<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AMERICAN SKIING COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MAINE 7990 04-3373730
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------------
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
(207) 824-8100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
CHRISTOPHER E. HOWARD, ESQ.
SENIOR VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER
AMERICAN SKIING COMPANY
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
(207) 824-8100
(207) 824-5158 (FACSIMILE)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
Copies to:
DAVID J. CHAMPOUX, ESQ.
Pierce Atwood
One Monument Square
Portland, Maine 04101
(207) 791-1100
(207) 791-1350 (facsimile)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Subject to
the applicable provisions of the Lock-up Agreement described in the Prospectus
forming a part of this Registration Statement, from time to time after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE(1)
<S> <C> <C> <C>
10 1/2% Repriced Convertible Exchangeable Preferred
Stock, par value $.01 per share 36,626 shares $1,000 (1) $36,626,000
10 1/2% Repriced Subordinated Debentures -- (2) -- --
4,350,740 shares
Common Stock, par value $.01 per share (3) -- --
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE(1)
<S> <C>
10 1/2% Repriced Convertible Exchangeable Preferred
Stock, par value $.01 per share $10,804.67
10 1/2% Repriced Subordinated Debentures $-- (2)
Common Stock, par value $.01 per share $3,104.32 (3)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended (the "Securities
Act").
(2) Represents the 10 1/2% Repriced Subordinated Debentures (the "10 1/2%
Subordinated Debentures") issuable upon exchange of the 10 1/2% Repriced
Convertible Exchangeable Preferred Stock (the "10 1/2% Convertible Preferred
Stock") from time to time. Pursuant to Rule 457(i) of the Securities Act, no
registration fee is required to be paid with respect to the 10 1/2%
Subordinated Debentures because no separate consideration will be received
in the event that the 10 1/2% Subordinated Debentures are issued by the
registrant in exchange for the 10 1/2% Convertible Preferred Stock. Based
upon the current exchange price of $1,000.00 principal amount of 10 1/2%
Subordinated Debentures for each share of 10 1/2% Convertible Preferred
Stock, a maximum of $61,486,779 aggregate principal amount of 10 1/2%
Subordinated Debentures may be issued upon exchange of the 10 1/2%
Convertible Preferred Stock.
(3) The shares of Common Stock being registered hereunder include the number of
shares of Common Stock issuable upon conversion of the 10 1/2% Convertible
Preferred Stock or the 10 1/2% Subordinated Debentures on November 12, 2002
plus such indeterminate number of additional shares as may become issuable
upon conversion of the securities as a result of adjustments in the
conversion price thereof. The shares of Common Stock being registered
hereunder also include 755,022 shares issued by the Company in private
transactions which are being registered for resale by the holders thereof,
for which shares a registration fee has been calculated as of January 28,
1998 pursuant to Rule 457(c) under the Securities Act. Pursuant to Rule
457(i) under the Securities Act, no registration fee is required for the
Common Stock issuable upon conversion of the 10 1/2% Convertible Preferred
Stock or the 10 1/2% Subordinated Debentures because no additional
consideration will be required in connection with the issuance of such
shares.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 30, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO PURCHASE BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
<PAGE>
AMERICAN SKIING COMPANY
36,626 SHARES OF 10 1/2% REPRICED CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
10 1/2% REPRICED SUBORDINATED DEBENTURES
4,350,740 SHARES OF COMMON STOCK
------------------------
This Prospectus relates to the resale of (i) 36,626 shares of the 10 1/2%
Repriced Convertible Exchangeable Preferred Stock (the "10 1/2% Convertible
Preferred Stock"), of American Skiing Company, a Maine corporation (the
"Company"), (ii) the 10 1/2% Repriced Subordinated Debentures (the "10 1/2%
Subordinated Debentures") issuable upon exchange of the 10 1/2% Convertible
Preferred Stock, (iii) the shares of the Common Stock, par value $.01 per share
(the "Common Stock") of the Company issuable upon conversion of the 10 1/2%
Convertible Preferred Stock or the 10 1/2% Subordinated Debentures (the
"Conversion Shares"), and (iv) 755,022 shares of Common Stock issued by the
Company in private transactions (the "Privately Placed Stock," and, together
with the 10 1/2% Convertible Preferred Stock, the 10 1/2% Subordinated
Debentures and the Conversion Shares, the "Securities").
The Securities may be offered and sold from time to time by the holders
named herein or by their transferees, pledgees, donees or their successors
(collectively, the "Selling Holders") pursuant to this Prospectus. The
Securities may be sold by the Selling Holders from time to time directly to
purchasers or through agents, underwriters or dealers. See "Selling Holders" and
"Plan of Distribution." If required, the names of any such agents, underwriters
or dealers involved in the sale of the Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Holders will receive all of the net proceeds from the
sale of the Securities. With respect to the 10 1/2% Convertible Preferred Stock,
the 10 1/2% Subordinated Debentures and the Conversion Shares, the Company is
responsible for payment of underwriting discounts, and selling commissions, if
any, applicable to any such sale up to a maximum of 3% of the price of any
10 1/2% Convertible Preferred Stock, 10 1/2% Convertible Debentures or
Conversion Shares sold, and is responsible for payment of all other expenses
incident to the registration of the Securities. Underwriters that participate in
the distribution of the Securities may be deemed to be "underwriters" within the
meaning of the Securities Act, and any commission received by them and any
profit on the resale of the Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for a description of indemnification arrangements.
The initial liquidation preference of the 10 1/2% Convertible Preferred
Stock is $1,000 per share and cumulative dividends are payable in cash on
November 12, 2002 or earlier at the Company's option at a rate of 10 1/2% per
annum, compounded quarterly. The amount of accrued but unpaid dividends will be
added to the liquidation preference per share of 10 1/2% Convertible Preferred
Stock.
Each share of 10 1/2% Convertible Preferred Stock is convertible at any
time, at the holder's option, into a number of shares of Common Stock initially
equal to the liquidation preference per share of 10 1/2% Convertible Preferred
Stock divided by $17.10, subject to adjustment for certain events. The aggregate
liquidation preference of the 36,626 outstanding shares of 10 1/2% Convertible
Preferred Stock was $37.4 million as of January 30, 1998 and such securities
were convertible as of that date into 2,188,991 shares of Common Stock.
The Company may, at its option, on the first day of any calendar quarter
commencing January 1, 1998, exchange the shares of 10 1/2% Convertible Preferred
Stock, in whole but not in part, for 10 1/2% Subordinated Debentures due
November 12, 2002, plus cash (or, at the option of the Company, additional
10 1/2% Subordinated Debentures) in an amount equal to all accrued but unpaid
dividends. See "Description of the 10 1/2% Convertible Preferred Stock."
The Company is required to redeem all outstanding shares of 10 1/2%
Convertible Preferred Stock on November 12, 2002 at a price equal to $1,000 per
share plus any accrued and unpaid dividends thereon as of the date of redemption
(the "Redemption Price"). In addition, the Company may, at its option, redeem
the outstanding shares of 10 1/2% Convertible Preferred Stock at any time, in
whole or in part, at the Redemption Price, provided that the closing price of
the Common Stock exceeds $23.94 per share (subject to adjustment in certain
circumstances) for the requisite period. See "Description of the 10 1/2%
Convertible Preferred Stock."
The 10 1/2% Subordinated Debentures will be issued in principal amounts of
$1,000 and multiples thereof, and will bear interest at a rate of 10 1/2% per
annum, accruing and compounding quarterly. Interest will be payable in cash on
November 12, 2002 or, if earlier, on the redemption of the 10 1/2% Subordinated
Debentures, or earlier at the Company's option. The 10 1/2% Subordinated
Debentures will be unsecured general obligations of the Company and will be
subordinate in right of payment to all senior indebtedness of the Company.
Each 10 1/2% Subordinated Debenture will be convertible at any time, at the
holder's option, into shares of Common Stock at $17.10 per share, subject to
adjustment for certain events. The maturity date of the 10 1/2% Subordinated
Debentures will be November 12, 2002. The 10 1/2% Subordinated Debentures may be
redeemed at the Company's option, in whole or in part, at a price equal to
$1,000 per Debenture plus all accrued but unpaid interest to the redemption
date, in the event that the closing price of the Common Stock exceeds $23.94 per
share (subject to adjustment in certain circumstances) for the requisite period.
See "Description of the 10 1/2% Subordinated Debentures."
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "SKI." The last reported sale price for Common Stock on January 28,
1998 was $13 9/16 per share. See "Market Price of and Dividends on Common Stock
and Related Stockholder Matters."
SEE "RISK FACTORS" COMMENCING ON PAGE 13 BELOW FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
2
<PAGE>
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 30, 1998
3
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES COVERED BY THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION ABOUT
THE COMPANY CONTAINED IN THIS PROSPECTUS SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-1 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is not necessarily complete and is qualified in its
entirety by reference to the exhibit or schedule for a complete statement of its
terms and conditions. The Company is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, the Company files periodic reports and other information
with the Commission relating to its business, financial statements and other
matters.
Any interested parties may inspect and/or copy the Registration Statement,
its schedules and exhibits, and the Company's periodic reports, proxy and
information statements and other information filed in connection therewith, at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Citicorp Center, 500 W. Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such materials can be obtained at prescribed
rates by addressing written requests for such copies to the Public Reference
Section of the Commission at its principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov., which contains reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") and
the periodic reports, proxy statements and other information filed by the
Company with the SEC may therefore be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," and "Business" and elsewhere constitute
"forward-looking statements" within the meanings of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company, or industry results,
to differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other important factors include, among others: substantial
leverage and financial risks; certain risks associated with rapid growth and
real estate development; substantial debt obligations of the Company; government
regulation; dependence by the Company on highly leveraged and restricted
subsidiaries; seasonality of operations and revenues; dependence on weather
conditions; competition; general economic and business conditions; dependence on
key personnel; limitations on the ability of the Company to pay dividends; and
other factors referenced in this Prospectus. See "Risk Factors." These
forward-looking statements speak only as of the date of this Prospectus. The
Company expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, CONSOLIDATED FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) AND PRO FORMA COMBINED FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, ALL REFERENCES HEREIN TO THE "COMPANY" SHALL MEAN (A) AMERICAN SKIING
COMPANY AND ITS SUBSIDIARIES, EXCLUDING THE ACQUIRED RESORTS (AS DEFINED), WHEN
USED WITH RESPECT TO HISTORICAL INFORMATION CONTAINED HEREIN OR (B) AMERICAN
SKIING COMPANY AND ITS SUBSIDIARIES, INCLUDING THE ACQUIRED RESORTS, WHEN USED
WITH RESPECT TO INFORMATION ABOUT EVENTS THAT HAVE OCCURRED OR WILL OCCUR AFTER
THE ACQUISITION OR WHEN GIVING PRO FORMA EFFECT THERETO. SEE "THE TRANSACTIONS."
ALL REFERENCES HEREIN TO (A) THE COMPANY'S "FISCAL" YEAR SHALL MEAN THE 52- OR
53-WEEK PERIOD ENDED OR ENDING ON THE LAST SUNDAY IN JULY, (B) THE ACQUIRED
RESORTS' FISCAL YEAR SHALL MEAN THE ACQUIRED RESORTS' FISCAL YEAR ENDED ON MAY
31, (C) "SKI SEASON" SHALL MEAN THE PERIOD FROM THE OPENING OF THE FIRST OF THE
COMPANY'S MOUNTAINS FOR SKIING THROUGH THE CLOSING OF THE COMPANY'S LAST
MOUNTAIN FOR SKIING, TYPICALLY MID-NOVEMBER TO LATE MAY, (D) "SKIER VISITS"
SHALL MEAN ONE GUEST ACCESSING A SKI MOUNTAIN ON ANY ONE DAY AND (E) REAL ESTATE
RESIDENTIAL "UNITS" SHALL MEAN RESIDENTIAL REAL ESTATE OWNERSHIP INTERESTS,
INCLUDING INDIVIDUAL INTERVAL INTERESTS. ALL DISCUSSION HEREIN WITH RESPECT TO
THE SIZE OF A RESORT SHALL BE IN TERMS OF THE RELATIVE NUMBER OF SKIER VISITS AT
SUCH RESORT. EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
WITH RESPECT TO THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK AND CLASS A
COMMON, (A) ASSUMES THAT STOCK OPTIONS TO PURCHASE 2,566,723 SHARES OF COMMON
STOCK ARE NOT EXERCISED, (B) ASSUMES NO CONVERSION OF THE COMPANY'S 10 1/2%
CONVERTIBLE PREFERRED STOCK OR THE 10 1/2% SUBORDINATED DEBENTURES, WHICH WERE
CONVERTIBLE, AS OF JANUARY 23, 1998, INTO 2,188,991 SHARES OF COMMON STOCK, (C)
GIVES EFFECT TO THE SALE OF 14,750,000 SHARES OF COMMON STOCK IN THE OFFERING
AND TO THE ISSUANCE OF THE PRIVATELY PLACED STOCK, (D) ASSUMES THAT NO SHARES OF
CLASS A COMMON STOCK ARE CONVERTED INTO SHARES OF COMMON STOCK AND (E) GIVES
EFFECT TO THE EXCHANGE BY THE PRINCIPAL SHAREHOLDER OF ALL OF HIS SHARES OF
COMMON STOCK OF THE COMPANY FOR CLASS A COMMON STOCK ON A 14.76 FOR 1 BASIS (THE
"STOCK SPLIT"). PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION DISCUSSED UNDER "RISK
FACTORS."
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 1996-97 skier visits, with at
least one resort in each major skiing market. These nine resorts generated
approximately 4.9 million skier visits, representing approximately 9.4% of total
skier visits in the United States during the 1996-97 ski season. The Company's
existing resorts include Sunday River and Sugarloaf in Maine; Attitash Bear Peak
in New Hampshire; Killington, Mount Snow/Haystack and Sugarbush in Vermont; and
The Canyons, adjacent to Park City, Utah (collectively, the "Existing Resorts").
On November 12, 1997, pursuant to a definitive agreement entered into in August
1997 (the "Acquisition Agreement"), the Company acquired (i) the Steamboat ski
resort and 168 acres of land held for development in Steamboat Springs, Colorado
("Steamboat") and (ii) the Heavenly ski resort near Lake Tahoe, California
("Heavenly" and, together with Steamboat, the "Acquired Resorts"). After giving
pro forma effect to the Transactions (as defined), the Company's total revenues,
EBITDA (as defined) and net loss to common shareholders for fiscal 1997 would
have been approximately $261.9 million, $57.8 million and $5.5 million,
respectively.
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
3
<PAGE>
quartershare units typically generates a high profit margin, and the Company
derives a continuing revenue stream from operating the hotel's retail,
restaurant and conference facilities and from renting quartershare interval
interests when not in use by their owners. The Company also develops alpine
villages at prime locations within certain of its resorts designed to fit that
resort's individual characteristics. The Company's real estate development
strategy was developed and implemented at the Sunday River resort, where over
1,350 units of residential real estate (including condominiums, townhouses and
quartershares) have been developed and sold since 1983. New Grand Summit Hotels
were recently completed at Attitash Bear Peak and Sunday River. One Grand Summit
Hotel is currently under construction at each of Killington and Mount
Snow/Haystack, with initial operations scheduled to commence in February, 1998.
A hotel at Sugarbush is near completion of the permitting process. These hotels
will have an aggregate of approximately 2,500 units. As of January 18, 1998, the
Attitash Grand Summit Hotel had closed $1,284,300 in sales (26 units) in fiscal
1998, with an additional $625,100 in purchase and sales contracts pending. The
Sunday River, Jordan Bowl Grand Summit Hotel had closed $6,321,700 in sales (126
units) in fiscal 1998 with $2,300,300 in pending purchase and sales contracts,
as of January 18, 1998. Mount Snow and Killington Grand Summit Hotels had
$11,893,500 (207 units) and $17,971,800 (295 units), respectively, in purchase
and sales contracts pending, as of January 18, 1998. Grand Summit Hotels are in
the planning stage at The Canyons and Steamboat. In addition, the Company has
over 7,000 acres of real estate available for future development at its resorts,
providing the capacity to support over 30,000 residential units during the next
15 to 20 years. The Company also operates golf courses at its resorts and
conducts other off-season activities, which accounted for approximately 11% of
the Company's resort revenues for fiscal 1997. See "Business--Operating
Strategy--Expand Golf and Convention Business."
For an organizational chart of the Company and its material operating
subsidiaries, see "Business-- The Company."
The mailing address of the Company and the address of its principal
executive offices is Sunday River Access Road, Bethel, Maine 04217; telephone
number (207) 824-8100.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Securities.
The Selling Holders will receive all of the proceeds from any sale of the
Securities, net of any underwriting or brokerage discounts or commissions in
excess of those payable by the Company.
RISK FACTORS
See "Risk Factors" beginning on page 13 for a discussion of certain factors
that should be considered carefully in evaluating an investment in the
Securities.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
THE COMPANY
The summary historical financial data and the unaudited pro forma summary
combined financial data (except other data) set forth below have been derived
from and should be read in conjunction with the financial statements of the
Company and the Acquired Resorts and the notes thereto included elsewhere in
this Prospectus and "Pro Forma Financial Data." The unaudited pro forma summary
combined financial data for the fiscal year ended July 27, 1997 give effect to
the Transactions as if they had occurred on July 29, 1996 with respect to the
statement of operations and other data, and on October 26, 1997 with respect to
the balance sheet data. See "Pro Forma Financial Data." The unaudited pro forma
summary combined financial data is not intended to be indicative of either
future results of operations or results that might have been achieved had the
Transactions actually occurred on the dates specified.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR
HISTORICAL FISCAL YEAR ENDED(1) ENDED(2)
----------------------------------------------------------- -----------
JULY 25, JULY 31, JULY 30, JULY 28, JULY 27, JULY 27,
1993 1994 1995 1996 1997 1997
----------- ----------- ----------- --------- --------- ----------- HISTORICAL FISCAL
QUARTERS
ENDED
------------------------
OCTOBER 27, OCTOBER 26,
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER SKIER VISIT AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Resort........................ $ 23,645 $ 26,544 $ 46,794 $ 63,489 $ 166,923 $ 253,397 $ 11,728 $ 13,811
Real estate................... 6,103 6,682 7,953 9,933 8,468 8,468 1,569 810
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
Total net revenues.......... 29,748 33,226 54,747 73,422 175,391 261,865 13,297 14,621
Operating expenses:
Resort........................ 14,705 15,787 29,725 41,799 109,774 157,744 15,034 17,808
Real estate................... 3,245 3,179 3,994 5,844 6,813 6,813 1,032 925
Marketing, general and
administrative(3)........... 4,718 5,940 9,394 11,289 26,126 39,464 4,792 6,845
Stock compensation charge..... -- -- -- -- -- -- -- 14,254
Depreciation and
amortization................ 1,984 2,421 3,910 6,783 18,293 35,993 1,527 1,506
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
Total operating expenses.... 24,652 27,327 47,023 65,715 161,006 240,014 22,385 41,338
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
Income (loss) from operations... 5,096 5,899 7,724 7,707 14,385 21,851 (9,088) (26,717)
Interest expense................ 849 1,026 2,205 4,699 23,730 27,737 7,514 7,521
Net income (loss) available to
common shareholders............. $ 5,839 $ 4,873 $ 5,119 $ (2,237) $ (5,926) $ (5,462) $ (10,293) $ (22,860)
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
Pro forma loss per share........ $ (0.38) $ (0.18) $ (10.52) $ (1.48)
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
Pro forma weighted average
number of shares
outstanding................... 15,416 30,840 978 15,457
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
OTHER DATA:
Resort:
Skier visits (000s)(4)(12).... 525 528 1,060 1,290 3,025 4,821 -- --
Season pass holders
(000s)(12).................. 3.2 3.7 11.2 13.2 30.9 38.3 -- --
Resort revenues per skier
visit(12)................... $ 45.04 $ 50.26 $ 44.15 $ 49.22 $ 55.18 $ 52.56 -- --
Resort EBITDA(5)(6)(12)....... $ 4,222 $ 4,817 $ 7,675 $ 10,401 $ 31,023 $ 56,189 -- --
Real estate:
Number of units sold.......... 173 155 163 177 123 123 6 16
Number of units pre-sold(7)... -- -- -- 109 605 605 0 88
Real Estate EBIT(6)(8)........ $ 2,858 $ 3,503 $ 3,959 $ 4,089 $ 1,655 $ 1,655 $ 537 $ (115)
STATEMENT OF CASH FLOWS DATA:
Cash flows from operations.... $ 2,667 $ 5,483 $ 12,593 $ 7,465 $ 6,788 -- $ 2,342 $ (11,792)
Cash flows from investing
activities.................. (4,432) (9,041) (13,843) (122,583) (14,070) -- (13,608) (19,027)
Cash flows from financing
activities.................. $ 1,559 $ 3,764 $ 2,399 $ 116,941 $ 19,655 -- $ 11,068 $ 51,475
<CAPTION>
PRO FORMA
FISCAL
QUARTER
ENDED
OCTOBER 26,
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Resort........................ $ 18,234
Real estate................... 810
-----------
Total net revenues.......... 19,044
Operating expenses:
Resort........................ 23,856
Real estate................... 925
Marketing, general and
administrative(3)........... 9,642
Stock compensation charge..... 14,254
Depreciation and
amortization................ 3,308
-----------
Total operating expenses.... 51,985
-----------
Income (loss) from operations... (32,941)
Interest expense................ 8,473
Net income (loss) available to
common shareholders............. $ (27,693)
-----------
-----------
Pro forma loss per share........ $ (.90)
-----------
-----------
Pro forma weighted average
number of shares
outstanding................... 30,822
OTHER DATA:
Resort:
Skier visits (000s)(4)(12).... --
Season pass holders
(000s)(12).................. --
Resort revenues per skier
visit(12)................... --
Resort EBITDA(5)(6)(12)....... --
Real estate:
Number of units sold.......... 16
Number of units pre-sold(7)... 88
Real Estate EBIT(6)(8)........ $ (115)
STATEMENT OF CASH FLOWS DATA:
Cash flows from operations.... --
Cash flows from investing
activities.................. --
Cash flows from financing
activities.................. --
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AT JULY 27,
1997
ACTUAL
--------------- AT OCTOBER 26, AT OCTOBER 26,
1997 1997
------------------ PRO FORMA
UNAUDITED ------------------
(UNAUDITED)
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 15,558 $ 6,214 $ 31,027
Total assets.......................................... 337,340 392,107 696,270
Long-term debt, including current portion............. 236,330 291,281 325,426
Mandatorily redeemable preferred stock................ 16,821 19,252 --
10 1/2% Convertible Preferred Stock................... -- -- 37,583
Common shareholders' equity........................... $ 15,101 $ 779 $ 241,380
</TABLE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's ratio of earnings to combined
fixed charges and preferred stock dividends on a historical basis for each of
the five fiscal years ended July 27, 1997 and for the three months ended October
26, 1997.
<TABLE>
<CAPTION>
PRO FORMA THREE
FISCAL YEAR ENDED FISCAL YEAR MONTHS
--------------------------------------------------------------- ENDED ENDED
JULY 25, JULY 31, JULY 30, JULY 28, JULY 27, JULY 27, OCTOBER 26,
1993 1994 1995 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed
charges and preferred stock
dividends(1)....................... 6.756 5.763 3.503 1.332 .606 .775 (2.685)
Deficiency of earnings as compared to
combined fixed charges and
preferred stock dividends(1)
(dollars in thousands)............. N/A N/A N/A N/A N/A N/A $ 36,213
<CAPTION>
PRO FORMA
THREE
MONTHS
ENDED
OCTOBER 26,
1997
-----------
<S> <C>
Ratio of earnings to combined fixed
charges and preferred stock
dividends(1)....................... (3.021)
Deficiency of earnings as compared to
combined fixed charges and
preferred stock dividends(1)
(dollars in thousands)............. $ 35,372
</TABLE>
- ------------------------------
(1) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of debt issuance costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
6
<PAGE>
THE ACQUIRED RESORTS
<TABLE>
<CAPTION>
FOR THE FISCAL QUARTERS
HISTORICAL FISCAL YEAR ENDED MAY 31, ENDED AUGUST 31,
--------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT (UNAUDITED)
PER SKIER VISIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (9):
Total revenues....................... $ 83,410 $ 82,034 $ 88,567 $ 84,732 $ 89,066 $ 5,400 $ 4,935
Operating expenses:
Retail, ski rental and other....... 44,778 46,560 48,715 47,374 51,139 7,452 7,075
Marketing, general and
administrative(10)............... 15,703 14,778 17,075 16,585 17,178 3,281 3,091
Writedown of assets(11)............ -- -- -- -- 2,000 -- --
Depreciation and amortization...... 14,481 14,544 14,643 14,477 12,516 3,156 2,491
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses......... 74,962 75,882 80,433 78,436 82,833 13,889 12,657
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)............ 8,448 6,152 8,134 6,296 6,233 (8,489) (7,722)
Net loss........................... (3,906) (5,254) (3,906) (4,538) (3,406) (10,921) (10,206)
OPERATING DATA:
Skier visits (000s)(12).............. 1,867 1,750 1,858 1,732 1,796 -- --
Season pass holders (000s)(12)....... 5.7 6.6 6.9 7.0 7.5 -- --
Total revenues per skier visit(12)... $ 43.22 $ 45.23 $ 45.49 $ 47.46 $ 47.48 -- --
EBITDA(9)(10)(11)(12)................ $ 25,929 $ 23,596 $ 26,078 $ 24,074 $ 24,150 -- --
</TABLE>
- ------------------------
(1) The historical results of the Company reflect the results of operations of
the Attitash Bear Peak ski resort since its acquisition in July 1994, the
results of operations of the Sugarbush ski resort since October 1994, the
results of operations of the Mt. Cranmore ski resort from its acquisition in
June 1995 through its divestiture in November 1996, the results of
operations of S-K-I Ltd. since its acquisition in June 1996 and the results
of operations of Pico Mountain since its acquisition in November 1996.
(2) The results of operations of Wolf have not been reflected in the pro forma
statement of operations data or other data. See "Pro Forma Financial Data"
and "Risk Factors--Required Development at The Canyons; Historical Losses of
Wolf."
(3) In the first quarter of fiscal 1998, the Company granted to certain
executive officers and other employees fully vested options to purchase
543,626 shares of Common Stock at an exercise price of $2.00 per share. The
Company also agreed to pay certain tax liabilities which the receipients of
the options expect to incur upon exercise of such options. Because the $2.00
per share exercise price was below the fair market value of a share of
Common Stock on the date of grant, the Company recognized a one-time
compensation charge of approximately $14.3 million in the first quarter of
fiscal 1998.
(4) For the purposes of estimating skier visits, the Company assumes that a
season pass holder visits the Company's resorts a number of times that
approximates the average cost of a season pass divided by the average daily
lift ticket price.
(5) Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense.
(6) Resort EBITDA and Real Estate EBIT (collectively referred herein as
"EBITDA") are not measurements calculated in accordance with generally
accepted accounting principles ("GAAP") and should not be considered as
alternatives to operating or net income as an indicator of operating
performance, cash flows as a measure of liquidity or any other GAAP
determined measurement. Certain items excluded from Resort EBITDA and/or
Real Estate EBIT, such as depreciation, amortization and non-cash charges
for stock compensation awards and asset impairments are significant
components in understanding and assessing the Company's financial
performance. Other companies may define Resort EBITDA and Real Estate EBIT
differently, and as a result, such measures may not be comparable to the
Company's Resort EBITDA and Real Estate EBIT. The Company has included
information concerning Resort EBITDA and Real Estate EBIT because management
believes they are indicative measures of the Company's liquidity and
financial position, and are generally used by investors to evaluate
companies in the resort industry.
(7) Pre-sold units represent quartershare and other residential units for which
the Company has a binding sales contract, subject to certain closing
conditions, and has received a 5% down payment on the unit from the
purchaser. Recognition of the revenue from such pre-sales is deferred until
the period in which such sales are closed.
(8) Real Estate EBIT represents revenues from real estate sales less cost of
real estate sold, including selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating to
property sold.
7
<PAGE>
(9) The statement of operations data include the results of Sabal Point Golf
Course in Orlando, Florida. The Company has entered into a contract to sell
the course for a purchase price of $5.8 million, subject to adjustment in
certain circumstances. In fiscal 1997, the Sabal Point Golf Course generated
approximately $1.3 million in revenues. In the fiscal quarter ended August
31, 1997 the Sabal Point Golf Course generated approximately $0.5 million in
revenues.
(10) The Acquired Resorts have historically reimbursed Kamori International
Corporation ("Kamori") for certain administrative services provided. Such
reimbursements totalled approximately $3.0 million, $2.9 million, $3.3
million, $3.3 million and $3.4 million, respectively, for each of the years
ended May 31, 1993 through May 31, 1997. For each of the first fiscal
quarters ended August 31, 1996 and August 31, 1997, reimbursements to
Kaniori totalled $0.5 and $0.5 million, respectively. Such amounts are
included in marketing, general and administrative expense in the
accompanying selected combined financial information, but have been excluded
for purposes of calculating EBITDA because such expenses will not be
incurred by the Acquired Resorts following the closing of the Acquisition.
(11) In 1997, the Acquired Resorts recorded a $2.0 million impairment loss
related to land, buildings and equipment of its golf resort to properly
state these fixed assets at estimated fair values. Such loss is excluded in
the calculation of EBITDA.
(12) Due to the seasonality of the business, skier visits, season pass holders,
revenues per skier visit and EBITDA are not presented for the fiscal
quarters ended August 31, 1996, August 31, 1997, October 27, 1996 and
October 26, 1997, or for the Pro Forma fiscal quarter ended October 26,
1997, because such data is not meaningful to an understanding of the
quarterly financial information.
8
<PAGE>
RECENT DEVELOPMENTS
THE CANYONS ACQUISITION
In May 1997, the Company commenced development of The Canyons resort.
Through a series of transactions, the Company acquired ski operations,
development rights or other interests in over 7,100 acres centered around the
former Wolf Mountain ski area ("Wolf"), which the Company intends to integrate
and develop into a world class destination resort.
The Company acquired the existing buildings, ski lifts and other
improvements, related infrastructure and personal property of Wolf for
approximately $8.3 million, $6.5 million of which was financed through the
issuance of a note payable to the seller, which note was paid in full on January
15, 1998. The Company also entered into a 200 year lease with an initial term of
50 years for the 2,100 acres that comprised Wolf, providing for annual payments
equal to 4% of the resort's net revenues. The lease provides the option to
extend for three additional 50 year periods for an extension fee of $1.0 million
for each extension period. The Company will make additional one-time rental
payments upon achieving certain specified annual skier visit levels above Wolf's
historical levels. The Company also purchased an option which gives it the right
to purchase fee title to parcels of land within this 2,100 acre area on which it
desires to develop real estate for resale for a purchase price of 11% of the
capitalized cost of real estate improvements to be constructed thereon.
In addition to Wolf, the Company acquired 605 acres of land suitable for
real estate development and skiable terrain adjacent to Park City, Utah for $4.0
million. The Company has subleased an additional 807 acres in the center of the
resort containing the mid-mountain plateau on which it plans to develop the High
Mountain Meadows alpine village. The Company currently pays $40,000 per annum
under this sublease and is negotiating a direct lease that is expected to
include provisions which permit the Company to acquire fee title to any land
required for the development of residential projects located at the High
Mountain Meadows. The Company has leased ski rights to a third parcel of land,
consisting of 450 acres adjacent to Wolf, for annual rental payments of
$150,000. In addition, the Company entered into a joint development agreement
with the owner of approximately 3,000 contiguous acres of land pursuant to which
the Company has the right to develop the property as skiable terrain on an
integrated basis with the owner's development of a low density, large lot
subdivision. The consideration under the agreement is the mutual exchange of
certain property interests required to fully develop both the resort and the
subdivision.
In order to finance certain acquisition costs and capital improvements with
respect to The Canyons, on July 12, 1997, the Company issued $17.5 million of
Series A Exchangeable Preferred Stock (the "Series A Exchangeable Preferred
Stock") and, on July 28, 1997, the Company issued $17.5 million principal amount
of 14% Senior Exchangeable Notes (the "Exchangeable Notes" and, together with
the Series A Exchangeable Preferred Stock, the "Canyons Securities"). See "The
Transactions--Exchange Offers," "Description of Capital Stock" and "Description
of Certain Indebtedness."
The Canyons is adjacent to the Utah Winter Sports Park which will be the
venue for the ski jumping, bobsled and luge events at the 2002 Winter Olympic
Games. Because The Canyons is largely undeveloped, management believes that it
presents a unique development opportunity to build a world class destination
resort in one of the fastest growing areas in the United States. An estimated
$60 million (approximately $16.3 million of which was spent by December 31,
1997) for on mountain capital improvements and an estimated $150 million for
real estate development will be required to fulfill the Company's five-year
business plan at The Canyons. See "Risk Factors--Required Development at The
Canyons; Historical Losses of Wolf," "--Real Estate Development," "--Leased
Property and Forest Service Permits" and "Business--Existing Resorts--The
Canyons."
THE FORMATION
In June 1997, Leslie B. Otten, who formerly held 96% of the common stock of
ASC East, Inc. ("ASC East"), a Maine corporation (formerly known as American
Skiing Company), formed the Company.
9
<PAGE>
Mr. Otten contributed his 96% interest in the common stock of ASC East to the
Company in exchange for 100% of the Common Stock of the Company (the
"Formation"). Contemporaneously with the Formation, the Company formed its ASC
Utah subsidiary for the purpose of acquiring The Canyons resort. In July 1997,
the Company formed its ASC West, Inc. subsidiary for the purpose of acquiring
the Acquired Resorts.
THE TRANSACTIONS
THE OFFERING
On November 5, 1997, the Company's registration statement on Form S-1 (the
"IPO Registration Statement") was declared effective by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act") relating to its initial public offering of Common
Stock. On November 12, 1997, the Company completed the initial public offering
of its Common Stock, pursuant to which 13,916,667 shares of Common Stock were
sold to the public at a price of $18.00 per share (the "Public Offering") in an
underwritten offering for which Donaldson Lufkin & Jenrette Securities
Corporation ("DLJ"), Furman Selz, Morgan Stanley Dean Witter and Schroder & Co.
acted as managing underwriters and 833,333 shares of Common Stock were sold by
the Company directly to Mr. Otten at a price of $18.00 per share (the
"Concurrent Offering" and together with the Public Offering, the "Offering").
The several underwriters named in the prospectus contained in the IPO
Registration Statement are referred to herein as the "Underwriters."
THE ACQUISITION
On November 12, 1997, the Company purchased the Steamboat and Heavenly ski
resorts for approximately $296 million (the "Acquisition"), including purchased
cash and cash equivalents of $5.3 million. As part of the Acquisition, the
Company also purchased the Sabal Point Golf Course in Orlando, Florida, which
the Company has contracted to sell for $5.8 million (subject to adjustment in
certain circumstances), and a residence in Denver, Colorado, which the Company
sold in December of 1997 (collectively, the "Divestiture"). The Company did not
assume any of the funded debt of the Acquired Resorts. See "Business--Acquired
Resorts."
Steamboat is one of the premier ski resorts in the United States, ranked
second overall by the September 1997 SNOW COUNTRY magazine survey and fourth in
skier visits for the 1996-97 ski season. Located in Steamboat Springs, Colorado
and approximately three hours from Denver, Colorado, Steamboat is a world famous
family resort recognized for its "champagne" powder and tree skiing. In the
1996-97 ski season, Steamboat skier visits increased by 8.4% from the 1995-96
ski season to 1.1 million. As part of the Acquisition, the Company also acquired
168 acres of land held for development.
Heavenly is located near Lake Tahoe in the states of Nevada and California.
Heavenly is the second largest ski resort in the Pacific West Region and the
11th largest ski resort in the United States with approximately 700,000 skier
visits in the 1996-97 ski season and approximately 4,800 acres of skiable
terrain.
THE REFINANCING
On November 12, 1997, the Company entered into a senior secured credit
facility with a group of lenders (the "New Credit Facility"), pursuant to which
the Company may borrow up to $215 million. Borrowings under the New Credit
Facility have been or will be used: (i) to fund the Acquisition; (ii) to repay
all outstanding borrowings under ASC East's credit facility dated June 28, 1996,
among Fleet National Bank, certain other banks and ASC East (the "Existing
Credit Facility"), in the amount of $59.6 million; (iii) to pay certain fees and
expenses relating to the Acquisition; and (iv) for ongoing general
10
<PAGE>
corporate purposes and capital expenditures. See "Description of Certain
Indebtedness--The New Credit Facility."
REDEMPTION OF DISCOUNT NOTES
A portion of the net proceeds of the Offering was used to make a $27.8
million investment in ASC East to fund the redemption (the "Redemption") of all
outstanding 13.75% Subordinated Discount Notes due 2007 of ASC East (the
"Discount Notes") effected December 28, 1997. The indenture relating to the
Discount Notes (the "Discount Note Indenture") provided for a redemption price
equal to 113.75% of the Accreted Value (as defined in the Discount Note
Indenture) of the Discount Notes on the redemption date. The Company recorded a
pretax extraordinary charge in the first quarter of fiscal 1998 of $3.4 million
in connection with the redemption premium related to the Discount Notes, and a
$1.0 million pretax extraordinary charge related to the write-off of deferred
debt issuance costs.
EXCHANGE OFFERS
Prior to January 23, 1998, the Company owned 96.4% of the outstanding shares
of common stock of ASC East. On January 23, 1998, the Company and the holders of
the 3.6% of the outstanding shares of common stock of ASC East not owned by the
Company entered into an agreement whereby the Company issued 615,022 shares of
Common Stock in exchange for such shares of common stock of ASC East.
Pursuant to a registration rights agreement (the "ASC East Registration
Rights Agreement") with such former holders of ASC East common stock, the
Company agreed to register for resale such 615,022 shares of Common Stock with
the Securities and Exchange Commission, pursuant to the shelf registration
statement of which this Prospectus forms a part.
Pursuant to the terms of a Securities Purchase Agreement, dated as of July
2, 1997, as amended (the "Securities Purchase Agreement"), between the Company
and the holder of the Canyons Securities, on November 12, 1997, the holder of
the Canyons Securities exchanged all of the Canyons Securities (the "Preferred
Exchange Offer") for shares of the Company's 10 1/2% Convertible Preferred Stock
having an aggregate liquidation preference of approximately $36.6 million. Each
share of 10 1/2% Convertible Preferred Stock is convertible at any time, at the
holder's option, into a number of shares of Common Stock ("Conversion Shares")
equal to the liquidation preference per share of 10 1/2% Convertible Preferred
Stock divided by $17.10, subject to customary antidilution adjustments.
Pursuant to a registration rights agreement (the "Canyons Registration
Rights Agreement") with the holder of the Canyons Securities, the Company agreed
to register for resale the securities issuable pursuant to the Preferred
Exchange Offer with the Securities and Exchange Commission, subject to the
holder's 180 day lock-up agreement (the "Lock-up Agreement"). See "Description
of Certain Indebtedness--Exchangeable Notes", "Description of Capital
Stock--Series A Exchangeable Preferred Stock" and "Description of the 10 1/2%
Convertible Preferred Stock."
On January 23, 1998, the Company exchanged 140,000 shares of Common Stock
(the "Penley Stock") for all of the issued and outstanding shares (the "Blunder
Bay Shares") of Blunder Bay Development Corporation, a Maine corporation
("Blunder Bay"), which shares were owned by Wendy Penley. The Company also paid
additional consideration of $265,000 in cash for the Blunder Bay Shares. Blunder
Bay is a single purpose company the sole asset of which is an undivided one-half
interest in certain real estate leased to Sunday River for use in its ski resort
operations. In connection with such exchange, the Company entered into a
registration rights agreement (the "Penley Registration Rights Agreement") with
Wendy Penley, whereby the Company agreed to register for resale the Penley Stock
with the Securities and Exchange Commission (the Penley Registration Rights
Agreement, the ASC East Registration Rights Agreement and the Canyons
Registration Rights Agreement are sometimes referred to herein as the
"Registration Rights Agreement.")
11
<PAGE>
Under the Registration Rights Agreements, the Company has agreed to register
the Securities pursuant to the shelf registration statement of which this
Prospectus forms a part (the "Shelf Registration Statement") and to maintain the
Shelf Registration Statement in effect until the Securities are sold or become
freely tradeable pursuant to Rule 144 under the Securities Act. Under the
Canyons Registration Rights Agreement, the Company will be required to pay a fee
at a rate of three percent (3%) per annum with respect to any period following
February 10, 1998 during which the Shelf Registration Statement is not effective
and the holder of Canyons Securities holds registrable securities. The Company
has agreed to pay all expenses relating to such registration, including (in the
case of the Canyons Registration Rights Agreement) underwriting discounts
selling commissions and related fees, if any, applicable to such sale up to a
maximum of three percent (3%) of the price of the registrable securities,
payable in connection with any distribution of the registrable securities
pursuant to the Registration Rights Agreements and to indemnify the holders
against certain liabilities in connection with registered offerings under the
Registration Rights Agreements.
THE ACQUISITION, THE DIVESTITURE, THE ISSUANCE OF THE 615,022 SHARES OF
COMMON STOCK TO THE FORMER HOLDERS OF ASC EAST COMMON STOCK, THE ISSUANCE OF THE
10 1/2% CONVERTIBLE PREFERRED STOCK PURSUANT TO THE PREFERRED EXCHANGE OFFER,
THE ISSUANCE OF THE PENLEY STOCK, THE INITIAL BORROWINGS UNDER THE NEW CREDIT
FACILITY, THE REDEMPTION, THE CONSENT SOLICITATION, THE STOCK SPLIT AND THE
OFFERING ARE COLLECTIVELY REFERRED TO HEREIN AS THE "TRANSACTIONS."
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE DECIDING TO PURCHASE ANY OF THE SECURITIES
OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
AND THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF NUMEROUS FACTORS, INCLUDING
THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
SUBSTANTIAL LEVERAGE AND FINANCIAL RISKS
GENERAL. Following the Transactions, the Company will be highly leveraged.
At October 26, 1997, after giving pro forma effect to the Transactions, the
Company's total long-term debt, including current maturities, and shareholders'
equity would have been approximately $325 million and $241 million,
respectively, and the Company would have had up to $64.0 million available for
borrowings under the New Credit Facility. In addition, at October 26, 1997,
after giving pro forma effect to the Transactions, total indebtedness would have
represented 57% of total capital and the ratio of Resort EBITDA to interest
expense would have been negative 1.8 for the fiscal quarter ended October 26,
1997. The Company has incurred additional indebtedness in the first two quarters
of fiscal 1998 to fund capital improvements, real estate development and
operations. See "--Seasonality; Fluctuations in Operating Results; Dependence on
Weather Conditions" and "Description of Certain Indebtedness--The New Credit
Facility."
IMPACT ON FINANCIAL CONDITION. The high level of debt of the Company and
its subsidiaries will have several important effects on the Company's future
operations, including: (a) the Company will have significant cash requirements
to service its debt (including approximately $10.6 million of scheduled
principal repayments over the next two fiscal years), reducing funds available
for operations, capital expenditures and acquisitions, thereby increasing the
Company's vulnerability to adverse general economic and industry conditions; and
(b) the financial covenants and other restrictions contained in the New Credit
Facility, the Indenture (the "12% Note Indenture"), dated as of June 28, 1996,
among ASC East, certain of its subsidiaries and United States Trust Company of
New York, as Trustee, relating to ASC East's 12% Senior Subordinated Notes due
2006 (the "12% Notes"), and other agreements relating to the Company's
indebtedness will require the Company to meet certain financial tests and will
restrict its and its subsidiaries' ability to borrow additional funds and to
dispose of assets. The Company does not plan to establish any debt service
reserves for the payment of principal or interest on any of its indebtedness.
Substantially all of the Company's assets, other than the Grand Summit Hotel
properties, are pledged to secure borrowings under the New Credit Facility. The
Company has granted a mortgage to the construction lender on each Grand Summit
Hotel property to secure the construction financing of such properties. See
"Description of Certain Indebtedness."
CAPITAL EXPENDITURE DEFERRAL. Although management believes that capital
expenditures above maintenance levels can be deferred to address cash flow or
other constraints, such activities may not be deferred for extended periods
without adverse effects on skier visits, revenues and profitability.
GROWTH LIMITATIONS. The Company's continued growth depends, in part, on its
ability to maintain and expand its facilities and to engage in successful real
estate development and, therefore, to the extent it is unable to do so with
internally generated cash, its inability to finance capital expenditures or real
estate development through borrowed funds or additional equity investments could
have a material adverse effect on the Company's future operations and revenues.
