wholly-owned Maine corporation
Mount Snow Resort Properties, Inc. a wholly-owned Maine corporation
Sugarbush Resort Properties, Inc. a wholly-owned Maine corporation
Sunday River Resort Properties, Inc. a wholly-owned Maine corporation
Attitash Resort Properties, Inc. a wholly-owned Maine corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this annual report on
Form 10-K of our report dated December 22, 1995, on our audit of the combined
financial statements of American Skiing Company and affiliates as of July 31,
1994 under the heading "Selected Financial Data" in Form 10-K. However, it
should be noted that Berry, Dunn, McNeil & Parker has not prepared or certified
such "Selected Financial Data".
/s/ Berry, Dunn, McNeil & Parker
Portland, Maine
October 26, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this annual report on
Form 10-K of our report dated December 22, 1995, on our audit of the
consolidated financial statements of American Skiing Company as of July 3, 1995
under the heading "Selected Financial Data" in Form 10-K. However, it should be
noted that Pricwaterhouse Coopers LLP has not prepared or certified such
"Selected Financial data".
/s/ PricwaterhouseCoopers LLP
Boston Massachusettts
October 26, 1998
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned offices and directors of American Skiing Company
hereby severally constitute and appoint Christopher E. Howard and Leslie B.
Otten, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities
indicated below, the Annual Report on Form 10-K filed herewith and generally to
do all such things in our names and on our behalf in our capacities as offices
and directors to enable American Skiing Company to comply with the provision of
the Securities Exchange Act of 1934, as amended, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Annual Report.
Signature Title Date
Chairman of the Board of Directors,
/s/ Leslie B. Otten President and Chief Executive Officer October 26, 1998
- - ------------------- (Principal Executive Officer)
Leslie B. Otten
Senior Vice President, Chief
/s/ Christopher E. Howard Administrative Officer, General
- - -------------------------- Counsel, Clerk and Chief October 26, 1998
Christopher E. Howard Financial Officer,
(Principal Financial Officer)
/s/ Joel B. Alvord
- - ------------------------ Director October 26, 1998
Joel B. Alvord
- - -------------------------- Director October 26, 1998
Martel D. Wilson, Jr.
/s/ Gordon M. Gillies
- - -------------------------- Director October 26, 1998
Gordon M. Gillies
- - --------------------------- Director October 26, 1998
Christopher J. Nassetta
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-26-1998
<PERIOD-END> JUL-26-1998
<CASH> 15,370,000
<SECURITIES> 0
<RECEIVABLES> 7,538,000
<ALLOWANCES> 0
<INVENTORY> 13,353,000
<CURRENT-ASSETS> 47,575,000
<PP&E> 590,956,000
<DEPRECIATION> 69,817,000
<TOTAL-ASSETS> 780,899,000
<CURRENT-LIABILITIES> 99,266,000
<BONDS> 127,497,000
39,464,000
0
<COMMON> 303,000
<OTHER-SE> 267,901,000
<TOTAL-LIABILITY-AND-EQUITY> 780,899,000
<SALES> 340,420,000
<TOTAL-REVENUES> 340,420,000
<CGS> 44,292,000
<TOTAL-COSTS> 308,931,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,575,000
<INCOME-PRETAX> (3,086,000)
<INCOME-TAX> (774,000)
<INCOME-CONTINUING> (1,867,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,081,000)
<CHANGES> 0
<NET-INCOME> (12,294,000)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