CAPITAL REQUIREMENTS
The development of ski resorts is capital intensive. The Company spent
approximately $12.6 million, $28.4 million and $52.3 million in fiscal 1995,
1996 and 1997, respectively, on resort capital expenditures and real estate
development. In fiscal 1995, 1996 and 1997, the Acquired Resorts spent an
aggregate of
13
<PAGE>
approximately $6.9 million, $5.9 million and $5.4 million, respectively, on
resort capital expenditures. In fiscal 1998 and fiscal 1999, the Company plans
to spend approximately $65 million and $60 million, respectively, to enhance its
resort operations and approximately $100 million and $115 million, respectively,
to develop its real estate holdings. There can be no assurance that the Company
will have adequate funds, from internal or external sources, to make all planned
or required capital expenditures. A lack of available funds for such capital
expenditures could have a material adverse effect on the Company's ability to
implement its operating strategy. The Company intends to finance resort capital
improvements through internally generated funds and borrowings under its New
Credit Facility and to finance real estate development through project-specific
construction financing. See "--Substantial Leverage and Financial Risks,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources," "Business--Operating Strategy,"
"--Resort Operations" and "--Real Estate Development."
RISKS ASSOCIATED WITH RAPID GROWTH
Since 1994, the Company has experienced rapid and substantial growth. The
Company's rapid and substantial growth has placed, and could continue to place,
a significant strain on its management, employees and operations. The Company's
growth has increased the operating complexity of the Company and the level of
responsibility for new and existing management. For example, members of the
Company's senior management team have limited experience managing publicly
traded companies. The Company's ability to compete effectively and to manage its
recent and future growth effectively will depend on its ability to implement and
improve financial and management information systems on a timely basis and to
effect changes in its business, such as implementing internal controls to handle
the increased size of its operations and hiring, training, developing and
managing an increasing number of experienced management-level and other
employees. Unexpected difficulties during expansion, the failure to attract and
retain qualified employees, or the Company's inability to respond effectively to
recent growth or plan for future expansion, could have a material adverse effect
on the Company.
GROWTH THROUGH ACQUISITIONS; INTEGRATION OF ACQUIRED RESORTS; ABILITY TO FINANCE
ACQUISITIONS
The Company continually evaluates potential acquisition opportunities. The
Company will need to finance any future acquisitions through a combination of
internally generated funds, additional bank borrowings from existing and new
credit facilities and public offerings or private placements of equity (which
may cause dilution to existing holders of capital stock of the Company) and/or
debt securities, the combination of which will depend on several factors,
including the size of the acquired resort and the Company's capital structure at
the time of an acquisition. There can be no assurance, however, that attractive
acquisition candidates will be identified, that the Company will be able to make
acquisitions on terms favorable to it, that necessary financing will be
available on suitable terms, if at all, or that such acquisitions will be
permitted under applicable antitrust laws. The Company's ability to make such
acquisitions is limited under applicable antitrust laws, and it is effectively
prohibited from acquiring additional resorts in New England. See "--Substantial
Leverage and Financial Risks."
The Company faces risks in connection with the integration of acquired
resorts, including The Canyons and the Acquired Resorts. Significant management
resources and time will be required to integrate any acquired resorts and
unanticipated problems or liabilities with respect to such new resorts may
further divert management's attention from the Company as a whole, which could
have a material adverse effect on the Company's operations and financial
performance. There can be no assurance that the Company will be able to realize
any additional skier visits, revenues or cost savings in connection with
integrating acquired resorts. See "Business--Operating Strategy."
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REQUIRED DEVELOPMENT AT THE CANYONS; HISTORICAL LOSSES OF WOLF
The Canyons is a largely undeveloped asset that requires substantial
development of on-mountain facilities, real estate and related infrastructure.
The Company has adopted a five-year business plan for development of the resort;
however, accomplishing its plan is contingent upon obtaining necessary permits
and approvals, obtaining required financing for planned improvements and
generating markets for the resort that will produce significant increases in
skier visits. An estimated $60 million (approximately $16.3 million of which was
spent by December 31, 1997) for on-mountain capital improvements and an
estimated $150 million for real estate development will be required to fulfill
the Company's five-year business plan at The Canyons. There can be no assurance
that capital will be available to fund these capital improvements or real estate
development.
Wolf historically experienced net operating losses, estimated by the Company
to be approximately $2 million in each of fiscal 1997 and fiscal 1996. The
assets acquired from Wolf in connection with the planned development of The
Canyons consisted substantially of rights to use or acquire undeveloped real
estate and limited operating assets. The majority of the limited operating
assets acquired from Wolf have been, or will be, disassembled or demolished.
Substantial new development is required to build the property into the planned
resort facility. The Company believes that the configuration, operation and
estimated historical financial results of Wolf are not material to an
understanding of future financial operations of the planned resort at The
Canyons, or of the Company on a consolidated basis. The Company's business plan
assumes that it can significantly increase skier visits and generate positive
Resort EBITDA and net income at The Canyons. There can be no assurance, however,
that The Canyons will generate additional skier visits, positive Resort EBITDA
or net income for the Company. See "Business--Alpine Village Development."
REAL ESTATE DEVELOPMENT
The Company intends to construct, operate and sell interval ownership and
condominium units and other real estate at its ski resorts. Real estate
development and the Company's ability to generate revenues therefrom may be
adversely affected by numerous factors, many of which are beyond the control of
the Company, including the ability of the Company to successfully market its
resorts, the national and regional economic climate, local real estate
conditions (such as an oversupply of space or a reduction in demand for real
estate), costs to satisfy environmental compliance and remediation requirements
associated with new development/renovation and ongoing operations, the
attractiveness of the properties to prospective purchasers and tenants,
competition from other available property or space, the ability of the Company
to obtain adequate insurance, the ability of the Company to obtain all necessary
zoning, land use, building, occupancy and other required governmental permits
and authorizations and changes in real estate, zoning, land use, environmental
or tax laws. In addition, real estate development will be dependent upon, among
other things, receipt of adequate financing on suitable terms, obtaining and
maintaining the requisite permits and licenses and, in certain circumstances,
acquiring additional real estate. There can be no assurance as to whether, when
or on what terms such financing, permits, licenses and real estate may be
obtained. The Company does not have the financing available to complete all of
its planned real estate development as set forth in "Business--Real Estate
Development." In addition, such efforts entail risks associated with development
and construction activities, including cost overruns, shortages of materials or
skilled labor, labor disputes, unforeseen environmental or engineering problems,
work stoppages, and natural disasters, any of which could delay construction and
result in a substantial increase in cost to the Company. Moreover, the Company's
construction activities typically are performed by third-party contractors, the
timing, quality and completion of which cannot be controlled by the Company.
Nevertheless, claims may be asserted against the Company for construction
defects and such claims may give rise to liability. There can also be no
assurance that the Company will achieve any additional revenues from such
projects. See "--Substantial Leverage and Financial Risks," "Business--Real
Estate Development" and "--Government Regulation."
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CONCENTRATION IN INTERVAL OWNERSHIP INDUSTRY
Because a material portion of the Company's real estate development business
is conducted within the interval ownership industry, any adverse changes
affecting the interval ownership industry such as an oversupply of interval
ownership units, a reduction in demand for interval ownership units, changes in
travel and vacation patterns, changes in governmental regulations relating to
the interval ownership industry and increases in construction costs or taxes
could have a material adverse effect on the Company's operations. The Company
enters into sales contracts for its quartershare interval ownership units prior
to completion of construction. Although such contracts require a 5% deposit,
there can be no assurance that any or all purchasers will consummate the
purchase of units under contract and the failure by a large number of purchasers
to complete such purchases could have a material adverse effect on the Company's
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
REGULATION OF MARKETING AND SALES OF QUARTERSHARES; OTHER LAWS
The Company's marketing and sales of Grand Summit Hotel quartershares and
other operations are subject to extensive regulation by the federal government
and the states in which the resorts are located and in which Grand Summit Hotel
intervals are marketed and sold. On a federal level, the Federal Trade
Commission Act prohibits unfair or deceptive acts or competition in interstate
commerce. Other federal legislation to which the Company is or may be subject
includes the Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Interstate Land Sales Full Disclosure Act, the Real Estate Settlement Practices
Act and the Fair Housing Act. In addition, many states have adopted specific
laws and regulations regarding the sale of interval ownership programs. For
example, certain state laws grant the purchaser the right to cancel a contract
of purchase within a specified period following the earlier of the date the
contract was signed or the date the purchaser has received the last of the
documents required to be provided by the Company. No assurance can be given that
the cost of qualifying under interval ownership regulations in all jurisdictions
in which the Company desires to conduct sales will not be significant. The
Company believes that it is in compliance with all material federal, state and
local laws and regulations. The failure to comply with such laws or regulations
could have a material adverse effect on the Company.
POTENTIAL REGULATION OF QUARTERSHARES AS SECURITIES
There can be no assurance that the Company's quartershare interval ownership
units will not be considered "securities" under federal law or the state law in
the states where the Company desires to or does conduct sales or in which its
properties are located. If such interests were considered securities, the
Company would be required to comply with applicable state and federal securities
laws, including laws pertaining to registration or qualification of securities,
licensing of salespeople and other matters. There can be no assurance that the
Company will be able to comply with the applicable state and federal securities
requirements, and if the Company's quartershare interval interests are deemed to
be securities, such a determination may create liabilities or contingencies that
could have an adverse effect on the Company's operations, including possible
rescission rights relating to the units which have been sold, which, if
exercised, could result in losses to the Company.
GROWTH THROUGH RESORT EXPANSION
A key element of the Company's strategy is to attract additional skiers
through investment in on-mountain capital improvements. Such investments are
capital intensive and, to the extent that the Company is unable to finance such
capital expenditures from internally generated cash or otherwise, the Company's
results of operations would be adversely affected. In addition, there can be no
assurance that the Company's investment in on-mountain capital improvements will
attract additional skiers and/or generate additional revenues. See
"--Substantial Leverage and Financial Risks," "--Capital Requirements" and
"Business--Operating Strategy."
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DEPENDENCE ON HIGHLY LEVERAGED AND RESTRICTED SUBSIDIARIES
The Company is a holding company and its ability to pay principal and
interest on the New Credit Facility and its other debt is dependent upon the
receipt of dividends and other distributions, or the payment of principal and
interest on intercompany borrowings from its subsidiaries. The Company does not
have, and may not in the future have, any assets other than the common stock of
ASC East and its other direct and indirect subsidiaries, including subsidiaries
acquired in connection with the Acquisition. ASC East and its subsidiaries are
parties to the 12% Note Indenture, which imposes substantial restrictions on ASC
East's ability to pay dividends and other distributions to the Company until the
earlier of the maturity of the 12% Notes in 2006 or the redemption thereof
pursuant to the terms of the 12% Note Indenture. In addition, Grand Summit
Resort Properties, Inc., a subsidiary of ASC East, is restricted in its ability
to pay dividends and other distributions to ASC East under the terms of the
construction financing facility for its Grand Summit Hotel projects. The
Company's other subsidiaries may become restricted in their ability to pay
dividends and other distributions to the Company in the future. In addition, the
breach of any of the conditions or provisions under the documents governing the
indebtedness of the Company's subsidiaries could result in a default thereunder
and, in the event of any such default, the holders of such indebtedness could
elect to accelerate the maturity thereof. If the maturity of any such
indebtedness were to be accelerated, such indebtedness would be required to be
paid in full before such subsidiary would be permitted to distribute any assets
or cash to the Company. There can be no assurance that the assets of ASC East or
any of the Company's other subsidiaries would be sufficient to repay all of its
outstanding debt or that the assets of the Company would be sufficient to repay
all of its outstanding debt. In addition, state law further restricts the
payment of dividends or other distributions to the Company by its subsidiaries.
SEASONALITY; FLUCTUATIONS IN OPERATING RESULTS; DEPENDENCE ON WEATHER CONDITIONS
Ski and resort operations are highly seasonal. Over the last five fiscal
years, the Company realized an average of approximately 86% of its resort
revenues and over 100% of Resort EBITDA and net income during the period from
November through April and a significant portion of resort revenues (and
approximately 23% of annual skier visits) was generated during the Christmas and
Presidents' Day vacation weeks. In addition, the Company's resorts typically
experience operating losses and negative cash flows for the period from May to
October. During the six-month period from May to October 1997, for example, the
Company had operating losses aggregating $36.4 million and negative cash flow
from operations aggregating $73.4 million. The $73.4 million of negative cash
flow from operations for such six month period included $34.8 million expended
in the development of real estate for resale. The Acquired Resorts have
historically experienced similar seasonality. There can be no assurance that the
Company will be able to finance its capital requirements from external sources
during this period. See "--Substantial Leverage and Financial Risks," "--Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The high degree of seasonality of revenues increases the impact of adverse
events on operating results including, without limitation, adverse weather
conditions, access route closures, equipment failures, and other developments of
even moderate or limited duration occurring during its peak revenue periods.
Adverse weather conditions may lead to increased power and other operating costs
associated with snowmaking and could render snowmaking wholly or partially
ineffective in maintaining quality skiing conditions. It has been the Company's
experience that unfavorable weather conditions in more highly populated areas,
regardless of actual skiing conditions, can result in decreased skier visits.
Prolonged adverse weather conditions, or the occurrence of such conditions
during key periods of the ski season, can adversely affect operating results.
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PURCHASE PRICE ALLOCATION FOR THE ACQUISITION
Under the purchase accounting method, the total purchase price for the
Acquisition will be allocated to the assets and liabilities of the Acquired
Resorts on the basis of their relative fair values and pursuant to certain
appraisals of such assets and liabilities which the Company expects to complete
prior to the end of fiscal 1998. The Company's preliminary allocation of the
Acquisition purchase price resulted in an excess of purchase price over the fair
value of the net tangible assets acquired, which was allocated to various
identifiable intangible assets and goodwill. The Company believes that its final
allocation (and related amortization periods) will not differ materially from
its preliminary allocation. No assurance can be given, however, that the actual
allocation of the Acquisition purchase price and the resulting effect on
operating income will not differ materially from the Company's preliminary
allocation as discussed under "Pro Forma Financial Data."
COMPETITION
The skiing industry is highly competitive and capital intensive. The
Company's competitors include other major ski resorts throughout the United
States, Canada and Europe. The Company's competitors also include other
worldwide recreation resorts, including warm weather resorts and various
alternative leisure activities. The competitive position of the Company's
resorts is dependent upon numerous factors, such as proximity to population
centers, availability and cost of transportation to and within a resort, natural
snowfall, snowmaking quality and coverage, resort size, attractiveness of
terrain, lift ticket prices, prevailing weather conditions, appeal of related
services, quality and availability of lodging facilities, duration of the ski
season and resort reputation. In addition, some of the Company's competitors
have greater financial resources than the Company which could adversely affect
the Company's competitive position and relative ability to withstand adverse
developments. There can be no assurance that its competitors will not be
successful in capturing a portion of the Company's present or potential customer
base. See "Business--Competition."
REGIONAL AND NATIONAL ECONOMIC CONDITIONS
The skiing and real estate development industries are cyclical in nature and
are particularly vulnerable to shifts in regional and national economic
conditions. In particular, a significant portion of the Company's current skier
visits are generated from customers that reside in the New England states which
experienced a significant economic downturn beginning in 1988. Although data
indicate that the New England economy has recovered significantly, there can be
no assurance that improvement will continue or that stagnation or declines in
skier visits or revenues will not occur. Skiing and vacation unit ownership are
discretionary recreational activities entailing relatively high costs of
participation, and any decline in the regional economies where the Company is
operating, or deterioration in national economic conditions, could adversely
impact skier visits, real estate sales and revenues. Accordingly, the Company's
financial condition, particularly in light of its highly leveraged condition,
could be adversely affected by a worsening in the regional or national economy.
See "--Substantial Leverage and Financial Risks" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ENVIRONMENTAL AND LAND USE MATTERS
The Company is subject to a wide variety of federal, state and local laws
and regulations relating to land use and development and to environmental
compliance and permitting obligations (including those related to the use,
storage, discharge, emission and disposal of hazardous materials and hazardous
and nonhazardous wastes). Failure to comply with such laws could result in the
need for capital expenditures and/or the imposition of severe penalties or
restrictions on operations that could adversely affect present and future resort
operations and real estate development. In addition, such laws and regulations
could change in a manner that materially and adversely affects the Company's
ability to conduct its business or to
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implement desired expansions and improvements to its facilities. See
"Business--Government Regulation."
LEASED PROPERTY AND FOREST SERVICE PERMITS
Significant portions of the land underlying certain of the Company's ski
resorts are leased or subleased by the Company or used pursuant to renewable
permits or licenses. If any such lease, sublease, permit or license were to be
terminated or not renewed upon expiration, or renewed on terms materially less
favorable to the Company, the Company's ability to possess and use the land
subject thereto and any improvements thereon would be materially adversely
affected. A substantial portion of the land constituting skiable terrain at
Attitash Bear Peak, Sugarbush, Mount Snow/Haystack, Steamboat and Heavenly is
located on federal land that is used under the terms of the permits with the
United States Forest Service (the "Forest Service"). Generally, under the terms
of such permits, the Forest Service has the right to review and comment on the
location, design and construction of improvements in the permit area and on many
operational matters. The permits can also be terminated or modified by the
Forest Service to serve the public interest. A termination or modification of
any of the Company's permits could have a material adverse effect on the results
of operations of the Company. The Company believes termination or modification
of the Forest Service permits is not likely. See "Business--Leased Properties."
ADEQUACY OF WATER SUPPLY
The Company's current operations and anticipated growth are heavily
dependent upon its ability, under applicable federal, state and local laws,
regulations, permits, and/or licenses or contractual arrangements, to have
access to adequate supplies of water with which to make snow and otherwise to
conduct its operations. There can be no assurance that applicable laws and
regulations will not change in a manner that could have an adverse effect, or
that important permits, licenses or agreements will be renewed, not cancelled,
or, if renewed, renewed on terms no less favorable to the Company. The failure
of the Company to have access to adequate water supplies to support its current
operations and anticipated expansion would have a material adverse effect on the
Company. See "Business--Government Regulation."
POTENTIAL ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation contain, among other things,
provisions authorizing the issuance of "blank check" preferred stock, 10 1/2%
Convertible Preferred Stock, including rights to elect two directors upon the
occurrence of certain events, and two classes of common stock. The Company is
also subject to the provisions of Section 611-A of the Maine Business
Corporation Act (the "MBCA"). See "Description of Capital Stock." These
provisions could delay, deter or prevent a merger, consolidation, tender offer
or other business combination or change of control involving the Company that
some or a majority of the Company's shareholders might consider to be in their
best interests or that might otherwise result in such shareholders receiving a
premium over the market price for the Common Stock.
CONTROL OF THE COMPANY BY PRINCIPAL SHAREHOLDER
The Company's common stock is divided into two classes. Leslie B. Otten, the
Company's principal shareholder, owns 100% of the Class A Common Stock, and,
therefore, has the power to elect two-thirds of the Board of Directors of the
Company, which allows for the maintenance of control of the Company by Mr. Otten
with respect to all matters requiring approval of the Board of Directors. In
addition, Mr. Otten owns shares of Common Stock and Class A Common Stock
representing a majority of all outstanding shares of Common Stock and Class A
Common Stock and, accordingly, is expected to be able to determine the outcome
of all matters submitted to a vote of the shareholders of the Company, except
for matters requiring (i) the vote of a higher percentage of the voting power
than that held by Mr. Otten or (ii) the vote of the shareholders voting as a
separate class under state law or the Company's Articles of Incorporation and
Bylaws. See "Description of Capital Stock--Common Stock."
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DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the performance
and continued service of Mr. Otten, as well as several other key management and
operational personnel. The loss of the services of Mr. Otten or of such other
personnel could have a material adverse effect on the business and operations of
the Company. Other than Warren C. Cook and Christopher E. Howard, Mr. Otten and
the other key members of management are not subject to employment agreements
with the Company or any of its subsidiaries. The Company maintains key person
life insurance on Mr. Otten in the amount of $14.0 million, the proceeds of
which have been assigned to the lenders under the New Credit Facility. See
"Management."
STOCK OPTIONS-COMPENSATION CHARGE
In the first quarter of fiscal 1998, the Company granted to certain
executive officers and other employees options to purchase 672,010 shares of
Common Stock at an exercise price of $2.00 per share (of which options to
purchase 543,626 shares of Common Stock were fully vested). 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 approximately
$14.3 million in the first quarter of 1998. Such charge is a one-time charge and
has been reflected in the Company's operating results for the first quarter of
1998 and will be reflected in its operating results for the 1998 fiscal year. As
a result of the charge, the Company's net loss or net income for such periods,
if any, will be increased or decreased, as the case may be, by the full amount
of such charge.
SHARES ELIGIBLE FOR FUTURE SALE
After giving effect to the Transactions, the Company had outstanding
15,505,022 shares of Common Stock (assuming (i) stock options to purchase
2,695,107 shares are not exercised, (ii) no conversion of the 10 1/2%
Convertible Preferred Stock, which is convertible into 2,184,619 shares of
Common Stock as of January 23, 1998, and (iii) no shares of Class A Common Stock
are converted into shares of Common Stock and 14,760,530 shares of Class A
Common Stock. All of the 14,750,000 outstanding shares of Common Stock sold in
the Offering are (and, upon resale pursuant to the registration statement of
which this Prospectus forms a part, the Privately Placed Shares will be) freely
tradeable under the Securities Act except for any shares purchased by
"affiliates" of the Company as that term is defined under the Securities Act.
Upon the expiration of the Lock-up Agreement and other lock-up agreements and
exercise of all options granted under the Stock Option Plan, 4,950,533 shares of
Common Stock and 14,760,530 shares of Class A Common Stock will become eligible
for sale, subject to compliance with Rule 144 of the Securities Act. Pursuant to
the Lock-up Agreement and other lock-up agreements, the Company, certain
shareholders and the executive officers and directors of the Company have agreed
with the Underwriters, until May 12, 1998 (or February 10, 1998 with respect to
shares purchased by Mr. Otten in the Concurrent Offering), not to directly or
indirectly offer, pledge, sell, contract to sell, sell any option or contract to
purchase or grant any option, right or warrant to purchase or otherwise transfer
or dispose of any Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock, or enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of the Common Stock, or cause a registration statement covering any
shares of Common Stock to be filed, without the prior written consent of DLJ,
subject to certain exceptions, including pursuant to a foreclosure by a lender
on a loan to Mr. Otten for which shares of Class A Common Stock and/or Common
Stock were pledged as collateral. No prediction can be made as to the effect, if
any, that future sales of shares, or the availability of shares for future sale,
will have on the market price of the Common Stock. Sales of substantial amounts
of Common Stock in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common
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Stock and could impair the Company's ability to raise additional capital through
an offering of its equity securities. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there was no public market for the Common Stock.
Although the Common Stock is listed on the New York Stock Exchange, there can be
no assurance that an active public market for the Common Stock will develop or
continue after the Offering. Prices for the Common Stock will be determined in
the marketplace and may be influenced by many factors, including variations in
the financial results of the Company, changes in earnings estimates by industry
research analysts, investors' perceptions of the Company and general economic,
industry and market conditions. The Company believes that there are relatively
few comparable companies that have publicly-traded equity securities which may
also impact the trading price of the Common Stock. In addition, the stock market
has from time to time experienced extreme price and volume volatility and such
volatility may adversely affect the market price of the Common Stock. The market
price of the Common Stock could be subject to significant fluctuations in
response to the Company's operating results and other factors, and there can be
no assurance that the market price of the Common Stock will not decline below
the initial Public Offering price, or market prices for the Common Stock since
the Offering. The Company does not intend to list the 10 1/2% Convertible
Preferred Stock or the 10 1/2% Subordinated Debentures on any national
securities exchange or to seek admission thereof for trading on any automated
dealer quotation system. There can be no assurance as to the development of any
trading market or the liquidity of any trading market that may develop for the
10 1/2% Convertible Preferred Stock or the 10 1/2% Subordinated Debentures. If
an active market for the 10 1/2% Convertible Preferred Stock or the 10 1/2%
Subordinated Debentures fails to develop or be sustained, the trading price of
such Securities could be adversely affected. The 10 1/2% Convertible Preferred
Stock and the 10 1/2% Subordinated Debentures could trade at prices that may be
higher or lower than the original price paid by the holder depending on many
factors, including prevailing interest rates, the price of the Common Stock, the
Company's operating results, any election by the Company to extend dividend or
interest payment periods and the market for similar securities. See "Market
Price of and Dividends on Common Stock and Related Stockholder Matters."
SUBORDINATION OF 10 1/2% SUBORDINATED DEBENTURES
The payment of principal of and premium and interest on the 10 1/2%
Subordinated Debentures will be subordinated to all existing and future Senior
Debt (as defined in the Indenture relating to the 10 1/2% Subordinated
Debentures) of the Company. As a result of such subordination, in the event of
the Company's insolvency, liquidation, reorganization, dissolution or other
winding up, or upon the acceleration of any Senior Debt, the holders of the
10 1/2% Subordinated Debentures may not be paid. Furthermore, payments on the
10 1/2% Subordinated Debentures will not be permitted if a default exists or
would be caused with respect to any Senior Debt. In addition, payment of
principal of and premium and interest on the 10 1/2% Subordinated Debentures
effectively will be subordinated to all existing and future indebtedness and
other liabilities of the Company's subsidiaries which, at October 26, 1997,
aggregated $36.5 million on a pro forma basis after giving effect to the
Transactions. See "Description of the 10 1/2% Subordinated
Debentures--Subordination."
DIVIDENDS; INTEREST
The Company currently intends to retain earnings, if any, to support its
operating strategy and does not anticipate paying cash dividends on its Common
Stock or Class A Common Stock in the foreseeable future. Dividends on the
10 1/2% Convertible Preferred Stock, and interest on the 10 1/2% Subordinated
Debentures, are payable in cash on November 12, 2002 or earlier at the Company's
option at a rate of 10 1/2% per annum, compounded quarterly. In addition, the
New Credit Facility and the 10 1/2% Convertible Preferred Stock contain
restrictions on the ability of the Company to pay cash dividends on its Common
Stock and Class A Common Stock. See "Dividend Policy," "Description of the
10 1/2% Convertible Preferred Stock," "Description of the 10 1/2% Subordinated
Debentures" and "Description of Certain Indebtedness--The New Credit Facility."
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USE OF PROCEEDS
The Company will not receive any proceeds from any sale of the Securities.
The Selling Holders will receive all of the proceeds from any sale of the
Securities, net of any underwriting or brokerage discounts or commissions in
excess of those payable by the Company.
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Since November 6, 1997, the Common Stock has been traded on the NYSE under
the symbol "SKI." There was no established public trading market for the Common
Stock prior to the Company's initial public offering on November 6, 1997.
For the period November 6, 1997 through January 28, 1998 the high and low
sales prices of the Common Stock were $18 1/4 and $12, respectively. The closing
price of the Common Stock on the NYSE on January 28, 1998 was $13 9/16.
The Company believes that there are approximately 3,400 holders of record
for the Common Stock and one holder of record for the Class A Common Stock at
January 20, 1998. The Company believes that there are in excess of 300
beneficial holders of the Common Stock.
Since the Formation, the Company has not declared or paid any cash dividends
on its capital stock. The Company currently intends to retain earnings, if any,
to support its capital improvement and growth strategies and does not anticipate
paying cash dividends on its Common Stock or Class A Common Stock in the
foreseeable future. Dividends on the 10 1/2% Convertible Preferred Stock, and
interest on the 10 1/2% Subordinated Debentures, are payable in cash on November
12, 2002 or earlier at the Company's option at a rate of 10 1/2% per annum,
compounded quarterly. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for capital improvements and expansion. The
New Credit Facility and the 10 1/2% Convertible Preferred Stock contain certain
restrictions on the ability of the Company to pay any cash dividends on its
Common Stock or Class A Common Stock. The 12% Note Indenture contains certain
restrictive covenants that, among other things, limit the payment of dividends
or the making of distributions on equity interests of ASC East. See "Risk
Factors--Dependence on Highly Leveraged and Restricted Subsidiaries,"
"--Dividends; Interest" and "Description of Certain Indebtedness."
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at October
26, 1997 on an actual basis and on a pro forma basis using the October 26, 1997
unaudited Balance Sheet for the Company and the August 31, 1997 unaudited
Balance Sheet for the Acquired Resorts after giving effect to the Transactions.
This table should be read in conjunction with the Consolidated Financial
Statements and the Unaudited Pro Forma Combined Financial Data and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL(1) PRO FORMA
--------- ---------
OCTOBER OCTOBER
26, 1997 26, 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 6,214 $ 31,027
--------- ---------
--------- ---------
Short-term debt, including current portion of long-term
debt...................................................... $ 36,236 $ 10,981
Long-term debt:
Existing Credit Facility, excluding current portion....... 31,000 --
New Credit Facility (2)................................... -- 140,879
12% Notes (net of unamortized discount of $3,155)......... 116,845 116,845
Discount Notes............................................ 22,909 --
Other long-term debt, excluding current portion........... 84,291 56,721
--------- ---------
Total long-term debt, including current portion....... 291,281 325,426
--------- ---------
Series A Exchangeable Preferred Stock, $1,000 par value per
share; 200,000 shares authorized; 17,500 shares issued and
outstanding; net of unaccreted issuance costs and
including accretion of discount and cumulative dividends
in arrears (redemption value of $19,252).................. 19,252 --
10 1/2% Convertible Preferred Stock (3)..................... -- 37,583
--------- ---------
Shareholders' equity:
Common Stock, $.01 par value per share; 1,000,000 shares
authorized, no shares issued and outstanding (actual);
100,000,000 shares authorized, 15,505,022 shares issued
and outstanding (pro forma) (4)......................... -- 154
Class A Common Stock, $.01 par value per share; 15,000,000
shares authorized, 14,760,530 shares outstanding
(actual); 15,000,000 shares authorized, 14,760,530
shares outstanding (pro forma).......................... 10 148
Additional paid in capital................................ 11,324 266,281
Retained earnings......................................... (10,555) (25,203)
--------- ---------
Total shareholders' equity............................ 779 241,380
--------- ---------
Total capitalization.................................. $311,312 $604,389
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The creation of Class A Common Stock and the Stock Split has been given
retroactive effect as if such occurred as of the balance sheet date. See
Consolidated Financial Statements and the Notes thereto.
(2) Total commitments under the New Credit Facility are $215 million. See
"Description of Certain Indebtedness--New Credit Facility."
(3) The 10 1/2% Convertible Preferred Stock will be subject to mandatory
redemption in 2002 if not previously converted into Common Stock. See
"Description of the 10 1/2% Convertible Preferred Stock."
(4) Does not include (i) 2,188,991 shares issuable upon conversion of the
10 1/2% Convertible Preferred Stock (as of January 30, 1998) and (ii)
2,566,723 shares issuable upon the exercise of outstanding stock options.
25
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Pro Forma Financial
Data") is derived from the historical unaudited financial statements of the
Company and the Acquired Resorts, in each case included elsewhere in this
Prospectus. The Pro Forma Financial Data and accompanying notes should be read
in conjunction with the historical financial statements and the notes thereto
included elsewhere in this Prospectus.
The unaudited pro forma combined balance sheet data as of October 26, 1997
gives effect to the Transactions as if they had occurred on such date. The
unaudited pro forma combined statement of operations data for the year ended
July 27, 1997 and the fiscal quarter ended October 26, 1997 gives effect to the
Transactions as if they had occurred on July 29, 1996 and July 28, 1997,
respectively. The unaudited pro forma combined balance sheet data for the
Acquired Resorts is as of August 31, 1997; the unaudited pro forma combined
statement of operations data of the Acquired Resorts is for the year ended May
31, 1997 and the fiscal quarter ended August 31, 1997.
The Pro Forma Financial Data is not intended to be indicative of either
future results of operations or results that might have been achieved had the
Transactions actually occurred on the dates specified. In the opinion of the
Company's management, all adjustments necessary to present fairly the Pro Forma
Financial Data have been made based upon the terms and structure of each of the
Transactions noted above. The following information should be read in
conjunction with "Selected Historical Consolidated Financial Data of the
Company," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements of the Company and the
Acquired Resorts and the notes thereto included elsewhere in this Prospectus.
Management expects to realize annual cost reductions following the
Transactions that have not been identified at this time and that are not
reflected in the Pro Forma Financial Data. These reductions are expected to
result largely from decreases in discretionary costs and savings from purchasing
efficiencies. There can be no assurance, however, that any such cost reductions
will be realized.
26
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA
AS OF OCTOBER 26, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE ACQUIRED PRO FORMA TRANSACTIONS PRO FORMA
COMPANY RESORTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................... $ 6,214 $ 14,668 $ 20,882 $ 10,145 c,d $ 31,027
Restricted cash.............................................. 17,772 -- 17,772 (11,010)(c) 6,762
Accounts receivable, net..................................... 4,358 495 4,853 -- 4,853
Inventory and supplies....................................... 12,102 3,099 15,201 -- 15,201
Prepaid expenses and other current assets.................... 2,958 316 3,274 -- 3,274
Real estate developed for sale............................... -- -- -- -- --
---------- ---------- ---------- ------------ -----------
Total current assets..................................... 43,404 18,578 61,982 (865) 61,117
Property and equipment, net.................................. 271,082 92,383 363,465 66,245(g) 429,710
Land held for development and sale........................... -- 27,382 27,382 7,700(h) 35,082
Assets held for sale......................................... -- -- -- 5,800(i) 5,800
Real estate developed for sale............................... 45,478 -- 45,478 -- 45,478
Other assets, net............................................ 21,548 9,268 30,816 1,644(b) 32,460
Goodwill and other intangibles, net.......................... 10,595 -- 10,595 76,028(j) 86,623
---------- ---------- ---------- ------------ -----------
Total assets............................................. $ 392,107 $ 147,611 $ 539,718 $ 156,552 $ 696,270
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Line of credit and current portion of
long-term debt............................................. $ 36,236 $ 10,055 $ 46,291 $ (35,310) ,b) $ 10,981
Accounts payable and other current liabilities............... 40,814 8,433 49,247 (177)(f) 49,070
Accrued interest............................................. -- 2,824 2,824 (2,824)(f) --
Demand note, shareholder..................................... 1,933 -- 1,933 -- 1,933
Deposits and deferred revenue................................ 14,657 -- 14,657 -- 14,657
---------- ---------- ---------- ------------ -----------
Total current liabilities................................ 93,640 21,312 114,952 (38,311) 76,641
Deferred income taxes........................................ 15,021 -- 15,021 -- 15,021
Indebtedness of Kamori....................................... -- 87,799 87,799 (87,799)(f) --
Long-term debt, excluding current portion 105,408 43,709 149,117 (100,744) ,n) 48,373
New Credit Facility.......................................... -- -- -- 140,879(b) 140,879
Subordinated notes and debentures............................ 149,637 -- 149,637 (24,444)(b) 125,193
Other long-term liabilities.................................. 8,200 -- 8,200 3,000(d) 11,200
Minority interest in subsidiary.............................. 170 -- 170 (170)(k) --
---------- ---------- ---------- ------------ -----------
Total long-term liabilities.............................. 278,436 131,508 409,944 (69,278) 340,666
Mandatorily Redeemable Preferred Stock....................... 19,252 -- 19,252 (19,252)(n) --
10 1/2% Convertible Preferred Stock.......................... -- -- -- 37,583(n) 37,583
Shareholders' Equity
Common and Class A Common Stock.............................. 10 -- 10 292(s) 302
Additional paid-in capital................................... 11,324 44,400 55,724 210,557 k,s 266,281
Retained earnings............................................ (10,555) (49,609) (60,164) 34,961 f,k (25,203)
---------- ---------- ---------- ------------ -----------
Total shareholders' equity............................... 779 (5,209) (4,430) 245,810 241,380
---------- ---------- ---------- ------------ -----------
Total liabilities, mandatorily redeemable
preferred stock and shareholders' equity............... $ 392,107 $ 147,611 $ 539,718 $ 156,552 $ 696,270
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
</TABLE>
27
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
OCTOBER 26,
BALANCE SHEET ACCOUNT NOTE ADJUSTMENT 1997
- -------------------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Cash and cash equivalents................... a Gross proceeds from the Offering $ 265,500
b Proceeds from the New Credit Facility 140,879
b Retirement of the Existing Credit Facility (56,255)
c Release of Deposit 11,010
d Purchase price of Acquired Resorts (292,126)
b Prepayment of Discount Notes (24,442)
b Prepayment penalty pertaining to Discount
Notes (3,361)
e Underwriting discounts and other Offering
expenses (19,476)
b Repayment of indebtedness accelerated upon
change of control (7,704)
b Payment of commitment fee pertaining to the
New Credit Facility (3,876)
---------------
Net adjustment to cash and cash equivalents 10,145
---------------
Restricted cash............................. c Release of deposit (11,010)
---------------
Property and equipment, net................. g Allocation of purchase price pertaining to
the Acquired Resorts 66,245
---------------
Land held for development and sale.......... h Allocation of purchase price pertaining to
the Acquired Resorts 7,700
---------------
Assets held for sale........................ i Reclassification of assets held for sale
from property and equipment 5,800
---------------
Other assets, net........................... b Prepayment of Discount Notes (1,037)
b Retirement of Existing Credit Facility (1,195)
b Capitalized financing costs on New Credit
Facility 3,876
---------------
Net adjustment to other assets 1,644
---------------
Goodwill and other intangibles, net......... j Allocation of purchase price pertaining to
the Acquired Resorts 76,028
---------------
Net effect on total assets.............. $ 156,552
---------------
---------------
</TABLE>
28
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
OCTOBER 26,
BALANCE SHEET ACCOUNT NOTE ADJUSTMENT 1997
- -------------------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Line of credit and current portion of
long-term debt............................ f Current debt excluded in the Acquisition $ (10,055)
b Retirement of Exisiting Credit Facility (25,255)
---------------
(35,310)
---------------
Accounts Payable and other current
liabilities............................... f Acquired Resorts liabilities not assumed (177)
Accrued interest............................ f Acquired Resorts liability not assumed (2,824)
---------------
Net effect on total current liabilities... (38,311)
---------------
---------------
Indebtedness of Kamori...................... f Acquired Resorts long-term debt not assumed (87,799)
---------------
Long-term debt, excluding current Portion... b Retirement of Existing Credit Facility (31,000)
b Retirement Sugarbush acquisition debt (7,704)
f Acquired Resorts liabilities not assumed (43,709)
n Conversion of Exchangeable Notes (18,311)
---------------
Net adjustments to long-term debt (100,724)
---------------
New Credit Facility......................... b Proceeds from the New Credit Facility 140,879
---------------
Subordinated notes and debentures........... b Prepayment of Discount Notes (24,444)
---------------
Other long-term liabilities................. d Contingency consideration pertaining to
acquisition 3,000
---------------
Minority interest in subsidiary............. k ASC East Exchange Offer (170)
---------------
Net effect on total long-term
liabilities............................... $(107,589)
---------------
---------------
Mandatorily redeemable preferred stock...... n Exchange of mandatory redeemable preferred
stock for 10 1/2% Convertible Preferred
Stock (19,252)
---------------
10 1/2% Convertible Preferred Stock......... n Exchange of Series A Exchangeable Preferred
Stock for 10 1/2% Convertible Preferred
Stock 37,583
Common and Class A Common Stock s Adjustment to par value pertaining to Stock
Split in Class A Common Stock 138
s Increase in issued and outstanding Common
Stock pertaining to Offering and ASC East
Exchange Offer 154
---------------
292
Additional paid-in capital.................. a Gross proceeds from the issuance of Common
Stock 265,500
e Payment of costs pertaining to the Offering (19,476)
f Elimination of Acquired Resorts
shareholders' Common Stock (44,400)
k ASC East Exchange Offer 9,225
s Reflect Stock Split in Class A Commmon Stock (138)
s Reflect increase in issued and outstanding
Common Stock pertaining to Offering and
ASC East Exchange Offer (154)
---------------
Net effect on additional paid-in
capital................................... 210,557
Retained earnings........................... f Remove accumulated deficit of Acquired
Resorts 49,609
b Retirement of Sugarbush acquisition debt (371)
b Prepayment penalty on Discount Notes (3,361)
b Write-off of prepaid loan fees (1,037)
b Retirement of the Existing Credit Facility (1,195)
k ASC East Exchange Offer (9,055)
---------------
Net effect on retained earnings........... $ 34,961
---------------
---------------
</TABLE>
29
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA FOR THE YEAR ENDED
JULY 27, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
FISCAL YEAR ENDED
ENDED MAY 31, 1997
JULY 27, 1997 ------------- RESULTS OF
------------- ACQUIRED OPERATIONS TRANSACTIONS PRO FORMA
THE COMPANY RESORTS TO BE SOLD ADJUSTMENTS AS ADJUSTED
------------- ------------- ---------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Resort........................... $166,923 $86,474 $-- $ -- $253,397
Real estate...................... 8,468 -- -- -- 8,468
Other............................ -- 2,592 (2,592) -- --
------------- ------------- ---------- -------- --------
Total revenues............... 175,391 89,066 (2,592) -- 261,865
Operating expenses:
Cost of resort operations........ 109,774 51,079 (2,088) (1,021)(q) 157,744
Cost of real estate sold......... 6,813 -- -- -- 6,813
Writedown of assets.............. -- 2,000 (2,000) -- --
Marketing, general and
administrative................. 26,126 17,238 (500) (3,400)(p) 39,464
Depreciation and amortization.... 18,293 12,516 (265) 5,449(b,j,q,r) 35,993
------------- ------------- ---------- -------- --------
Total operating expenses..... 161,006 82,833 (4,853) 1,028 240,014
------------- ------------- ---------- -------- --------
Income from operations............. 14,385 6,233 2,261 (1,028) 21,851
Other income and expenses:
Interest income.................. -- (682) -- 682(f) --
Interest expense................. 23,730 10,659 (332) (6,320)(b,f,n,o,q) 27,737
------------- ------------- ---------- -------- --------
Income (loss) before taxes......... (9,345) (3,744) 2,593 4,610 (5,886)
Provision (benefit) for income
taxes............................ (3,613) (338) -- 1,478(l) (2,473)
------------- ------------- ---------- -------- --------
Net income (loss) before minority
interest in loss of subsidiary... (5,732) (3,406) 2,593 3,132 (3,413)
------------- ------------- ---------- -------- --------
Minority interest in loss of
subsidiary....................... (250) -- -- 250(k) --
------------- ------------- ---------- -------- --------
Net income (loss) after minority
interest in loss of subsidiary... (5,482) (3,406) 2,593 2,882 (3,413)
------------- ------------- ---------- -------- --------
Accretion of discount and issuance
costs and dividends accrued on
mandatorily redeemable preferred
stock............................ 444 -- -- 1,605(n) 2,049
------------- ------------- ---------- -------- --------
Net income (loss) available to
common shareholders.............. $ (5,926) $(3,406) $ 2,593 $ 1,277 $ (5,462)
------------- ------------- ---------- -------- --------
------------- ------------- ---------- -------- --------
Net loss per weighted average
common shares outstanding........ $ (0.38) $ (0.18)(t)
------------- --------
------------- --------
Weighted average number of common
shares outstanding (000s)........ 15,416 30,840
------------- --------
------------- --------
</TABLE>
30
<PAGE>
AMERICAN SKIING COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA FOR THE FISCAL QUARTER
ENDED OCTOBER 26, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL
FISCAL QUARTER ENDED
QUARTER ENDED AUGUST 31,
OCTOBER 26, 1997
1997 ------------- RESULTS OF
------------- ACQUIRED OPERATIONS TRANSACTIONS PRO FORMA
THE COMPANY RESORTS TO BE SOLD ADJUSTMENTS AS ADJUSTED
------------- ------------- ---------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Resort........................... $ 13,811 $ 4,935 $ (512) $ -- $ 18,234
Real estate...................... 810 -- -- -- 810
------------- ------------- ---------- ------- --------
Total revenues............... 14,621 4,935 (512) -- 19,044
Operating expenses:
Cost of resort operations........ 17,808 6,773 (470) (255)(q) 23,856
Cost of real estate sold......... 925 -- -- -- 925
Marketing, general and
administrative................. 6,845 3,394 (97) (500)(p) 9,642
Stock compensation............... 14,254 -- -- -- (m) 14,254
Depreciation and amortization.... 1,506 2,490 (70) (618)(b,j,q,r) 3,308
------------- ------------- ---------- ------- --------
Total operating expenses..... 41,338 12,657 (637) (1,373) 51,985
------------- ------------- ---------- ------- --------
Income from operations............. (26,717) (7,722) 125 1,373 (32,941)
Other income and expenses:
Interest income.................. -- (193) -- 193(f) --
Interest expense................. 7,521 2,677 (88) (1,637)(b,f,n,o,q) 8,473
------------- ------------- ---------- ------- --------
Income (loss) before taxes......... (34,238) (10,206) 213 2,817 (41,414)
Provision (benefit) for income
taxes............................ (13,353) -- -- (2,799)(l) (16,152)
------------- ------------- ---------- ------- --------
Net income (loss) before minority
interest in loss of subsidiary... (20,885) (10,206) 213 5,616 (25,262)
------------- ------------- ---------- ------- --------
Minority interest in loss of
subsidiary....................... (456) -- -- 456(k) --
------------- ------------- ---------- ------- --------
Net income (loss) after minority
interest in loss of subsidiary... (20,429) (10,206) 213 5,160 (25,262)
------------- ------------- ---------- ------- --------
Accretion of discount and issuance
costs and dividends accrued on
mandatorily redeemable preferred
stock............................ (2,431) -- -- -- (2,431)
------------- ------------- ---------- ------- --------
Net income (loss) available to
common shareholders.............. $(22,860) $(10,206) $ 213 $ 5,160 $(27,693)
------------- ------------- ---------- ------- --------
------------- ------------- ---------- ------- --------
Net loss per weighted average
common shares outstanding........ $ (1.48) $ (.90)
------------- --------
------------- --------
Weighted average number of common
shares outstanding (000s)........ 15,457 30,822
------------- --------
------------- --------
</TABLE>
31
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL
QUARTER
YEAR ENDED ENDED
STATEMENT OF OPERATIONS ITEM NOTE ADJUSTMENT JULY 27, 1997 OCTOBER 26, 1997
- ------------------------------------------------ ----- ------------------------------ ------------- -----------------
<S> <C> <C> <C> <C>
Cost of resort operations....................... q Expected insurance savings (325) (80)
q Capitalization of equipment
costs (350) (88)
q Purchase of operating leases (346) (87)
------------- -------
(1,021) (255)
Marketing, general and
administrative................................ p Elimination of Kamori
management fees (3,400) (500)
------------- -------
Depreciation and amortization................... j Amortization of goodwill and
other intangibles of
Acquired Resorts 3,900 975
b Amortization of the New Credit
Facility commitment fee 409 138
r Remove depreciation and
amortization of acquired
assets (12,251) (2,420)
r Depreciation related to assets
of Acquired Resorts 13,219 800
b Amortization of deferred
financing costs relating to
the Existing Credit Facility (322) (81)
b Amortization of deferred
financing costs relating to
Discount Notes (119) (30)
q Reclassification of capital
expenditures by Acquired
Resorts 350 --
q Purchase of operating leases 263 --
------------- -------
5,449 (618)
------------- -------
Interest income................................. f Remove interest income from
Acquired Resorts 682 193
------------- -------
Interest expense................................ q Interest on Discount Notes (2,890) (769)
f Interest on Kamori long-term
debt (10,326) (2,589)
o Interest on incremental
borrowings under the New
Credit Facility 5,892 1,700
n Additional accretion on
10 1/2% Convertible
Preferred Stock 921 --
q Interest expense from
additional capital leases 83 21
------------- -------
(6,320) (1,637)
------------- -------
Provision (benefit) for income taxes.......... l Tax effect of pro forma
adjustments 1,478 (2,799)
------------- -------
Effect on net loss.............................. 3,132 5,616
------------- -------
Minority interest in loss of subsidiary......... k ASC East Exchange Offer 250 456
------------- -------
Accretion of discount and issuance costs and
dividends accrued on mandatorily redeemable
preferred stock............................. n Full accretion of discount and
issuance costs pertaining to
mandatorily redeemable
preferred stock 1,605 --
------------- -------
Net loss available to common
shareholders................................ $ 1,277 $ 5,160
-------------
------------- -------
-------
</TABLE>
32
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
GENERAL
The Acquisition resulted in the assets of the Acquired Resorts being written
up to reflect the purchase price. The purchase price of the Acquired Resorts
was calculated as the sum of (i) cash paid to the current Acquired Resorts
shareholder, (ii) the fair value of any liabilities of the Acquired Resorts
assumed, and (iii) the transaction costs incurred by the Company. The
Acquisition was treated as a purchase for financial reporting purposes.
Preliminary analyses indicate that there will be a portion of the purchase
price allocated to goodwill and other intangibles. The Acquisition was
funded from the proceeds of the Offering and borrowings under the New Credit
Facility.
Pro forma adjustments have been made to depreciate the assets acquired over
their estimated useful lives and to amortize goodwill and other intangibles
over estimated useful lives ranging from 10 to 40 years. The actual
depreciation and amortization charges recorded subsequent to the Acquisition
may differ when the final purchase price is computed as of the closing date
and an actual allocation of the purchase price to the underlying assets
acquired is completed. Only after the final purchase price has been
allocated and the estimated remaining useful lives are determined by
management will the actual depreciation and amortization charges associated
with the assets of the Acquired Resorts become available. These charges
could ultimately be higher than what has been reflected in the unaudited pro
forma combined statement of operations. The Company has not yet received the
results of appraisals and other valuation studies which are in process, nor
has it made a final determination of the useful lives of the assets
acquired. Accordingly, the allocation of the excess of purchase cost over
the fair value of the assets acquired to identifiable intangibles and
goodwill may differ from that reflected herein. The actual allocation of
purchase cost and the resulting effect on operating income may differ
significantly from the pro forma amounts below. No deferred taxes have been
provided on the step-up in the basis of the assets acquired because a
338(h)(10) election under the Internal Revenue Code of 1986 was made and,
therefore, the assets acquired are also written up to fair value for tax
purposes. The Company expects to finalize purchase accounting for the
Acquisition by the end of fiscal 1998.
(a) The gross proceeds received by the Company from the sale of Common Stock
pursuant to the Offering were approximately $265,500.
(b) A portion of the initial borrowings under the New Credit Facility were used
to retire the Existing Credit Facility. In connection with the retirement of
the Existing Credit Facility, certain prepaid loan fees related to such
facility amounting to $1,195 were written off and charged to expense when
incurred. These nonrecurring charges are not included in the unaudited pro
forma combined statement of operations but have been reflected in retained
earnings in the unaudited pro forma combined balance sheet data. Upon
closing of the New Credit Facility, the Company paid $3,876 as a commitment
fee to the lender. The commitment fee will be amortized to expense over the
term of the credit facility. The unaudited pro forma combined statement of
operations reflects $409 and $138 of commitment fee amortization related to
the New Credit Facility for the year ended July 27, 1997, and the fiscal
quarter ended October 26, 1997, respectively. The amortization of the
Existing Credit Facility's prepaid loan fees of $322 and $81 has been
removed for the year ended July 27, 1997, and the fiscal quarter ended
October 26, 1997, respectively.
A portion of the proceeds of the Offering were used to retire the
outstanding principal balance of Discount Notes and a prepayment premium of
$3,361 as of October 26, 1997 related to such prepayment. In connection with
the retirement of the Discount Notes, certain prepaid loan fees associated
with such debt in the amount of $1,037 will be written off and charged to
expense when
33
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
incurred. The prepayment penalty and the write-off of the prepaid loan fees
represent nonrecurring charges and, therefore, are not included in the
unaudited pro forma combined statement of operations. Such amounts have been
charged against retained earnings in the unaudited pro forma combined
balance sheet data.
The amortization of the prepaid loan fees for the Discount Notes total $119
and $30, and has been removed from the Pro Forma Financial Data for the year
ended July 27, 1997 and for the fiscal quarter ended October 26, 1997,
respectively.
Two notes associated with the acquisition of Sugarbush were prepaid in
connection with the Transactions. The prepayment of these notes totalled
$7,704.
The following table details the initial advances on the New Credit Facility:
<TABLE>
<S> <C>
Retirement of Existing Credit Facility, current portion........... $ 25,255
Retirement of Existing Credit Facility, long term portion......... 31,000
Closing fees on New Credit Facility............................... 3,876
Payment of Sugarbush acquisition notes required by New Credit
Facility........................................................ 7,704
Amount required in addition to the Offering to purchase Acquired
Resorts......................................................... 73,044
---------
$ 140,879
---------
---------
</TABLE>
(c) The reduction in restricted cash and the increase in cash and cash
equivalents represent the release of the $11.0 million deposit associated
with the purchase of the Acquired Resorts.
(d) The following table sets forth the purchase price of the Acquired Resorts:
<TABLE>
<S> <C>
Stated Purchase Price............................................. $ 290,000
Net working capital adjustment.................................... (3,435)
Estimated transaction costs....................................... 800
Actual cash adjustment............................................ 1,761
Liability established for contingencies........................... 3,000
---------
$ 292,126
---------
---------
</TABLE>
(e) The Company estimated that total costs associated with the Offering will be
approximately $19,476.
(f) Certain assets and liabilities including funded debt of the Acquired Resorts
are being excluded in the Acquisition and are therefore eliminated in the
pro forma balance sheet data.
(g) Fixed assets were adjusted to their estimated fair market value pursuant to
purchase accounting. These estimates are based on preliminary purchase price
allocations which are subject to final allocations pursuant to appraisals.
(h) Adjusts real estate held for development and sale to estimated fair value
pursuant to purchase accounting. These are estimated based on preliminary
purchase price allocations which are subject to final allocations pursuant
to appraisals.
(i) Management has determined that the golf course assets and a personal
residence purchased from the Acquired Resorts will be sold. The residence
was sold on December 31, 1997 for $850. The golf course is under contract to
sell February 2, 1998 for $5.8 million subject to adjustments. These assets
are presented at their estimated net realizable value and are classified as
assets held for sale in the
34
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
accompanying unaudited pro forma combined balance sheet data. The results of
operations of the golf course operations have been eliminated in the
unaudited pro forma combined statement of operations data.
(j) Various intangible assets were recorded based on their fair value and
goodwill was recorded as part of purchase accounting. These are estimates
based on preliminary purchase price allocations which are subject to final
allocations pursuant to appraisals.
The following table lists the purchase price that was allocated to intangible
assets:
<TABLE>
<CAPTION>
ANNUAL QUARTERLY
USEFUL LIFE AMORTIZATION AMORTIZATION
--------------- ------------- -------------
<S> <C> <C> <C> <C>
Tradenames................................ $ 22,000 30 $ 733 $ 183
Software.................................. 5,000 10 500 125
Customers................................. 15,000 10 1,500 375
Goodwill.................................. 34,028 40 1,167 292
--------- ------ ------
Total................................. $ 76,078 $ 3,900 $ 975
--------- ------ ------
--------- ------ ------
</TABLE>
(k) As of October 26, 1997, the Company owned 96.4% of the outstanding common
stock of ASC East. The pro forma financial data assumes all Minority Holders
exchange their Minority Interests in the ASC East Exchange Offer. The amount
of $170 represents the elimination of the Minority Interest.
The fair market value of the Minority Interest at October 26, 1997 was $9.2
million.
(l) All adjustments to the unaudited pro forma combined statement of operations
data have been tax-effected using the expected effective tax rate of 42%,
for the year ended July 27, 1997 and 39% for the quarter ended October 26,
1997.
(m) The Company has adopted a stock option plan for senior and other management
of the Company. The senior management group have received deeply discounted
options with a $2.00 exercise price. The compensation expense related to the
vested portion of the discounted options was $14,300, which has not been
reflected as a pro forma adjustment to the unaudited pro forma combined
statement of operations data because the granting of discounted options is a
one-time occurrence, and all future options granted by the Company are
expected to have an exercise price equal to the fair market value of the
underlying shares as of the date the option is expected to be granted. The
effect of the Stock Option Plan has been recorded as an adjustment to the
unaudited pro forma combined balance sheet data.
(n) In July 1997, ASC Utah, a subsidiary of the Company, acquired The Canyons.
Prior to such acquisition, Leslie B. Otten, who formerly held 96% of the
outstanding common stock of ASC East, transferred all his shares of common
stock of ASC East to the Company. The effects of such transactions are
reflected in the Company's financial statements as of and for the year ended
July 27, 1997.
The Company issued 615,022 shares of Common Stock in the ASC East Exchange
Offer, representing approximately 1.8% of all shares of Common Stock and
Class A Common Stock outstanding immediately following the Offering.
Pursuant to the terms of the Securities Purchase Agreement, the Company
exchanged the Canyons Securities for shares of the Company's 10 1/2%
Convertible Preferred Stock, which was convertible, as
35
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
of October 26, 1997, into an aggregate of 2,131,622 shares of Common Stock
at a price of $17.10, representing 6.6% of the Common Stock and Class A
Common Stock outstanding after giving effect to the Offering. The effects of
such discount are accounted for in the Pro Forma Financial Statements. The
Pro Forma Financial Statements assume the occurrence of the Preferred
Exchange Offer. See "Description of the 10 1/2% Subordinated Debentures",
"Description of Capital Stock--Series A Exchangeable Preferred Stock" and
"Description of the 10 1/2% Convertible Preferred Stock".
Related to the purchase of The Canyons, ASC Utah entered into a long-term
lease of the real estate constituting the resort. The results of operations
of Wolf have not been reflected in the pro forma statements of operations
due to the immateriality of the activity. See "Risk Factors--Required
Development at The Canyons; Historical Losses of Wolf."
(o) Gives pro forma effect to the incremental interest expense related to the
New Credit Facility. Under the New Credit Facility, interest will be payable
(at the Company's option) at either the Alternate Base Rate or LIBOR plus
the Applicable Margin (as such terms are defined in the New Credit Facility)
determined quarterly through April 1998 and annually thereafter. The pro
forma calculation of interest expense in the accompanying pro forma
financial statements assumes the use of LIBOR plus the Applicable Margin
which results in an effective interest rate of 8.45%. A 1/8% increase in the
assumed blended rate would increase pro forma interest expense by
approximately $165. Included in the accompanying pro forma financial data is
interest expense from the New Credit Facility of $5,892 and $1,700 for the
year ended July 27, 1997 and the fiscal quarter ended October 26, 1997,
respectively. The incremental interest expense is based on a net increase in
borrowings of $64,876 and $76,824 as of July 27, 1997 and October 26, 1997,
respectively. See "Description of Certain Indebtedness--The New Credit
Facility."
Historical interest expense related to the Discount Notes of $2,890 and $769
has been eliminated in the pro forma statement of operations for the year
ended July 27, 1997 and the fiscal quarter ended October 26, 1997,
respectively.
(p) The pro forma adjustment reflects the elimination of reimbursements paid to
the parent company of the Acquired Resorts for the guarantee of the Acquired
Resorts' debt obligations by the parent. These costs would not have been
incurred had the Acquired Resorts been subsidiaries of the Company for the
year ended July 27, 1997 nor will such payments be required by the Acquired
Resorts prospectively.
(q) Management has specifically identified certain costs which will be
eliminated in connection with the Acquisition. Insurance expense will be
reduced by $325 and $81 based on preliminary quotes received from the
Company's current insurance provider for the year ended July 27, 1997 and
the fiscal quarter ended October 26, 1997, respectively.
The Acquired Resorts have classified expenditures related to rental
equipment purchases and uniform purchases as operating expenses, which will
be capitalized and depreciated to be consistent with the Company's
historical treatment.
The Acquired Resorts have historically used several operating leases for
grooming equipment. New equipment will be purchased and depreciated over the
useful life of the equipment.
(r) Total purchase price allocated to the depreciation fixed assets of the
Acquired Resorts is $158,628. An estimated average useful life of these
assets is estimated to be 12 years. Estimated annual depreciation is
$13,219. The depreciation previously recorded on the Acquired Resorts has
been eliminated. The Acquired Resorts have historically recorded
Depreciation evenly during each fiscal quarter. The
36
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENTS OF OPERATIONS DATA (CONTINUED)
(IN THOUSANDS)
Company only records depreciation on skiing related assets during the second
and third quarter of their fiscal year to better match revenues with
expenses. This is the cause of the net decrease in depreciation for the
acquired resorts for the quarter ended October 26, 1997.
(s) The unaudited pro forma combined financial data gives effect to the issuance
of 14,750,000 shares in the Offering and to the issuance of the Securities.
The unaudited pro forma combined financial data gives effect to the
adjustment of the par value pertaining to the outstanding Class A Common
Stock shares of 14,760,530. In connection with the stock split of the Class
A shares, an adjustment has been made in the unaudited pro forma combined
financial data to increase par value and decrease additional paid-in capital
by $138 to reflect total par value $.01 per share of $148.
(t) Pro forma net loss per weighted average common share outstanding was
calculated by dividing the pro forma net loss available to common
shareholders by the weighted average number of common shares outstanding,
giving effect to the stock split, the 622,038 options (the "Options")
granted to certain executive officers of the Company with an exercise price
below the offering share price, the issuance of the Securities, the
conversion of the Canyons Securities, and the 14,750,000 shares issued in
the Offering. The net loss available to common shareholders does not reflect
the compensation charge of $14,300 that the Company recorded in the fiscal
quarter ended October 26, 1997 pertaining to the grant of the Options and
the related income tax gross-up payable by the Company. The weighted average
number of common shares outstanding relating to the Options and the Canyons
Securities were determined by including all potentially dilutive instruments
granted or issued within one year prior to the Offering, through the
effective date of the Offering, at an exercise price less than the initial
Public Offering price, in accordance with the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, with the dilutive effect
measured using the treasury stock method. The weighted average number of
shares outstanding for the minority interest shares and offering shares were
considered to have been outstanding since the beginning of the year. The
primary and fully diluted calculations of pro forma net loss per weighted
average common share outstanding are the same, as inclusion of all other
potentially dilutive instruments in the pro forma loss per share calculation
would be anti-dilutive.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL INFORMATION
GENERAL
Since 1994, the Company's growth has been substantially as a result of
acquisitions. The Company acquired Attitash Bear Peak in 1994, Sugarbush in
1995, the S-K-I Ltd. resorts (Killington, Sugarloaf and Mount Snow/Haystack) in
1996 and The Canyons (formerly Wolf Mountain) in 1997. On November 12, 1997, the
Company acquired the Steamboat and Heavenly ski resorts. The operations of S-K-I
Ltd. are only included in the Company's historical financial statements for one
month of fiscal 1996; accordingly, the Company believes that a comparison of the
pro forma results of operations for fiscal 1996 and fiscal 1997 is more
meaningful to investors than a comparison of the actual results of operations
for the same period.
The following table sets forth the pro forma results of operations of the
Company as if the acquisitions of S-K-I Ltd. and the Acquired Resorts and all
related transactions had taken place at the beginning of fiscal 1996.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FISCAL 1996 FISCAL 1997
--------------------- ---------------------
% OF % OF
$ REVENUE $ REVENUE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Resort.................................................. $ 241,996 95.3% $ 253,397 96.8%
Real Estate............................................. 11,877 4.7 8,468 3.2
---------- --------- ---------- ---------
Total revenues...................................... 253,873 100.0 261,865 100.0
Operating Expenses:
Cost of resort operations............................... 151,595 59.7 157,744 60.2
Cost of real estate sold................................ 6,273 2.5 6,813 2.6
Marketing, general and administrative................... 37,302 14.7 39,464 15.1
Depreciation and amortization........................... 34,207 13.5 35,993 13.7
---------- --------- ---------- ---------
Total operating expenses............................ 229,377 90.4 240,014 91.6
---------- ----------
Income from operations.................................... 24,496 9.6 21,851 8.4
Commitment fee............................................ 1,447 .5 -- --
Interest expense.......................................... 26,412 10.4 27,737 10.6
Provision (benefit) for income taxes...................... (501) (.2) (2,473) (.9)
---------- --------- ---------- ---------
Net loss.................................................. $ (2,862) (1.1)% $ (3,413) (1.3)%
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
PRO FORMA FISCAL YEAR ENDED JULY 27, 1997 VS. PRO FORMA FISCAL YEAR ENDED JULY
28, 1996
Pro forma total revenues in fiscal 1997 were $261.9 million, an increase of
$8.0 million, or 3.2%, as compared to pro forma total revenues of $253.9 million
in fiscal 1996. Pro forma resort revenues in fiscal 1997 were $253.4 million, an
increase of $11.4 million, or 4.7%, as compared to pro forma resort revenues of
$242.0 million in fiscal 1996. The increase in pro forma resort revenues was due
primarily to a 1.5% increase in aggregate skier visits (to approximately 4.8
million from approximately 4.7 million) and a 3.2% increase in average resort
revenues per skier visit.
The pro forma resort revenues in fiscal 1997 of the Company's northeastern
resorts were $166.9 million, an increase of $5.2 million, or 3.2%, as compared
to pro forma resort revenues of $161.7 million in fiscal 1996. This increase was
due primarily to a 0.3% increase in skier visits and a 3.0% increase in resort
revenues per skier visit. The increase in resort revenues per skier visit was
attributable to increased ticket
38
<PAGE>
prices and yield management and increases in non-ticket revenues per skier
visit, offset, in part, by increased promotional activity. Notwithstanding an
industry-wide 10.6% decrease in skier visits in the Northeast, skier visits at
the Company's Northeastern resorts declined by only 1.4% on a same-resort basis
and were further helped by the November 1996 acquisition of Pico Mountain.
The pro forma resort revenues in fiscal 1997 of the Acquired Resorts were
$86.5 million, an increase of $6.2 million, or 7.7%, as compared to pro forma
resort revenues of $80.3 million in fiscal 1996. This increase was due primarily
to an 8.8% increase in skier visits at the Steamboat resort, offset, in part, by
a 3.1% decrease in skier visits at the Heavenly resort. Skier visits at Heavenly
were adversely impacted by the closure of U.S. Route 50, a major access road to
the resort, during the 1996-97 ski season for 45 days in December and January.
Changes in revenues per skier visit were immaterial during these periods at the
Acquired Resorts.
Pro forma real estate revenues in fiscal 1997 were $8.5 million, a decrease
of $3.4 million, or 28.6%, as compared to pro forma real estate revenues of
$11.9 million in fiscal 1996. This decrease was due primarily to the sell-out of
all available quartershare units at the Company's Sunday River quartershare
hotel in the fourth quarter of fiscal 1996, with no additional quartershare
units being available for sale until the Company's quartershare hotel at
Attitash Bear Peak was completed in the third quarter of fiscal 1997. During the
last four months of fiscal 1997, the Company closed $5.0 million in quartershare
unit sales at Attitash Bear Peak, and the Acquired Resorts had $1.9 million of
real estate revenues from the sale of miscellaneous undeveloped parcels of land.
Pro forma cost of resort operations in fiscal 1997 was $157.7 million, an
increase of $6.1 million, or 4.0%, as compared to pro forma cost of resort
operations of $151.6 million in fiscal 1996. The increase of 0.5% as a
percentage of revenue was primarily from increased snowmaking activity
necessitated by the adverse weather conditions in the Northeast during the
1996-97 ski season.
Pro forma cost of real estate sold in fiscal 1997 was $6.8 million, an
increase of $.5 million, or 7.9%, as compared to pro forma cost of real estate
sold of $6.3 million in fiscal 1996. This increase was due primarily to
approximately $1.0 million of development costs expensed in fiscal 1997 relating
to projects that are currently under development and, consequently, did not
generate revenues.
Pro forma marketing, general and administrative expense in fiscal 1997 was
$39.5 million, an increase of $2.2 million, or 5.9%, as compared to pro forma
marketing, general and administrative expense of $37.3 million in fiscal 1996.
As a percentage of resort revenues, marketing, general and administrative
expense increased from 14.7% in fiscal 1996 to 15.1% in fiscal 1997. This
increase was due primarily to increased marketing activities at the Company's
resorts in the Northeast following the S-K-I Ltd. acquisition. In the first
quarter of fiscal 1998, the Company granted to certain executive officers and
other employees fully vested options to purchase 622,038 shares of Common Stock
at an exercise price of $2.00 per share. The Company also agreed to pay certain
tax liabilities which the recipients of the options expect to incur upon
exercise of the options. Because the $2.00 per share exercise price was below
the fair market value of a share of Common Stock on the date of grant, the
Company will recognize a one-time compensation charge of approximately $13.9
million in the first quarter of fiscal 1998. Such charge has not been reflected
in pro forma marketing, general and administrative expense in fiscal 1997 or
fiscal 1996. See "Pro Forma Financial Data."
Pro forma depreciation and amortization in fiscal 1997 was $36.0 million, an
increase of $1.8 million, or 5.3%, as compared to pro forma depreciation and
amortization of $34.2 million in fiscal 1996. This increase was due to the
extensive capital programs during the summer of 1996 and the depreciation
associated with these capital improvements.
Pro forma interest expense in fiscal 1997 was $27.7 million, an increase of
$1.3 million, or 4.9%, as compared to pro forma interest expense of $26.4 in
fiscal 1996. This increase was due primarily to expenditures related to capital
improvements.
39
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF THE COMPANY
THE COMPANY
The following selected historical financial data of the Company (except
other data) (i) as of and for the fiscal years ended July 30, 1995, July 28,
1996 and July 27, 1997 have been derived from the financial statements of the
Company audited by Price Waterhouse LLP, independent accountants and (ii) as of
and for each of the fiscal years ended July 25, 1993 and July 31, 1994 have been
derived from the financial statements of the Company audited by Berry, Dunn,
McNeil & Parker, independent accountants. The interim financial data as of
October 27, 1996 and October 26, 1997 is unaudited; however, in the opinion of
the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair statement of the results for
the interim periods.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL FISCAL FISCAL
QUARTERS QUARTER
HISTORICAL YEAR ENDED (1) ENDED ENDED
--------------------------------------------------------- ------------------------ -----------
JULY 25, JULY 31, JULY 30, JULY 28, JULY 27, OCTOBER 27, OCTOBER 26, OCTOBER 26,
1993 1994 1995 1996 1997 1996 1997 1997
----------- ----------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SKIER VISIT AMOUNTS) (UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Resort.......................... $ 23,645 $ 26,544 $ 46,794 $ 63,489 $ 166,923 $ 11,728 $ 13,811 $ 18,234
Real estate..................... 6,103 6,682 7,953 9,933 8,468 1,569 810 810
----------- ----------- --------- --------- --------- ----------- ----------- -----------
Total net revenues............ 29,748 33,226 54,747 73,422 175,391 13,297 14,621 19,044
----------- ----------- --------- --------- --------- ----------- ----------- -----------
Operating expenses:
Resort.......................... 14,705 15,787 29,725 41,799 109,774 15,034 17,808 23,856
Real estate..................... 3,245 3,179 3,994 5,844 6,813 1,032 925 925
Marketing, general and
administrative................ 4,718 5,940 9,394 11,289 26,126 4,792 6,845 9,642
Stock compensation charge(2).... -- -- -- -- -- -- 14,254 14,254
Depreciation and amortization... 1,984 2,421 3,910 6,783 18,293 1,527 1,506 3,308
----------- ----------- --------- --------- --------- ----------- ----------- -----------
Total operating expenses...... 24,652 27,327 47,023 65,715 161,006 22,385 41,338 51,985
----------- ----------- --------- --------- --------- ----------- ----------- -----------
Income (loss) from operations..... 5,096 5,899 7,724 7,707 14,385 (9,088) (26,717) (32,941)
Other expenses:
Commitment fee.................. -- -- -- 1,447 -- --
Interest expense................ 849 1,026 2,205 4,699 23,730 7,514 7,521 8,473
----------- ----------- --------- --------- --------- ----------- ----------- -----------
Income (loss) before provision
(benefit) for income taxes,
minority interest in loss of
subsidiary and extraordinary
gain from insurance claim....... 4,247 4,873 5,519 1,561 (9,345) (16,602) (34,238) (41,414)
Provision (benefit) for income
taxes............................. -- -- 400 3,906 (3,613) (6,309) (13,353) (16,152)
Minority interest in loss of
subsidiary........................ -- -- -- 108 250 -- (456) --
----------- ----------- --------- --------- --------- ----------- ----------- -----------
Income (loss) before extraordinary
gain from insurance claim....... 4,247 4,873 5,119 (2,237) (5,482) (10,293) (20,429) (25,262)
Extraordinary gain from insurance
claim........................... 1,592 -- -- -- -- -- -- --
----------- ----------- --------- --------- --------- ----------- ----------- -----------
Net income (loss)................. $ 5,839 $ 4,873 $ 5,119 $ (2,237) $ (5,482) $ (10,293) $ (20,429) $ (25,262)
----------- ----------- --------- --------- --------- ----------- ----------- -----------
----------- ----------- --------- --------- --------- ----------- ----------- -----------
OTHER DATA:
Resort:
Skier visits (000s)(3)(8)....... 525 528 1,060 1,290 3,025 -- -- --
Season pass holders (000s)(8)... 3.2 3.7 11.2 13.2 30.9 -- -- --
Resort revenues per skier
visit(8)...................... $ 45.04 $ 50.26 $ 44.14 $ 49.20 $ 55.18 -- -- --
Resort EBITDA(4)(5)(8).......... $ 4,222 $ 4,817 $ 7,675 $ 10,401 $ 31,023 -- -- --
Real estate:
Number of units sold............ 173 155 163 177 123 6 16 16
Number of units pre-sold(6)..... -- -- -- 109 605 -- 88 88
Real Estate EBIT(5)(7).......... $ 2,858 $ 3,503 $ 3,959 $ 4,089 $ 1,655 $ 537 $ (115) $ (115)
STATEMENT OF CASH FLOWS DATA:
Cash flows from operations...... $ 2,667 $ 5,483 $ 12,593 $ 7,465 $ 6,788 $ 2,342 $ (41,792) --
Cash flows from investing
activities.................... (4,432) (9,041) (13,843) (122,583) (14,070) (13,602) (19,027) --
Cash flows from financing
activities.................... 1,559 3,764 2,399 116,941 19,655 11,068 51,975 --
BALANCE SHEET DATA:
Total assets.................... $ 40,550 $ 51,784 $ 72,434 $ 298,732 $ 337,340 $ 316,625 $ 392,107 $ 696,270
Long term debt, including
current portion............... 35,056 210,720 236,330 223,823 291,281 325,426
Mandatory redeemable preferred
stock......................... -- -- -- -- 16,821 -- 19,252 37,583
Common shareholders' equity..... $ 23,167 $ 26,212 $ 30,502 $ 21,903 $ 15,101 $ 11,610 $ 779 $ 241,380
</TABLE>
40
<PAGE>
(1) The historical results of the Company reflect the results of operations of
the Attitash Bear Peak ski resort since its acquisition in July 1994, the
results of operations of the Sugarbush ski resort since October 1994, the
results of operations of the Mt. Cranmore ski resort from its acquisition in
June 1995 through its divestiture in November 1996, the results of
operations of S-K-I Ltd. since its acquisition in June 1996, the results of
operations of Pico Mountain since its acquisition in November 1996 and the
results of operations of the Canyons since its acquisition in July 1997.
(2) In the first quarter of fiscal 1998, the Company granted to certain
executive officers and other employees fully vested options to purchase
543,626 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 approximately $14.3 million in the first quarter of
fiscal 1998.
(3) For the purposes of estimating skier visits, the Company assumes that a
season pass holder visits the Company's resorts a number of times that
approximates the average cost of a season pass divided by the average daily
lift ticket price.
(4) Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense.
(5) Resort EBITDA and Real Estate EBIT are not measurements calculated in
accordance with GAAP and should not be considered as alternatives to
operating or net income as an indicator of operating performance, cash flows
as a measure of liquidity or any other GAAP determined measurement. Certain
items excluded from Resort EBITDA and/or Real Estate EBIT, such as
depreciation, amortization and non-cash charges for stock compensation
awards and asset impairments are significant components in understanding and
assessing the Company's financial performance. Other companies may define
Resort EBITDA and Real Estate EBIT differently, and as a result, such
measures may not be comparable to the Company's Resort EBITDA and Real
Estate EBIT. The Company has included information concerning Resort EBITDA
and Real Estate EBIT because management believes they are indicative
measures of the Company's liquidity and financial position, and are
generally used by investors to evaluate companies in the resort industry.
(6) Pre-sold units represent quartershare and other residential units for which
the Company has a binding sales contract, subject to certain closing
conditions, and has received a 5% down payment on the unit from the
purchaser. Recognition of the revenue from such pre-sales is deferred until
the period in which such sales are closed.
(7) Real Estate EBIT represents revenues from real estate sales less cost of
real estate sold, including selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating to
property sold.
(8) Due to the seasonality of the business, skier visits, season pass holders,
revenues per skier visit and EBITDA are not presented for the fiscal
quarters ended October 27, 1996 and October 26, 1997, because such data is
not meaningful to an understanding of the quarterly financial information.
41
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's ratio of earnings to combined
fixed charges and preferred stock dividends on a historical basis for each of
the five fiscal years ended July 27, 1997 and for the three months ended October
26, 1997.
<TABLE>
<CAPTION>
PRO FORMA THREE
FISCAL YEAR ENDED FISCAL YEAR MONTHS
------------------------------------------------------------- ENDED ENDED
JULY 25, JULY 31, JULY 30, JULY 28, JULY 27, JULY 27, OCTOBER 26,
1993 1994 1995 1996 1997 1997 1997
----------- ----------- ----------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed
charges and preferred stock
dividends(1)......................... 6.756 5.763 3.503 1.332 .606 .775 (2.54)
Deficiency of earnings as compared to
combined fixed charges and preferred
stock dividends(1)................... N/A N/A N/A N/A N/A N/A 36,213
<CAPTION>
PRO FORMA
THREE
MONTHS
ENDED
OCTOBER 27,
1997
-----------
<S> <C>
Ratio of earnings to combined fixed
charges and preferred stock
dividends(1)......................... (3.021)
Deficiency of earnings as compared to
combined fixed charges and preferred
stock dividends(1)................... 35,372
</TABLE>
- --------------------------
- --------------------------
(1) For purposes of this calculation, "earnings" consist of income (loss) before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of debt issuance costs and the component of rental expense
believed by management to be representative of the interest factor thereon.
42
<PAGE>
SELECTED COMBINED FINANCIAL DATA
OF THE ACQUIRED RESORTS
<TABLE>
<CAPTION>
FISCAL
QUARTER
ENDED
FISCAL YEAR ENDED MAY 31, AUGUST 31,
--------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SKIER AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Ski operations.................................. $ 65,181 $ 62,700 $ 67,843 $ 64,967 $ 67,423 $ 1,440
Retail, ski rental and other.................... 18,229 19,334 20,724 19,765 21,643 3,960
----------- ----------- ----------- ----------- ----------- -----------
Total revenues.............................. 83,410 82,034 88,567 84,732 89,066 5,400
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Ski operations.................................. 32,590 33,543 34,682 34,033 36,712 3,959
Retail, ski rental and other.................... 12,188 13,017 14,033 13,341 14,427 3,493
Marketing, general, administrative and
other(2)...................................... 15,703 14,778 17,075 16,585 17,178 3,281
Writedown of assets(3).......................... -- -- -- -- 2,000 --
Depreciation and amortization................... 14,481 14,544 14,643 14,477 12,516 3,156
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 74,962 75,882 80,433 78,436 82,833 13,889
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)........................... $ 8,448 $ 6,152 $ 8,134 $ 6,296 $ 6,233 $ (8,489)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net loss.......................................... $ (3,906) $ (5,254) $ (3,906) $ (4,538) $ (3,406) $ (10,921)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
OPERATING DATA:
Skier visits (000s)(4)............................ 1,867 1,750 1,858 1,732 1,796 --
Season pass holders (000s)(4)..................... 5.7 6.6 6.9 7.0 7.5 --
Total revenues per skier visit(4)................. $ 43.22 $ 45.23 $ 45.49 $ 47.46 $ 47.48 --
EBITDA(1)(2)(3)(4)................................ $ 25,929 $ 23,596 $ 26,078 $ 24,074 $ 24,150 --
Capital expenditures.............................. $ 11,998 $ 3,382 $ 6,925 $ 5,864 $ 5,344 $ 1,288
BALANCE SHEET DATA:
Total assets...................................... $ 188,513 $ 174,325 $ 166,610 $ 159,067 $ 149,444 $ 154,919
Long-term debt.................................... 160,910 153,675 147,185 142,146 135,413 136,769
Total shareholders' equity (deficit).............. 18,603 13,349 9,443 8,405 4,999 (2,516)
<CAPTION>
<S> <C>
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Ski operations.................................. $ 1,778
Retail, ski rental and other.................... 3,157
-----------
Total revenues.............................. 4,935
-----------
Operating expenses:
Ski operations.................................. 4,247
Retail, ski rental and other.................... 2,828
Marketing, general, administrative and
other(2)...................................... 3,091
Writedown of assets(3).......................... --
Depreciation and amortization................... 2,491
-----------
Total operating expenses.................... 12,657
-----------
Operating income (loss)........................... $ (7,722)
-----------
-----------
Net loss.......................................... $ (10,205)
-----------
-----------
OPERATING DATA:
Skier visits (000s)(4)............................ --
Season pass holders (000s)(4)..................... --
Total revenues per skier visit(4)................. --
EBITDA(1)(2)(3)(4)................................ --
Capital expenditures.............................. $ 2,241
BALANCE SHEET DATA:
Total assets...................................... $ 147,611
Long-term debt.................................... 131,508
Total shareholders' equity (deficit).............. (5,209)
</TABLE>
- ------------------------
(1) The statement of operations data include the results of Sabal Point Golf
Course in Orlando, Florida which the Company has under contract to sell on
February 2, 1998. In fiscal 1997, the Sabal Point Golf Course generated
approximately $1.3 million in revenues. In the fiscal quarter ended August
31, 1997, the Sabal Point Golf Course generated approximately $0.5 million
in revenues.
(2) The Acquired Resorts have historically reimbursed Kamori for certain
administrative services provided. Such reimbursements totalled approximately
$3.0 million, $2.9 million, $3.3 million, $3.3 million and $3.4 million,
respectively, for each of the years ended May 31, 1993 through May 31, 1997.
For each of the first fiscal quarters ended August 31, 1996 and August 31,
1997, such reimbursement to Kamori totalled approximately $0.5 million and
$0.5 million, respectively. Such amounts are included in marketing, general
and administrative expense in the accompanying selected combined financial
information, but have been excluded for purposes of calculating EBITDA
because such expenses will not be incurred by the Acquired Resorts following
the closing of the Acquisition.
(3) In 1997, the Acquired Resorts recorded a $2.0 million impairment loss
related to land, buildings and equipment of its golf resort to properly
state these fixed assets at estimated fair values. Such loss is excluded in
the calculation of EBITDA.
(4) Due to the seasonality of the business, skier visits, season pass holders,
revenues per skier visit and EBITDA are not presented for the fiscal
quarters ended August 31, 1996 and August 31, 1997 because such data is not
meaningful to an understanding of the quarterly financial information.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS AND THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
GENERAL
The discussion and analysis below relates to (i) the historical financial
statements and results of operations of the Company, (ii) the historical
financial statements and results of operations of the Acquired Resorts and (iii)
the liquidity and capital resources of the Company after giving effect to the
consummation of the Transactions. The Company was formed in June 1997 pursuant
to the Formation. The historical financial statements of the Company for all
periods ending prior to the Formation are the financial statements of ASC East.
For periods ending subsequent to the Formation, the financial statements of the
Company include the accounts of ASC East and the Company's other operations. The
following discussion should be read in conjunction with the financial statements
and the notes thereto contained elsewhere in this Prospectus.
The Company has, over the past several years, undertaken a strategy to
differentiate its resorts from the competition by enhancing the quality and
scope of on-mountain facilities and services, including (i) improving lifts,
trail design, snowmaking, grooming and base facilities, (ii) increasing the
on-mountain bed base and (iii) marketing these facilities and services
aggressively, while maintaining ownership of all revenue sources connected with
the resorts, including retail sales, food and beverage concessions, lodging and
real estate development. This strategy has been coupled in the last three years
with growth through acquisitions, as reflected in the acquisitions of the
Attitash Bear Peak and Sugarbush resorts in 1994, the S-K-I Ltd. resorts in 1996
and the Steamboat and Heavenly ski resorts in November 1997, and subsequent or
proposed capital expenditures at those resorts. See "Business--Existing Resorts"
and "--Acquired Resorts." These efforts have resulted in significant growth both
in revenues and profitability.
Historically, both the Company and the Acquired Resorts have generated the
vast majority of their revenues in the second and third quarters of their
respective fiscal years, of which a significant portion is produced in two key
weeks--the Christmas and Presidents' Day vacation weeks (during which
approximately 23% of annual skier visits are generated). During the first and
fourth fiscal quarters, the Company and the Acquired Resorts experience
substantial reductions in utility expense due to the absence of snowmaking and
lift operation, while making significant expenditures for off-season
maintenance, expansion and capital improvement activities in preparation for the
ensuing ski season.
The Company does not anticipate any disruption in operations or material
increases in operating expenses associated with year 2000 compliance with
respect to its management information systems.
44
<PAGE>
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth, for the periods indicated, certain operating
data of the Company as a percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------
<S> <C> <C> <C>
JULY JULY JULY
30, 28, 27,
1995 1996 1997
------- ------ ------
Revenues:
Resort.................................................................. 85.5% 86.5% 95.2%
Real estate............................................................. 14.5 13.5 4.8
------- ------ ------
Total revenues........................................................ 100.0 100.0 100.0
------- ------ ------
Operating expenses:
Cost of operations including wages, maintenance and supplies............ 54.3 56.9 62.6
Cost of real estate sold................................................ 7.3 8.0 3.9
Marketing, general and administrative................................... 17.2 15.4 14.9
Depreciation and amortization........................................... 7.1 9.2 10.4
------- ------ ------
Total operating expenses.............................................. 85.9 89.5 91.8
------- ------ ------
Income from operations.................................................... 14.1 10.5 8.2
Commitment fee............................................................ -- 2.0 --
Interest expense.......................................................... 4.0 6.4 13.5
------- ------ ------
Income (loss) before provision for income taxes and minority interest in
loss of subsidiary...................................................... 10.1 2.1 (5.3)
Provision (benefit) for income taxes...................................... 0.7 5.3 (2.1)
------- ------ ------
Income (loss) before minority interest in loss of subsidiary.............. 9.4 (3.2) (3.2)
Minority interest in loss of subsidiary................................... -- 0.2 0.1
------- ------ ------
Net income (loss)......................................................... 9.4% (3.0)% (3.1)%
------- ------ ------
------- ------ ------
</TABLE>
FISCAL QUARTER ENDED OCTOBER 26, 1997 COMPARED TO FISCAL QUARTER ENDED OCTOBER
27, 1996
Resort revenues increased 17.2% from $11.7 million to $13.8 million. This
increase resulted primarily from (i) a $1.2 million increase in retail sales
from the purchase of two retail ski shop operations with locations in Vermont,
New Hampshire, and Maine; (ii) a $.3 million increase from the operation of the
Attitash/Bear Peak Grand Summit Hotel, completed April, 1997; and (iii) a $.6
million increase from the general operations of the Company.
Real estate revenues decreased from $1.6 million to $.8 million. The
decrease is attributable to the negative impact of timing differences in sales
of Locke Mountain townhouses at Sunday River, offset by the positive impact of
quartershare sales at the Attitash/Bear Peak Grand Summit Hotel.
Cost of resort operations increased 18.5% from $15.0 million to $17.8
million. This increase resulted primarily from: (i) a $1.4 million increase in
costs related to new retail operations, including costs associated with the
start up of the new retail locations; (ii) $.4 million in costs related to the
operation of the Attitash/Bear Peak Grand Summit Hotel; and (iii) $1.0 million
increase due to the addition of Pico and The Canyons operations.
Cost of real estate operations decreased 10% from $1.0 million to $.9
million. The decrease is primarily attributable to the difference in sales
between the two periods and increased operational costs relating to the
Company's hotel development activities during the first quarter of fiscal 1998
as the Company nears completion of three quartershare hotels.
Marketing, general and administrative costs increased 42.8% from $4.8
million to $6.8 million. The primary reason for the increase was the
establishment of the Company's corporate offices, increased costs
45
<PAGE>
associated with coordinating the activities of the various resorts and increased
marketing costs associated with the new Edge program and direct to lift
automated ticketing program.
The Company recorded a compensation charge of $14.3 million in the first
quarter attributable to stock options granted to certain key members of
management. This charge reflects (i) the difference between the $2.00 exercise
price and the $18.00 fair market value as of the date of grant of the Common
Stock, and (ii) an accrual for payments to certain members of senior management
to cover all individual Federal and State income tax liability generated upon
exercise of the options.
FISCAL YEAR ENDED JULY 27, 1997 COMPARED TO FISCAL YEAR ENDED JULY 28, 1996
Resort revenues in fiscal 1997 were $166.9 million, an increase of $103.4
million, or 162.8%, as compared to resort revenues of $63.5 million in fiscal
1996. This increase was due primarily to the addition of the S-K-I resorts in
June 1996, which accounted for $106.6 million, which was offset by $4.0 million
attributable to a decrease in revenues due to the divestiture of the Cranmore
ski resort and an increase in resort revenues at the Company's other resorts.
Revenues from real estate operations in fiscal 1997 were $8.5 million, a
decrease of $1.4 million, or 14.1%, as compared to revenues from real estate
operations of $9.9 million in fiscal 1996. This decrease was due primarily to
all quartershare units at the Summit Hotel at Sunday River being fully sold by
July 1996. The Company has completed construction of the Grand Summit Hotel at
the Attitash Bear Peak ski resort and began closing on quartershare unit sales
thereof at the Grand Summit Hotel on April 6, 1997. As of July 27, 1997 the
Grand Summit at Attitash Bear Peak had $5.0 million in quartershare unit sales.
Cost of resort operations in fiscal 1997 were $109.8 million, an increase of
$68.0 million, or 162.7%, as compared to cost of resort operations of $41.8
million in fiscal 1996. This increase was due primarily to the addition of the
S-K-I resorts.
Cost of real estate operations in fiscal 1997 were $6.8 million, an increase
of $1.0 million, or 17.2%, as compared to cost of real estate operations of $5.8
million in fiscal 1996. This increase was due to pre-construction activities on
the hotel projects that began construction in the fourth quarter of the year
ended July 27, 1997 and costs related to the sales of quartershares at the Grand
Summit at Attitash Bear Peak.
Marketing, general and administrative expenses in fiscal 1997 were $26.1
million, an increase of $14.8 million, or 131.0%, as compared to marketing,
general and administrative expenses of $11.3 million in fiscal 1996. This
increase was due to the addition of the S-K-I resorts, which account for an
increase of $11.9 million. The remaining difference of $2.9 million is due to a
decrease in expense of $0.5 million due to the divestiture of the Cranmore ski
resort and an increase in expense of $3.4 million due to increased marketing
activity at the pre-merger resorts.
Depreciation and amortization expenses in fiscal 1997 were $18.3 million, an
increase of $11.5 million, or 169.1%, as compared to depreciation and
amortization expenses of $6.8 million in fiscal 1996. This increase was due
primarily to the addition of the S-K-I resorts, which account for an increase of
$9.8 million. The remainder of the increase results from capital improvements
and the amortization of goodwill and prepaid loan fees that did not exist prior
to the acquisition of the S-K-I resorts.
FISCAL YEAR ENDED JULY 28, 1996 COMPARED TO FISCAL YEAR ENDED JULY 30, 1995.
Resort revenues in fiscal 1996 were $63.5 million, an increase of $16.7
million, or 35.7%, as compared to resort revenues of $46.8 million in fiscal
1995. This increase was due to (i) $4.1 million attributable to the acquisition
of Mt. Cranmore in June 1995, (ii) an increase of approximately 20,000 skier
visits, or approximately 11%, at Attitash Bear Peak, (iii) an increase of
approximately 42,000 skier visits, or approximately 13%, at Sugarbush, (iv) an
increase in lift ticket prices, resulting in an increase in revenues per skier
visit from $41.89 in fiscal 1995 to $44.61 in fiscal 1996, (vi) an approximate
10% increase in
46
<PAGE>
season pass revenues, primarily due to the addition of a multi-resort season
pass, and (vii) $2.8 million attributable to the inclusion of the S-K-I resorts
for the final month of fiscal 1996.
Real estate revenues in fiscal 1996 were $9.9 million, an increase of $2.0
million, or 25.3%, as compared to real estate revenues of $7.9 million in fiscal
1995. This increase was due to increased sales of quartershare units at the
Summit Hotel at Sunday River and the sale of 16 additional townhouse units at
Sunday River in fiscal 1996 compared to fiscal 1995, as well as higher average
sales prices.
Cost of operations in fiscal 1996 were $41.8 million, an increase of $12.1
million, or 40.7%, as compared to cost of operations of $29.7 million in fiscal
1995. This increase was due to (i) $1.5 million attributable to the acquisition
of Mt. Cranmore, (ii) incremental costs resulting from the increased skier
visits, (iii) operating costs resulting from the increased snowmaking and lift
capacity and skiable terrain that resulted from the $22.2 million of capital
expenditures during fiscal 1996 and (iv) $2.1 million attributable to the
inclusion of the S-K-I resorts for the final month of fiscal 1996.
Cost of real estate sold in fiscal 1996 was $5.8 million, an increase of
$1.9 million, or 48.7%, as compared to cost of real estate sold of $3.9 million
in fiscal 1995. This increase was due to the increased real estate sales volume.
Marketing, general and administrative expense in fiscal 1996 were $11.3
million, an increase of $1.9 million, or 20.2%, as compared to marketing,
general and administrative expenses of $9.4 million in fiscal 1995. This
increase was due to (i) approximately $0.8 million attributable to the
acquisition of Mt. Cranmore, (ii) an extensive marketing campaign following the
significant improvements made at Sugarbush, (iii) expenses resulting from the
acquisition of Mt. Cranmore and Sugarbush and (iv) $0.9 million attributable to
the inclusion of the S-K-I resorts for the final month of fiscal 1996.
Depreciation and amortization in fiscal 1996 were $6.8 million, an increase
of $2.9 million, or 74.4%, as compared to depreciation and amortization of $3.9
million in fiscal 1995. This increase was due to depreciation resulting from (i)
the $24 million capital program completed prior to the 1995-96 ski season, (ii)
the acquisitions of Mt. Cranmore and Sugarbush and (iii) $0.9 million
attributable to the inclusion of S-K-I resort for the final month of fiscal
1996.
Interest expense in fiscal 1996 was $4.7 million, an increase of $2.5
million, or 113.6%, as compared to interest expenses of $2.2 million in fiscal
1995. This increase was due to (i) increased borrowings to support the Company's
capital program, (ii) the acquisitions of Mt. Cranmore and Sugarbush and (iii)
$0.2 million attributable to the inclusion of the S-K-I resorts for the final
month of fiscal 1996.
Income tax expense in fiscal 1996 was $3.9 million, an increase of $3.5
million, or 875.0%, as compared to income tax expenses of $0.4 million in fiscal
1995. The majority of the increase in the Company's provision for income taxes
was attributable to the conversion of the former S corporations to C
corporations, offset by an $0.8 million benefit due to inclusion of the S-K-I
resorts for the final month of fiscal 1996.
RESULTS OF OPERATIONS OF THE ACQUIRED RESORTS
FISCAL QUARTER ENDED AUGUST 31, 1997 COMPARED TO FISCAL QUARTER ENDED AUGUST 31,
1996
Total revenues for the first quarter of fiscal 1998 were $4.9 million, a
decrease of $0.5 million, or 9.3%, as compared to total revenues of $5.4 million
for the first quarter of fiscal 1997. This decrease was attributable primarily
to the lack of real estate sales in the first quarter of fiscal 1998 as compared
to $1.2 million of real estate sales during the first quarter of fiscal 1997.
The decrease was offset partially by an increase in summer revenue of $0.7
million, or 16.7%, in the first quarter of fiscal 1998 as compared to the first
quarter of fiscal 1997.
47
<PAGE>
Cost of ski operations in the first quarter of fiscal 1998 were $4.2
million, an increase of $0.2 million, or 5.0%, as compared to cost of ski
operations of $4.0 million for the first quarter of fiscal 1997. The increase
was attributable primarily to higher variable costs associated with the increase
in summer revenue at the Acquired Resorts.
Retail, ski rental and other expenses for the first quarter of fiscal 1998
were $2.8 million, a decrease of $0.7 million, or 20.0%, as compared to retail,
ski rental and other expenses of $3.5 million for the first quarter of fiscal
1997. The decrease was primarily attributable to the cost of real estate sold in
the first quarter of fiscal 1997.
Marketing, general, administrative and other costs in the first quarter of
fiscal 1998 were $3.1 million, a decrease of $0.2 million, or 6.1%, as compared
to marketing, general, administrative and other costs of $3.3 million for the
first quarter of fiscal 1997. Included in these costs were fees accrued to
affiliates of $0.5 million in both the first quarters of fiscal 1998 and 1997.
The decrease was primarily due to $0.3 million of gains on the sale of certain
assets in the first quarter of 1998.
FISCAL YEAR ENDED MAY 31, 1997 COMPARED TO FISCAL YEAR ENDED MAY 31, 1996
Total revenues in fiscal 1997 were $89.1 million, an increase of $4.4
million, or 5.2%, as compared to total revenues of $84.7 million in fiscal 1996.
This increase was attributable primarily to an 8.4% increase in skier visits at
Steamboat, offset partially by a 3.1% decrease in skier visits at Heavenly.
Access to the Heavenly ski area was impeded for a portion of the 1996-97 ski
season due to the temporary closure of U.S. Highway 50, which leads into South
Lake Tahoe. Average revenue per skier visit remained relatively constant in
fiscal 1997 compared to fiscal 1996.
Cost of ski operations in fiscal 1997 were $36.7 million, an increase of
$2.7 million, or 7.9%, as compared to cost of ski operations of $34.0 million in
fiscal 1996. This increase was attributable primarily to higher variable costs
associated with the increase in skier visits at Steamboat, in addition to higher
snowgrooming and vehicle maintenance expenses at Heavenly. As a percentage of
ski revenues, cost of ski operations increased to 54% in fiscal 1997 from 52% in
fiscal 1996.
Retail and ski rental expenses in fiscal 1997 were $8.7 million, an increase
of $0.1 million, or 1.2%, as compared to retail and ski rental expenses of $8.6
million in fiscal 1996. Retail and ski rental expenses represented 73.3% of
related revenues in fiscal 1997 as compared to 76% in fiscal 1996.
Marketing, general and administrative costs in fiscal 1997 were $17.2
million, an increase of $0.7 million, or 4.2%, as compared to general,
administrative and marketing costs of $16.5 million in fiscal 1996. Included in
this expense item were fees paid to Kamori of $3.4 million in fiscal 1997 and
$3.3 million in fiscal 1996. Marketing, general and administrative expense was
19.3% of revenue in fiscal 1997 as compared to 19.6% in fiscal 1996.
Interest expense in fiscal 1997 was $10.7 million, a decrease of $1.2
million, or 10.1%, as compared to interest expense of $11.9 million in fiscal
1996. This decrease was attributable primarily to lower long-term debt balances
due to principal payments and decreases in the average balances of seasonal
borrowings.
Net loss in fiscal 1997 was $3.4 million, a decrease of $1.1 million, or
24.4%, as compared to net loss of $4.5 million in fiscal 1996. This decrease was
attributable primarily to the decrease in interest expense of $1.2 million
discussed above.
FISCAL YEAR ENDED MAY 31, 1996 COMPARED TO FISCAL YEAR ENDED MAY 31, 1995
Total revenues in fiscal 1996 were $84.7 million, a decrease of $3.9
million, or 4.4%, as compared to total revenues of $88.6 million in fiscal 1995.
The decrease was attributable to a 15.3% decrease in skier visits at Heavenly,
which was caused by a year of drought in the Pacific West in fiscal 1996
following the record snowfall experienced at the resort in fiscal 1995.
48
<PAGE>
Cost of ski operations in fiscal 1996, were $34.0 million, a decrease of
$0.7 million, or 2%, as compared to cost of ski operations of $34.7 million in
fiscal 1995. This decrease resulted from cost saving measures implemented at
Heavenly to account for the decrease in skier visits. As a percentage of ski
revenues, cost of ski operations increased to 52.4% in fiscal 1996 from 51.1% in
fiscal 1995.
Retail and ski rental expenses in fiscal 1996 were $8.6 million, a decrease
of $0.2 million, or 2.3%, as compared to retail and ski rental expenses of $8.8
million in fiscal 1995. Retail and ski rental expenses represented 76.0% of
related revenues in fiscal 1996 as compared to 74.0% in fiscal 1995.
Marketing, general and administrative costs in fiscal 1996 were $16.6
million, as compared to marketing, general and administrative costs of $17.1
million in fiscal 1995. Included in these costs were $3.3 million and $3.3
million in fiscal 1996 and fiscal 1995, respectively, of management and other
fees paid to Kamori.
Interest expense remained approximately the same in fiscal 1996 at $12.0
million, as compared to interest expense in fiscal 1995.
Net loss in fiscal 1996 was $4.5 million, an increase of $0.6 million, or
15.4%, as compared to net loss of $3.9 million in fiscal 1995. This increase was
attributable primarily to the decrease in skier visits at Heavenly, as discussed
above, offset by an income tax benefit recorded in fiscal 1996 compared to an
income tax provision recorded in fiscal 1995.
SELECTED QUARTERLY OPERATING RESULTS
The following table presents certain unaudited quarterly financial
information of the Company for the nine quarters ended October 26, 1997. In the
opinion of the Company's management, this information has been prepared on the
same basis as the Consolidated Financial Statements appearing elsewhere in this
Prospectus and includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial results set forth herein.
Results of operations for any previous quarters are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
<S> <C> <C> <C> <C> <C> <C> <C>
OCT. 28, JAN. 28, APR. 28, JULY 28, OCT. 27, JAN. 26, APR. 27,
1995 1996 1996 1996 1996 1997 1997
--------- ----------- ----------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Resort................................... $ 4,490 $ 26,451 $ 26,342 $ 6,206 $ 11,728 $ 59,418 $ 81,673
Real estate.............................. 387 4,307 4,788 451 1,569 1,740 2,674
--------- ----------- ----------- --------- --------- --------- ---------
Total revenues............................. 4,877 30,758 31,130 6,657 13,297 61,158 84,347
--------- ----------- ----------- --------- --------- --------- ---------
Operating expenses:
Cost of resort operations................ 5,576 18,221 8,864 9,138 15,034 38,995 37,981
Cost of real estate sold................. -- -- 4,806 1,038 1,032 935 2,167
Marketing, general and administrative.... 2,537 2,927 4,919 906 4,792 7,709 9,097
Stock compensation charge................ -- -- -- -- -- -- --
Depreciation and amortization............ 327 2,500 2,788 1,168 1,527 7,345 8,074
--------- ----------- ----------- --------- --------- --------- ---------
Total operating expenses................... 8,440 23,648 21,377 12,250 22,385 54,984 57,319
--------- ----------- ----------- --------- --------- --------- ---------
Income (loss) from operations.............. $ (3,563) $ 7,110 $ 9,753 $ (5,593) $ (9,088) $ 6,174 $ 27,028
--------- ----------- ----------- --------- --------- --------- ---------
--------- ----------- ----------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C>
JUL. 27, OCT. 26,
1997 1997
--------- ---------
<S> <C> <C>
Revenues:
Resort................................... $ 14,104 $ 13,811
Real estate.............................. 2,485 810
--------- ---------
Total revenues............................. 16,589 14,621
--------- ---------
Operating expenses:
Cost of resort operations................ 17,764 17,808
Cost of real estate sold................. 2,679 925
Marketing, general and administrative.... 4,528 6,845
Stock compensation charge................ -- 14,254
Depreciation and amortization............ 1,347 1,506
--------- ---------
Total operating expenses................... 26,318 41,338
--------- ---------
Income (loss) from operations.............. $ (9,729) $ (26,717)
--------- ---------
--------- ---------
</TABLE>
The business of the Company is highly seasonal, with the vast majority of
its annual revenues historically being generated in the second and third fiscal
quarters, of which a significant portion is produced in two key weeks--the
Christmas and Presidents' Day vacation weeks, during which over 23% of annual
skier visits are realized. Cash flow from operations in the first and fourth
quarters of the year typically will not be sufficient to cover fixed charges in
such quarters. See "Risk Factors--Seasonality; Fluctuations in Operating
Results; Dependence on Weather Conditions."
49
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Following the Transactions, the Company's primary liquidity needs will be to
fund capital expenditures, service indebtedness and support seasonal working
capital requirements. In connection with the Transactions, the Company entered
into the New Credit Facility to obtain financing in an aggregate principal
amount of up to $215 million. See "Description of Certain Indebtedness--The New
Credit Facility." The New Credit Facility is comprised of a combination of term
loan facilities and revolving loan facilities, of which approximately $75
million (up to $65 million of which became available upon consummation of the
Offering) is available to ASC East and its subsidiaries and $140 million will be
made available to the Company (excluding ASC East and its subsidiaries). The
Company's primary sources of liquidity will be cash flow from operations of its
subsidiaries and borrowings under the New Credit Facility, under which
approximately $40.1 million is available for future borrowing after consummation
of the Transactions, subject to compliance by the Company with the provisions
thereof, together with the unexpended proceeds of the Offering (approximately
$15 million at January 23, 1998). Real estate development activities will be
funded separately through construction financing facilities established for each
major real estate development project. The 12% Note Indenture contains
restrictive covenants that, among other things, impose limitations on ASC East
and its subsidiaries' ability to pay dividends or make other distributions to
the Company. ASC East is currently prohibited from paying dividends or other
distributions to the Company under these provisions. See "Risk
Factors--Dependence on Highly Leveraged and Restricted Subsidiaries" and
"Description of Certain Indebtedness." The Company expects to amend these
covenants prior to the end of fiscal 1998 to allow more flexibility in cash
distribution to the Company from ASC East. The means of effecting that change
have not yet been determined. The covenants cannot be changed without consent of
the holders of a majority in principal amount of the 12% Notes. There can be no
assurance, however, that this consent will be obtained. The Company intends to
use borrowings under the New Credit Facility to meet seasonal fluctuations in
working capital requirements, primarily related to off-season operations and
maintenance activities in the Company's first and fourth fiscal quarters,
buildup of retail and other inventories prior to the start of the skiing season,
and to fund on-mountain capital expenditures.
During the quarter ended October 26, 1997, cash used in operating activities
was $71.8 million, including $21.9 million of expenditures in connection with
the development of real estate for resale (much of which is expected to be
completed and available for sale in fiscal 1998), an $11 million deposit paid in
connection with the acquisition of the Acquired Resorts, and operating losses of
$20.4 million, compared to $2.3 million of cash provided from operating
activities during the quarter ended October 27, 1996, during which no such
expenditures in connection with the development of real estate for resale were
incurred and operating losses totalled $10.3 million. In fiscal 1997, cash
provided from operating activities of $6.8 million was attributable primarily to
net losses of $5.5 million, offset primarily by depreciation and amortization of
$18.3 million, non-cash interest of $3.3 million, release of escrowed funds of
$12.6 million and an increase in accounts payable and other current liabilities
of $6.8 million. Such cash flows from operating activities were reduced by a net
investment of approximately $22.0 million in real estate developed for resale,
much of which is expected to be completed and available for sale in fiscal 1998.
In fiscal 1996, cash provided by operating activities of $7.5 million was
attributable to a net loss of $2.2 million plus depreciation and amortization of
$6.8 million, the addback of a $5.6 million non-cash tax charge related to the
conversion from S corporation status to C corporation status, reduced by a
reduction in accounts payable and other accrued liabilities of approximately
$3.6 million. In fiscal 1995, cash flow from operating activities of $12.6
million was generated by net income of $5.1 million plus depreciation and
amortization of $3.9 million and a $2.5 million increase in accounts payable and
other accrued liabilities.
In the quarter ended October 26, 1997, the Company's cash used in investing
activities was $19 million, consisting of capital expenditures, compared to
$13.6 million in cash used in investing activities in the quarter ended October
27, 1996, which consisted of $7.3 million of capital expenditures, $3.3 million
expended to acquire the Pico ski resort adjacent to the Killington ski resort,
and $2.5 million for the
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<PAGE>
acquisition of real estate for development and resale. See "Business--Operating
Strategy" and "-- Resorts." Over the last three full fiscal years, the Company's
cash flows from investing activities have consisted primarily of payments for
acquisitions, capital expenditures and proceeds from the sale of businesses. In
fiscal 1997, the Company's net investments were $14.1 million, consisting
primarily of purchases of businesses of $7.0 million and capital expenditures of
$23.3 million, net of $14.4 million of proceeds from the sale of businesses and
property and equipment. In fiscal 1996, the Company invested an aggregate of
$122.6 million including $97.1 million to acquire businesses and $25.1 million
of capital expenditures. In fiscal 1995, the Company invested $13.8 million,
including $1.8 million of acquisitions and $12.0 million of capital
expenditures.
The Company generated $51.5 million from financing activities in the quarter
ended October 26, 1997, consisting primarily of the long-term debt component of
The Canyons Securities and the Construction Loan Facility (see "Description of
Certain Indebtedness"). The Company generated cash from financing activities of
$19.7 million in fiscal 1997, consisting primarily of net receipts under
borrowing agreements and $16.4 million of net proceeds from the issuance of
Series A Exchangeable Preferred Stock. In fiscal 1996, cash provided by
financing activities of $116.9 million included $121.1 million of net proceeds
from issuance of long-term subordinated notes and debentures and $17.1 million
of net revolving loan borrowings, less $8.5 million of deferred financing costs,
$13.6 million of payments on long-term debt and a $3.2 million shareholder
distribution. In fiscal 1995, cash provided by financing activities of $2.4
million included $4.0 million of increases under lines of credit and revolving
credit loans, net of repayments of long-term debt of $0.8 million and a $0.9
million shareholder distribution.
The Acquired Resorts' capital expenditures for the fiscal 1997 were $5.3
million. The Company's 1997 summer capital improvement expenditures for
on-mountain improvements at the Existing Resorts and the Acquired Resorts
totalled over $59 million. See "Business--Operating Strategy." The Company
expects its 1998 summer capital improvement budget for on-mountain improvements
at the Existing Resorts and the Acquired Resorts to be between $50 million and
$60 million. Management funded these capital expenditures from proceeds of the
Canyons Securities, borrowings under the New Credit Facility and cash provided
by operations.
The Canyons resort in Utah represents the Company's largest long-term
capital need. That resort will require an estimated $40 million over the next
four years to fully develop on-mountain facilities in time for the 2002 Winter
Olympic Games. The investment required at each of the Company's other resorts
varies depending upon the age and condition of its facilities. With the
exception of Killington and Mount Snow, the New England resorts will generally
require less investment due to the investments already made at those resorts
over the last several years. Killington, Mount Snow and the western resorts will
require higher levels of investment over the next several years to realize their
full potential.
Management also plans to undertake hotel and condominium development and
construction activities in fiscal 1998 at The Canyons, Sunday River, Killington,
Mount Snow/Haystack, Steamboat, Sugarbush and Sugarloaf (see "Business--Real
Estate Development"), incurring total estimated costs of approximately $100
million. It is expected that these activities will be conducted through special
purpose subsidiaries with limited guarantees of associated indebtedness being
provided by the Company, to the extent permitted by the New Credit Facility and
the 12% Note Indenture. Construction of existing Grand Summit Hotel projects is
financed through an independent construction loan facility in an aggregate
principal amount of up to $55 million, with recourse limited to the real estate
development subsidiaries. The facility is a customary construction lending
facility allowing for periodic draw down as construction progresses. Each
advance is subject to certain conditions, including obtaining certain levels of
preconstruction sales. The loan is secured by first mortgages on the Grand
Summit properties. Principal is repaid from 80% to 85% of the proceeds generated
by quartershare sales. The construction facility matures December, 2000. This
facility, together with funds invested by the Company, will be sufficient to
fund the Grand Summit projects scheduled for completion for the 1997-1998 ski
season. The Company's ability to guarantee the obligations of unrestricted real
estate development subsidiaries is limited under the New Credit Facility to an
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<PAGE>
aggregate amount of $25 million of indebtedness. The Company's historical real
estate development practices generally have required pre-construction sales
(evidenced by executed purchase agreements and security deposits from purchasers
of 5% of the total purchase price) equal to approximately 35% of total projected
construction costs, in order for the project to proceed. These restrictions are
also placed upon ASC East and its subsidiaries by the 12% Note Indenture.
Liquidity may also be affected by the debt service requirements associated with
such borrowings, as well as any required equity investments by the Company in
such entities.
The Company intends to continue real estate development at its eastern
resorts, and initiate real estate development projects at its western resorts
during summer 1998. Real estate development at the Company's western resorts is
not currently funded and will require construction financing in order to
proceed. It is anticipated that construction financing for development of the
Company's western resorts will be arranged on a limited recourse basis similar
to the Company's existing real estate development facilities; however, no
commitments are currently in place for the necessary facilities.
Management believes that there is a considerable degree of flexibility in
the timing (and, to a lesser degree, the scope) of its capital expenditure
program, and even greater flexibility as to its real estate development
objectives. While the Company's capital expenditure program is regarded by
management as important, both as to timing and scope, additional or subsequent
capital spending can be deferred, in some instances for substantial periods of
time, in order to address cash flow or other constraints. However, management
believes that, in light of current competitive conditions in the ski industry,
such initiatives cannot be deferred indefinitely or even for extended periods
without adverse effects on skier visits, revenues and profitability. With
respect to the Company's proposed real estate development program, management
believes that such efforts will enhance ski revenues and will contribute
independently to earnings, as has been the case historically at the Company's
resorts. Nonetheless, existing lodging facilities in the vicinity of each resort
are believed to be adequate to support current skier volumes, and a deferral or
curtailment of these development efforts, unlike the capital expenditure
program, is not regarded by management as likely to result in substantial
decreases in skier visits, revenues or profitability.
The Company's liquidity also will be affected by the indebtedness which will
be outstanding following the Transactions, including the indebtedness evidenced
by the 12% Note Indenture and the New Credit Facility. Such indebtedness
requires cash for debt service and imposes various restrictions on additional
indebtedness, capital expenditures, creation of liens, sales of assets,
permitted investments and mergers or other business reorganizations. See
"Description of Certain Indebtedness."
Management believes that the Company's cash flow from operations, combined
with borrowings available under the New Credit Facility and additional
borrowings to the extent permitted under the New Credit Facility and the 12%
Note Indenture, together with the unexpended proceeds of the Offering and
approximately $13.5 million in proceeds from the sale of non-ski related assets
will be sufficient to enable the Company to meet all of its cash requirements
for the foreseeable future. The Company expects that independent financing
facilities must be established to carry out its real estate development
strategy. See "Risk Factors--Substantial Leverage and Financial Risks," "--Real
Estate Development" and "--Growth Through Resort Expansion."
52
<PAGE>
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 1996-97 skier visits, with at
least one resort in each major skiing market. These nine resorts generated
approximately 4.9 million skier visits, representing approximately 9.4% of total
skier visits in United States during the 1996-97 ski season. The Company's
existing resorts include Sunday River and Sugarloaf in Maine; Attitash Bear Peak
in New Hampshire; Killington, Mount Snow/Haystack and Sugarbush in Vermont; and
The Canyons, adjacent to Park City, Utah. On November 12, 1997 the Company
acquired (i) the Steamboat ski resort and 168 acres of land held for development
in Steamboat Springs, Colorado and (ii) the Heavenly ski resort near Lake Tahoe,
California. On January 23, 1998, the Company acquired all of the issued and
outstanding shares of Blunder Bay Development Corporation, a Maine corporation.
After giving pro forma effect to the Transactions, the Company's total revenues,
EBITDA and net loss to common shareholders for fiscal 1997 would have been
approximately $261.9 million, $57.8 million and $5.5 million, respectively.
The Existing and Acquired Resorts include several of the top resorts in the
United States, including: (i) Steamboat, the number two overall ski resort in
the United States (number three in North America) as ranked in the September
1997 SNOW COUNTRY magazine survey and the fourth largest ski resort in the
United States with over 1.1 million skier visits in the 1996-97 ski season; (ii)
Killington, the fifth largest resort in the United States with over 1.0 million
skier visits in the 1996-97 ski season; (iii) the three largest resorts in the
Northeast (Killington, Sunday River and Mount Snow/Haystack) in the 1996-97 ski
season; (iv) Heavenly, the second largest resort in the Pacific West Region and
the 11th largest resort in the United States with approximately 700,000 skier
visits in the 1996-97 ski season; and (v) Sugarloaf, the number one resort in
the Northeast according to the September 1997 SNOW COUNTRY magazine survey.
In addition to operating alpine resorts, the Company develops mountainside
real estate which complements the expansion of its on-mountain operations. The
Company has created a unique interval ownership product, the Grand Summit Hotel,
in which individuals purchase quartershare interval interests while the Company
retains ownership of core hotel and commercial properties. The initial sale of
quartershare units typically generates a high profit margin, and the Company
derives a continuing revenue stream from operating the hotel's retail,
restaurant and conference facilities and from renting quartershare interval
interests when not in use by their owners. The Company also develops alpine
villages at prime locations within certain of its resorts designed to fit each
resort's individual characteristics. The Company's real estate development
strategy was developed and implemented at the Sunday River resort, where over
1,350 units of residential real estate (including condominiums, townhouses and
quartershares) have been developed and sold since 1983. New Grand Summit Hotels
were recently completed at Attitash Bear Peak and Sunday River. One Grand Summit
Hotel is currently under construction at each of Killington and Mount
Snow/Haystack with opening scheduled for February, 1998. A hotel at Sugarbush is
near completion of the permitting process. These hotels will have an aggregate
of approximately 2,500 units. As of January 18, 1998, the Attitash Grand Summit
Hotel had closed $1,284,300 in sales (26 units) in fiscal 1998, with an
additional $625,100 in purchase and sales contracts pending. The Sunday River,
Jordan Bowl Grand Summit Hotel had closed $6,321,700 in sales (126 units) in
fiscal 98 with $2,300,300 in pending purchase and sales contracts, as of January
18, 1998. Mount Snow and Killington Grand Summit Hotels had $11,893,500 (207
units) and $17,971,800 (295 units), respectively, in purchase and sales
contracts pending, as of January 18, 1998. New Grand Summit Hotels are in the
planning stage at The Canyons and Steamboat. In addition, the Company has over
7,000 acres of real estate available for future development at its resorts,
providing the capacity to support over 30,000 residential units during the next
15 to 20 years. The Company also operates golf courses at its resorts and
conducts other off-season activities, which accounted for approximately 11% of
the Company's resort revenues for fiscal 1997.
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<PAGE>
The Company's primary strength is its ability to improve resort operations
by integrating investments in on-mountain capital improvements with the
development of mountainside real estate. Since 1994, the Company has increased
skier visits by 10.0% in the aggregate for the three resorts that it has owned
for multiple seasons. In addition, the Company has increased its market share of
skier visits in the northeastern United States from approximately 21.8% in the
1995-96 ski season to approximately 24.4% in the 1996-97 ski season (after
giving pro forma effect to its acquisition of the Killington, Mount Snow/
Haystack and Sugarloaf ski resorts as if such acquisitions had occurred on July
30, 1995). Management believes that the Acquired Resorts will provide the
Company with several significant operating benefits, including: (i) enhanced
cross-marketing of its resorts on a national basis; (ii) purchasing and other
economies of scale; and (iii) implementation of the Company's operating
strategies across a more diversified resort base.
Set forth below is an organizational chart of the Company and its material
operating subsidiaries and the principal assets owned (giving effect to the
Acquisition) by each such entity:
[CHART]
ALPINE RESORT INDUSTRY
There are approximately 750 ski areas in North America. In the United
States, approximately 507 ski areas generated over 52 million skier visits
during the 1996-97 ski season. Since 1985, the ski resort industry has undergone
a period of consolidation and attrition resulting in a significant decline in
the total number of ski areas in North America. The number of ski resorts in the
United States has declined from approximately 735 in 1983 to approximately 507
in 1997, although the number of skier visits has remained relatively flat.
Despite the recent consolidation trend overall, ownership of the smaller
regional ski resorts remains highly fragmented. The Company believes that
technological advances and rising infrastructure costs are the primary reasons
for the ski resort industry consolidation, and that further consolidation is
likely as smaller regional resorts are acquired by larger resort operators with
more sophisticated management capabilities and increased availability of
capital. In addition, the ski resort industry is characterized by significant
barriers to entry because the number of attractive sites is limited, the costs
of resort development are high, and environmental regulations impose significant
restrictions on new development.
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<PAGE>
The following chart shows a comparison of the industry-wide skier visits
compared to the Company's skier visits in the U.S. regional ski markets during
the 1996-97 ski season:
<TABLE>
<CAPTION>
PERCENTAGE SKIER
1996-97 OF VISITS
TOTAL TOTAL AT COMPANY
SKIER SKIER COMPANY MARKET
GEOGRAPHIC REGION VISITS* VISITS RESORTS SHARE COMPANY RESORTS
- --------------------------- ------ ------- ----- ------- -----------------------------------
<S> <C> <C> <C> <C> <C>
(SKIER VISITS IN MILLIONS)
Northeast.................. 12.4 23.7% 3.0 24.2% Killington, Sunday River,
Mount Snow/Haystack, Sugarloaf,
Sugarbush, Attitash Bear Peak
Southeast.................. 4.2 8.0 -- -- --
Midwest.................... 7.1 13.5 -- -- --
Rocky Mountain............. 18.9 36.1 1.2 6.3 The Canyons, Steamboat
Pacific West............... 9.8 18.7 0.7 7.1 Heavenly
------ ------- ----- -------
U.S. Overall............. 52.4 100.0% 4.9 9.4%
------ ------- ----- -------
------ ------- ----- -------
</TABLE>
- ------------------------
(*) Source: Kottke National End of Season Survey 1996/97 Final Report.
United States ski resorts range from small operations which cater primarily
to day skiers from nearby population centers to larger resorts which attract
both day skiers and destination resort guests. Management believes that day
skiers focus primarily on the quality of the skier experience and travel time,
while destination travelers are attracted to the number and type of amenities
available and activities offered, as well as the perceived overall quality of
the vacation experience. Destination guests generate significantly higher resort
operating revenue per skier day than day skiers because of their additional
spending on lodging, food and other retail items over a multiple-day period.
Since 1985, the total number of skier visits has been relatively flat.
However, according to the National Ski Area Association, the number of skier
visits represented by snowboarders in the United States has increased from
approximately 6.4 million in the 1994-95 ski season to approximately 9.3 million
in the 1996-97 ski season, an increase of approximately 45.3%. Management
believes that snowboarding will continue to be an important source of lift
ticket, skier development, retail and rental revenue growth for the Company.
The Company believes that it is well-positioned to capitalize on certain
favorable recent trends and developments affecting the alpine resort industry in
the United States, including: (i) the 66.7 million members of the "baby boom"
generation that are now approaching the 40 to 59 year age group where
discretionary income, personal wealth and pursuit of leisure activities are
maximized (this group is estimated to grow by 16.7% over the next 23 years);
(ii) the "echo boom" generation (children of baby boomers) is emerging as a
significant economic force as they begin to enter the prime entry age for
skiing, snowboarding and other "on-snow" sports; (iii) advances in ski equipment
technology such as development of parabolic skis which facilitate learning and
make the sport easier to enjoy; (iv) the continued growth of snowboarding as a
significant and enduring segment of the industry, which is increasing youth
participation in alpine sports; and (v) a greater focus on leisure and fitness.
There can be no assurance, however, that such trends and developments will
continue to have a favorable impact on the ski industry.
55
<PAGE>
OPERATING STRATEGY
The Company believes that the following key operating strategies will allow
it to increase revenues and profitability by capitalizing on its position as a
leading mountain resort operator and real estate developer.
High Impact Capital Improvements
The Company attracts skiers to its resorts by creating a superior skiing
experience through high impact capital investments in on-mountain facilities.
The Company focuses its investments on increasing lift capacity, expanding
skiable terrain and snowmaking coverage, and developing other exciting alpine
attractions. For example, during the last two years the Company has (i) created
diverse skiing experiences such as the Oz bowl and the Jordan Bowl at Sunday
River, (ii) developed above tree-line snowfields at Sugarloaf, (iii) installed
heated eight-passenger high speed gondolas at Killington and The Canyons and
(iv) built one of the longest and fastest chairlifts in the world, which
interconnects Sugarbush's North and South mountains. Since 1994, when the
Company began implementing its acquisition strategy, the Company has
significantly increased lift capacity, skiable terrain and snowmaking coverage
at its resorts. The 1997 summer capital improvement budget for on-mountain
improvements totaled over $59 million, approximately $16.3 million of which was
invested at The Canyons and approximately $7.0 million of which was invested at
the Acquired Resorts.
Integration of Investments in Resort Infrastructure and Real Estate
The Company develops mountainside real estate that complements its
investments in ski operations to enhance the overall attractiveness of its
resorts as vacation destinations. Management believes that this integrated
approach results in growth in overall skier visits, including multi-day visits,
while generating significant revenues from real estate sales and lodging.
Investment typically begins with on-mountain capital improvements such as the
creation of new lifts, trails, expanded snowmaking capability, additional
restaurants and improved ski schools. As resort attendance increases, the
Company develops mountainside real estate to provide accommodations for the
increased number of resort guests. The Company carefully manages the type and
timing of real estate development to achieve capital appreciation and high
occupancy of accommodations. The Company's integrated investment strategy was
developed and refined at its Sunday River resort, where it has sold over 1,350
units of residential real estate since 1983. During the same period, annual
skier visits at Sunday River increased from approximately 50,000 to over
550,000, representing an approximate 18% compound annual growth rate.
Mountainside Real Estate Development
The Company's real estate development strategy is designed to capitalize on
the 7,000 acres of developable land it controls at or near its resorts and its
15 years of experience in real estate development. Including the Acquired
Resorts, the Company owns or has rights to land providing the capacity to
develop over 30,000 residential units.
The Company's resort real estate development strategy is comprised of three
distinct components (i) Grand Summit quartershare hotels, (ii) alpine village
development and (iii) discrete resort-specific projects. Residential units in
Grand Summit Hotels are sold in quartershare interval interests that allow each
of four quartershare unit owners to use the unit for 13 weeks divided evenly
over the year. The core commercial areas in the hotels are retained and operated
by the Company and include a lobby area, a sports club, retail shops,
restaurants and banquet and conference facilities. Unit owners may use the unit
during their allotted weeks or make the unit available for rental by the Company
under a management agreement that allows the Company to retain up to 45% of
rental revenues. In addition to its Grand Summit Hotels, the Company has
identified several areas for development of alpine villages unique to their
resort locations that consist of carefully planned communities integrated with
condominiums, luxury
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<PAGE>
townhouses, single family luxury dwellings or lots and commercial properties.
Each of the Company's resorts also has the potential for additional real estate
development involving discrete projects tailored to the characteristics of the
particular resort.
Increase Revenues Per Skier
The Company seeks to increase revenues per skier by managing ticket yields
and expanding revenue sources at each resort. Management seeks to increase
non-lift ticket revenue sources by increasing point-of-sale locations and sales
volume through retail stores, food and beverage services, equipment rentals,
skier development, lodging and property management. In addition, management
believes that aggressive cross-selling of products and programs (such as the
Company's frequent skier and multi-resort programs) to resort guests increases
resort revenues and profitability. The Company believes it can increase ticket
yields by managing ticket discounts, closely aligning ticket programs to
specific market segments, offering multi-resort ticket products and introducing
a variety of programs that offer packages which include tickets with lodging and
other services available at its resorts. During the 1996-97 ski season, the
Company increased its average yield per skier visit by approximately 2.9% as
compared to the 1995-96 ski season. The Company intends to further increase
revenues by implementing a property management program at the Acquired Resorts.
In addition to its on-mountain activities, the Company is expanding its retail
operations by establishing retail stores in strategic high traffic and
recognized retail districts such as Freeport, Maine; North Conway, New
Hampshire; and South Lake Tahoe, Nevada, thereby strengthening the name and
image of the Company and its resorts.
Innovative Marketing Programs
The Company's marketing programs are designed to (i) establish a nationally
recognized high quality name and image, while promoting the unique
characteristics of its individual resorts, (ii) capitalize on cross-selling
opportunities and (iii) enhance customer loyalty. The Company engages in joint
marketing programs with nationally recognized commercial partners such as Mobil,
Budweiser, Pepsi/Mountain Dew, Visa, FILA and Rossignol. Management believes
these joint marketing programs create a high quality image and a strong market
presence on a regional and national basis. In addition, the Company utilizes
loyalty based incentive programs such as the Edge Card, a private label frequent
skier program in which participants receive credits towards lift tickets and
other products.
The Company utilizes a variety of marketing media including direct mail,
television and the Internet. Direct mail marketing efforts include the Company's
"SNO" and "EDGE" magazines, which target specific age groups and currently have
a circulation of over 300,000 copies per issue. Television marketing efforts
include targeted commercials and programming such as the MTV Winter Lodge, which
is hosted by MTV and targets teens and young adults. Internet marketing efforts
include a Company sponsored website at www.peaks.com featuring photographs and
detailed information about the Company's resorts and current skiing conditions.
The Company's aggregate marketing budget for fiscal 1998 is approximately $28
million, including the value of contributions from strategic commercial
marketing partners.
Capitalize on a Multi-Resort Network
The Company's network of resorts provides both geographic diversity and
significant operating benefits. The Company believes its geographic diversity
(i) reduces the risks associated with unfavorable weather conditions, (ii)
insulates the Company from economic slowdowns in any particular region, (iii)
increases the accessibility and visibility of the Company's network of resorts
to the overall North American skier population and (iv) enables the Company to
offer a wide range of mountain vacation alternatives.
The Company believes that its ownership of multiple resorts also provides
the opportunity to (i) create the industry's largest cross-marketing program,
(ii) achieve efficiencies and economies of scale in
57
<PAGE>
purchasing goods and services, (iii) strengthen the distribution network of
travel agents and tour operators by offering a range of mountain resort
alternatives, consistent service quality, convenient travel booking and
incentive packages, (iv) establish performance benchmarks for operations across
all of the Company's resorts, (v) utilize specialized individuals and
cross-resort teams at the corporate level as resources for the entire Company
and (vi) develop and implement consumer statistical and usage information and
technology systems for application across all of the Company's resorts.
Growth through Acquisitions
Since fiscal 1994, the Company has achieved substantial growth in its
business through acquisitions. The Company intends to consider future
acquisitions of large well-established destination resorts as well as smaller
"feeder" resorts. The Company focuses on acquiring larger resorts where it
believes it can improve profitability by implementing the Company's integrated
real estate development and on-mountain capital improvement strategy. The
Company also believes that by acquiring smaller regional resorts which have a
strong local following it can capitalize on a broader customer base to
cross-market its major destination resorts. The acquisition of less developed
resorts may also offer opportunities for expansion. The Company, however, is
effectively prohibited from acquiring additional resorts in New England as a
result of antitrust concerns.
Historically, the Company has financed resort acquisitions through private
and public offerings of debt securities. The Company expects to finance future
acquisitions through a combination of internally generated funds, bank
borrowings and public offerings or private placements of equity and/or debt
securities. Following the Transactions, the Company will be highly leveraged.
See "Risk Factors-- Substantial Leverage and Financial Risks," "--Growth Through
Acquisitions; Integration of Acquired Resorts; Ability to Finance Acquisitions"
and "Description of Certain Indebtedness--The New Credit Facility."
Expand Golf and Convention Business
The Company is one of the largest owners and operators of resort golf
courses in New England and seeks to capitalize on this status to increase
off-season revenues. Sugarloaf, Killington, Mount Snow and Sugarbush all operate
championship resort golf courses. The Sugarloaf course, designed by Robert Trent
Jones Jr., is rated as one of the top 25 upscale courses in the country
according to the May 1996 GOLF DIGEST magazine survey and one of the top 25
public courses according to the May 1996 GOLF magazine survey. In addition, a
championship course designed by Robert Trent Jones, Jr. is currently under
construction at Sunday River. The Company also operates eight golf schools at
locations along the east coast from Florida to Maine. The Company's golf program
and other recreational activities draw off-season visitors to the Company's
resorts and support the Company's growing off-season convention business, as
well as its real estate development operations.
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<PAGE>
RESORTS
The following table summarizes certain key statistics of the Company's
resorts after giving effect to the Company's summer 1997 capital improvement
program:
<TABLE>
<CAPTION>
SNOWMAKING 1996-97
SKIABLE VERTICAL TOTAL COVERAGE SKIER
TERRAIN DROP LIFTS (% OF SKI VISITS
RESORT (YEAR ACQUIRED) (ACRES) (FEET) TRAILS (HIGH-SPEED) ACRES) LODGES (000S)
- ---------------------------------------- ------- ------- ------ ---------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Killington (1996)....................... 1,200 3,150 212 33(6) 59.8% 8 1,000
Sunday River (1980)..................... 654 2,340 126 17(4) 93.3 4 557
Mount Snow/Haystack (1996).............. 762 1,700 134 25(3) 66.0 5 560
Sugarloaf (1996)........................ 1,400 2,820 110 14(2) 35.0 1 336
Sugarbush (1995)........................ 432 2,650 112 18(4) 66.1 5 362
Attitash Bear Peak (1994)............... 273 1,750 60 11(1) 89.7 2 210
The Canyons (1997)...................... 2,200 2,580 63 9(4) 5.0 2 100
Steamboat (1997)........................ 1,879 3,668 135 21(4) 13.6 4 1,103
Heavenly (1997)......................... 4,800 3,500 82 27(5) 5.7 7 693
------- ------ ---------- ----- ---------
Total............................... 13,600 1,034 175(33) 38 4,921
------- ------ ---------- ----- ---------
------ ---------- ----- ---------
</TABLE>
Since acquiring each of the Existing Resorts, the Company has committed its
resources to create a superior skiing experience by increasing lift capacity,
skiable terrain and snowmaking coverage. The following chart shows the
percentage increase in lift capacity, skiable terrain and snowmaking coverage
since the date of acquisition of each resort after giving effect to the
Company's summer 1997 capital improvement program:
<TABLE>
<CAPTION>
% INCREASE IN KEY OPERATING
CAPACITIES
FROM DATE OF RESORT ACQUISITION
---------------------------------
LIFT
CAPACITY
(SKIERS SKIABLE
PER TERRAIN SNOWMAKING
RESORT (YEAR ACQUIRED) HOUR) (ACRES) COVERAGE
- ------------------------------------------------------------- ------ ----- ------
<S> <C> <C> <C>
Killington (1996)(1)......................................... 11% 13% 1%
Sunday River (1980)(2)....................................... 33 23 26
Mount Snow/Haystack (1996)................................... 7 -- --
Sugarloaf (1996)............................................. 9 -- 4
Sugarbush (1995)............................................. 60 8 44
Attitash Bear Peak (1994).................................... 106 92 79
The Canyons (1997)........................................... 44 29 51
------ ----- ------
Weighted Average......................................... 24% 15% 15%
------ ----- ------
------ ----- ------
</TABLE>
- ------------------------------
(1) Includes Pico Mountain ski resort.
(2) Does not include capital improvements completed prior to 1994.
EXISTING RESORTS
KILLINGTON. Killington, located in central Vermont, is the largest ski
resort in the northeast and the fifth largest in the United States, with over
1.0 million skier visits in 1996-97. Killington is a seven-mountain resort
consisting of approximately 1,200 acres with 212 trails serviced by 33 lifts.
The resort has a 4,241 foot summit and a 3,150 foot vertical drop. The resort's
base facilities include eight full-service ski lodges, including one located at
the top of Killington Peak. In December 1996, the Company acquired the Pico
Mountain ski resort located adjacent to Killington and integrated the two
resorts. Management believes the size and diversity of skiable terrain at
Killington make it attractive to all levels of skiers and one of the most widely
recognized of the Company's resorts with regional, national and international
clientele.
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<PAGE>
The on-mountain accommodations at Killington consist of approximately 4,700
beds. The off-mountain bed base in the greater Sherburne, Vermont area is
approximately 12,000 beds. Killington also owns and operates 16 retail shops, 12
rental and repair shops, a travel and reservation agency and a cable television
station. At the base of Pico Mountain, the Company owns a well developed retail
village and a health club. Killington is a year-round resort offering complete
golf amenities including an 18-hole championship golf course, a golf school, a
pro shop, a driving range and a tennis school.
Notwithstanding that it is the largest ski resort in the Northeast, the
Company has identified Killington as one of its most underdeveloped resorts.
Since its acquisition in June 1996, the Company has invested $15.1 million in
capital improvements to update Killington's snowmaking, trail and lift systems,
and to develop base facilities and real estate potential at the base areas.
Major improvements and enhancements to the resort completed since June 1996
include (i) installation of two high speed quad lifts, (ii) installation of one
eight-passenger high-speed gondola to service the Peak Restaurant at the
Killington summit and to replace the old Killington Peak double chair and (iii)
construction of a new children's center and related base area improvements.
Management expects the gondola to increase summer revenues by attracting summer
tourists for sightseeing and dining.
The Company's three-year capital program for the 1998-01 ski seasons
includes the interconnection of lift and trail systems between the Killington
and Pico resorts. The interconnection of the two mountains will result in a 16%
increase in lift capacity and an additional 110 acres (9%) of skiable terrain.
Other improvements include connecting the resort to a nearby reservoir in 1998
through a 1.8 mile pipeline, which, when combined with other new water sources
accessed via the pipeline, will expand snowmaking capacity by approximately 62%.
SUNDAY RIVER. Sunday River, located in the western mountains of Maine and
approximately a three-hour drive from Boston, is New England's third largest ski
resort with over 550,000 skier visits in 1996-97. Extending over eight
interconnected mountain peaks, its facilities consist of approximately 654 acres
of skiable terrain and 126 trails serviced by 17 lifts. The resort has a 3,140
foot summit and a 2,340 foot vertical drop. The Company believes Sunday River
has one of the most modern lift systems in the Northeast. Sunday River has four
base lodges, one of which is located at the top of North Peak.
The on-mountain accommodations at Sunday River consist of approximately
5,400 beds including 714 condominium units and 648 quartershare units at the
Summit Hotel. The off-mountain bed base in greater Bethel, Maine totals
approximately 2,000 beds. The resort owns and operates five ski shops, five
full-service restaurants, four cafeteria-style restaurants and four bars. The
Company also owns and operates a 67-unit inn and manages the Summit Hotel and
approximately 714 condominium units. In addition, the Company is completing
construction of a 588-unit Grand Summit Hotel at Sunday River's Jordan Bowl
which opened in December 1997.
Since 1981, the Company has continually invested in capital improvements at
Sunday River to expand and improve its on-mountain facilities and in real estate
development. The most recently completed improvements include the creation of
new skiing attractions at the Oz bowl and the Jordan Bowl which added
approximately 158 acres (32%) of skiable terrain. In addition, Sunday River's
1997 capital program included (i) installation of a new high speed quad lift to
North Peak, (ii) complete renovation of its largest base lodge to improve skier
amenities and increase retail and food and beverage space and (iii) an upgrade
of other skier facilities located at the resort. In addition, the Company
recently completed preliminary construction of a three mile scenic access road
to the Jordan Bowl area and a Robert Trent Jones, Jr. championship golf course
is currently under construction. Management believes that Sunday River has
significant growth potential with over 325 acres of land at the base of the new
Jordan Bowl area which are planned for development of extensive base facilities
and a new Grand Summit Hotel. Additionally, there are over 4,000 acres of
undeveloped land owned by the Company and 3,000 acres for which the Company
holds purchase options that are suitable for development as skiable terrain.
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<PAGE>
MOUNT SNOW/HAYSTACK. Mount Snow, located in Brattleboro, Vermont, the
second largest ski resort in the Northeast with 560,000 skier visits in 1996-97,
is the southernmost of the Company's resorts. A large percentage of the skier
base for Mount Snow derives from Massachusetts, Connecticut and New York. The
resort consists of two mountains separated by approximately three miles, which
have been combined under single management. Its facilities consist of 134 trails
and approximately 762 acres of skiable terrain serviced by 25 lifts. The resort
has a 3,580 foot summit and a 1,700 foot vertical drop. The resort has five
full-service base lodges.
Mount Snow's on-mountain bed base currently consists of 1,280 beds. The
off-mountain bed base in the greater Dover, Vermont area has approximately 7,300
beds. The resort owns and operates eight retail shops, four rental and repair
shops, a pro shop, a country club and a nightclub. Mount Snow also headquarters
the Company-owned "Original Golf School," and operates an 18-hole golf course,
eight golf schools throughout the east coast, a mountain bike school, a 92-room
hotel and a low-voltage local television station.
Since its acquisition in June 1996, the Company has invested approximately
$8.7 million in capital improvements to the resort, including the installation
of two high speed quad chairlifts. The capital improvements for summer 1997
include $2.6 million for additional lift capacity and over $500,000 for
increased snowmaking capacity and base area improvements. The Company's
three-year capital program for the 1998-01 ski seasons includes four new high
speed detachable quad lifts, replacing older existing lifts. The Company plans
to expand Mount Snow's lodges to provide a new children's center, an expanded
nightclub and more retail, food and beverage and guest service space. The
Company also plans to expand snowmaking coverage, adding approximately 100 acres
of snow coverage (representing an increase of approximately 20%).
SUGARLOAF. Sugarloaf is located in Carrabassett Valley, Maine and was
ranked as the number one overall ski resort in the East by the September 1997
SNOW COUNTRY magazine survey. Sugarloaf is a single mountain with approximately
1,400 acres of terrain and 110 trails covering approximately 530 acres, of which
490 acres have snowmaking coverage serviced by 14 lifts. There are approximately
870 additional acres of off-trail skiable terrain. The mountain has a 4,237 foot
summit and a 2,820 foot vertical drop. Sugarloaf offers one of the largest
ski-in/ski-out base villages in the Northeast, containing numerous restaurants,
retail shops and an abundance of lodging. Sugarloaf is widely recognized for its
challenging terrain, including its snowfields, which represent the only
lift-serviced above-treeline skiing in the Northeast. As a destination resort,
Sugarloaf has a broad market, including areas as distant as New York, New
Jersey, Pennsylvania and Canada.
Sugarloaf operates a year-round conference center, a cross-country ski
facility and an 18-hole championship golf course designed by Robert Trent Jones,
Jr., which is rated by both GOLF DIGEST and GOLF magazines as one of the top 25
public courses in the United States. Sugarloaf's slope-side ski village consists
of its base lodge, two hotels, banquet facilities for up to 800 people, retail
stores, a rental and repair shop, a sports and fitness club, 870 condominium
units and rental homes, restaurants and an extensive recreational path network.
Improvements at Sugarloaf for the 1997-98 ski season include a new high
speed quad chair to service lower mountain terrain and an additional fixed grip
quad chair accessing the snowfields.
SUGARBUSH. Sugarbush, located in Vermont's Mad River Valley, features the
three highest mountain peaks of any single resort in the East and was ranked as
the ninth most popular ski area in North America by SKIING magazine in September
1996. Extending over six mountain peaks, its facilities consist of 432 acres of
skiable terrain and 112 trails serviced by 18 lifts. The resort has a 4,135 foot
summit and a 2,650 foot vertical drop. The mountains are serviced by three base
lodges and two summit lodges.
The on-mountain accommodations at Sugarbush consist of approximately 2,200
beds. The off-mountain bed base within the Mad River Valley totals approximately
6,600 beds. The resort operates three
61
<PAGE>
ski shops, three full-service restaurants and four cafeteria-style restaurants.
The Company also owns and operates the 46-unit Sugarbush Inn, manages
approximately 200 condominium units, and owns and operates a championship golf
course as well as a sports center and a conference center.
Since the acquisition of Sugarbush by the Company in October 1995, the
Company has invested $19.1 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.
Improvements for the 1997-98 ski season include expansions to facilities at the
base of Lincoln Peak which house children's programs, rental and repair services
and retail outlets. As part of management's development plan, an 8,000 square
foot addition to the Gate House Base Lodge and a new full service 12,000 square
foot mid-mountain lodge for the top of the Gate House Express Chairlift are
proposed for 1998.
ATTITASH BEAR PEAK. Attitash Bear Peak, located in the Mount Washington
Valley, New Hampshire, is one of New Hampshire's largest ski resorts. Covering
two mountain peaks, its facilities consist of 273 acres of skiable terrain and
60 trails serviced by 11 lifts. The resort has a 2,350 foot summit and a 1,750
foot vertical drop. The resort benefits from its location in the heart of New
Hampshire ski country and its proximity to the Town of North Conway and the Mt.
Washington valley tourist area, and is widely recognized as a family-oriented
resort. The mountains are serviced by two base lodges.
The on-mountain accommodations of Attitash Bear Peak consist of
approximately 1,700 beds. The off-mountain bed base in the Mt. Washington Valley
area totals approximately 16,000 beds. The resort operates two ski shops, two
full-service restaurants, three cafeteria-style restaurants and two bars.
Since its acquisition in July 1994, the Company has invested approximately
$9.5 million in capital improvements at Attitash Bear Peak. The most recently
completed improvements have been the development of the new Bear Peak area,
construction of a modern base lodge facility, installation of a new high speed
quad lift and trails. The summer 1997 capital program at Attitash Bear Peak
included the addition of a triple-chair lift and increases in skiable terrain
and snowmaking. The resort's three-year capital improvement program includes
potential expansion into the Attitash bowl area and a proposed expansion into
the National Forest area adjacent to the existing resort (both of which require
the approval by the Forest Service), the installation of a high-speed
six-passenger lift and a high-speed quad lift. In addition, in fiscal 1998 the
Company expects to expand the children's center and to begin construction of a
new 18-hole golf course.
THE CANYONS. The Canyons, located in the Wasatch Mountains adjacent to Park
City, Utah, is primarily an undeveloped ski resort with significant potential
for future operational and real estate development. The resort generated
approximately 100,000 skier visits in the 1996-97 ski season. Currently, the
resort has approximately 1,700 acres of skiable terrain with an elevation of
9,380 feet and a 2,580 foot vertical drop. The area has two base lodges and two
additional on-mountain restaurants.
Since its acquisition in July, 1997, the Company has invested approximately
$16.3 million to develop and construct (i) an eight passenger high-speed
gondola, (ii) five new quad lifts and to increase skiable terrain to
approximately 2,200 acres at the resort and (iii) a mid-mountain lodge. Its new
Red Pine lodge will serve as the cornerstone of the Company's planned High
Mountain Meadows real estate development located on a plateau at an elevation of
8,000 feet.
Management believes the resort has significant growth potential due to its
proximity to Salt Lake City, its undeveloped skiable terrain and its real estate
development opportunities. The resort is located approximately 25 miles from
Salt Lake City and is accessed by a major state highway. Air transportation is
provided through the Salt Lake City airport, which is a major regional hub with
direct access from most major domestic airports. The Salt Lake City area has
been one of the fastest growing regions in the United States over the past
several years, and the Park City area has an active real estate market
undergoing rapid expansion.
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<PAGE>
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 $40 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 of skiable terrain consisting of 14 mountain
peaks with a maximum elevation of 10,000 feet, a vertical drop of approximately
3,400 feet, 22 high speed quad ski lifts and an eight passenger high speed
gondola. In addition to the $18.2 million of capital improvements for the
1997-98 ski season, the Company estimates that it will need approximately $42.0
million for on-mountain capital improvements and approximately $150 million for
real estate development in order to fulfill its five-year development plan for
The Canyons. The Company plans to fund such capital improvements and real estate
development from operating cash flow, bank borrowings or debt and/or equity
offerings. See "Risk Factors--Substantial Leverage and Financial Risks" and
"Description of Certain Indebtedness--The New Credit Facility."
ACQUIRED RESORTS
STEAMBOAT. Steamboat is one of the premier ski resorts in the United
States, ranked second overall by the September 1997 SNOW COUNTRY magazine survey
and fourth nationally in skier visits for the 1996-97 ski season. Located in
Steamboat Springs, Colorado and approximately three hours from Denver, Colorado,
Steamboat is recognized for its "champagne" powder snow and tree skiing. In the
1996-97 ski season, Steamboat skier visits increased by 8.4%, to 1.1 million,
from the 1995-96 ski season. U.S. Highway 40, a major east-west thoroughfare
connecting the cities of Denver and Salt Lake City, is located approximately one
mile west of the ski area. Steamboat is easily accessible by non-stop jet
service from nine major United States cities to the Hayden, Colorado airport, 22
miles from the resort. Numerous daily commuter flights from Denver are also
available. Steamboat has approximately 1,879 acres of skiable terrain which
consists of 135 trails serviced by 21 lifts.
Steamboat has made on-mountain improvements for the 1997-98 ski season,
including the addition of a high-speed quad chairlift, additional snowmaking
capacity and up to 260 acres of advanced/expert terrain in the Pioneer Ridge
area. Lodge facilities are currently located in the base area and at three other
points on the mountain, Thunderhead, Four Points and Rendez Vous Saddle.
Steamboat operates or leases 15 retail shops, four equipment rental shops and 17
food and beverage operations, having a total seating capacity of approximately
2,734.
Steamboat's master plan calls for continued expansion to include Pioneer
Ridge which has been approved by the Forest Service, covering a total of 960
acres, which will involve the installation of two detachable chair lifts
servicing 27 open and gladed trails for intermediate and expert skiers.
Expansion of Pioneer Ridge, including snowmaking covering 66 acres, will be
phased in over three years. The new Morningside Park expansion was recently
completed and added one fixed grip chair lift servicing designated tree skiing
and open bowl skiing area for intermediate skiers. Because snowfall averages
more than 335 inches per year, the natural snowpack in Morningside Park is very
high due to snow blowing over a ridge and depositing in the bowl, making
snowmaking unnecessary in this area. Additionally, the resort has submitted an
application to the Forest Service for conceptual approval to develop
approximately 960 acres of contiguous forest lands. There can be no assurance,
however, that the Company's application will be approved. See "Risk
Factors--Real Estate Development" and "--Growth through Resort Expansion."
HEAVENLY. Located on the south shore of Lake Tahoe in the states of Nevada
and California, Heavenly consists of two peaks with a maximum elevation of
approximately 10,000 feet, a 3,500 foot vertical drop with approximately 4,800
acres of skiable terrain and 82 trails serviced by 27 lifts. Heavenly is the
second largest resort in the Pacific West Region with approximately 700,000
skier visits for the 1996-97 ski season. Snowmaking covers over 268 acres of
skiable terrain, representing approximately 43% of the
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<PAGE>
trails. Access to the resort is primarily through the Reno Cannon International
Airport and by automobile via Route 50 from San Francisco and Sacramento,
California. There are three base lodges and four on-mountain lodge restaurants.
There are no residential units or tourist accommodation units adjacent to the
ski resort; however, there is a well developed 11,000 bed base in the greater
South Lake Tahoe area.
Heavenly's master plan was approved in 1996 and is being implemented by the
Company. The plan calls for the improvement and expansion of winter and summer
uses and support facilities at the resort. A six-person high-speed chairlift
known as the Tamarack Express is currently under construction. Associated with
the new lift will be three new ski runs, adding approximately 13 acres of new
terrain. Snowmaking capacity will also be added to an existing trail serviced by
the Tamarack Express. A primary objective of the plan is to refocus the primary
entrance to the ski resort from the three existing base lodges (California,
Stagecoach and Boulder) to the commercial core of South Lake Tahoe utilizing a
new high capacity gondola. The gondola has been designed for year round
sightseeing, while the top station will provide direct ski access to both the
Nevada and California sides via three new lifts.
Additional snowmaking coverage is contemplated which will increase existing
coverage from approximately 268 acres to approximately 500 acres. The master
plan provides for the construction of base facilities and new restaurants at Sky
Meadows, East Peak Lake and California base. The Company is also contemplating
an additional 1,852 food service seats through a new ski lodge at the top of the
gondola and modifications to Boulder Lodge. Other proposed improvements include
replacement of two existing maintenance facilities.
The master plan also provides for eight new lifts, including the gondola,
and the removal of the existing West Bowl lift. The master plan also provides
for the widening of some existing trails and construction of new trails, adding
approximately 117 acres of skiable terrain.
RESORT OPERATIONS
The Company's resort revenues are derived from a wide variety of sources
including lift ticket sales, food and beverage, retail sales including rental
and repair, skier development, lodging and property management, golf, other
summer activities and miscellaneous revenue sources. Lift ticket sales represent
the single largest source of resort revenues and represent approximately 46% of
total resort operations revenue for fiscal 1997.
The following chart reflects the Company's sources of resort revenues
(excluding the Acquired Resorts and The Canyons) across certain revenue
categories as well as the percentage of resort revenues constituted by each
category for fiscal 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 27, 1997
--------------------------------------------------------------------
<S> <C> <C>
REVENUE SEGMENT RESORT REVENUES PERCENTAGE OF RESORT REVENUES
- ----------------------------------------------- ------------------------------- -----------------------------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Lift tickets................................... $ 77.2 46%
Food and beverage.............................. 20.8 13
Retail sales................................... 19.9 12
Skier development.............................. 8.5 5
Lodging and property........................... 21.6 13
Golf, other summer activities, and
miscellaneous................................ 19.0 11
------- ---
Total revenues......................... $ 167.0 100%
------- ---
------- ---
</TABLE>
64
<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. The Company's new Magnificent
7 lift ticket program offers a multi-day, multi-resort lift ticket package and
generated over $5 million in sales during the 1996-97 ski season.
FOOD AND BEVERAGE. Food and beverage sales provide significant revenues for
the Company. The Company owns and operates the food and beverage facilities at
its resorts, with the exception of the Sugarloaf resort, which is under a
long-term concession contract that pre-existed the Company's ownership. The
Company's food and beverage strategy is to provide a wide variety of
restaurants, bars, cafes, cafeterias and other food and beverage outlets. The
Company's control of its on-mountain and base area food and beverage facilities
allows it to capture a larger proportion of guest spending as well as to ensure
product and service quality. The Company currently owns and operates over 40
different food and beverage outlets and currently has five outlets being
expanded or constructed.
RETAIL SALES. Retail revenue aids in stabilizing the Company's daily and
weekly cash flows, as the Company's retail shops tend to have the strongest
sales on poor weather days. Across all of its resorts, the Company owns 28
retail shops and 18 ski rental shops. The large number of retail locations
operated by the Company allows it to improve margins through large quantity
purchase agreements and sponsorship relationships. On-mountain shops sell ski
accessories such as goggles, sunglasses, hats, gloves, skis, snowboards, boots
and larger soft goods such as jackets and snowsuits. In addition, all locations
offer the Company's own logo-wear which generally provides higher profit margins
than other retail products. In the non-winter seasons, the shops sell mountain
bikes, in-line skates, tennis equipment and warm weather apparel. In addition,
the Company plans to expand its retail operations, including expanding and
opening new off-site retail facilities in high traffic areas, such as stores on
the Killington Access Road and in the North Conway, New Hampshire retail
district, and a discount sporting goods chain with locations in Maine.
SKIER DEVELOPMENT. The Company has been an industry leader in the
development of learn to ski programs. Its Guaranteed Learn to Ski Program was
one of the first skier development programs to guaranty that a customer would
learn to ski in one day. The success of this program led to the development of
"Perfect Turn," which management believes was the first combined skier
development and marketing program in the ski industry. Perfect Turn ski
professionals receive specialized training in coaching, communication, skiing
and both selling related products and cross selling other resort goods and
services. Perfect Turn is currently licensed to five resorts in the United
States and Canada. The Company operates a hard goods marketing program at each
of its resorts designed to allow customers to test skis and snowboards with ski
professionals, purchase their equipment from those professionals and receive
ongoing product and technological support through Perfect Turn.
LODGING AND PROPERTY MANAGEMENT. The Company's lodging and property
management departments manage its own properties as well as properties owned by
third parties. Currently, the Company's lodging departments manage approximately
1,750 lodging units at the Existing Resorts. The lodging departments perform a
full complement of guest services including reservations, property management,
housekeeping and brokerage operations. Most resorts have a welcome center to
which newly arriving guests are directed. The center allocates accommodations
and provides guests with information on all of the resort's activities and
services. The Company's property management operation seeks to maximize the
synergies that exist between lodging and lift ticket promotions.
The Company's real estate development program is designed to ensure the
continued growth of its lodging operation. Typically, newly constructed
condominiums and townhomes are sold to owners who place the units into the
optional rental program managed by the Company. The resulting growth in
occupancy may increase skier visits and provide an additional source of fee
revenue for the Company.
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<PAGE>
MARKETING PROGRAMS
General. The Company's marketing programs are designed to (i) build a
nationally recognized high quality name and image while perpetuating the unique
image of its individual resorts, (ii) capitalize on opportunities to cross-sell
resorts and (iii) enhance customer loyalty. As part of its marketing strategy,
the Company engages in joint marketing programs with nationally recognized
commercial partners, such as Mobil, Budweiser, Pepsi/Mountain Dew, Visa, FILA
and Rossignol, whose target demographics complement those of the Company.
Management believes these joint marketing programs provide it with advantages in
creating a favorable image and market presence, both regionally and on a
national basis. In addition, the Company utilizes loyalty based incentive
programs such as its private label Edge Card, in which participants get credit
towards resort purchases.
PROGRAMS AND PROMOTIONS. The Company's strategy is to develop new and
innovative programs and promotions to increase skier visits, ticket yields,
spending per skier visit and Resort EBITDA. Management is focusing the 1997-98
ski season programs primarily on ski weeks, fun centers and the Company's new
Edge Card. The fun center program develops activities targeted at family
participation in alpine sports. Fun center programs include sponsored evening
activities and non-skiing and snowboarding activities that enhance the overall
vacation experience, such as snow tubing, ice skating, luge, snowcat rides,
arcades and outdoor evening activities. The Company's Edge Card is a private
label frequent skier card through which participants gain credit toward resort
purchases. This card is the central focus of the Company's loyalty based
incentive programs, which it believes will help retain skiers in the Company's
resort network and expand the volume and scope of information available for
marketing purposes.
MEDIA STRATEGIES. The Company utilizes both traditional marketing media
such as advertisements in industry and lifestyle publications and an increasing
number of traditional marketing media. Advertisements also appear in
publications such as MEN'S JOURNAL, CONDE NAST TRAVELER, THE BOSTON GLOBE and
OUTSIDE magazines. The Company utilizes other marketing media such as direct
mail, television and the Company's Internet site at www.peaks.com.
PROMOTIONAL PARTNERS. The Company enhances its marketing budget through
forming promotional partnerships with major sponsors. Each of these sponsors is
selected because of similarity in demographic profile between its customer base
and that of the Company. Sponsors include Mobil, Budweiser, Pepsi/ Mountain Dew,
Visa, FILA and Rossignol. Working with its promotional partners, the Company
formulates television, radio and special event programs and activities that are
designed to appeal to the target demographic segment.
GROUP SALES. In addition to advertisements directed at the vacation guest,
the Company's marketing activities are focused on attracting ski groups,
corporate meetings and convention business. During the 1996-97 ski season, the
Company's Existing Resorts and the Acquired Resorts hosted over 1,000 groups.
The Company is able to attract new conference business due to its expertise in
providing professional planning services, recreational activities and high
quality dining and lodging facilities.
REAL ESTATE DEVELOPMENT
General. The Company has been developing alpine resort real estate for over
fifteen years as part of its integrated resort and real estate investment
strategy. Since 1983, the Company has sold over 1,350 units of residential real
estate at Sunday River (including condominiums, townhouses and quartershare
interval ownership interests). The three components of the Company's real estate
development strategy are (i) the Grand Summit quartershare hotel concept, (ii)
development of alpine villages, and (iii) resort-specific discrete projects. The
Company believes it has a significant real estate development pipeline over the
next 10 to 15 years.
According to industry sources, the interval ownership industry has grown at
a compound annual growth rate of approximately 18% from 1980 to 1994, with
interval ownership sales increasing from $490 million to $4.8 billion. According
to the American Resort Development Association ("ARDA"), the median age and
annual household income of an interval ownership buyer at the time of purchase
are 50
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years and $71,000, respectively. Industry statistics indicate that the interval
ownership concept has achieved low market penetration, with approximately 3%
penetration among households with income above $35,000 per year and 3.7%
penetration among households earning more than $50,000 per year.
The Company believes it has a significant competitive advantage over
traditional timeshare developers due to (i) its inventory of developable real
estate, (ii) the significant existing resort infrastructure in place, (iii) the
relative affluence of its resort guests and (iv) the market created by guest
visitation at its resorts. These factors lower land and marketing costs relative
to traditional time share developers allowing the sale of longer duration
intervals which differentiate the Grand Summit Hotel from traditional
timeshares.
The following table summarizes certain key statistics as of November 1, 1997
relating to each of the Company's resort real estate holdings.
<TABLE>
<CAPTION>
RESIDENTIAL UNITS
-------------------------------------------------------
DEVELOPMENT
COMMENCEMENT RESERVED
DATES FOR
(FISCAL UNDER FUTURE
RESORT YEAR) SOLD DEVELOPMENT(1) PRE-SOLD DEVELOPMENT(2)
- ------------------------------ ------------ ----- ---------- ------ -----------
<S> <C> <C> <C> <C> <C>
Sunday River.................. 1982 1,362 892 256 4,894
Sugarbush..................... 1996 -- 420 170 2,150
Attitash Bear Peak............ 1996 124 880 3 219
Killington.................... 1997 -- 508 213 11,282
Mount Snow/Haystack........... 1997 -- 540 203 2,308
The Canyons................... 1997 -- 880 -- 5,992
Sugarloaf..................... 1998 -- 160 -- 1,820
Steamboat..................... 1998 -- 468 -- 3,005
Heavenly...................... 1998 -- 320 -- 30
----- ----- ------ -----------
Total......................... 1,486 5,068 845 31,700
----- ----- ------ -----------
----- ----- ------ -----------
<CAPTION>
COMMERCIAL SPACE (SQUARE FT)
--------------------------------------
RESERVED FOR
UNDER FUTURE
RESORT COMPLETED DEVELOPMENT(1) DEVELOPMENT(2)
- ------------------------------ --------- ----------- ------------
<S> <C> <C> <C>
Sunday River.................. 206,000 33,900 216,500
Sugarbush..................... 1,800 32,800 30,200
Attitash Bear Peak............ 40,800 -- 60,000
Killington.................... 17,000 38,300 349,400
Mount Snow/Haystack........... 2,200 43,000 169,600
The Canyons................... -- 14,900 406,100
Sugarloaf..................... -- -- 120,000
Steamboat..................... -- 30,000 203,300
Heavenly...................... -- -- 122,500
--------- ----------- ------------
Total......................... 267,800 192,900 1,677,600
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
- ------------------------
(1) Includes all units or commercial space currently under construction or in
the permitting process. Completed but unsold units, currently totalling 293,
are all located at Attitash Bear Peak. None of the other units identified in
the table as under development have been completed.
(2) Based on, among other things, the Company's capital and development plan for
the next 10 to 15 years, the Company's estimates for projected demand of
units and the availability of developable acreage. There can be no
assurance, however, that the Company will undertake, or have adequate
financing to complete such development or that the Company will receive all
necessary licenses, permits and regulatory approvals. See "Risk
Factors--Real Estate Development."
GRAND SUMMIT HOTELS. The Grand Summit Hotel is a unique interval ownership
product which is based on the Company's successful Summit Hotel at its Sunday
River resort. Each hotel is a condominium consisting of both residential and
commercial units and includes: a three-level atrium lobby, two or more
restaurants, retail space, a grand ballroom, conference space, a health club
with an outdoor heated pool and other recreational amenities. The commercial
space is retained by the Company and used to operate the core hotel business,
while the residential units are sold in quartershare interests. Each
quartershare consists of a 13-week ownership interest spread evenly across the
year. At the Company's Sunday River Hotel, owners utilize the unit for an
average of approximately three weeks out of a possible 13 weeks. Weeks that are
not used by an owner are typically dedicated to the Company's optional rental
program for rental to a third party on terms allowing the Company to retain up
to 45% of gross rental revenue. Consequently, the Company benefits from revenue
generated by (i) the sale of units, (ii) the recurring revenues from lodging
rental revenue and (iii) other hotel and commercial operations.
Quartershare owners participate in Resort Condominium International ("RCI"),
the world's largest vacation interval exchange program. In a 1995 study
sponsored by the Alliance for Timeshare Excellence and ARDA, the "exchange
opportunity" was cited by purchasers of vacation intervals as one of the most
significant factors in determining whether to purchase a vacation interval.
Participation in the RCI program allows the Company's quartershare owners to
exchange their occupancy right for an occupancy right in one of approximately
3,000 participating resorts worldwide. Grand Summit Hotels are rated in
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RCI's highest exchange category, the Gold Crown Club, which permits the owner to
exchange their interest for an interval at RCI's finer properties.
The Company intends to operate an internal exchange program within its
expanding Grand Summit Hotel network. The Company expects that the opportunity
to exchange intervals at any of its resorts nationwide will enhance its loyalty
programs, cross-marketing of resorts and unit sales opportunities.
ALPINE VILLAGE DEVELOPMENT
The Company is currently in the planning and permitting stage of developing
alpine villages at The Canyons, Killington and Sunday River's Jordan Bowl. Each
village will be characterized by its proximity to resort facilities, ski in/ski
out access, dramatic landscape and resort specific design and architecture.
THE CANYONS. Two distinct areas at The Canyons are in the permitting
process for resort village development. One area consists of approximately 350
acres in the base area, 150 acres of which are controlled by the Company. The
second area is the Company's High Mountain Meadows development consisting of
approximately 120 acres located on a mid-mountain plateau at an elevation of
over 8,000 feet. The base area is under a long-term lease that provides an
option to purchase fee title to parcels within that area. The Company is
negotiating a similar arrangement with the owner of the mid-mountain plateau
area. The base area development is currently in the master planning process with
county authorities. The base village will be a mix of residential and commercial
space arranged in six neighborhoods designed to create an integrated base area
community, anchored by a Grand Summit Hotel. The master plan provides for the
integrated development of 150 acres of Company-controlled property, as well as
approximately 200 acres of surrounding property owned by unrelated third parties
who have elected to participate in the village development.
The High Mountain Meadows development presents an opportunity to develop a
mid-mountain base area surrounded by six of the resort's 14 mountain peaks. The
mid-mountain village will be accessed by a four-mile scenic drive and an
eight-passenger, high-speed heated gondola currently under construction. The
village will serve as the base for skiing the surrounding mountains, creating
access to an additional 2,000 vertical feet of skiable terrain. The primary
lodge, the Red Pine Lodge, is located at the mid-mountain development and
commenced operations in the 1997-98 ski season. The Company proposes to commence
construction of a Grand Summit Hotel in Summer 1998. The village will consist of
approximately two million square feet of compact, high density residential and
commercial development. The development will be principally a pedestrian village
characterized by resort lodging, luxury condominiums and ranches and mountain
recreation properties.
The zoning for the base area and High Mountain Meadows development is being
revised in connection with a complete amendment of the county's general plan.
The proposed amendment would permit extensive development in each area. Adequate
sewer and water capacity are available in close proximity to the resort;
however, such capacity must be purchased from third party vendors and the
Company must construct the necessary infrastructure for transport to both
developments. See "Risk Factors--Required Development at The Canyons; Historical
Losses of Wolf."
KILLINGTON BASE AREA. In December 1997, the Company consummated a like-kind
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. The 1,050 acres to be acquired from the State must be rezoned to
accommodate the planned development. The City of Rutland, Vermont and certain
environmental groups traditionally active in ski resort development have entered
into a memorandum of understanding designating the area as a growth zone to be
utilized for development.
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<PAGE>
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 a municipal sewer system with 600,000 gallons per day
excess capacity.
JORDAN BOWL AT SUNDAY RIVER. Jordan Village will be located on
approximately 1,100 acres of a 4,000 acre undeveloped parcel owned by the
Company at the western end of the existing resort and the center of the
Company's landholdings. The village will rest at the base of the Jordan Bowl,
one of the resort's most popular skiing areas. Development of Jordan Village
began with the construction of a scenic four-mile access road from the existing
resort center to the Jordan Village area and 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 also began in Summer 1997.
The master plan for the area also contemplates a high density village
surrounded by neighborhoods consisting of luxury townhouses and detached single
family dwellings.
The Jordan Bowl area is zoned for village development. No density
restrictions apply to the area. The Company believes adequate water is available
for contemplated development and Sunday River's sewage treatment facility has
sufficient capacity to allow completion of the planned development of the
resort.
OTHER RESORT DEVELOPMENT
Each of the Company's resorts has the potential for additional real estate
development involving discrete projects tailored to the characteristics of the
particular resort. There can be no assurances, however, that the Company will
successfully pursue any of the development opportunities described below.
STEAMBOAT. The Company believes that the real estate development potential
at Steamboat is among the most significant of its resorts. The Company has
acquired 168 acres of real estate held for development at or near the base area.
Included in these properties are several locations the Company has targeted for
development, including (i) a 26 acre parcel centrally located in Steamboat's
Village Commercial Center, which is zoned for commercial development, (ii) a 47
acre site with potential ski-in/ski-out access located at Tennis Meadows, which
could support a Grand Summit Hotel and related development and (iii) a 20 acre
site zoned for over 275 units together with commercial development. The Company
is also a 50% partner in Country Club Highlands Partnership, a residential
development located at the Sheraton Golf Club consisting of 142 lots being built
in several phases, of which 49 lots and 38 townhouse units remain to be
developed.
SUGARLOAF. Development plans have begun for the expansion of an existing
hotel, a new Grand Summit Hotel, a high density condominium development and
commercial space as an expansion to the existing alpine village. There are
several planned developments including single family homes around the 18-hole
Robert Trent Jones, Jr. championship golf course. Sugarloaf has over 1,100 acres
of land held for development.
MOUNT SNOW/HAYSTACK. There are several undeveloped sites at Mount
Snow/Haystack with potential for future projects including renovation of the
current base lodge, a 21 acre parcel which could support up to 72 three-bedroom
units with direct ski lift access, and a two acre parcel for a convention
center. Mount Snow/Haystack also owns an 800 acre parcel slated for a proposed
golf course expansion, which could create the opportunity for substantial golf
course frontage real estate development. In addition, there are approximately 30
acres of developable land at the base of Haystack.
KILLINGTON. In addition to the development of Killington's alpine village
and Grand Summit Hotel, there are three distinct real estate parcels available
for development. At the base of the Skyeship Gondola, there is a 165 acre site
commercially zoned for a 150-room hotel and 40,000 square feet of commercial
real estate, or for up to 200 townhouse duplexes. At the Falls Brook area,
located at Bear Mountain, there are approximately 376 acres available for real
estate development. A chair lift and ski trails serve a major portion of the
site. In addition, an 11 acre parcel with several hundred feet of frontage on
U.S. Route 4 is zoned for single and multi-family dwellings, hotels, motels and
lodging, office, retail space and restaurants.
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<PAGE>
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 $3.2 million system and technology plan including (i) a radio
frequency lift ticket scanning system that provides more accurate tracking,
control and information on all ticket products, (ii) a direct-to-lift access
system that allows skiers to bypass the ticket window and proceed directly to
the lift with an individualized radio frequency card that directly debits their
credit or frequent-skier card, (iii) a resort-wide guest charging system
utilizing individualized credit cards that can be used to charge goods and
services at most of the Company's facilities, (iv) an integrated customer
database that tracks information regarding guest preferences and product
purchasing patterns, (v) an extensive data communications network linking most
point-of-sale locations through a central database, (vi) a central reservations
system for use in the resort's rental management business and (vii) a skier
development reservation and instructor scheduling system that simplifies the
booking process and allows for optimal utilization of instructors.
SNOWMAKING SYSTEMS AND TECHNOLOGY. The Company believes it operates the
largest consolidated snowmaking operation in existence, 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 instrumentations. The Company utilizes an efficient ground based,
tower based and fully automated snowgun nozzle technology and has developed
software for determining the optimal snowmaking nozzle setting at multiple
locations on the mountain. This system monitors the weather conditions and
system capacities and determines the proper operating water pressure for each
nozzle, eliminating guesswork and ensuring the ideal snow quality. The Company
refers to this ideal quality product as "Retail Snow," a high quality, durable
skiing surface with top to bottom consistency. All of the snowmaking systems are
networked to provide the ability to view information from multiple locations
within its resort network. Another unique feature of the Company's system is the
current display of trail status, lift status, weather conditions and other
various on mountain information at locations throughout each resort. Much of
this information is available on the world wide web at the Company's and its
individual resorts' web sites.
LEASED PROPERTIES
The Company's operations are wholly dependent upon its ownership or control
over the real estate constituting each resort. The following summarizes
non-owned real estate critical to operations at each resort. Management believes
each of the following leases, permits or agreements is in full force and effect
and that the Company is entitled to the benefit of such agreements.
Sunday River leases approximately 1,500 acres, which constitute a
substantial portion of its skiable terrain, under a 50-year lease terminating on
October 14, 2030. The lease renews automatically thereafter on a year-to-year
basis unless terminated by either the lessor or lessee. 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. The Blunder Bay
exchange (see "The Transactions") gives the Company 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 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.
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<PAGE>
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.
The Sugarloaf resort leases the Sugarloaf Golf Course from the Town of
Carrabassett Valley, Maine pursuant to a lease dated June 3, 1987. The lease
term expires December 2003. Sugarloaf has an option to renew the lease for an
additional 20-year term.
The Canyons leases approximately 2,100 acres, including most of the base
area and a substantial portion of the skiable terrain, under a lease from Wolf
Mountain Resorts, L.L.C. The initial term of this lease is 50 years expiring
July 2047, with an option to extend for three additional terms of 50 years each
(the "Wolf Lease"). The lease provides an option to purchase (subject to certain
reconveyance rights) those portions of the leased property that are intended for
residential or commercial development at a cost of 11% of the full capitalized
cost of such development. The Wolf Lease includes a sublease of approximately
807 acres, which constitutes the area for the planned mid-mountain village and a
substantial portion of skiable terrain, from the State of Utah School and
Institutional Trust Land Administration, which terminates January 1, 2027. The
sublease is being renegotiated as a direct lease extending its term to the year
2078 and provides an option to purchase those portions of the mid-mountain
village area that are intended for real estate development at a cost of 25% of
their fair market value on an undeveloped basis. The Wolf Lease also includes a
sublease of certain skiable terrain owned by the Osguthorpe family. The Company
has established certain additional ski development rights under a direct
agreement with the Osguthorpe family. The ski development rights for
approximately 3,000 acres of skiable terrain targeted for development by the
Company are contained in a development agreement with Iron Mountain Associates,
LLC, which agreement effectively constitutes a lease of all skiable terrain for
a term ending September 13, 2094.
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Heavenly uses approximately 1,543 acres of its skiable terrain located in
California and Nevada pursuant to special use permit issued by the United States
Forest Service dated December 18, 1990. The permit expires on August 5, 2029.
Heavenly uses approximately 2,000 acres of additional skiable terrain in Nevada
pursuant to a special use permit dated December 18, 1990. The permit expires on
August 5, 2029.
Steamboat uses approximately 2,644 acres, a substantial portion of which is
skiable terrain, pursuant to a special use permit issued by the United States
Forest Service. The permit expires on August 31, 2029. Under Steamboat's
existing master plan, an additional 958 acres of contiguous National Forest
lands is expected to be added to the permitted area.
COMPETITION
The ski industry is highly competitive. The Company competes with mountain
resort areas in the United States, Canada and Europe. The Company also competes
with other recreation resorts, including warm weather resorts, for the vacation
guest. In order to cover the high fixed costs of operations associated with the
ski industry, the Company must maintain each of its regional, national and
international skier bases. The Company's prices are directly impacted by the
variety of alternatives presented to skiers in these markets. The most
significant competitors are resorts that are well capitalized, well managed and
have significant capital improvement and resort real estate development
programs.
The Company's resorts also face strong competition on a regional basis. With
approximately three million skier visits generated by its northeastern resorts,
competition in that region is an important consideration. The Company's
northeastern markets are the major population centers in the northeast,
particularly eastern Massachusetts, northern Connecticut, New York and northern
New Jersey. For example, skier origin data collected at Sunday River indicates
that approximately 43% of its weekend skiers reside in Massachusetts. Similar
data collected at Killington and Mount Snow indicate that approximately 23% and
35%, respectively, of their weekend skiers reside in New York, with high
concentrations from Massachusetts, Connecticut, New Jersey and Vermont. The
Colorado, Utah and California ski markets are also highly competitive.
EMPLOYEES AND LABOR RELATIONS
The Company employs approximately 10,500 employees at peak season and
approximately 1,510 persons full time. None of the Company's employees are
covered by any collective bargaining agreements. The Company believes it has
good relations with its employees.
GOVERNMENT REGULATION
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, environmental/health and
safety, water resources, air and water emissions, sewage disposal, and the use,
storage, discharge, emission and disposal of hazardous materials and hazardous
and nonhazardous wastes, and other environmental matters. While management
believes that the Company's resorts are currently in material compliance with
all land use and environmental laws, failure to comply with such laws could
result in costs to satisfy environmental compliance and/or remediation
requirements or the imposition of severe penalties or restrictions on operations
by government agencies or courts that could adversely affect operations. Phase I
environmental assessments have been completed on all nine resort properties. The
reports identified areas of potential environmental concern including the need
to upgrade existing underground storage tanks at several facilities and to
potentially remediate petroleum releases. In addition, the Phase I environmental
assessment for The Canyons indicated some soil contamination in areas where
underground storage tanks have been removed. At this point, the extent or
significance of the contamination at that site is unknown. The reports did not,
however, identify any environmental conditions or non-compliance at any of the
resorts, the remediation or correction of which management believes would have a
material adverse impact on the business or financial condition of the
72
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Company or results of operations or cash flows. The Killington resort has been
identified by the U.S. Environmental Protection Agency (the "EPA") as a
potentially responsible party at two sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or
"Superfund"). Killington has entered into a settlement agreement with the EPA at
one of the sites, the Solvents Recovery Service of New England Superfund site in
Southington, Connecticut. Killington recently rejected an offer to enter into a
de minimis settlement with the EPA for the other site, the PSC Resources
Superfund Site in Palmer, Massachusetts. The Company believes that its liability
for these Superfund sites, individually and in the aggregate, will not have a
material adverse effect on the business or financial condition of the Company or
results of operations or cash flows.
The Company believes it has all permits, licenses and approvals from
governmental authorities material to the operation of the resorts as currently
configured. The Company has not received any notice of material non-compliance
with permits, licenses or approvals necessary for the operation of any of its
properties.
The capital programs at the resorts will require permits and approvals from
certain federal, state and local authorities. The Company's operations are
heavily dependent upon its continued ability, under applicable laws,
regulations, policies, permits, licenses or contractual arrangements, to have
access to adequate supplies of water with which to make snow and service the
other needs of its facilities, and otherwise to conduct its operations. There
can be no assurance that new applications of existing laws, regulations and
policies, or changes in such laws, regulations and policies will not occur in a
manner that would have a material adverse effect on the Company, or that
important permits, licenses or agreements will not be canceled, not renewed, or
renewed on terms no less favorable to the Company. Major expansions of any one
or more resorts could require the filing of an environmental impact statement
under environmental laws and applicable regulations if it is determined that the
expansion has a significant impact upon the environment and could require
numerous other federal, state and/or local approvals. Although the Company has
consistently been successful in implementing its capital expansion plans, no
assurance can be given that necessary permits and approvals will be obtained.
The Company's marketing and sales of interval ownership interests is subject
to extensive federal and state government regulation. See "Risk
Factors--Regulation of Marketing and Sales of Quartershares; Other Laws."
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
arising in the ordinary course of its business. The Company does not believe
that it is involved in any litigation that will, individually or in the
aggregate, have a material adverse effect on its financial condition or results
of operations or cash flows.
Each of the resort operating companies have pending and are regularly
subject to suits with respect to personal injury claims related principally to
skiing activities at such resort. Each of the operating companies maintains
liability insurance that the Company considers adequate to insure claims related
to usual and customary risks associated with the operation of a ski resort. The
Company operates a captive insurance company authorized under the laws of the
State of Vermont, which provides liability and workers' compensation coverage
for its resorts located in Vermont.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages and their
respective positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Leslie B. Otten...................................... 48 Director, President and Chief Executive Officer
Thomas M. Richardson................................. 45 Director, Senior Vice President, Chief Financial
Officer and Treasurer
Christopher E. Howard................................ 40 Director, Senior Vice President, Chief Administrative
Officer, General Counsel and Clerk
Burton R. Mills...................................... 44 Senior Vice President--Mountain Operations
G. Christopher Brink................................. 44 Senior Vice President--Marketing
Warren C. Cook....................................... 53 Senior Vice President--Resort Operations
W. Scott Oldakowski.................................. 34 Vice President--Real Estate Sales
Michael Meyers....................................... 44 Vice President--Hotel Development
Gregory Spearn....................................... 45 Vice President--Real Estate Development
</TABLE>
Each officer serves at the discretion of the Board of Directors. Each
director holds office until his successor is duly elected and qualified or until
his resignation or removal. There are no family relationships among any of the
directors or executive officers of the Company. The Company intends to appoint
four independent directors.
LESLIE B. OTTEN, Director, President and Chief Executive Officer. In 1970,
Mr. Otten joined Sherburne Corporation, then the parent company of Sunday River,
Killington and Mount Snow. Mr. Otten became Assistant General Manager of Sunday
River in 1972 and became General Manager of Sunday River in 1974. He has been a
director and the President and Chief Executive Officer of the Company (or a
subsidiary of the Company) since 1980. Mr. Otten is currently a director and was
previously chairman of the Portland Museum of Art, the Maine Chamber and
Alliance, Maine Handicap Skiing, Gould Academy (a private secondary school) and
Project Opportunity (a higher education scholarship program).
THOMAS M. RICHARDSON, Director, Senior Vice President, Chief Financial
Officer and Treasurer. Mr. Richardson joined the Company in the spring of 1993
as Vice President of Finance and Base Operations and has served in his present
position since July 1996. From 1992 until joining the Company, he worked at Loon
Mountain Recreation Corporation (a ski resort operator) as Treasurer and
Director of Food, Beverage and Tickets. From 1983 to 1992, Mr. Richardson worked
at S-K-I Ltd. (an owner of ski resorts) as an Internal Auditor, Accounting
Manager and Division Controller at Killington. Mr. Richardson serves on the
Economic Committee of the National Ski Area Association.
CHRISTOPHER E. HOWARD, Director, Senior Vice President, Chief Administrative
Officer, General Counsel and Clerk. Mr. Howard joined the Company in 1996 after
serving as the Company's outside counsel. Prior to joining the Company, Mr.
Howard was a partner in the law firm of Pierce Atwood where he practiced in the
firm's corporate department since 1982.
BURTON R. MILLS, Senior Vice President--Mountain Operations. Mr. Mills has
spent his entire 22-year career with the Company (or its predecessor), serving
in his present capacity since July 1996. Prior thereto, he served as Vice
President of Mountain Operations.
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G. CHRISTOPHER BRINK, Senior Vice President--Marketing. Mr. Brink has been
with the Company since 1993 and in his present capacity since July 1996. Prior
to joining the Company, Mr. Brink served from 1991-1993 as a director of
off-site sale centers for Marriott Vacation Ownership, Inc.
WARREN C. COOK, Senior Vice President--Resort Operations. Mr. Cook joined
the Company in 1996 as Managing Director of Sugarloaf Mountain Corporation (a
subsidiary of the Company). Since January 1997 he has served in his present
capacity with the Company. From 1986 to 1996 he was chief executive officer and
general manager of Sugarloaf, USA (a ski resort operator).
W. SCOTT OLDAKOWSKI, Vice President--Real Estate Sales. Mr. Oldakowski
started working for the Company in 1991 as an independent consultant on the
Summit Hotel project before being hired as Director of Real Estate in 1993. He
became Vice President of Real Estate Sales for the Company in 1995. From 1986 to
1991, he served as Director of Sales and Marketing at multiple resorts for Dunes
Marketing Group, a resort development firm.
MICHAEL MEYERS, Vice President--Hotel Development. Mr. Meyers joined the
Company in April 1995 and has led the master planning, permitting and
development of five hotels for Grand Summit Resort Properties, Inc., a
subsidiary of the Company. From 1989 to 1993, Mr. Meyers was a Vice President at
Stanmar Development, a real estate development firm. Immediately prior to
joining the Company, he was chief operating officer from 1993 to 1995 for
Massachusetts Industrial Finance Agency (a bond issuer for borrowers consisting
of commercial, industrial and charitable organizations or entities).
GREGORY SPEARN, Vice President--Real Estate Development. Mr. Spearn joined
the Company in the fall of 1997. From 1995 to 1997, he held the position of
Senior Vice President of Intrawest Corporation (a ski resort operator). Prior to
that he was 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.
EMPLOYMENT AGREEMENTS
In August 1994, Warren Cook entered into an employment agreement with
Sugarloaf Mountain Corporation ("SMC"). The employment agreement provides that
Mr. Cook will act as President of SMC for a term of five years and a base salary
of $120,000 per year (subject to customary salary increases), plus an annual
bonus. In addition, under Mr. Cook's employment agreement, he is entitled to
participate in SMC's employee benefit plans. If Mr. Cook's employment is
terminated for any reason, other than Mr. Cook's gross mismanagement, he will be
entitled to a cash payment equal to the greater of 50% of the compensation he
would have received over the remaining term of the agreement or his annual
salary and bonus for the year in which the termination occurs.
In August 1996, Christopher Howard entered into an employment agreement with
ASC East. The employment agreement provides that Mr. Howard will act as Chief
Administrative Officer and General Counsel of ASC East for a base salary of
$150,000 per year (subject to salary increases based on inflation reflected in
the Consumer Price Index), plus an annual bonus equal to the greater of $50,000
or .1875% of the combined ski and lodging and real estate EBITDA of ASC East. In
addition, under Mr. Howard's employment agreement, he is entitled to participate
in ASC East's employee benefit plans. If Mr. Howard's employment is terminated
(i) involuntarily, he is entitled to receive his annual salary and bonus for the
year in which the termination occurs or (ii) in connection with a sale of ASC
East, he is entitled to receive two times his annual base salary and bonus for
the year in which the sale occurs.
BOARD COMMITTEES
Upon the appointment of the independent directors on February 9, 1998, the
Board of Directors intends to establish an Executive Committee, a Finance
Committee, a Nominating Committee, a Compensation Committee and an Audit
Committee. The Compensation Committee, in conjunction with
75
<PAGE>
the entire Board of Directors, will make recommendations concerning salaries and
incentive compensation for employees of and consultants to the Company and
administer and interpret the Stock Option Plan. The Audit Committee, in
conjunction with the entire Board of Directors, will review the results and
scope of the audit and other services provided by the Company's independent
accountants and will be comprised solely of the Company's independent directors.
DIRECTOR COMPENSATION
The Company will reimburse each member of the Board of Directors for
expenses incurred in connection with attending Board and committee meetings.
Directors will receive $5,000 for attendance at each meeting of the Board,
unless attendance is via telephone. The Company will grant options to purchase
2,500 shares of Common Stock to non-employee directors upon their election and
re-election to the Board of Directors. The stock options will have a term of 10
years and the option price will be no less than the fair market value as of the
date of the grant.
EXECUTIVE COMPENSATION
The following table shows remuneration paid or accrued by the Company during
the fiscal year ended July 27, 1997 to the Chief Executive Officer and to each
of the other four most highly compensated executive officers of the Company
(together, the "Named Executive Officers") for services in all capacities while
they were employees of the Company, and the capacities in which the services
were rendered.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
SECURITIES UNDERLYING
ANNUAL COMPENSATION OPTIONS TO
PURCHASE COMMON STOCK
--------------------- OR CLASS A ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMMON STOCK COMPENSATION
- ---------------------------------------------- ----------- ---------- --------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
Leslie B. Otten............................... 1997 $ 350,000 $ -- -- $ --
President and Chief Executive Officer
Thomas M. Richardson.......................... 1997 170,000 -- -- --
Senior Vice President, Chief Financial
Officer and Treasurer
Warren C. Cook................................ 1997 133,770 -- -- --
Senior Vice President-Resort Operations
Burton R. Mills............................... 1997 170,000 -- -- --
Senior Vice President--Mountain Operations
G. Christopher Brink.......................... 1997 170,000 -- -- --
Senior Vice President--Marketing
</TABLE>
76
<PAGE>
STOCK OPTION PLAN
Under the Company's Stock Option Plan, 5,688,699 shares of Common Stock are
reserved for issuance upon the exercise of stock options. The Stock Option Plan
is designed to attract, retain and motivate directors and key employees. The
Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") will administer and interpret the Stock Option Plan.
The Company intends to administer the Stock Option Plan in compliance with the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended,
with the intended result that certain amounts paid which are taxable as income
to holders of stock options granted pursuant to such Stock Option Plan will be
deductible by the Company for federal income tax purposes.
Both incentive stock options and non-qualified stock options may be granted
under the Stock Option Plan on such terms and at such prices as determined by
the Compensation Committee pursuant to the requirements of applicable law. The
per share exercise price of incentive stock options may not be less than the
fair market value of the Common Stock on the date of grant. Future grants of
stock options are expected to have an exercise price equal to the fair market
value of the Common Stock on the date of grant. Each option is for a term of not
less than five years or more than 10 years, as determined by the Compensation
Committee. Options granted under the Stock Option Plan are not transferable
other than by will or by the laws of descent and distribution.
The Company has granted options to purchase an aggregate of 2,695,107 shares
of the Common Stock with exercise prices ranging from $2.00 per share to the
offering price of the Common Stock per share.
The Stock Option Plan provides that all of an employee's options will become
exercisable in full immediately upon termination of employment because of death
or permanent disability, and provides that the Compensation Committee in its
discretion may permit accelerated exercisability upon an employee's early
retirement (at age 55 or over or after five years of employment).
In the event of a "change in control" (as defined in the Stock Option Plan)
all outstanding options will be exercisable in full for 30 days prior to such
event and will terminate upon consummation of such event, unless assumed or
replaced by other options in connection with such event.
OPTION GRANTS
The following table sets forth grants of stock options to the Named
Executive Officers as of January 28, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF TOTAL VALUE OF UNEXERCISED
OF COMMON OPTIONS GRANTED IN-THE- MONEY OPTIONS
STOCK UNDERLYING TO AT JANUARY 28, 1997
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ---------------------------- ------------------ --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Leslie B. Otten............. 1,853,197 shares 71.7% $ 18.00 08/01/07 -- --
Thomas M. Richardson........ 100,334 shares 3.9% $ 2.00 08/01/07 $ 1,535,230 $ 1,989,803
Burton R. Mills............. 80,243 shares 3.1% $ 2.00 08/01/07 $ 1,228,184 $ 1,591,842
G. Christopher Brink........ 80,243 shares 3.1% $ 2.00 08/01/07 $ 1,228,184 $ 1,591,842
Warren C. Cook.............. 40,121 shares 1.6% $ 2.00 08/01/07 $ 614,092 $ 795,921
</TABLE>
77
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, Sunday River Skiway Corporation, a subsidiary of the Company
("SRSC"), issued an unsecured demand note to Mr. Otten obligating SRSC to pay to
Mr. Otten a total of $5.2 million. Interest on the note is calculated at 5.4%
per annum. The note was issued to Mr. Otten for an amount equal to the income
taxes to be paid by him in 1996 and 1997 with respect to the income of SRSC as
an S corporation which was converted to a C corporation. The remaining principal
amount of such note as of January 30, 1998 was approximately $1.9 million.
Christine Otten, Mr. Otten's spouse, is employed by the Company as its
director of retail buying and is principally involved in its retail sales
activities. During fiscal years 1995, 1996 and 1997, Ms. Otten received total
compensation of $53,584, $54,577 and $51,600, respectively. 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 effects of this stock option grant have been
included in the $14.3 million compensation charge recorded in the fiscal quarter
ended October 26, 1997.
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 1995, 1996 and 1997,
payments under such leases totaled $34,000, $37,000 and $24,000, 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 1995, 1996 and
1997, payments by Ski Dorm, Inc. to SRSC totaled $83,000, $90,000 and $258,000,
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
July 27, 1997. Such note is secured by a mortgage on land and a building.
Interest on the note is charged at the prime rate plus 1 1/2% and principal and
any accrued interest are due in December 1999.
Sunday River Land Holdings, Inc., a company wholly owned by Mr. Otten,
leases to SRSC the real estate upon which the Sunday River snow-making ponds are
located. The lease has a term of 30 years and rent at the rate of $100,000 per
year, subject to a Consumer Price Index inflation adjustment.
Mr. Otten borrowed funds to purchase Common Stock in the Concurrent Offering
pursuant to a loan agreement with an institutional lender and 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 containing
customary provisions with the lender pursuant to which the lender will have the
right to require the Company to register the shares pledged by Mr. Otten to
secure the loan.
78
<PAGE>
PRINCIPAL SHAREHOLDERS
THE COMPANY
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock and Class A Common as of January 30,
1998, (i) by each person or entity known by the Company to own beneficially more
than 5% of the Company's capital stock, (ii) by each director of the Company,
(iii) by each of the Named Executive Officers and (iv) by all directors and
executive officers of the Company as a group. Except as indicated below, each
person or entity listed below maintains a mailing address c/o American Skiing
Company, P.O. Box 450, Sunday River Access Road, Bethel, Maine 04217, and has
sole voting and investment power over the shares of Common Stock shown as
beneficially owned, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
COMMON STOCK CLASS A COMMON STOCK PERCENT OF
BENEFICIALLY OWNED BENEFICIALLY OWNED CLASS A COMMON
DIRECTORS, NAMED EXECUTIVE ------------------------- --------------------------- STOCK AND COMMON
OFFICERS AND FIVE PERCENT OF PERCENT OF STOCK BENEFICIALLY
PERCENT SHAREHOLDERS SHARES CLASS SHARES CLASS OWNED
- ----------------------------------------------------- ---------- ------------- ------------ ------------- -------------------
<S> <C> <C> <C> <C> <C>
Leslie B. Otten(1)................................... 2,686,530 15.6% 14,760,530 100% 54.6%
Thomas M. Richardson(2).............................. 100,334 * -- -- *
Christopher E. Howard(2)............................. 150,493 * -- -- *
Burton R. Mills(2)................................... 80,243 * -- -- *
G. Christopher Brink(2).............................. 80,243 * -- -- *
Warren C. Cook(2).................................... 40,121 * -- -- *
Madeleine LLC(3)
c/o Cerberus
450 Park Ave.
New York, NY 10022................................. 2,184,619 12.4% -- -- 6.7%
Directors and Executive Officers as a Group
(8 persons)(4)..................................... 3,158,030 17.9% 14,760,530 100% 55.0%
</TABLE>
- ------------------------------
* Less than one percent.
(1) Includes 1,853,197 shares of Common Stock issuable under exercisable options
granted under the Stock Option Plan.
(2) All shares of Common Stock beneficially owned by such person are issuable
under exercisable options granted under the Stock Option Plan.
(3) Includes 2,188,991 shares of Common Stock issuable upon the conversion of
such holder's shares of 10 1/2% Convertible Preferred Stock. Does not
include up to 1,406,727 additional shares of Common Stock issuable upon
conversion of the Company's 10 1/2% Convertible Preferred Stock as a result
of the accrual of cumulative dividends thereon.
(4) Includes 2,566,723 shares of Common Stock issuable under exercisable options
granted under the Stock Option Plan.
79
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of the material terms of each instrument
governing the Company's indebtedness (other than the 10 1/2% Subordinated
Debentures--see "Description of the 10 1/2% Subordinated Debentures").
THE NEW CREDIT FACILITY
On November 12, 1997, the Company entered into the New Credit Facility. The
New Credit Facility provides for borrowings in an aggregate amount of up to $215
million. Amounts borrowed under the New Credit Facility have been used and are
available (i) to finance the Acquisition, (ii) to repay $59.6 million of
indebtedness of ASC East under the Existing Credit Facility, (iii) to repay
approximately $12 million of indebtedness of the Company and its subsidiaries,
(iv) to pay certain fees and expenses relating to the Acquisition and (v) for
ongoing general corporate purposes and capital expenditures. The New Credit
Facility is divided into two sub-facilities, $75 million of which (up to $65
million of which became available following consummation of the Offering) is
available for borrowings by ASC East and its subsidiaries (the "East Facility")
and $140 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 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 $65 million and an
eight-year term facility in the amount of $75 million. The revolving facilities
are subject to annual 30-day clean down requirements to an outstanding balance
of not more than $10 million for the East Facility and not more than $35 million
for the West Facility. The maximum availability under the revolving facilities
will reduce over the term of the New Credit Facility by certain prescribed
amounts. The term facilities amortize at a rate of approximately 1.0% of the
principal amount for the first six years with the remaining portion of the
principal due in two substantially equal installments in years seven and eight.
At the Company's option, interest will be payable at an alternate base rate or
LIBOR, in each case, plus an applicable margin that is dependent upon the ratio
of the Company's total debt to EBITDA (as defined in the New Credit Facility).
Under certain circumstances, the New Credit Facility requires mandatory
prepayments with the net proceeds of certain asset sales and new debt and/or
equity offerings of the Company. Beginning in July 1999, the New Credit Facility
requires mandatory prepayments of 50% of excess cash flows during any period in
which the ratio of the Company's total senior debt to EBITDA exceeds 3.50 to 1.
In no event, however, will such mandatory prepayments reduce either revolving
facility commitment below $35 million.
The East Facility is secured by substantially all the assets of the Company,
ASC East, ASC West and their respective material, wholly owned subsidiaries,
except Grand Summit Resort Properties, Inc. and Alpine Resort Properties, Inc.,
each of which is not a borrower under the New Credit Facility. The West Facility
is secured by substantially all the assets of the Company and its material,
wholly owned subsidiaries, except ASC East and its subsidiaries and Alpine
Resort Properties, Inc.
The New Credit Facility contains various covenants that limit, among other
things, subject to certain exceptions, indebtedness, liens, transactions with
affiliates, restricted payments and investments, mergers, consolidations and
dissolutions, sales of assets, dividends and distributions and certain other
business activities. In addition, the New Credit Facility contains financial
covenants customary for this type of senior credit facility, including
maintenance of customary financial ratios. Compliance with financial covenants
will be determined on a consolidated basis notwithstanding the bifurcation of
the New Credit Facility into the East Facility and the West Facility, with the
exception of a leverage test.
THE 12% NOTES
ASC East has outstanding $120 million aggregate principal amount of 12%
Notes which bear interest at a rate of 12% per annum, payable semi-annually in
arrears on each January 15 and July 15. The 12% Notes mature on July 15, 2006.
The 12% Notes represent senior subordinated unsecured obligations of
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<PAGE>
ASC East. ASC East's payment obligations under the 12% Notes are guaranteed on a
subordinated basis by substantially all of ASC East's subsidiaries.
The 12% Notes may not be redeemed at the option of ASC East prior to July
15, 2001, except that prior to July 15, 1999 ASC East may redeem up to 25% of
the 12% Notes at a redemption price of 112% of the principal amount thereof,
plus accrued and unpaid interest, if any, with the net proceeds of a public or
private sale of common stock of ASC East. At any time on or after July 15, 2001,
the 12% Notes may be redeemed at the option of ASC East, in whole or in part, at
a premium declining ratably to par on July 15, 2005.
The 12% Note Indenture provides that in the event of a Change of Control,
ASC East is required to make an offer to purchase in cash all or any part of
outstanding 12% Notes at a price of 101% of the aggregate principal amount
thereof. However, the Company solicited and has received the requisite consents
from the holders of the 12% Notes and has amended the 12% Note Indenture so that
the consummation of the Offering did not constitute a Change in Control under
the 12% Note Indenture.
The 12% Note Indenture contains restrictive covenants that, among other
things, impose limitations on the ability of ASC East and certain of its
subsidiaries to (i) to incur additional indebtedness, (ii) merge, consolidate or
sell or dispose of all or substantially all of its assets, (iii) issue certain
preferred stock, pay dividends or make other distributions on account of ASC
East's equity interests, repurchase equity interests or subordinated
indebtedness, and make certain other Restricted Investments (as defined in the
12% Note Indenture), (iv) create certain liens, (v) enter into transactions with
affiliates and (vi) sell assets.
Such covenants prohibit ASC East and its subsidiaries from paying any
dividends or other distributions to the Company except for limited payments
permitted upon ASC East's meeting certain financial thresholds. ASC East is not
currently eligible to pay any dividends or distributions to the parent company
under these provisions. In addition, ASC East and its subsidiaries are
prohibited from entering into any transaction with the Company or its other
direct or indirect subsidiaries, except under certain conditions.
TEXTRON FINANCING
On August 1, 1997, Grand Summit Resort Properties, Inc. ("GSRP"), a
subsidiary of the Company, entered into a construction loan facility (the
"Construction Loan Facility") with Textron Financial Corporation, as agent and
co-lender, and Green Tree Financial Servicing Corporation, as co-lender
(together, the "Lenders") to develop Grand Summit Hotels. Pursuant to the terms
of the Construction Loan Facility, the Lenders have agreed to make available to
GSRP, under certain circumstances, up to $55 million to develop Grand Summit
Hotels at Sunday River, Killington and Mount Snow/Haystack, and to refinance an
existing $3.9 million facility used to finance construction of the Attitash
Grand Summit Hotel. After an initial advance to refinance the Attitash Grand
Summit Hotel facility and to finance certain pre-construction costs, the loan is
to be funded in a series of advances through August 1999 as construction costs
are incurred. Each advance is subject to certain conditions, including GSRP
obtaining certain levels of preconstruction sales. Interest on the loan will
accrue at the prime rate established by Chase Manhattan Bank as of the first day
of each month, plus 1.5%, but will not accrue at less than 9.25% per annum. The
loan will be secured by (i) a first mortgage on the hotel resort properties,
(ii) any interests that the Company may have in purchased quartershare units,
including sales contracts, and (iii) other security interests granted by GSRP,
each on a cross-collateralized basis. The loan is non-recourse to the Company
and its other subsidiaries. Interest on the loan is due and payable monthly in
arrears, however, GSRP may take interest advances to pay such interest.
Principal will be repaid on the following basis: (i) as quartershare sales close
at the Attitash project, an amount equal to 85% of the sales proceeds payable in
connection with the sale, (ii) as quartershare sales close at The Jordan Bowl,
Killington and Mount Snow/ Haystack projects, an amount equal to 80% of the
sales proceeds payable in connection with the sale, (iii) an amount equal to the
rental payments received by GSRP from an ASC East subsidiary for the lease
81
<PAGE>
of the Grand Summit Hotels (aggregating $193,000 per month) and (iv) other
amounts upon the aggregate of original or outstanding advances exceeding certain
construction costs and quartershare sales levels; provided, however, that the
Construction Loan Facility will mature at the end of December 2000. The loan
contains various covenants that limit GSRP, subject to certain exceptions, with
respect to indebtedness, liens, sales of assets, consolidations or mergers,
distributions, transactions with affiliates and certain other business
activities.
OTHER INDEBTEDNESS
In addition to the indebtedness described above, certain of the Company's
subsidiaries have other outstanding debt obligations pursuant to certain
promissory notes, bonds, capital leases and other instruments. A brief
description of certain material debt obligations is set forth below.
The Company's Killington, Ltd. subsidiary is an obligor under certain
subordinated debentures in multiple series due in various principal amounts from
1999 through 2016, with interest rates of 6% or 8%. The aggregate balance of the
subordinated debentures, as of October 26, 1997, was approximately $11.0
million. The subordinated debentures contain certain covenants that limit,
subject to certain exceptions, the ability of Killington, Ltd. to incur
indebtedness and to make dividends and distributions.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMERICAN SKIING COMPANY
Report of Independent Accountants--July 28, 1996 and July 27, 1997 and for the three years in the period
ended July 27, 1997.................................................................................... F-2
Consolidated Balance Sheet--July 28, 1996 and July 27, 1997.............................................. F-3
Consolidated Statement of Operations--For the years ended July 30, 1995, July 28, 1996 and July 27,
1997................................................................................................... F-4
Consolidated Statement of Changes in Shareholders' Equity--For the years ended July 30, 1995, July 28,
1996 and July 27, 1997................................................................................. F-5
Consolidated Statement of Cash Flows--For the years ended July 30, 1995, July 28, 1996 and July 27,
1997................................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
Condensed Consolidated Balance Sheet--October 26, 1997 and October 27, 1996 (unaudited).................. F-30
Condensed Consolidated Statement of Operations--For the three months ended October 26, 1997 and October
27, 1996 (unaudited)................................................................................... F-31
Condensed Consolidated Statement of Cash Flows--For the three months ended October 26, 1997 and October
27, 1996 (unaudited)................................................................................... F-32
Notes to (Unaudited) Condensed Consolidated Financial Statements......................................... F-33
S-K-I LTD.
Report of Independent Accountants........................................................................ F-35
Consolidated Balance Sheet--July 31, 1994 and 1995....................................................... F-36
Consolidated Statement of Income--For the years ended July 31, 1993, 1994, and 1995...................... F-37
Consolidated Statement of Changes in Stockholders' Equity--For the three years ended July 31, 1995....... F-38
Consolidated Statement of Cash Flows--For the years ended July 31, 1993, 1994, and 1995.................. F-39
Notes to Consolidated Financial Statements............................................................... F-40
Consolidated Balance Sheet--April 28, 1996 (unaudited)................................................... F-49
Consolidated Statement of Income--For the nine months ended April 30, 1995 and April 28, 1996
(unaudited)............................................................................................ F-50
Consolidated Statement of Cash Flows--For the nine months ended April 30, 1995 and April 28, 1996
(unaudited)............................................................................................ F-51
Notes to (Unaudited) Condensed Consolidated Financial Statements......................................... F-52
KAMORI COMBINED ENTITIES
Report of Independent Public Accountants................................................................. F-55
Combined Balance Sheets as of May 31, 1996 and 1997...................................................... F-56
Combined Statements of Operations for the years ended May 31, 1995, 1996 and 1997........................ F-57
Combined Statements of Stockholders' Equity for the years ended May 31, 1995,
1996 and 1997.......................................................................................... F-58
Combined Statements of Cash Flows for the years ended May 31, 1995, 1996 and 1997........................ F-59
Notes to Combined Financial Statements................................................................... F-60
Condensed Combined Balance Sheets as of August 31, 1996 and 1997 (unaudited)............................. F-68
Condensed Combined Statement of Operations for the three months ended
August 31, 1996 and 1997 (unaudited)................................................................... F-70
Condensed Combined Statements of Cash Flows for the three months ended
August 31, 1996 and 1997 (unaudited)................................................................... F-71
Notes to Condensed Combined Financial Statements as of August 31, 1996 and 1997 (unaudited).............. F-72
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of American Skiing Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
American Skiing Company and its subsidiaries at July 28, 1996 and July 27, 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended July 27, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, MA
September 19, 1997, except as to Note 16 which
is as of October 10, 1997
F-2
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................... $ 3,185 $ 15,558
Restricted cash..................................................................... 902 2,812
Investments held in escrow.......................................................... 14,497 --
Accounts receivable................................................................. 2,458 3,801
Inventory........................................................................... 5,025 7,282
Prepaid expenses.................................................................... 3,371 1,579
Deferred financing costs............................................................ 1,056 1,338
Real estate developed for sale...................................................... 1,331 537
Assets held for sale................................................................ 14,921 --
Deferred tax assets................................................................. 588 422
------------ ------------
Total current assets.............................................................. 47,334 33,329
Property and equipment, net........................................................... 227,470 252,346
Goodwill.............................................................................. 6,540 10,664
Deferred financing costs.............................................................. 7,911 8,093
Long-term investments................................................................. 4,343 3,507
Other assets.......................................................................... 3,378 6,398
Real estate developed for sale........................................................ -- 23,003
Assets held for sale.................................................................. 1,756 --
------------ ------------
Total assets...................................................................... $ 298,732 $ 337,340
------------ ------------
------------ ------------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit and current portion of long-term debt................................ $ 22,893 $ 39,748
Accounts payable and other current liabilities...................................... 17,403 25,738
Deposits and deferred revenue....................................................... 3,541 4,379
Demand note, shareholder............................................................ 5,200 1,933
------------ ------------
Total current liabilities......................................................... 49,037 71,798
Long-term debt, excluding current portion............................................. 41,035 46,833
Subordinated notes and debentures..................................................... 146,792 149,749
Other long-term liabilities........................................................... 6,778 7,898
Minority interest in subsidiary....................................................... 2,492 626
Deferred income taxes................................................................. 30,695 28,514
------------ ------------
Total liabilities................................................................. 276,829 305,418
Commitments, lease contingencies and contingent liabilities
Mandatorily redeemable preferred stock; Series A, par value $1,000 per share, 200,000
shares authorized; 17,500 shares issued and outstanding; net of unaccreted issuance
costs and including accretion of discount and cumulative dividends in arrears
(redemption value of $18,537)....................................................... -- 16,821
SHAREHOLDERS' EQUITY
Common stock, Class A, par value of $.01 per share; 15,000,000 shares authorized;
14,760,530 issued and outstanding................................................... -- 10
Common stock, par value of $.01 per share; 1,000,000 shares authorized; 978,300 shares
issued and outstanding.............................................................. 10 --
Additional paid-in capital............................................................ 3,762 2,786
Retained earnings..................................................................... 18,131 12,305
------------ ------------
Total shareholders' equity........................................................ 21,903 15,101
------------ ------------
Total liabilities, mandatorily redeemable preferred stock and shareholders'
equity............................................................................ $ 298,732 $ 337,340
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
--------- ----------- -------------
<S> <C> <C> <C>
Net revenues:
Resort................................................................... $ 46,794 $ 63,489 $ 166,923
Real estate.............................................................. 7,953 9,933 8,468
--------- ----------- -------------
Total net revenues..................................................... 54,747 73,422 175,391
--------- ----------- -------------
Operating expenses:
Resort................................................................... 29,725 41,799 109,774
Real estate.............................................................. 3,994 5,844 6,813
Marketing, general and administrative.................................... 9,394 11,289 26,126
Depreciation and amortization............................................ 3,910 6,783 18,293
--------- ----------- -------------
Total operating expenses............................................... 47,023 65,715 161,006
--------- ----------- -------------
Income from operations..................................................... 7,724 7,707 14,385
--------- ----------- -------------
Other expenses:
Commitment fee........................................................... -- 1,447 --
Interest expense......................................................... 2,205 4,699 23,730
--------- ----------- -------------
Income (loss) before provision (benefit) for income taxes and minority
interest in loss of subsidiary........................................... 5,519 1,561 (9,345)
Provision (benefit) for income taxes....................................... 400 3,906 (3,613)
Minority interest in loss of subsidiary.................................... -- 108 (250)
--------- ----------- -------------
Net income (loss).......................................................... 5,119 (2,237) (5,482)
Accretion of discount and issuance costs and dividends accrued on
mandatorily redeemable preferred stock................................... -- -- 444
--------- ----------- -------------
Net income (loss) available to common shareholders......................... $ 5,119 $ (2,237) $ (5,926)
--------- ----------- -------------
--------- ----------- -------------
Pro forma net loss per weighted average common share outstanding........... $ (.38)
-------------
-------------
Pro forma weighted average common shares outstanding....................... 15,415,591
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK ADDITIONAL
------------------------ ------------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ----------- ------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994............. 116,737 $ 116 -- -- $ 1,635 $ 24,461 $ 26,212
Net income......................... -- -- -- -- -- 5,119 5,119
Distributions to Principal
Shareholder...................... -- -- -- -- -- (854) (854)
Contributions...................... -- -- -- -- 25 -- 25
----------- ----- ------------ ----- ----------- --------- ---------
Balance at July 30, 1995............. 116,737 116 -- -- 1,660 28,726 30,502
Net loss........................... -- -- -- -- -- (2,237) (2,237)
Distributions to Principal
Shareholder...................... -- -- -- -- -- (8,358) (8,358)
Contributions...................... -- -- -- -- 1,020 -- 1,020
Conversion of affiliate company
common stock to ASC common
stock............................ 822,431 (106) -- -- 106 -- --
Issuance of shares of common
stock............................ 39,132 -- -- -- 976 -- 976
----------- ----- ------------ ----- ----------- --------- ---------
Balance at July 28, 1996............. 978,300 10 -- -- 3,762 18,131 21,903
Exchange of the Principal
Shareholder's 96% interest in ASC
East for 100% of the Common Stock
of the Company................... (939,168) (10) -- -- -- -- (10)
Restatement of beginning of the
year retained earnings for the
establishment of the 4% minority
interest in ASC East and share of
earnings since inception......... (39,132) -- -- -- (976) 100 (876)
Issuance of Common Stock of the
Company to the Principal
Shareholder...................... 1,000,000 10 -- -- -- -- 10
Conversion of Common Stock to Class
A Common Stock................... (1,000,000) (10) 1,000,000 10 -- -- --
Stock split in October 1997,
accounted for retroactively...... -- -- 13,760,530 -- -- -- --
Accretion of discount and issuance
costs and dividends accrued on
mandatorily redeemable preferred
stock............................ -- -- -- -- -- (444) (444)
Net loss........................... -- -- -- -- -- (5,482) (5,482)
----------- ----- ------------ ----- ----------- --------- ---------
Balance at July 27, 1997............. -- $ -- 14,760,530 $ 10 $ 2,786 $ 12,305 $ 15,101
----------- ----- ------------ ----- ----------- --------- ---------
----------- ----- ------------ ----- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 5,119 $ (2,237) $ (5,482)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Minority interest in net loss of subsidiary............................ -- (108) (250)
Depreciation and amortization.......................................... 3,910 6,783 18,293
Amortization of discount on subordinated notes and debentures and other
liabilities.......................................................... -- 435 3,300
Income tax expense on conversion of S corporations to C corporations... -- 5,552 --
Deferred income taxes, net............................................. (488) (1,940) (3,332)
Decrease (increase) in assets:
Restricted cash and investments held in escrow..................... -- -- 12,587
Accounts receivable................................................ (684) 481 (1,343)
Inventory.......................................................... (876) (373) (2,257)
Prepaid expenses................................................... (324) (648) 1,792
Real estate developed for sale..................................... 3,377 2,523 (21,976)
Other assets....................................................... 54 (836) (872)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities..................... 2,460 (3,601) 6,794
Other liabilities.................................................. -- 490 (1,304)
Deposits and deferred revenue...................................... 45 944 838
---------- ----------- ----------
Net cash provided by operating activities.............................. 12,593 7,465 6,788
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of businesses, net of cash acquired................. (1,819) (97,079) (6,959)
Long-term investments...................................................... -- (450) 836
Capital expenditures....................................................... (12,024) (25,054) (23,267)
Proceeds from sale of property and equipment............................... -- -- 2,626
Cash payments on note receivable........................................... 250
Proceeds from sale of businesses........................................... -- -- 14,408
Other...................................................................... -- -- (1,964)
---------- ----------- ----------
Net cash used in investing activities.................................. $ (13,843) $ (122,583) $ (14,070)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
F-6
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from senior credit facility................................... $ -- $ 40,301 $ 14,766
Net proceeds from (payments of) line of credit............................. 2,820 (5,776) --
Net proceeds from (payments of) revolving credit loan...................... 1,150 (17,101) --
Proceeds from subordinated notes and debentures, net of investments held in
escrow................................................................... -- 121,126 --
Deferred financing costs................................................... -- (8,485) (1,567)
Proceeds from long-term debt............................................... 84 1,819 7,828
Payments of long-term debt................................................. (765) (13,625) (14,482)
Payments on Demand note, Shareholder....................................... -- -- (3,267)
Advances to Shareholder.................................................... (61) (156) --
Distributions to Shareholder............................................... (854) (3,158) --
Proceeds from issuance of mandatorily redeemable
preferred stock, net of issuance costs................................... -- -- 16,377
Capital contribution....................................................... 25 1,020 --
Issuance of shares of common stock......................................... -- 976 --
---------- ----------- ----------
Net cash provided by financing activities.............................. 2,399 116,941 19,655
---------- ----------- ----------
Net increase in cash and cash equivalents.............................. 1,149 1,823 12,373
Cash and cash equivalents, beginning of year................................. 213 1,362 3,185
---------- ----------- ----------
Cash and cash equivalents, end of year....................................... $ 1,362 $ 3,185 $ 15,558
---------- ----------- ----------
---------- ----------- ----------
Cash paid for interest....................................................... $ 1,056 $ 2,408 $ 20,998
Cash paid (refunded) for income taxes........................................ $ -- $ 15 $ (1,492)
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Property acquired under capitalized leases................................. $ 1,050 $ 435 $ 7,824
Liabilities assumed associated with purchased companies.................... $ 9,254 $ 58,497 $ 1,826
Deferred tax liability associated with purchased companies................. $ -- $ 28,372 $ --
Purchase price adjustments................................................. $ -- $ -- $ 1,541
Purchase price adjustments related to deferred taxes....................... $ -- $ -- $ 1,317
Note payable issued for distribution to Shareholder........................ $ -- $ 5,200 $ --
Note payable issued for purchase of a business............................. $ -- $ -- $ 6,500
Note receivable received for sale of businesses............................ $ -- $ -- $ 2,750
Recording of minority interest............................................. $ -- $ -- $ 626
Accretion of discount and issuance costs and dividends accrued on
mandatorily redeemable preferred stock................................... $ -- $ -- $ 444
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
American Skiing Company ("ASC") is organized as a holding company and
operates through various subsidiaries. ASC and its subsidiaries (collectively,
the "Company") operate primarily in a single business segment, which is the
operation and development of ski resorts.
ASC was originally formed on December 7, 1995. Through June 17, 1997,
American Skiing Company was a holding company and operated through various
subsidiaries. ASC Holdings, Inc. ("ASCH") was formed on June 17, 1997, when Les
Otten (the 'Principal Shareholder') exchanged his 96% ownership interest in ASC
for 100% of the common stock of ASCH. In conjunction with the formation of ASCH,
the Company changed the name of ASC to ASC East, Inc. ("ASC East") and recorded
the 4% minority interest in ASC East. The minority interest in ASC East of
$626,000 at July 27, 1997 is comprised of the fair market value of the stock
when issued to the minority shareholders of $976,000, less the minority interest
in the fiscal 1996 and 1997 losses of $100,000 and $250,000, respectively. On
September 4, 1997, ASCH changed its name to American Skiing Company. In October,
1997, the Company approved an increase in authorized shares of Common Stock, a
new issue of Class A Common Stock and a 14.76 for 1 stock split of shares of
Common Stock for shares of Class A Common Stock (Note 16).
For periods prior to June 17, 1997, the term 'Company' refers to ASC East
and its subsidiaries, and after such date, to American Skiing Company (formerly
ASCH) and its subsidiaries (including ASC East). In conjunction with the
formation of ASCH, the Company formed ASC Utah, a wholly-owned subsidiary, for
the purpose of acquiring The Canyons resort, including the Wolf Mountain ski
area in Utah. In August 1997, the Company formed ASC West for the purpose of the
anticipated acquisition of the Steamboat ski resort in Colorado and the Heavenly
Ski Resort in California.
Prior to June 28, 1996, the Company was a combined group of separate
entities which were wholly-owned by the Principal Shareholder. The outstanding
number of shares at July 30, 1995 of 116,737 represented the total outstanding
shares of the companies within the combined group. On June 28, 1996, the
Principal Shareholder exchanged all the outstanding shares of the combined group
for 939,168 shares of ASC common stock. Contemporaneously with the exchange, ASC
East purchased all the outstanding shares of common stock of S-K-I Limited, Inc.
('S-K-I') for $18.00 per share. Upon the acquisition of S-K-I, the companies
from the combined group and the S-K-I companies were formed into a consolidated
entity. In conjunction with the exchange and the acquisition of S-K-I, ASC East
issued 39,132 shares of common stock, representing a 4% minority interest in ASC
East, to an institutional investor in a private offering. The fair market value
of the common stock was $976,000 at the date of issuance and was recorded as
additional paid-in capital.
The Company owns and operates resort facilities, real estate development
companies, golf courses, ski and golf schools, retail shops and other related
companies at the following resorts:
VERMONT MAINE
Killington Resort Sunday River Ski Resort
Pico Ski Resort Sugarloaf Resort
Mount Snow/Haystack Resort NEW HAMPSHIRE
Sugarbush Resort Attitash Bear Peak Ski Resort
UTAH
The Canyons Resort (Wolf Mountain
ski area)
F-8
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
American Skiing Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
FISCAL YEAR
The Company's fiscal year is a fifty-two week or fifty-three week period
ending on the last Sunday of July. The periods for 1995, 1996 and 1997 consisted
of fifty-two weeks.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash represents amounts held in escrow for the buyers of
properties developed for sale. The cash will be available to the Company when
the properties are sold.
INVESTMENTS HELD IN ESCROW
Investments held in escrow at July 28, 1996 consisted of U. S. Treasury
Notes, the proceeds from the redemption of which were used for payment of
interest on the Subordinated Notes. These Treasury Notes were carried at cost
which approximated the quoted market values at July 28, 1996. At July 27, 1997,
the Company is no longer required to hold cash in escrow for payment of interest
on the Subordinated Notes.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist primarily of retail goods, food and beverage products and mountain
operating supplies.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated by the
straight-line method over the assets' estimated useful lives which generally
range from 9 to 40 years for buildings, 3 to 12 years for machinery and
equipment and 10 to 50 years for leasehold improvements, lifts, lift lines and
trails. Assets under capital lease are amortized over the shorter of their
useful lives or the respective lease lives.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
the net assets (including tax attributes) of companies acquired in purchase
transactions. Goodwill is being amortized using the straight-line method over 40
years. Goodwill is recorded net of accumulated amortization in the accompanying
consolidated balance sheet.
F-9
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Costs incurred in connection with the issuance of debt are included in
deferred financing costs, net of accumulated amortization. Amortization is
calculated using the straight-line method over the respective original lives of
the applicable issues and is included in depreciation and amortization in the
accompanying consolidated statement of operations. Amortization calculated using
the straight-line method is not materially different from amortization that
would have resulted from using the interest method.
LONG-TERM INVESTMENTS
Long-term investments are comprised of U.S. Government and Agency
obligations and corporate obligations. It is management's intent to hold these
securities until maturity. These securities are carried at amortized cost, which
approximates quoted market values at July 28, 1996 and July 27, 1997.
LONG-LIVED ASSETS
Effective July 29, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). In accordance
with SFAS 121, whenever events or circumstances indicate that the carrying value
of the long-lived assets, identifiable intangibles and real estate developed for
sale may not be recoverable, impairment losses are recorded and the related
assets are adjusted to their estimated fair market value, less selling costs. As
of July 27, 1997, management believes that there has not been any impairment of
the Company's long-lived assets, identifiable intangibles or real estate
developed for sale.
REVENUE RECOGNITION
Resort revenues include sales of lift tickets, tuition from ski schools,
sales from restaurants, bars and retail shops, and real estate rentals. These
revenues are recognized as the services are performed. Real estate revenues are
recognized when title has been transferred. Deposits from buyers of real estate
are recorded as deposits and deferred revenue in the accompanying balance sheet
until the revenue is recognized and the amount is applied to the selling price.
Original acquisition costs, direct construction and development costs,
interest incurred on costs related to land under development, and other related
costs (engineering, surveying, landscaping, etc.) are recorded in the
accompanying consolidated balance sheet as real estate developed for sale.
INTEREST
Interest is expensed as incurred except when it is capitalized in
conjunction with major capital additions and development of real estate for
sale. The amounts of interest capitalized are determined by applying current
interest rates to the funds required to finance the construction. During 1995,
1996 and 1997, the Company incurred total interest cost of $2.4 million, $5.1
million and $24.3 million, respectively, of which $224,000, $444,000 and
$575,000, respectively, has been capitalized to property and equipment and real
estate developed for sale.
F-10
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE BENEFITS
In August 1997, the Company established the ASC 401(k) Retirement Plan
pursuant to Section 401(k) of the Internal Revenue Code which allows all
eligible employees to defer up to 15% of their income. The Company's match of
participants' contributions is discretionary. As of July 27, 1997, the Company
maintained two profit sharing and two savings plans pursuant to Section 401(k)
of the Internal Revenue Code. There were no contributions to the profit sharing
plans for 1995, 1996 and 1997. Contributions to the savings plans for 1995, 1996
and 1997 totaled $107,000, $87,000 and $301,000, respectively. These four plans
were rolled into the ASC 401(k) Retirement Plan subsequent to year end.
ADVERTISING COSTS
Advertising costs are expensed the first time the advertising takes place.
At July 28, 1996 and July 27, 1997, advertising costs of $282,000 and $384,000,
respectively, were recorded as current assets in the accompanying consolidated
balance sheet. Advertising expense for the years ended July 30, 1995, July 28,
1996 and July 27, 1997 was $4.5 million, $5.7 million and $5.2 million,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts and disclosures reported in the accompanying
consolidated financial statements. Actual results could differ from those
estimates.
SEASONALITY
The occurrence of adverse weather conditions during key periods of the ski
season could adversely affect the Company's operating results. In addition, the
Company's revenues are highly seasonal in nature, with the majority of its
revenues historically being generated in the second and third fiscal quarters,
of which a significant portion is produced in two key weeks--the Christmas and
Presidents' Day vacation weeks.
EARNINGS PER SHARE
Given the capital structure of the Company, historical earnings per share
information is not considered meaningful or relevant and, therefore, has not
been presented in the accompanying financial statements.
Unaudited pro forma net loss per weighted average common share outstanding
was calculated by dividing the net loss available to common shareholders by the
weighted average number of common shares outstanding, giving effect to the stock
split (Note 16), the 622,038 options (the "Options") granted to certain
executive officers of the Company with an exercise price below the estimated
Offering share price (Note 16) and the Securities (Note 13). The net loss
available to common shareholders does not reflect the compensation charge of
$13.9 million that the Company will record in fiscal 1998 pertaining to the
grant of the Options and the related income tax gross-up payable by the Company.
The weighted average number of common shares relating to the Options and the
Securities were determined by including all potentially dilutive instruments
granted or issued within one year prior to an initial public offering, through
the effective date of the offering, at an exercise price less than the initial
public offering price, in accordance
F-11
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with the Securities and Exchange Commission Staff Accounting Bulletin No. 83,
with the dilutive effect measured using the treasury stock method. The primary
and fully diluted calculations of pro forma net loss per weighted average common
share are the same, as inclusion of all other potentially dilutive instruments
in the loss per share calculation would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
This pronouncement will be effective for the Company's year ended July 28, 1998
financial statements. SFAS 128 will supersede the pronouncement of the
Accounting Principles Board Opinion No. 15. The statement eliminates the
calculation of primary earnings per share and requires the disclosure of Basic
Earnings Per Share and Diluted Earnings Per Share (formerly referred to as fully
diluted earnings per share), if applicable. As the Company has recorded net
losses for the years ended July 28, 1996 and July 27, 1997, any common stock
equivalents would be antidilutive; therefore, primary earnings per share as
presented on the consolidated statements of operations is equivalent to Basic
Earnings Per Share and Diluted Earnings Per Share under SFAS 128.
STOCK COMPENSATION
The Company's stock option plan is accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, ("SFAS 123"), "Accounting for
Stock-Based Compensation" (Note 16).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts for cash and cash equivalents, restricted cash,
accounts receivable and accounts payable and other current liabilities
approximate fair value due to the short-term nature of these financial
instruments. The fair values of amounts outstanding under the Company's Senior
Credit Facility and certain other debt instruments approximates their book
values in all material respects, as determined by discounting future cash flows
at current market interest rates as of July 27, 1997. The fair value of the
Company's Senior Subordinated Notes has been estimated using quoted market
values. The fair value of the Company's Subordinated Discount Notes and the
subordinated debentures of Killington Ltd. have been estimated using discounted
cash flow analyses based on current borrowing rates for debt with similar
maturities and ratings.
The estimated fair values of the Senior Subordinated Notes, the Subordinated
Discount Notes and the subordinated debentures of Killington Ltd. at July 27,
1997 are presented below (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
12% Senior Subordinated Notes due 2006................................ $ 116,678 $ 127,400
13.75% Subordinated Discount Notes due 2007........................... 22,121 22,121
Subordinated debentures of Killington Ltd............................. 10,950 9,286
---------- ----------
$ 149,749 $ 158,807
---------- ----------
---------- ----------
</TABLE>
F-12
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement and tax bases of assets
and liabilities, utilizing currently enacted tax rates. The effect of any future
change in tax rates is recognized in the period in which the change occurs.
As described in Note 13, certain of the Company's subsidiaries had
previously elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code of 1986, as amended, with income or loss and credits
passed through to the shareholder. Concurrent with the acquisition of S-K-I, the
subsidiaries' election to be treated as S corporations terminated.
3. BUSINESS ACQUISITIONS AND DIVESTMENTS
On June 28, 1996, the Company acquired S-K-I (the "Acquisition") for a total
purchase price, including direct costs, of $104.6 million including liabilities
assumed (excluding deferred taxes) of $58.5 million for all of the shares
outstanding of S-K-I common stock. Pursuant to the transaction, S-K-I became a
wholly-owned subsidiary of the Company. The acquisition was accounted for using
the purchase accounting method. The consolidated financial statements contained
herein reflect the results of operations of the acquired S-K-I entities
subsequent to June 28, 1996 and include the balance sheet accounts of the
acquired S-K-I entities at July 28, 1996 and July 27, 1997.
The purchase price was allocated to the fair values of S-K-I's assets and
liabilities at the date of acquisition as follows (in thousands):
<TABLE>
<CAPTION>
FAIR VALUE OF
NET ASSETS
ACQUIRED
------------------
<S> <C>
Cash...................................................................... $ 7,540
Accounts receivable, net.................................................. 1,625
Inventory................................................................. 3,271
Prepaid expenses.......................................................... 2,153
Property and equipment, net............................................... 163,745
Long-term investments..................................................... 3,893
Goodwill.................................................................. 6,554
Other assets.............................................................. 2,156
--------
Total assets.......................................................... 190,937
--------
Accounts payable and accrued expenses..................................... (16,567)
Other liabilities......................................................... (5,301)
Minority interest......................................................... (2,600)
Debt acquired............................................................. (34,029)
Deferred income taxes..................................................... (27,820)
--------
Total liabilities..................................................... (86,317)
--------
Total................................................................. $ 104,620
--------
--------
</TABLE>
F-13
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS ACQUISITIONS AND DIVESTMENTS (CONTINUED)
During fiscal 1997, the Company recorded purchase price adjustments totaling
$4.3 million pertaining to the Acquisition.
Amortization of goodwill charged to depreciation and amortization amounted
to $14,000 and $217,000 for 1996 and 1997, respectively. Accumulated
amortization of goodwill amounted to $14,000 and $231,000 at July 28, 1996 and
July 27, 1997, respectively.
Pursuant to a consent decree with the U.S. Department of Justice in
connection with the Acquisition, the Company sold the assets constituting the
Mt. Cranmore and Waterville Valley resorts for $17.2 million on November 27,
1996. The assets held for sale of the Mt. Cranmore resort included in the
accompanying consolidated balance sheet as of July 28, 1996 are approximately
$4.4 million and the net income for the year ended July 28, 1996 of the Mt.
Cranmore resort included in the accompanying consolidated statement of
operations is approximately $251,000. The assets held for sale of the Waterville
resort included in the accompanying consolidated balance sheet as of July 28,
1996 are approximately $12.3 million.
In November 1996, the Company purchased the Pico Ski Resort for a total
purchase price of $5.0 million. The purchase price includes a cash payment of
$3.4 million and assumed liabilities of $1.6 million. In July 1997, the Company
purchased The Canyons, including the Wolf Mountain ski area, for a total
purchase price of $8.3 million. The purchase price includes a cash payment of
$1.6 million, assumed liabilities of $200,000 and the issuance of a note payable
in the amount of $6.5 million.
On August 30, 1996, the Company purchased the remaining 49% minority
interest in Sugarloaf, with a carrying amount of $2.5 million, for $2.0 million
cash. In connection with the purchase, the Company recorded a liability in the
amount of $492,000 to provide for contingent consideration that may be paid
pursuant to the purchase agreement. The liability is included in other long-term
liabilities in the accompanying consolidated balance sheet at July 27, 1997.
Contemporaneously with the purchase of Sugarloaf, the Company paid certain debt
in advance of its maturity and incurred a prepayment penalty of $600,000. The
prepayment penalty is recorded in interest expense in the accompanying
consolidated statement of operations for the year ended July 27, 1997.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of S-K-I, the divestitures of Mt. Cranmore
and Waterville Valley, the purchase of the minority interest of Sugarloaf, and
the termination of S corporation status of the S corporations (which reflects
the estimated results of operations as if Sunday River Skiway Corporation
("SRSC"), Sunday River Ltd. ("SRL"), Perfect Turn, Inc. ("PT") and Sunday River
Transportation Co. ("SRTC"), wholly-owned subsidiaries of the Company, had been
subject to corporate income taxes) had occurred on July 31, 1995 and July 29,
1996 (in thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 30, JULY 28,
1995 1996
----------- -----------
<S> <C> <C>
Revenues............................................................. $ 149,031 $ 171,666
Net loss............................................................. $ (8,133) $ (3,785)
Net loss per share................................................... -- $ (3.87)
</TABLE>
The pro forma financial information is not intended to be indicative of the
results of operations that actually would have occurred had the transactions
taken place at the beginning of the years presented or of future results of
operations.
F-14
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REAL ESTATE OPERATIONS
In addition to its resort operations, the Company engages in various real
estate activities including rental services and the development of real estate
for sale. During development, real estate taxes, insurance, interest, planning
and permitting costs are capitalized. Profit is recognized from the sale of such
property at the time of closing, when the Company has no ongoing involvement in
the specific property sold. The carrying value of the property developed for
sale is reduced to net realizable value if the asset carrying value is
determined not to be recoverable through expected undiscounted future cash
flows.
Properties developed for sale consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 27,
JULY 28, 1996 1997
------------- ------------
<S> <C> <C>
Summit hotel completed units and hotels under development............................. $ 36 $ 22,685
Locke mountain........................................................................ 603 --
Other................................................................................. 692 855
------ ------------
$ 1,331 $ 23,540
------ ------------
------ ------------
</TABLE>
F-15
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
The following reflects the combination of both owned property and equipment
as well as assets acquired pursuant to capital leases (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
---------- ----------
<S> <C> <C>
Buildings and grounds................................................. $ 62,301 $ 69,635
Machinery and equipment............................................... 53,422 61,218
Lifts and lift lines.................................................. 56,370 60,769
Trails................................................................ 11,064 11,667
Land improvements..................................................... 10,819 18,096
---------- ----------
193,976 221,385
Less--accumulated depreciation and amortization....................... 20,737 36,940
---------- ----------
173,239 184,445
Land.................................................................. 50,685 49,160
Construction-in-process............................................... 3,546 18,741
---------- ----------
Net property and equipment............................................ $ 227,470 $ 252,346
---------- ----------
---------- ----------
</TABLE>
Property and equipment includes approximately $3.5 million and $10.7 million
of machinery and equipment held under capital leases at July 28, 1996 and July
27, 1997, respectively. Related accumulated amortization at July 28, 1996 and
July 27, 1997 on property and equipment under capital leases was approximately
$1.0 million and $2.3 million, respectively. Amortization expense for property
and equipment under capital leases and included in depreciation expense was
approximately $406,000, $493,000 and $1.6 million for 1995, 1996 and 1997,
respectively. Depreciation expense was $3.8 million, $6.7 million and $16.6
million for 1995, 1996 and 1997, respectively.
6. NOTE RECEIVABLE
In connection with the sale of Mt. Cranmore and Waterville Valley in
November 1996, the Company received a promissory note in the amount of $2.8
million. Interest on the note is charged at a rate of 12% per annum and is
payable semi-annually on December 31 and June 30. The note shall be paid in
annual installments of $250,000, $100,000, $150,000, $200,000, $250,000,
$300,000 and $350,000 beginning in January 1997 through January 2003, with the
remaining balance to be paid in June 2004. The balance of the note at July 27,
1997 of $2.5 million is included in other assets in the accompanying
consolidated balance sheet.
7. NOTE RECEIVABLE, AFFILIATE
The note receivable in the amount of $265,000 at July 28, 1996 and $250,000
at July 27, 1997 is from Ski Dorms, Inc., a company which is principally owned
by the Principal Shareholder of the Company, and is secured by a mortgage on
land and building. Interest is charged at Fleet National Bank's prime rate plus
1 1/2% and principal and any unpaid interest are due in December, 1999. Accrued
interest receivable on this note at July 28, 1996 and July 27, 1997 was $179,000
and $10,000, respectively. The balance of the note and the accrued interest
receivable are included in other assets.
F-16
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEMAND NOTE, SHAREHOLDER
In June 1996, prior to the Acquisition, Sunday River, now a wholly-owned
subsidiary of ASC East, delivered to the Shareholder a demand note in the
principal amount of $5.2 million for the amount expected to become payable by
the Principal Shareholder in 1996 and 1997 for income taxes with respect to
Sunday River's income as an S corporation through the date of the Acquisition.
The demand note is unsecured and bears interest at 5.4% per annum, the
applicable federal rate in effect at the time of issuance.
9. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
--------- ---------
<S> <C> <C> <C>
Senior Credit Facility (see Note 11)..................................................... $ 40,301 $ 55,067
Subordinated debentures issued to the former shareholders of Mt. Attitash Lift
Corporation by L.B.O. Holding, Inc. ("LBO"), with an original face value of $2,151 (a
discount has been reflected based on the Company's incremental borrowing rate at the date
of issuance). The initial coupon rate is 6% per annum, to be adjusted annually based on
the revenues of LBO, as defined in the agreement. Interest is payable annually on May 1,
beginning in 1995. LBO may prepay the outstanding principal balance from time to time.
Any prepayment prior to April 30, 1999 is subject to a discount, as described in the
agreement. Holders of the debentures have certain redemption rights prior to May 1 of
each year, subject to limitation and discount as described in the agreement.............. 1,709 1,777
Promissory note issued to Snowridge, Inc. by Sugarbush Resort Holdings, Inc.
("Sugarbush") with a face value of $6,120 (a discount has been reflected based on an
imputed interest rate of 9.5%) and an interest rate of 6.25%. Interest is payable
quarterly beginning June 30, 1995. A principal payment of $620 was made on November 1,
1995 and the remaining principal and accrued interest outstanding are due on December 31,
1999. The note is collateralized by certain assets (as defined in the loan agreement) of
Sugarbush................................................................................ 4,984 5,128
Promissory note in the amount of $2,311 issued to LHC Corporation (an affiliate of
Snowridge, Inc.) by Mountain Waste Water Co. ("MWWC", a wholly-owned company of
Sugarbush), which is secured by the stock of MWWC and Mountain Water Company (a
wholly-owned company of Sugarbush) as well as letters of credit in the amount of $100.
The note bears interest at 9% or prime plus 1%, which is due June 1 of each year
beginning in 1995. Principal payments of $154 are due each June 1, beginning in 1997,
with the balance due on June 1, 2003..................................................... 2,311 2,158
Vermont Industrial Development Bonds, fluctuating interest rates, 1996- 3.56% to 4.83%;
1997- 4.03% to 4.50% due in varying installments through 1999, secured by certain
machinery and equipment and real estate.................................................. 2,695 1,005
Town of Carrabassett Valley, Maine, $3,700 term loan due August 27, 2013 in serial
maturities, interest at rates ranging from 5.0% to 8.5%, secured by first mortgages on
property, plant and equipment............................................................ 3,515 --
</TABLE>
F-17
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C>
9. LONG-TERM DEBT (CONTINUED)
<CAPTION>
JULY 28, JULY 27,
1996 1997
--------- ---------
<S> <C> <C> <C>
First National Bank of Boston, $1,600 revolving loan due August 31, 1996 interest at the
bank's prime plus .5% (8.75%) at July 28, 1996........................................... 1,600 --
Note payable to Wolf Mountain Resorts, L.L.C. in an aggregate principal amount of $6.5
million to finance the acquisition of The Canyons resort and Wolf Mountain Ski area. The
note bears interest at a rate of 12% per annum which is payable monthly. The principal is
payable in installments of $4.2 million upon the effective date of the offering for sale
of the Company's Common Stock to the public and $2.3 million in January 1998............. -- 6,500
Note payable by Grand Summit Resort Properties, Inc. (a wholly-owned subsidiary of the
Company) to Key Bank in the amount of $8.5 million to finance the acquisition of land for
a hotel at the Attitash Bear Peak resort. The note matures on July 26, 1998.............. -- 4,250
OTHER
Obligations under capital leases......................................................... 1,301 7,840
Other notes payable...................................................................... 5,512 2,856
--------- ---------
63,928 86,581
Less: current portion.................................................................... 22,893 39,748
--------- ---------
Long-term debt, excluding current portion................................................ $ 41,035 $ 46,833
--------- ---------
--------- ---------
</TABLE>
The carrying values of the above debt instruments approximate their
respective fair values in all material respects, determined by discounting
future cash flows at current market interest rates as of July 27, 1997.
The non-current portion of long-term debt matures as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 33,055
2000............................................................................... 7,576
2001............................................................................... 1,675
2002............................................................................... 3,527
2003 and thereafter................................................................ 2,975
Interest related to capitalized leases............................................. (1,263)
Debt discount...................................................................... (712)
---------
$ 46,833
---------
---------
</TABLE>
At July 27, 1997, the Company had letters of credit outstanding totaling
$3.0 million.
F-18
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBORDINATED NOTES AND DEBENTURES
On June 25, 1996, in connection with the Acquisition, ASC East issued $120.0
million of 12% Senior Subordinated Notes (the "Notes") and 39,132 units
consisting of $39.1 million of 13.75% Subordinated Discount Notes (the
"Subordinated Notes") and 39,132 shares of common stock in a private placement.
The Notes and Subordinated Notes are general unsecured obligations of ASC East,
subordinated in right of payment to all existing and future debt of ASC East,
including all borrowings of the Company under the Senior Credit Facility. The
Notes and Subordinated Notes mature July 15, 2006 and January 15, 2007,
respectively, and will be redeemable at the option of ASC East, in whole or in
part, at any time after July 15, 2001. ASC East incurred deferred financing
costs totaling $7.9 million in connection with the issuance of the Notes and
Subordinated Notes which are recorded as assets, net of accumulated
amortization, in the accompanying consolidated balance sheet. Amortization
expense included in the accompanying consolidated statement of operations for
the years ended July 28, 1996 and July 27, 1997 amounted to $58,000 and
$781,000, respectively. Pursuant to a registration rights agreement, ASC East
filed a registration statement with respect to an offer to exchange the Notes
and Subordinated Notes for a new issue of notes of ASC East registered under the
Securities Act of 1933, with identical terms. The registration statement became
effective in November 1996.
The Notes were issued with an original issue discount of $3.4 million and,
as a result, the effective interest rate exceeds the stated interest rate.
Interest on the Notes is payable semi-annually on January 15 and July 15 of each
year, commencing on January 15, 1997. Interest expense on the Notes amounted to
$1.1 million and $14.6 million in 1996 and 1997, respectively.
Upon issuance of the Notes, a portion of the proceeds were required to be
invested into a segregated pledge account (the "Pledge Account") to secure the
payment of the first year's interest on the Notes. At July 28, 1996, the balance
in the Pledge Account was $14,497 and was invested in U.S. Treasury obligations.
Following the July 15, 1997 interest payment, the amount remaining in the Pledge
Account was not material and was released to ASC East. The balance in the Pledge
Account at July 28, 1996 is reflected in Investments held in escrow in the
accompanying consolidated balance sheet.
The Subordinated Notes were issued with an original issue discount of $19.0
million. Interest on the Subordinated Notes will not accrue prior to July 15,
2001; thereafter, interest will accrue at the rate of 13.75% per annum and will
be payable semi-annually on January 15 and July 15 of each year, commencing on
January 15, 2002. Interest expense on the Subordinated Notes amounted to
$206,000 and $2.9 million in 1996 and 1997, respectively. The shares of common
stock issued with the Subordinated Notes represent 4% of the total common stock
outstanding of ASC East and were valued at $976,000 as of June 28, 1996.
F-19
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBORDINATED NOTES AND DEBENTURES (CONTINUED)
Subordinated debentures of Killington, Ltd. (a wholly-owned subsidiary of
the Company) amounted to $10,950,000 at July 27, 1997 and are due as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR INTEREST AMOUNT
- ------------------------------------------------------ ------------- ---------
<S> <C> <C>
1999.................................................. 6% $ 455
2000.................................................. 6% 673
2001.................................................. 8% 525
2002.................................................. 8% 549
2003.................................................. 8% 1,074
2004.................................................. 8% 1,466
2010.................................................. 8% 1,292
2012.................................................. 6% 1,155
2013.................................................. 6% 1,065
2015.................................................. 6% 1,500
2016.................................................. 6% 1,196
---------
$ 10,950
---------
---------
</TABLE>
11. SENIOR CREDIT FACILITY
On June 25, 1996, ASC East entered into the Senior Credit Facility (the
"Facility") with Fleet National Bank ("Fleet"). The Facility provides for a
$65.0 million revolving line of credit (which includes a $3.5 million
sub-facility for letters of credit). The ASC East obligations under the Facility
are guaranteed by substantially all of the assets of ASC East. Under the
Facility, ASC East may enter into LIBOR contracts which provide for a fixed rate
of interest on certain borrowings for a period of time not to exceed 90 days. At
July 28, 1996 and July 27, 1997, ASC East had outstanding borrowings of $37.0
million and $53.0 million, respectively under LIBOR contracts which bear
interest at a rate of 7.94% per annum at July 28, 1996 and at rates ranging from
8.17% to 8.19%, per annum at July 27, 1997. The balance of the borrowings
outstanding at July 28, 1996 and July 27, 1997 of $3.3 million and $2.1 million,
respectively, bear interest at Fleet's LIBOR rate plus 1.5% to 2.5% per annum
(9.75% and 10.0% at July 28, 1996 and July 27, 1997, respectively).
ASC East is required to pay a commitment fee of 0.5% per annum on unused
availability under the credit facility. Amounts available for borrowing under
the Facility will incrementally decline to $50.0 million over the period ending
July 1, 2000, and the Facility will mature on or about December 31, 2001. ASC
East is required to pay down the amounts outstanding each year, commencing in
1996, for a 45-day period which must include March 31, to an amount declining
from $25.0 million in 1997 to $10.0 million in 2000 and 2001. In establishing
the Facility, ASC East incurred deferred financing costs totaling $1.5 million
which are recorded as assets, net of accumulated amortization, in the
accompanying consolidated balance sheet. Amortization expense included in the
accompanying consolidated statement of operations for the years ended July 28,
1996 and July 27, 1997 amounted to $23,000 and $322,000, respectively.
F-20
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SENIOR CREDIT FACILITY (CONTINUED)
As of July 27, 1997, the Company was in violation of certain financial
covenants under the Facility. Subsequent to year end, the violations were waived
by Fleet as of the balance sheet date and the financial covenants with respect
to which the Company was in default were amended. Subsequent to year end, the
Company received a signed commitment from a lender for a new financing
arrangement to refinance the Facility and, therefore, the amounts due under the
Facility beyond one year from the balance sheet date have been classified as
long term (Note 16).
12. INCOME TAXES
Prior to June 28, 1996, certain companies comprising ASC Holdings, Inc.,
SRSC, SRL, PT and SRTC (the "S Corporations") had elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986, as amended.
Accordingly, no income tax provision or liability has been made for these
companies for the year ended July 30, 1995 and the period from July 31, 1995 to
June 28, 1996. For federal and state income tax purposes, taxable income, losses
and tax credits are passed through to the Shareholder, who is individually
responsible for reporting his share of such items. The Company distributed to
the Shareholder amounts sufficient to pay his personal income taxes based on the
S Corporations' earnings.
In conjunction with the Acquisition, the S Corporations changed from S
corporation status to C corporation status. As a result, the income or loss of
the S Corporations subsequent to June 28, 1996 will be subject to corporate
income tax. The income tax provision described below for the years ended July
28, 1996 and July 27, 1997 includes the income taxes related to the S
Corporations since June 28, 1996.
At the time of conversion of the S Corporations to C corporation status, a
net deferred tax liability of $5.6 million was recorded through the income tax
provision. This deferred tax liability was primarily comprised of the tax effect
of the cumulative book and tax basis differences of property and equipment at
the time of conversion.
The provision (benefit) for income taxes charged to continuing operations
was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JULY 28, JULY 27,
JULY 30, 1995 1996 1997
--------------- ------------ ------------
<S> <C> <C> <C>
Current tax expense
Federal.............................................................. $ 248 $ -- $ --
State................................................................ 55 -- --
----- ------------ ------------
303 -- --
----- ------------ ------------
Deferred tax expense
Federal.............................................................. 77 (1,330) (2,815)
State................................................................ 20 (316) (798)
----- ------------ ------------
97 (1,646) (3,613)
----- ------------ ------------
Change in tax status from S Corporation to C Corporation............... -- 5,552 --
----- ------------ ------------
Total provision (benefit).............................................. $ 400 $ 3,906 $ (3,613)
----- ------------ ------------
----- ------------ ------------
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Under SFAS 109, the benefit
associated with future deductible temporary differences and operating loss or
credit carryforwards is recognized if it is more likely than not that a benefit
will be realized. Deferred tax expense (benefit) represents the change in the
net deferred tax asset or liability balance.
F-21
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following at July 28,
1996 and July 27, 1997 (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 27,
1996 1997
---------- ----------
<S> <C> <C>
Property and equipment basis differential................................................ $ 36,917 $ 40,040
Other.................................................................................... 753 907
---------- ----------
Gross deferred tax liabilities........................................................... 37,670 40,947
---------- ----------
Tax loss and credit carryforwards........................................................ (11,414) (16,766)
Capitalized cost......................................................................... (1,473) (543)
Other.................................................................................... (1,764) (1,589)
Original issue discount on Subordinated Notes............................................ -- (1,212)
---------- ----------
Gross deferred tax assets................................................................ (14,651) (20,110)
---------- ----------
Valuation allowance...................................................................... 7,369 7,255
---------- ----------
30,388 28,092
---------- ----------
Less: Net deferred tax liability related to assets held for sale......................... 281 --
---------- ----------
$ 30,107 $ 28,092
---------- ----------
---------- ----------
</TABLE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
of 35% to income (loss) before provision (benefit) for income taxes and minority
interest in loss of subsidiary as a result of the following differences (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JULY 30, JULY 28, JULY 27,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory U.S. tax rates................... $ 1,932 $ 546 $ (3,271)
Increase (decrease) in rates resulting from:
Change in tax status from S Corporation to C Corporation..................... -- 5,552 --
Income from S Corporations not taxable for corporate income tax purposes..... (1,679) (2,371) --
State taxes, net............................................................. 115 -- (798)
Change in valuation allowance................................................ -- -- 71
Nondeductible items.......................................................... 32 41 243
Other........................................................................ -- 138 142
--------- --------- ---------
Income tax provision (benefit) at the effective tax rates........................ $ 400 $ 3,906 $ (3,613)
--------- --------- ---------
--------- --------- ---------
</TABLE>
At July 27, 1997, the Company has federal net operating loss ("NOL")
carryforwards of approximately $40.7 million which expire in varying amounts
through the year 2011. Under Section 382 of the Internal Revenue Code, future
use of NOL carryforwards generated prior to a change in ownership, as defined,
may be significantly limited. Approximately $16.0 million and $3.3 million of
Sugarloaf and LBO Holding, Inc's ("LBO"), a wholly-owned subsidiary of ASC East,
federal NOL carryforwards, respectively, are subject to an annual limitation of
$110,000 and $185,000, respectively, of the amount of their separate
F-22
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
company taxable income that may be reduced by such carryforwards. Approximately
$178,000 and $168,000 of Sugarloaf and LBO's investment tax credit
carryforwards, respectively, are also subject to the annual limitation under
Section 382 of the amount of their tax that may be offset by such carryforwards.
The tax credit carryforwards expire in varying amounts through the year 2001.
Subsequent changes in ownership could further affect the limitations in future
years.
In addition to the limitations under Section 382, approximately $23.0
million of the federal NOL carryforwards are from the separate return years of
Sugarloaf ($16.0 million), LBO ($5.1 million) and Sugarbush ($1.9 million), and
may only be used to offset each company's contribution to consolidated taxable
income in future years.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
believes that the valuation allowance of $7.3 million is appropriate because,
due to the change of ownership annual limitations, realization of the benefit of
the majority of the tax benefits of the Sugarloaf net operating loss, (some
portion of the LBO net operating loss and investment tax carryforwards) and all
investment tax credit carryforwards is not more likely than not.
13. MANDATORILY REDEEMABLE SECURITIES
Pursuant to a Securities Purchase Agreement (the "Agreement") dated July 2,
1997 (as amended July 16, 1997), the Company issued 17,500 shares of its Series
A Exchangeable Preferred Stock (the "Preferred Stock") in a private offering to
an institutional investor. The Company incurred $1.1 million in expenses in
connection with the issuance of the Preferred Stock. These amounts have been
recorded as a reduction of the carrying value of the mandatorily redeemable
preferred stock in the accompanying consolidated balance sheet at July 27, 1997.
The liquidation preference is $1,000 per share and cumulative dividends on the
Preferred Stock are payable, at the option of the Company, in cash or in
additional shares of Preferred Stock at a rate of 14% per annum. The Company is
required to redeem all shares of the Preferred Stock outstanding on July 15,
2002. The Company intends to offer to exchange all or any part of the Preferred
Stock for shares of the Company's common stock (the "Common Stock") or shares of
the Company's 10 1/2% Convertible Preferred Stock. Upon completion of the
anticipated initial offering of the Company's common stock to the public (the
"Offering"), each share of the 10 1/2% Convertible Preferred Stock will be
convertible into shares of Common Stock at a 5% discount from the Offering share
price. The 5% discount from the Offering share price is being accreted from the
time of the issuance of the Preferred Stock to the date of first permitted
conversion, which is the date of the Offering. In the event the Offering is not
consummated within one year from the date of the issuance of the Preferred
Stock, the discount from the Offering share price increases annually from 5% for
the period through July 1998 up to 25% for the period through July 2002. If the
holder of the Preferred Stock does not elect to exchange such securities for
10 1/2% Convertible Preferred Stock or Common Stock, consummation of the
Offering will trigger a Change in Control as defined under the Agreement. In
such event, the Agreement requires that the Company offer to purchase the
Preferred Stock for cash at a redemption price of 105.3% of the liquidation
preference of such shares at the date of redemption. On the date of the
Offering, the face value of the Preferred Stock plus fully accreted discount of
5% equals the redemption price. In the event of a default as defined in the
Agreement, there shall be a mandatory redemption of the Preferred Stock from
funds legally available to the Company unless the holders of the Preferred Stock
elect instead to have visitation rights with respect to meetings of the
Company's board of directors and meetings of the Company's management
committees. At July 27, 1997, the carrying amount of the Preferred Stock is
$16.8 million which is comprised of the original liquidation preference of $17.5
million less unaccreted issuance
F-23
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MANDATORILY REDEEMABLE SECURITIES (CONTINUED)
costs of $922,000 plus accrued dividends and accretion of the discount of
$109,000 and $134,000, respectively.
Pursuant to the Agreement, the Company issued on July 28, 1997 $17.5 million
aggregate principal amount of its 14% Senior Exchangeable Notes Due 2002 (the
"Notes") in a private offering to an institutional investor. The Company
incurred deferred financing costs totaling $1.1 million prior to year end in
connection with the issuance of the Notes. These costs have been recorded as an
asset in the accompanying consolidated balance sheet at July 27, 1997. The
proceeds from the notes were received on July 30, 1997 and, therefore, the cash
and notes have not been reflected in the balance sheet at July 27, 1997. The
Notes bear interest at a rate of 14% per annum and mature on July 28, 2002.
Interest on the Notes is payable in cash or additional Notes, at the option of
the Company. The Company intends to offer to exchange all of the Notes for
shares of Common Stock or shares of 10 1/2% Convertible Preferred Stock with an
aggregate liquidation preference of $17.5 million. Upon completion of the
Offering, each share of 10 1/2% Convertible Preferred Stock will be convertible
into shares of Common Stock. If the holders of Notes do not elect to exchange
such securities for 10 1/2% Convertible Preferred Stock or Common Stock,
consummation of the Offering will trigger a Change of Control (as defined) under
the Agreement. In such event, the Agreement requires that the Company offer to
purchase the Notes for cash at a redemption price of 105.3% of the principal
amount outstanding on the date of redemption.
The holder of the Preferred Stock and the Notes (collectively, the
"Securities") has indicated its intention to exchange the Securities for the
Company's 10 1/2% Convertible Preferred Stock upon consummation of the Offering
(Note 16).
14. RELATED PARTY TRANSACTIONS
Sunday River Skiway Corporation has guaranteed amounts outstanding under
subordinated debentures due in 2002 that were issued by LBO Holdings, Inc., as
part of the acquisition of Mt. Attitash Lift Corporation. Payments under the
guarantee are subordinated to all secured indebtedness of Sunday River Skiway
Corporation to any bank, thrift institution or other institutional lender.
15. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES
The Company leases certain land and facilities used in the operations of its
resorts under several operating lease arrangements. These lease arrangements
expire at various times from the year 2010 through the year 2060. Lease payments
are generally based on a percentage of revenues. Total rent expense under these
operating leases as recorded in resort operating expenses in the accompanying
consolidated statement of operations for 1995, 1996 and 1997 were $619,000,
$744,000 and $2.2 million, respectively.
Significant portions of the land underlying certain of the Company's ski
resorts are leased or subleased by the Company or used pursuant to renewable
permits or licenses. If any such lease, sublease, permit or license were to be
terminated or not renewed upon expiration, or renewed on terms materially less
favorable to the Company, the Company's ability to possess and use the land
subject thereto and any improvements thereon would be adversely affected,
perhaps making it impossible for the Company to operate the affected resort. A
substantial portion of the land constituting skiable terrain at the Attitash
Bear Peak Ski Resort, Sugarbush Resort and Mount Snow/Haystack Resort is located
on federal land that is used under the terms of the permits with the United
States Forest Service (the "Forest Service"). Generally, under the terms of such
permits, the Forest Service has the right to review and comment on the location,
design and construction of improvements in the permit area and on many
operational matters.
F-24
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES (CONTINUED)
The permits can be terminated or modified by the Forest Service to serve the
public interest. A termination or modification of any of the Company's permits
could have a material adverse effect on the results of operations of the
Company. The Company does not anticipate any limitations, modifications, or
non-renewals which would adversely affect the Company's operations.
In connection with the purchase of The Canyons, the Company entered into an
operating lease arrangement for the lease of certain land at the Wolf Mountain
Ski area to be used in the operation of the resort and for future real estate
development. The arrangement provides for an initial lease term of 50 years,
with the option to extend for three additional 50 year periods for an extension
fee of $1.0 million for each extension period. Lease payments are based on a
percentage of resort net revenues. The arrangement also provides for additional
one-time payments ranging from $250,000 to $2.0 million upon achievement of
annual skier visit levels ranging from 100,000 to 1,000,000. Under the
arrangement, the Company has the option to purchase parcels of land covered
under the operating lease for real estate development. Payments to exercise the
option total $14.6 million and are payable monthly, at the option of the
Company, in varying amounts through July 2001. The Company is not required to
make the option payments in order to develop and sell real estate on the land
covered under the lease. No option payments were made and no lease expense was
incurred under this arrangement as of and for the year ended July 27, 1997.
In addition to the leases described above, the Company is committed under
several operating and capital leases for various equipment. Rent expense under
all operating leases was $1.0 million, $994,000 and $4.2 million for the years
ended 1995, 1996 and 1997, respectively.
Future minimum lease payments for lease obligations at July 27, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1998.................................................................................... $ 2,564 $ 4,136
1999.................................................................................... 1,786 3,869
2000.................................................................................... 1,488 1,530
2001.................................................................................... 1,295 963
2002.................................................................................... 2,585 4,973
--------- -----------
Total payments...................................................................... 9,718 $ 15,471
-----------
-----------
Less interest....................................................................... (1,878)
---------
Present value of net minimum payments............................................... 7,840
Less current portion................................................................ 1,876
---------
Long-term obligations............................................................... $ 5,964
---------
---------
</TABLE>
Certain claims, suits and complaints associated with the ordinary course of
business are pending or may arise against the Company, including all of its
direct and indirect subsidiaries. In the opinion of management, all matters are
adequately covered by insurance or, if not covered, are without merit or are of
such kind, or involve such amounts as would not have a material effect on the
financial position, results of operations and cash flows of the Company if
disposed of unfavorably.
F-25
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS
ACQUISITIONS
On August 1, 1997, the Company entered into an agreement to purchase the
Steamboat and Heavenly resorts (the "Purchase"). As part of the Purchase, the
Company agreed to acquire the Sabal Point Golf Course in Orlando, Florida and a
residence in Denver, Colorado, both of which the Company intends to sell
following the closing of the Purchase. The aggregate consideration to be paid by
the Company for the Purchase is approximately $290.0 million. The Purchase is
subject to the satisfaction of certain covenants and conditions and there can be
no assurance that the Purchase will be consummated.
INITIAL PUBLIC OFFERING OF COMMON STOCK
In August 1997, the Company filed a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission on Form S-1
for the purpose of registering its common stock for the initial offering for
sale to the public (the "Offering") at an estimated price of $18.50 per share
for a proposed maximum aggregate offering price of $339.3 million. The number of
shares to be sold and the price of those shares has not been determined. The
anticipated effective date of the Offering is November 1997.
Consummation of the Offering may trigger a Change of Control (as defined)
under the indenture (the "12% Note Indenture") relating to the Notes. The 12%
Note Indenture provides that upon the occurrence of a Change of Control, the
Company will be required to make an offer to repurchase the Notes at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of repurchase (the "Change of Control Offer"). The Company
is not able to determine at this time whether or not any or all holders of the
Notes will accept the Change of Control Offer. If all outstanding Notes are
tendered, the amount of funds necessary to consummate the Change of Control
Offer would be $121.2 million plus the amount of all accrued and unpaid
interest. The Company is currently negotiating a standby credit facility for up
to $125.0 million to fund the repurchase of the Notes in the event that any or
all of the Notes are tendered to the Company for repurchase.
ADDITIONAL FINANCING
In August 1997, the Company entered into a Loan and Security Agreement with
a lender to provide financing for the real estate construction activities of
Grand Summit Resort Properties, Inc., a wholly-owned subsidiary. The Loan and
Security Agreement provides for advances up to $55.0 million which bear interest
at a rate equal to the greater of 9.25% or the sum of the bank's prime rate plus
1.5%. All borrowings under the Loan and Security Agreement are collateralized by
substantially all assets of the Grand Summit Resort Properties, Inc.
NEW CREDIT FACILITY
On October 8, 1997, the Company entered into a commitment letter (the
"Commitment Letter") with respect to the New Credit Facility. The Commitment
Letter contemplates credit facilities providing for borrowings in an aggregate
amount of up to $215 million. Amounts borrowed under the New Credit Facility are
expected to be available (i) to finance the Acquisition, (ii) to repay
approximately $60 million of indebtedness of ASC East under the Existing Credit
Facility, (iii) to repay approximately $12 million of indebtedness of the
Company and its subsidiaries, (iv) to pay certain fees and expenses relating to
the Acquisition and (v) for ongoing general corporate purposes and capital
expenditures. The New Credit Facility is expected to be divided into two
sub-facilities, $75 million of which is expected to be available for borrowings
by ASC East and its subsidiaries (the "East Facility") and $140 million of which
is expected to be available for borrowings by the Company excluding ASC East and
its subsidiaries (the "West Facility").
F-26
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
The East Facility is expected to consist of a six-year revolving credit facility
in the amount of $45 million and an eight-year term facility in the amount of
$30 million. The West Facility is expected to consist of a six-year revolving
facility in the amount of $65 million and an eight-year term facility in the
amount of $75 million. The revolving facilities are subject to annual 30-day
clean down requirements to an outstanding balance of not more than $10 million
for the East Facility and not more than $35 million for the West Facility. The
maximum availability under the revolving facilities will reduce over the term of
the New Credit Facility by certain prescribed amounts. The term facilities
amortize at a rate of approximately 1.0% of the principal amount for the first
six years with the remaining portion of the principal due in two substantially
equal installments in years seven and eight. At the Company's option, interest
will be payable at an alternate base rate or LIBOR, in each case, plus an
applicable margin that is dependent upon the ratio of the Company's total debt
to EBITDA (as defined in the New Credit Facility).
The New Credit Facility is expected to require mandatory prepayments with
the net proceeds of any asset sales and new debt and/or equity offerings of the
Company. Beginning in July 1999, the New Credit Facility is expected to require
mandatory prepayments of 50% of excess cash flows during any period in which the
ratio of the Company's total senior debt to EBITDA exceeds 3.50 to 1. In no
event, however, will such mandatory prepayments reduce either revolving facility
commitment below $35 million.
The East Facility is expected to be secured by substantially all the assets
of ASC East and its subsidiaries, except Grand Summit Resort Properties, Inc.,
which is not a borrower under the New Credit Facility. The West Facility is
expected to be secured by substantially all the assets of the Company and its
subsidiaries, except ASC East and its subsidiaries.
The New Credit Facility is expected to contain various covenants that limit,
among other things, subject to certain exceptions, indebtedness, liens,
transactions with affiliates, restricted payments and investments, mergers,
consolidations and dissolutions, sales of assets, dividends and distributions
and certain other business activities. In addition, the New Credit Facility is
expected to contain financial covenants customary for this type of senior credit
facility including maintenance of customary financial ratios. Compliance with
financial covenants will be determined on a consolidated basis notwithstanding
the bifurcation of the New Credit Facility into the East Facility and the West
Facility, with the exception of a leverage test.
CONVERTIBLE DEBT
On July 28, 1997, the Company issued $17.5 million aggregate principal
amount of its 14% Senior Exchangeable Notes due 2002 in a private offering to an
institutional investor (Note 13).
REDEMPTION OF SUBORDINATED NOTES
A portion of the proceeds from the new credit facility will be used to make
an approximate $27.7 million investment in ASC East to fund the redemption of
all outstanding Subordinated Notes. The indenture relating to the Subordinated
Notes provides for a redemption price equal to 113.75% of the carrying value of
the Subordinated Notes on the redemption date. The Company expects to record a
pretax loss of approximately $4.3 million related to the repayment of the
Subordinated Notes.
STOCK OPTION PLAN
Effective August 1, 1997, the Company established the American Skiing
Company Stock Option Plan (the "Plan") to provide for the grant of incentive
stock options and nonqualified stock options for the purchase of up to an
aggregate of 5,688,699 shares of the Company's common stock by officers and
management employees of the Company and its subsidiaries and other key persons
(eligible for
F-27
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
nonqualified stock options only) as designated by the Options Committee. The
Options Committee, which is appointed by the Board of Directors of the Company,
is responsible for the Plan's administration. The Options Committee determines
the term of each option, option exercise price, number of shares for which each
option is granted and the rate at which each option is exerciseable. Options
granted under the Plan generally expire ten years from the date of grant and
vest either immediately or over a five-year term.
Incentive stock options shall not have an exercise price less than the fair
market value of the common stock at the date of grant. Nonqualified stock
options may be granted at an exercise price as determined by the Options
Committee.
No persons shall be granted an incentive stock option, if at the time of
grant, such person owns, directly or indirectly, stock possessing more than 10%
of the total combined voting power of the Company unless the option price is at
least 110% of the fair market value of the common stock.
Subsequent to July 27, 1997, the Company will grant to the Principal
Shareholder options to purchase approximately 1,853,000 shares of common stock
at an exercise price equal to the fair market value of the common stock at the
date of grant (i.e., the Offering price). Additionally, the Company will grant
to certain key management employees options to purchase approximately 622,000
shares of Common Stock at an exercise price of $2.00 per share. The difference
between the fair market value at the date of grant and the $2.00 exercise price,
as well as the amount paid to such key management employees by the Company for
reimbursement for personal income taxes, will be recorded as compensation
expense upon consummation of the Offering.
In addition, options to purchase 108,108 shares of Common Stock will be
granted to certain employees of the Company at an exercise price equal to the
fair market value at the date of grant.
STOCK SPLIT
On October 10, 1997, the Board of Directors approved (i) an increase in
authorized shares of Common Stock to 100,000,000, (ii) the creation of Class A
Common Stock with authorized shares totaling 15,000,000 and (iii) a 14.76 for 1
stock split of shares of Common Stock for shares of Class A Common Stock. The
stock split has been given retroactive effect in the accompanying financial
statements as of the balance sheet date. The rights and preferences of holders
of Common Stock and Class A Common Stock are identical, except that holders of
Class A Common Stock will elect a class of directors that constitutes two-thirds
of the Board of Directors and holders of Common Stock will elect a class of
directors that constitutes one-third of the Board of Directors. Each share of
Class A Common Stock will be convertible into one share of Common Stock (A) at
the option of the holder at any time, (B) automatically upon transfer to any
person that is not an affiliate of the Principal Shareholder and (C)
automatically if, at any time, the number of shares of Class A Common Stock
outstanding represent less that 20% of outstanding shares of Common Stock and
Class A Common Stock. Upon completion of the Offering, the Principal Shareholder
will hold 100% of the Class A Common Stock, representing approximately 42.4% of
the combined voting power of all outstanding shares of Common Stock and Class A
Common Stock.
17. GUARANTORS OF DEBT
The Notes and Subordinated Notes are fully and unconditionally guaranteed by
ASC East and all of ASC East's subsidiaries with the exception of Grand Summit
Resort Properties, Inc., Ski Insurance Company, Killington West Ltd, Mountain
Water Company, and Club Sugarbush, Inc., (the "Non-Guarantors"). Prior to the
Acquisition and issuance of the Notes and Subordinated Notes on June 28, 1996,
the bank loan agreements were collateralized by virtually all of the assets of
the companies
F-28
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. GUARANTORS OF DEBT (CONTINUED)
comprising the Company. The guarantor subsidiaries are wholly-owned subsidiaries
of ASC East and the guarantees are full, unconditional, and joint and several.
18. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT
On November 5, 1997, the Securities and Exchange Commission declared
effective the Company's Form S-1 Registration Statement for purposes of
registering the Company's common stock. On November 12, 1997, the Company closed
the Offering and sold (i) 833,333 shares of common stock directly to the
Principal Shareholder at $18.00 per share and (ii) 13,916,667 shares of common
stock to the public at $18.00 per share in the public offering by the
underwriters.
On November 12, 1997, the Company entered into a senior secured credit
facility with a group of lenders pursuant to which the Company may borrow up to
$215 million. A portion of the net proceeds of the Offering, together with
borrowings under the senior credit facility, were used to fund the purchase of
the Steamboat and Heavenly ski resorts for approximately $290 million. Also on
November 12, 1997 a portion of the net proceeds of the Offering were used to
make an approximate $28.0 million investment in ASC East to fund the redemption
of all outstanding Subordinated Notes of ASC East.
The holders of the Securities have exchanged all of the Securities (Note 13)
for shares of the Company's 10 1/2% Convertible Preferred Stock having an
aggregate liquidation preference of approximately $36.6 million.
Concurrently with the Offering, the Company solicited and received the
required consent from holders of the Notes to amend the indenture relating to
the Notes to permit the consummation of the Offering without requiring the
Company to make a Change of Control Offer (as defined). In connection with such
consent solicitation, the Company paid to the consenting holders of the Notes a
customary consent payment.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of
Directors of S-K-I Ltd.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
S-K-I Ltd. and its subsidiaries at July 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
August 31, 1995
F-35
<PAGE>
S-K-I LTD.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments (at cost, which approximates market value).......... $2,704,302 $2,790,645
Accounts receivable, net (Note 1)................................................... 1,423,430 2,677,434
Notes receivable.................................................................... 371,739 244,775
Inventories......................................................................... 3,472,492 3,955,722
Prepaid expenses.................................................................... 1,456,222 1,360,460
------------ ------------
TOTAL CURRENT ASSETS.............................................................. 9,428,185 11,029,036
------------ ------------
Property and equipment, at cost:
Buildings and grounds............................................................... 32,730,561 41,557,838
Machinery and equipment............................................................. 71,690,813 73,123,058
Leasehold improvements.............................................................. 39,066,623 48,082,570
Lifts, liftlines and trails on corporate property................................... 16,162,939 33,787,212
------------ ------------
159,650,936 196,550,678
Less--accumulated depreciation and amortization....................................... 86,638,454 89,929,914
------------ ------------
73,012,482 106,620,764
Construction in progress.............................................................. 8,996,570 1,684,442
Land and development costs............................................................ 12,762,352 13,469,642
------------ ------------
NET PROPERTY AND EQUIPMENT........................................................ 94,771,404 121,774,848
------------ ------------
Long-term investments (Note 1)........................................................ 464,663 1,628,477
Other assets (Note 1)................................................................. 2,125,756 2,289,152
------------ ------------
TOTAL ASSETS...................................................................... 1$06,790,008 1$36,721,513
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and subordinated debentures (Note 3).............. $ 955,746 $3,858,184
Accounts payable.................................................................... 1,741,131 1,617,621
Income taxes payable (Note 5)....................................................... 257,684 272,252
Accrued lease payments--Vermont (Note 4)............................................ 1,171,865 1,039,366
Accrued wages, profit sharing and incentive compensation (Note 8)................... 464,907 529,874
Deposits and other unearned revenue................................................. 695,328 1,706,017
Other accrued expenses (Note 1)..................................................... 4,184,664 5,157,743
------------ ------------
TOTAL CURRENT LIABILITIES......................................................... 9,471,325 14,181,057
Long-term debt (Note 3)............................................................... 17,766,857 38,790,032
Subordinated debentures (Note 3)...................................................... 11,400,000 11,400,000
Deferred income taxes (Note 5)........................................................ 7,478,492 8,479,956
Other long-term liabilities (Note 1).................................................. 3,487,042 4,432,027
Minority interest..................................................................... -- 1,876,188
------------ ------------
TOTAL LIABILITIES................................................................. 49,603,716 79,159,260
------------ ------------
Commitments (Notes 3 and 4)
Stockholders' equity (Notes 3, 6 and 7):
Common stock $.10 par value (12,500,000 shares authorized,
5,785,932 shares in 1995, 5,781,432 shares in 1994)............................... 578,144 578,594
Paid-in capital....................................................................... 6,577,440 6,617,551
Retained earnings..................................................................... 50,030,708 50,366,108
------------ ------------
TOTAL STOCKHOLDERS' EQUITY........................................................ 57,186,292 57,562,253
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................ 1$06,790,008 1$36,721,513
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
S-K-I LTD
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-------------------------------------------
<S> <C> <C> <C>
1993 1994 1995
------------- ------------- -------------
Revenues (Note 1):
Resort services................................................... $ 60,441,799 $ 62,532,813 $ 74,252,723
Sale of goods..................................................... 19,832,479 21,008,869 23,648,797
Rental and other income........................................... 16,434,113 15,365,537 16,058,192
------------- ------------- -------------
96,708,391 98,907,219 113,959,712
------------- ------------- -------------
Expenses:
Cost of operations including wages, maintenance and supplies:
Resort services................................................... 21,070,994 22,483,982 29,611,497
Sale of goods..................................................... 11,658,737 12,729,442 15,146,037
Rental and other expense.......................................... 7,173,101 7,346,163 6,799,809
Other taxes....................................................... 7,632,343 8,015,487 8,599,706
Utilities......................................................... 6,655,016 6,044,889 8,070,911
Insurance......................................................... 5,115,333 5,518,243 6,634,837
Selling, general and administrative expenses...................... 16,871,496 15,298,138 19,494,655
Interest.......................................................... 2,228,385 2,214,309 3,818,893
Depreciation and amortization (Note 1)............................ 10,941,869 11,440,122 14,055,796
------------- ------------- -------------
89,347,274 91,090,775 112,232,141
------------- ------------- -------------
Income before income taxes and minority interest.................... 7,361,117 7,816,444 1,727,571
Income taxes (Note 5)............................................... 2,952,310 3,169,956 997,123
------------- ------------- -------------
Net income before minority interest................................. 4,408,807 4,646,488 730,448
------------- ------------- -------------
Minority interest in loss of subsidiary............................. -- -- 298,949
------------- ------------- -------------
Net Income.......................................................... $ 4,408,807 $ 4,646,488 $ 1,029,397
------------- ------------- -------------
------------- ------------- -------------
Net income per common and common equivalent share: 5,783,480 in
1995, 5,764,663 in 1994, 5,728,908 in 1993 (Note 6)............... $ 0.77 $ 0.81 $ 0.18
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1992.................... 5,724,856 $ 572,486 $ 6,433,263 $ 42,183,973 $ 49,189,722
Common stock options exercised.......... 6,251 625 20,751 21,376
Net income.............................. 4,408,807 4,408,807
Dividends ($.10 per share).............. (573,015) (573,015)
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1993.................... 5,731,107 573,111 6,454,014 46,019,765 53,046,890
Common stock options exercised.......... 50,325 5,033 123,426 128,459
Net income.............................. 4,646,488 4,646,488
Dividends ($.11 per share).............. (635,545) (635,545)
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1994.................... 5,781,432 578,144 6,577,440 50,030,708 57,186,292
Common stock options exercised.......... 4,500 450 40,111 40,561
Net income.............................. 1,029,397 1,029,397
Dividends ($.12 per share).............. (693,997) (693,997)
---------- ---------- ------------ ------------- -------------
BALANCE AT JULY 31, 1995.................... 5,785,932 $ 578,594 $ 6,617,551 $ 50,366,108 $ 57,562,253
---------- ---------- ------------ ------------- -------------
---------- ---------- ------------ ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
<S> <C> <C> <C>
1993 1994 1995
------------- ------------- -------------
Cash flows from operating activities:
Net income......................................................... $ 4,408,807 $ 4,646,488 $ 1,029,397
Non-cash items included in net income:
Depreciation and amortization...................................... 10,941,869 11,440,122 14,055,796
Deferred income taxes.............................................. 613,451 154,084 1,001,464
Minority interest in net income of subsidiary...................... -- -- (298,949)
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES BEFORE CHANGES IN ASSETS AND
LIABILITIES........................................................ 15,964,127 16,240,694 15,787,708
------------- ------------- -------------
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......................... 398,318 (429,547) (1,027,240)
Decrease (increase) in notes receivable............................ (9,458) 363,442 126,964
(Increase) in inventories.......................................... (154,437) (214,208) (33,885)
Decrease (increase) in non-current note receivable................. (1,847,480) 303,976 3,615
Decrease (increase) in prepaid expenses............................ (537,397) (543,475) 573,785
(Decrease) increase in accounts payable............................ (1,191,930) 974,380 (776,700)
Increase (decrease) in income taxes payable........................ (124,032) (63,132) 10,238
(Decrease) increase in accrued lease payments-Vermont.............. 120,378 49,837 (132,499)
Increase (decrease) in accrued wages, profit sharing and incentive
compensation..................................................... 517,897 (608,404) 64,967
Increase (decrease) in deposits and other unearned revenue......... (118,908) 186,707 264,499
(Decrease) increase in other accrued expenses...................... 585,544 761,857 (858,029)
Increase (decrease) in other long-term liabilities................. (128,174) 441,669 944,985
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................ 13,474,448 17,463,796 14,948,408
------------- ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment................................ (12,306,683) (22,682,582) (19,479,985)
Net book value of property and equipment sold...................... 79,036 178,177 2,377,685
Purchase of long-term investments.................................. -- (464,663) (1,163,814)
Business acquired less cash on hand from business acquired......... -- -- (12,552,020)
Other, net......................................................... 47,136 (138,772) (106,561)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES................................ (12,180,511) (23,107,840) (30,924,695)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt--and subordinated
debentures....................................................... 12,123,500 592,804 --
Net proceeds from revolving credit agreement....................... -- 2,000,000 15,500,000
Reductions in long-term debt and subordinated debentures........... (10,807,391) (952,052) (2,279,178)
Increase in current portion of long-term debt and subordinated
debentures....................................................... 77,391 129,451 2,902,438
Proceeds from issuance of common stock............................. 21,376 128,459 40,563
Payment of dividends............................................... (573,015) (635,545) (693,997)
Other.............................................................. 125,910 177,648 --
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................ 967,771 847,961 16,062,630
------------- ------------- -------------
Net increase (decrease) in cash and short-term investments......... 2,261,708 (4,796,083) 86,343
Cash and short-term investments at beginning of year................. 5,238,677 7,500,385 2,704,302
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR....................... $ 7,500,385 $ 2,704,302 $ 2,790,645
------------- ------------- -------------
------------- ------------- -------------
Interest paid........................................................ $ 2,443,456 $ 2,124,392 $ 3,096,486
Taxes paid, net of refunds........................................... $ 2,438,100 $ 3,636,581 $ 1,060,150
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated statements include the accounts of S-K-I Ltd. and its
subsidiaries, the most significant of which include Killington Ltd., Mount Snow
Ltd., Bear Mountain Ltd., Waterville Valley Ski Area Ltd., Sugarloaf Mountain
Corporation and Ski Insurance Company, collectively referred to as S-K-I. All
subsidiaries are wholly-owned, except for Sugarloaf Mountain Corporation which
is 51% owned. Sugarloaf's results since acquisition are consolidated in the
accompanying financial statements. All significant intercompany transactions
have been eliminated in consolidation.
In the consolidated statement of income, revenues from the sale of lift
tickets, ski schools, repair shops, golf and tennis fees have been included
under the heading of Resort services. Revenues from the sale from restaurants,
bars, retail shops and personal property have been included under the heading
Sale of goods. Revenues from ski, locker and real estate rentals, as well as
sales of real property have been included under the heading of Rental and other
income. Related costs, including property costs, are included in the respective
Cost of operations categories.
For financial reporting purposes, S-K-I provides for depreciation and
amortization of property, equipment and capital leases by the straight-line
method over estimated useful lives of the assets which generally range from 10
to 30 years for buildings, 3 to 20 years for machinery and equipment and 3 to 50
years for leasehold improvements, lifts, liftlines and trails. Accelerated cost
recovery and accelerated depreciation methods are used for tax purposes.
Management's intentions are to hold marketable securities, consisting of
U.S. Government and Agency obligations and corporate obligations, until
maturity, which does not exceed three years. These securities are carried at net
amortized cost, which approximates quoted market values at July 31, 1995 and
1994.
As part of its cash management policy, S-K-I invests cash in excess of
immediate requirements in highly liquid short-term investments having original
maturities of three months or less. Such investments are intended to minimize
exposure to principal fluctuation.
Profit on the sales of real estate are recognized in accordance with
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 66 "Accounting for the Sales of Real Estate". Revenues recognized
amounted to $8,000, $-0-, and $1,857,954, in 1995, 1994, and 1993, respectively.
Included in other assets at July 31, 1995 is a note receivable of $1,531,298,
relating to a sale of real estate. The note bears interest at the prime rate
plus 1.875%, payable in monthly installments through year 2007. The maturities
are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 10,141
1997............................................................ 11,300
1998............................................................ 12,592
1999............................................................ 14,033
2000............................................................ 15,636
2001 and thereafter............................................. 1,467,596
---------
$1,531,298
---------
---------
</TABLE>
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Allowances for doubtful accounts of $1,402 and $38,702 have been applied as
a reduction of current accounts receivable at July 31, 1994 and 1995,
respectively.
F-40
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision is made for the estimated costs under the deductible portion of
S-K-I's insurance policies, primarily general liability and workers'
compensation. The balance of such reserves at July 31, 1994 and 1995 were
$4,707,558 and $5,765,878, respectively. Of such amounts, $3,487,042 and
$4,454,728 are included in other long-term liabilities at July 31, 1994 and
1995, respectively, with the remaining balance included in other accrued
expenses. In fiscal 1993, S-K-I formed a wholly-owned Vermont captive insurance
company, Ski Insurance Company, to manage a portion of its insurance costs.
Advertising costs are expensed the first time the advertising takes place.
The total amount charged to advertising expense for the year ended July 31,
1995, 1994 and 1993 was $9,249,984, $7,809,332 and $7,607,704, respectively.
Bear Mountain Ltd.'s costs in excess of values assigned to the underlying
net assets, net of amortization, totaled $233,774 and $99,255 at July 31, 1995
and 1994, respectively, and are being amortized over 20 years. The 1995 and 1994
amortization totaled $19,481 and $7,635, respectively. The accumulated
amortization at July 31, 1995 and 1994 totaled $320,279 and $300,798,
respectively.
NOTE 2--BUSINESS DEVELOPMENT
In August 1994, the company acquired 51% of the outstanding shares of
Sugarloaf Mountain Corporation ("Sugarloaf"), a ski resort in Western Maine.
Also, additional cash consideration is due, not to exceed $1,500,000, if certain
profit objectives are achieved during the two years following acquisition. No
such amounts were paid relating to fiscal 1995.
The shareholders of Sugarloaf shall have the option to require S-K-I to
purchase their shares during the month of November in the years 1997 through
2002 in return for a cash payment, the amount of which is computed by applying a
formula to Sugarloaf Mountain Corporation's earnings per share over the previous
three year period. S-K-I has the option to purchase the minority shares of
Sugarloaf based upon the same exchange formula during the month of November in
any year beginning in 1999, subject to a minimum value of $2,000,000 less 49% of
any decline in the book value of Sugarloaf between the purchase date and the
date of acquisition.
The acquisition has been accounted for using the purchase method of
accounting. The fair value of the assets acquired was approximately $13,597,000
and the fair value of liabilities was $9,425,000. There is no recourse to S-K-I
for the Sugarloaf liabilities. The amounts in minority interest at July 31, 1995
represent the 49% ownership of Sugarloaf's outstanding capital stock held by the
minority shareholders.
In October 1994, the company acquired the ski-related assets only of the
Waterville Valley Ski Area ("Waterville") for approximately $10,038,000. The
acquisition was accounted for using the purchase method of accounting. The
results of operations of Waterville are included in the company's consolidated
financial statements since acquisition.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions of Sugarloaf and Waterville occurred at the
beginning of the years presented:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Revenues..................................................... $ 126,797,000 $ 114,554,000
Net income................................................... 4,279,000 782,000
Net income per common and common equivalent share............ $ .74 $ .14
</TABLE>
F-41
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--BUSINESS DEVELOPMENT (CONTINUED)
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the transaction taken place
at the beginning of the periods presented or of future results of operations.
NOTE 3--LONG-TERM DEBT AND SUBORDINATED DEBENTURES
LONG-TERM DEBT AT JULY 31, 1995 AND 1994 SUMMARY:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Company, excluding Sugarloaf:
Revolving Credit Agreement....................................................... $ 2,000,000 $ 17,500,000
Teachers Insurance and Annuity Association of America, 8.12% senior promissory
notes due in varying installments through January 14, 2003..................... 12,000,000 12,000,000
Vermont Industrial Development Bonds, fluctuating interest rates,
1995--3.89% to 4.66%; 1994--3.13% to 3.73%; due in varying installments through
1999, secured by certain machinery and equipment and real estate............... 3,265,000 2,695,000
Deferred obligation in connection with acquisition of Bear Mountain Ltd.,
interest of 5%, due in 1995.................................................... 1,000,000 1,000,000
Obligation under capital lease................................................... 103,789 310,346
Other............................................................................ 7,314 180,356
------------- -------------
18,376,103 33,685,702
------------- -------------
Sugarloaf (non-recourse to the Company):
Town of Carrabassett Valley, Maine, note, $3,700,000, due in varying installments
through 2013, interest rates ranging from 4.5% to 8.5%, secured by Sugarloaf's
property, plant and equipment.................................................. -- 3,610,000
Sugarloaf Revolving Credit Agreement, $2,000,000, annual reduction of $200,000
beginning March 1995, due March 1998, interest at lender's base rate plus .5%
(9.25% at July 31, 1995), secured by Sugarloaf's property, plant and
equipment...................................................................... -- 1,800,000
Sugarloaf Line of Credit, $2,000,000 due May 1996, interest at lender's base rate
plus 2% (10.75% at July 31, 1995), secured by Sugarloaf's property, plant and
equipment...................................................................... -- 1,338,482
Sugarloaf Subordinated Notes, due July 1997, interest at 7.25%................... -- 584,934
Obligation under capital lease................................................... -- 549,989
Other............................................................................ -- 1,079,109
------------- -------------
-- 8,962,514
------------- -------------
Total.............................................................................. 18,376,103 42,648,216
Less: current portion.............................................................. 609,246 3,858,184
------------- -------------
$ 17,766,857 $ 38,790,032
------------- -------------
------------- -------------
</TABLE>
F-42
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--LONG-TERM DEBT AND SUBORDINATED DEBENTURES (CONTINUED)
The non-current portion of long-term debt matures as follows:
<TABLE>
<S> <C>
1997.................................................................. $ 1,968,908
1998.................................................................. 4,591,625
1999.................................................................. 3,484,751
2000.................................................................. 5,637,317
2001 and thereafter................................................... 23,107,431
--------------
$ 38,790,032
--------------
--------------
</TABLE>
S-K-I maintains an unsecured revolving credit loan which allows S-K-I to
borrow funds up to the amount of the commitment. At July 31, 1995, the revolving
credit loan amount available was $30,600,000 with $17,500,000 outstanding. The
loan commitment is scheduled to be reduced annually by $3,400,000 on March 31 of
each consecutive year through March 31, 2000 with a final reduction of
$13,600,000 on March 30, 2001. Under the terms of the revolving credit
agreement, S-K-I may request that the interest rate, subject to certain
limitations, be at the adjusted prime rate or at an applicable margin above the
Eurodollar rate. The Eurodollar applicable margin was 1 1/4% at July 31, 1995.
The applicable margin varies between 3/4% to 1 1/4% based on specific financial
ratios on the previous July 31. The Agreement requires S-K-I to pay a commitment
fee of 3/8 % of the average daily unused portion of the loan. Commitment fees
assessed on unused portions of the revolving credit loan were approximately
$38,000, $63,000, and $48,000 in 1995, 1994, and 1993, respectively.
The following table summarizes the financial data relating to the revolving
credit loan agreement for 1995 and 1994:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Weighted average annual interest rate.......................... 4.61% 6.93%
Average amount outstanding during the year..................... $ 2,224,038 $ 16,274,038
Highest balance outstanding.................................... $ 13,500,000 $ 24,750,000
Amount available at year end................................... $ 14,000,000 $ 13,100,000
</TABLE>
In addition to the unsecured revolving credit loan agreement, S-K-I
maintained an unsecured short-term line of credit. Such line of credit allows
for borrowings of up to $12,000,000 and expires January 15, 1996. Under the
terms of the agreement S-K-I may request that the interest rate, subject to
certain limitations, be at the adjusted prime rate or at an applicable margin
above the Eurodollar rate. The Eurodollar applicable margin was 1 1/4% at July
31, 1995. The applicable margin varies between 3/4% to 1 1/4% based on specific
financial ratios on the previous July 31. During 1995, S-K-I borrowed a maximum
of $9,250,000 under this line of credit and did not borrow against the line of
credit during 1994. At July 31, 1995 and 1994, there were no borrowings under
the credit line.
Additionally, at July 31, 1995, S-K-I had outstanding a $1,000,000 letter of
credit relating to Ski Insurance, expiring December 3, 1995. The letter of
credit fee on this line was $6,250 for the year ended July 31, 1995.
F-43
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--LONG-TERM DEBT AND SUBORDINATED DEBENTURES (CONTINUED)
Subordinated debentures of $11,400,000 at July 31, 1995 are due as follows:
<TABLE>
<CAPTION>
YEAR INTEREST AMOUNT
- --------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
1997................................................................. 6% $ 450,000
1999................................................................. 6% 455,000
2000................................................................. 6% 672,500
2001................................................................. 8% 525,000
2002................................................................. 8% 549,000
2003................................................................. 8% 1,074,000
2004................................................................. 8% 1,466,500
2010................................................................. 8% 1,292,000
2012................................................................. 6% 1,155,000
2013................................................................. 6% 1,065,000
2015................................................................. 6% 1,500,000
2016................................................................. 6% 1,196,000
-------------
$ 11,400,000
-------------
-------------
</TABLE>
The company's long-term debt and subordinated debenture agreements require
that the company satisfy various covenants including financial ratios,
limitations on payment of dividends and repurchase of stock. Included in other
accrued expenses is $687,414 and $703,656 of accrued interest at July 31, 1995
and 1994, respectively.
CAPITAL LEASES
The company leases certain machinery and equipment under long-term capital
leases. Obligations under machinery and equipment capital leases are due as
follows:
<TABLE>
<S> <C>
1996.............................................................. $ 407,000
1997.............................................................. 308,000
1998.............................................................. 246,000
1999.............................................................. 16,000
---------
977,000
Less: amounts representing interest............................... 117,000
---------
$ 860,000
---------
---------
</TABLE>
At July 31, 1995, the gross amount of machinery and equipment under capital
leases and related accumulated amortization was $1,409,000 and $486,000,
respectively.
NOTE 4--OPERATING LEASES AND PERMITS
Killington Ltd. leases from the State of Vermont certain portions of land
and facilities it uses known as the Killington section of the Calvin Coolidge
State Forest. The leases together with extensions run to the year 2060. All
installations affixed to the land become the property of the State.
Mount Snow Ltd., Bear Mountain Ltd. and Waterville Valley operate certain
portions of the skiing terrain under special use permits granted by the U.S.
Forest Service.
F-44
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--OPERATING LEASES AND PERMITS (CONTINUED)
Amounts payable under these leases and permits are measured in terms of
percentages of revenues from certain activities. Charges for these leases and
permits are included in cost of operations.
In addition to the leases described above, the company was committed under
operating leases for certain machinery and equipment which expire at various
dates through 2018. Total rent expense under operating leases for 1995, 1994 and
1993 was $2,775,912, $2,526,991, and $2,485,435, respectively.
Minimum lease payments under non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1996.................................................................. $ 3,433,832
1997.................................................................. 3,314,063
1998.................................................................. 3,004,033
1999.................................................................. 2,948,224
Beyond 2000........................................................... 1,889,827
--------------
Total minimum obligations............................................. $ 14,589,979
--------------
--------------
</TABLE>
NOTE 5--INCOME TAXES
In 1994 the company adopted, effective August 1, 1993, Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires the liability method for recording differences in financial and
taxable income.
Income taxes consist of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal................................................................ $ 1,803,884 $ 2,347,943 $ (1,210)
State.................................................................. 534,975 667,929 (3,131)
------------ ------------ ----------
2,338,859 3,015,872 (4,341)
Deferred................................................................. 613,451 154,084 1,001,464
------------ ------------ ----------
Total provision for income taxes..................................... $ 2,952,310 $ 3,169,956 $ 997,123
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Differences between S-K-I's effective income tax rate and the statutory
federal income tax rate are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate....................................... 34.0% 34.0% 34.0%
State income taxes net of federal tax benefit........................... 4.8 5.6 5.7
Sugarloaf loss with no benefit.......................................... -- -- 12.0
Life insurance premiums................................................. -- -- 4.0
Other................................................................... 1.3 0.9 2.0
--- --- ---
Effective rate.......................................................... 40.1% 40.5% 57.7%
--- --- ---
--- --- ---
</TABLE>
At July 31, 1995, Bear Mountain Ltd. had net operating loss carryforwards
for federal income tax purposes of approximately $1,439,000, which expire in the
years 2000 through 2002. At July 31, 1995, Bear Mountain Ltd. had net operating
loss carryforwards for California income tax purposes of approximately
$1,214,000 which expire in the years 1996 through 1999. As of July 31, 1995,
Bear Mountain Ltd. had
F-45
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--INCOME TAXES (CONTINUED)
investment tax credit carryforwards of approximately $225,000 which expire in
the years 1997 through 2000. The federal tax loss and tax credit carryforwards
relate to the operations of Bear Mountain Ltd. prior to the acquisition by S-K-I
and can only be realized against future taxable income from the operations of
Bear Mountain Ltd. The tax effect of these carryforwards and credits, when
realized, will be recognized as an adjustment of the purchase cost.
At July 31, 1995, Sugarloaf had net operating loss carryforwards for federal
and Maine income tax purposes of approximately $17,426,000, which expire in the
years 1999 through 2010. As of July 31, 1995, Sugarloaf had investment tax
credit carryforwards of approximately $209,000, which expire in the years 1997
through 2000. Approximately $16,442,000 of the federal and Maine net operating
loss carryforwards and all of the investment tax credit carryforwards relate to
the operation of Sugarloaf prior to the S-K-I acquisition. Such carryforwards
can only be realized against future taxable income from the operations of
Sugarloaf and will be limited as a result of certain ownership changes pursuant
to Section 382 of the Internal Revenue Code.
At July 31, 1995, the company had additional federal net operating loss
carryforwards of approximately $527,000 and additional state net operating loss
carryforwards of $1,010,000 which expire in the year 2010.
As of July 31, 1995, the company's gross deferred tax assets and liabilities
were comprised of the following:
<TABLE>
<S> <C>
Gross deferred tax assets:
Accrued liabilities and reserves.................................... $ 1,495,000
Operating loss carryforwards........................................ 7,638,000
Alternative minimum and investment tax credits...................... 860,000
--------------
$ 9,993,000
--------------
--------------
Gross deferred tax liabilities:
Depreciation........................................................ $ 10,516,000
Installment sales................................................... 659,000
--------------
$ 11,175,000
--------------
--------------
</TABLE>
At July 31, 1995, a valuation allowance of $7,298,000 has been recorded
which relates primarily to Sugarloaf's net operating loss and tax credit
carryforwards for which a tax benefit is not likely to be received. The net
change in the valuation allowance for deferred tax assets was an increase of
$7,056,000, primarily attributable to Sugarloaf net operating loss
carryforwards. Current and non-current deferred tax assets and liabilities
within the same tax jurisdiction are offset for presentation in the consolidated
balance sheet.
NOTE 6--EARNINGS PER SHARE
The computation of net income per common and common equivalent share amounts
are based on the weighted average of shares outstanding during the year. Shares
issuable upon the exercise of stock option grants (Note 7) have not been
included in the per share computation because they would not have a material
effect on earnings per share.
F-46
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7--STOCK OPTIONS
The company's 1988 Stock Option Plan for officers and key employees
authorized the granting of a maximum of 168,750 shares of common stock options.
On November 18, 1994, the stockholders approved an additional 100,000 shares to
be optioned. The Plan permits the grant of incentive stock options (as defined
in the Internal Revenue Code) and nonstatutory stock options. In the case of an
incentive stock option, the per share option price cannot be less than the fair
market value on the date on which the option is granted. There is no such
requirement in the case of a nonstatutory stock option.
The options become exercisable ratably over a 3-year period and expire in
April 1997, October 1999, July 2000, April 2002, July 2002, March 2004, October
2004, and January 2005.
<TABLE>
<CAPTION>
EXERCISE PRICE PER
1988 PLAN SHARES OPTION
- ------------------------------------------------------------------------------ --------- -----------------------
<S> <C> <C>
Outstanding at July 31, 1992.................................................. 154,417 $8.625 to $10.45
Exercised................................................................... 1,042 $8.625
Canceled or expired......................................................... 10,625 $8.625 to $9.50
Outstanding at July 31, 1993.................................................. 142,750 $8.625 to $10.45
Granted..................................................................... 2,500 $12.00
Exercised................................................................... 4,950 $8.625 to $9.50
Canceled or expired......................................................... 10,000 $8.625
Outstanding at July 31, 1994.................................................. 130,300 $8.625 to $12.00
Granted..................................................................... 48,250 $11.8125 to $15.25
Exercised................................................................... 4,500 $8.625 to $9.50
Canceled or expired......................................................... 2,500 $9.50
Outstanding at July 31, 1995.................................................. 171,550 $8.625 to $15.25
Exercisable at July 31, 1995................................................ 138,550 $8.625 to $15.25
</TABLE>
The company's 1982 Incentive Stock Option Plan authorized the granting to
key employees of similar options to purchase a maximum of 187,500 shares of
common stock. The options granted in 1992 become exercisable ratably over a
3-year period and expire in April 2002 and July 2002.
<TABLE>
<CAPTION>
EXERCISE PRICE PER
1982 PLAN SHARES OPTION
- ------------------------------------------------------------------------------- --------- -----------------------
<S> <C> <C>
Outstanding at July 31, 1992................................................... 80,625 $1.89 to $9.50
Exercised.................................................................... 5,209 $1.89 to $9.50
Canceled or expired.......................................................... 1,000 $8.625 to $9.50
Outstanding at July 31, 1993................................................... 74,416 $1.89 to $9.50
Exercised.................................................................... 45,375 $1.89
Canceled or expired.......................................................... 6,166 $9.50
Outstanding at July 31, 1994 and 1995.......................................... 22,875 $9.50
Exercisable at July 31, 1995................................................. 22,875 $9.50
</TABLE>
NOTE 8--EMPLOYEE BENEFIT PLANS
S-K-I has a trusteed noncontributory profit sharing retirement plan covering
substantially all of its full-time employees. There have been no contributions
made to the Plan and charged to income for 1995, 1994, and 1993.
S-K-I has a savings plan under Section 401(k) of the Internal Revenue Code.
The plan allows all full-time employees to defer up to 15% of their income up to
$9,240 on a pretax basis. The company made a matching contribution of 15% on the
first $1,500 deferred by each participating employee in 1995 and
F-47
<PAGE>
S-K-I LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--EMPLOYEE BENEFIT PLANS (CONTINUED)
1994. In addition, S-K-I made a one time fully vested contribution to each
eligible participant as of February 1, 1995. The cost of this contribution was
$294,300.
Effective July 31, 1995, the profit-sharing portion of the S-K-I Ltd.
retirement plan was merged into the S-K-I Ltd. 401(k) savings plan. The name of
the newly merged plan is changed to the S-K-I Ltd. 401(k) Retirement Plan.
NOTE 9--BUSINESS OPERATIONS
S-K-I operates predominantly in a single industry segment--the development
and operation of ski areas. S-K-I provides ski recreation and related services
to skiers, a single customer group.
NOTE 10--SUBSEQUENT EVENTS
On October 23, 1995 the Company sold a majority of the ski resort related
and golf course assets of Bear Mountain to Fibreboard Corporation for
approximately $20,370,000.
F-48
<PAGE>
S-K-I LTD.
CONSOLIDATED BALANCE SHEET
APRIL 28, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and short-term investments (at cost, which approximates market value)......... $ 12,027,556
Accounts receivable................................................................ 2,068,022
Notes receivable................................................................... 242,128
Inventories........................................................................ 3,281,908
Prepaid expenses................................................................... 1,134,816
---------------
TOTAL CURRENT ASSETS............................................................. 18,754,430
---------------
Property and equipment, at cost:
Buildings and grounds.............................................................. 36,335,433
Machinery and equipment............................................................ 60,313,773
Leasehold improvements............................................................. 39,794,570
Lifts/liftlines and trails on corporate property................................... 32,085,284
---------------
168,529,060
Less--accumulated depreciation and amortization...................................... 83,933,510
---------------
84,595,550
Construction in progress............................................................. 772,749
Land and development costs........................................................... 8,359,837
---------------
NET PROPERTY AND EQUIPMENT....................................................... 93,728,136
---------------
Long-term investments................................................................ 3,588,798
Other assets......................................................................... 2,382,298
---------------
TOTAL ASSETS..................................................................... $ 118,453,662
---------------
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................. $ 1,566,927
Accounts payable................................................................... 1,714,241
Income tax payable (Note 3)........................................................ 1,256,500
Accrued lease payments--Vermont.................................................... 1,108,254
Accrued wages...................................................................... 717,329
Deposits and other unearned revenue................................................ 1,044,614
Other accrued expenses (Note 7).................................................... 6,512,619
---------------
TOTAL CURRENT LIABILITIES........................................................ 13,920,484
---------------
Long-term debt....................................................................... 19,821,979
Subordinated debentures.............................................................. 11,400,000
Deferred income taxes (Note 3)....................................................... 7,238,102
Other long-term liabilities (Note 7)................................................. 5,107,358
Minority interest in consolidated subsidiary......................................... 2,402,716
---------------
TOTAL LIABILITIES................................................................ 59,890,639
---------------
Stockholders' equity:
Common stock....................................................................... 579,087
Paid-in capital.................................................................... 6,661,895
Retained earnings.................................................................. 51,322,041
---------------
TOTAL STOCKHOLDERS' EQUITY....................................................... 58,563,023
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $ 118,453,662
---------------
---------------
</TABLE>
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
F-49
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
<S> <C> <C>
APRIL 30, APRIL 28,
1995 1996
-------------- --------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues......................................................................... $ 106,681,987 $ 106,751,742
-------------- --------------
Expenses:
Cost of operations including wages, maintenance and supplies................... 45,309,840 47,885,150
Other taxes.................................................................... 7,544,162 7,540,537
Utilities...................................................................... 7,623,646 7,465,058
Insurance...................................................................... 6,220,257 5,692,399
Selling, general and administrative expenses................................... 16,376,818 17,060,771
Interest....................................................................... 3,017,626 2,561,289
Depreciation and amortization (Note 3)......................................... 13,842,977 10,146,199
Loss on sale of Bear Mountain (Note 2)......................................... -- 4,736,646
-------------- --------------
Total expenses............................................................... 99,935,326 103,088,049
-------------- --------------
Income before provision for income taxes......................................... 6,746,661 3,663,693
Provision for income taxes (Note 3).............................................. 2,724,258 1,428,840
-------------- --------------
Net income before minority interest.............................................. 4,022,403 2,234,853
Minority interest in net income of consolidated subsidiary....................... (193,486) (526,528)
-------------- --------------
Net income....................................................................... $ 3,828,917 $ 1,708,325
-------------- --------------
-------------- --------------
Net income per common share (Note 5)............................................. $ .66 $ .30
-------------- --------------
-------------- --------------
Retained earnings, beginning of period........................................... $ 50,030,708 $ 50,366,108
Add: net income.................................................................. 3,828,917 1,708,325
Less: Dividends paid on common stock (Note 9).................................... 693,997 752,392
-------------- --------------
Retained earnings, end of period................................................. $ 53,165,628 $ 51,322,041
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
F-50
<PAGE>
S-K-I LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
------------------------
<S> <C> <C>
APRIL 30, APRIL 28,
1995 1996
----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 3,828,917 $ 1,708,325
Non-cash items included in net income:
Loss on disposition of net assets of Bear Mountain Ltd. (Note 2)..................... -- 4,736,646
Minority interest in net income of subsidiary........................................ 193,486 526,528
Depreciation and amortization........................................................ 13,539,407 10,146,199
Deferred income taxes................................................................ -- (1,241,854)
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN ASSETS AND LIABILITIES........... 17,561,810 15,875,844
----------- -----------
Changes in assets and liabilities:
Decrease (increase) in accounts receivable........................................... (724,565) 579,712
Decrease in notes receivable......................................................... 127,323 2,647
Decrease (increase) in inventories................................................... (540,996) 99,611
Decrease in prepaid expenses......................................................... 402,399 107,643
Increase (decrease) in accounts payable.............................................. (256,947) 96,620
Increase in income taxes payable..................................................... 2,517,977 984,248
Increase (decrease) in accrued lease payments-Vermont................................ (144,963) 68,888
Increase in accrued wages, profit sharing and incentive compensation................. 151,435 187,455
(Decrease) in deposits and other unearned revenue.................................... (383,618) (544,347)
Increase in other accrued expenses................................................... 296,736 954,876
Increase in other long-term liabilities.............................................. 934,010 675,332
----------- -----------
CASH FLOW PROVIDED BY OPERATING ACTIVITIES AFTER CHANGES IN ASSETS AND LIABILITIES..... 19,940,601 19,088,529
----------- -----------
Cash flows from investing activities:
Additions to property and equipment.................................................. (18,981,721) (6,019,657)
Net book value of property and equipment sold........................................ 41,067 86,899
Purchase of long-term investments.................................................... (1,778,704) (1,960,321)
Proceeds from disposition of net assets of Bear Mountain Ltd. (Note 2)............... -- 20,000,247
Businesses acquired less cash on hand from businesses acquired....................... (12,552,020) --
Other, net........................................................................... (230,632) 8,077
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES................................... (33,502,010) 12,115,245
----------- -----------
Cash flows from financing activities:
Net (reductions) proceeds in revolving credit agreement.............................. 12,250,000 (17,500,000)
Reductions in long-term debt......................................................... (1,949,327) (1,468,050)
(Decrease) increase in current portion of long-term debt............................. 2,560,405 (2,291,258)
Proceeds from issuance of common stock............................................... 16,172 44,837
Payment of dividends................................................................. (693,997) (752,392)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................................... 12,183,253 (21,966,863)
----------- -----------
Net increase (decrease) in cash and short-term investments............................. (1,378,156) 9,236,911
Cash and short-term investments at beginning of year................................... 2,704,302 2,790,645
----------- -----------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD....................................... $ 1,326,146 $12,027,556
----------- -----------
----------- -----------
Interest paid.......................................................................... $ 2,229,834 $ 1,998,601
Income taxes paid, net of refunds...................................................... $ 281,350 $ 1,686,523
</TABLE>
See accompanying Notes to (Unaudited) Condensed Consolidated Financial
Statements.
F-51
<PAGE>
S-K-I LTD.
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position as of April 28, 1996, the results of operations
for the nine months ended April 28, 1996 and April 30, 1995 and cash flows for
the nine months ended April 28, 1996 and April 30, 1995. All such adjustments
are of a normal recurring nature with the exception of the sale of the majority
of Bear Mountain assets. The unaudited condensed consolidated financial
statements should be read in conjunction with the following notes and the
consolidated financial statements in the 1995 Annual Report to the Securities
and Exchange Commission on Form 10-K.
2. BEAR MOUNTAIN SALE
On October 23, 1995 the Company sold a majority of the ski resort related
and golf course assets of Bear Mountain to Fibreboard Corporation for
approximately $20,370,000. The transaction had the following non-cash impact on
the balance sheet:
<TABLE>
<CAPTION>
<S> <C>
Increase in current assets..................................... $ 234,000
Decrease in property and equipment, net........................ (23,833,000)
Decrease in other assets, net.................................. (269,000)
Increase in current liabilities................................ 400,000
</TABLE>
3. INCOME TAXES
The provision for taxes on income is based on a projected annual effective
tax rate. The Company has reflected an effective tax rate through the third
quarter of approximately 39%.
Deferred income taxes include the cumulative reduction in current taxes
payable resulting principally from the excess of depreciation reported for tax
purposes over that reported for financial purposes. The reduction in the April
28, 1996 deferred income tax liability from July 31, 1995 is primarily
attributable to the October 1995 sale of Bear Mountain and other book-tax
differences, principally accelerated depreciation.
4. SEASONAL BUSINESS
Results for interim periods are not indicative of results to be expected for
the year, due to the seasonal nature of the business (skiing resorts).
5. NET INCOME PER COMMON SHARE
Net income per common share figures are based on the average shares
outstanding during year to date Fiscal 1996 of 5,788,592 (5,782,745 year to date
Fiscal 1995). Shares issuable upon the exercise of stock options grants have not
been included in the per share computation because they would not have a
material effect on earnings per share.
F-52
<PAGE>
S-K-I LTD.
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS
The 1988 Stock Option Plan authorized 168,750 shares of common stock to be
optioned. On November 18, 1994 the stockholders approved an additional 100,000
shares. For the nine months ended April 28, 1996, 4,950 shares were exercised
and 5,550 shares were forfeited.
The 1982 Incentive Stock Option Plan authorized 187,500 shares of common
stock to be optioned. No shares were granted, exercised or forfeited under this
plan during Fiscal 1996.
7. GENERAL LIABILITY
Provision is made for the estimated costs under the deductible portion of
S-K-I's general liability insurance policies. The balance of such reserves at
April 28, 1996 was $5,594,666. Of such amount, $4,795,428 is included in other
long-term liabilities, with the remaining balance included in other accrued
expenses.
8. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company does not provide health care and life insurance benefits for
retired employees who reach normal retirement age. The adoption of SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, has no
effect on the Company's financial position or results of operations.
9. DIVIDEND PAID
During November 1995, the Board of Directors declared a $.13 per share
dividend on Common Stock payable to stockholders of record on December 8, 1995.
The dividend was paid on January 17, 1996.
10. AGREEMENT AND PLAN OF MERGER
S-K-I Ltd. announced that it has received, through its investment financial
advisor Schroder Wertheim & Co., an offer by LBO Resort Enterprises of Newry,
Maine, to purchase all of the approximately 6,000,000 shares of outstanding
stock of S-K-I Ltd. for $18.00 per share. The S-K-I Ltd. Board of Directors has
approved a definitive merger agreement with LBO Resort Enterprises. A meeting of
S-K-I Ltd. shareholders will be held on June 10, 1996 to consider the offer as
recommended by the S-K-I Ltd. Board of Directors. The total value of the offer
for the equity approximates $107,000,000. The transaction is subject to, among
other things, shareholder and regulatory approvals.
11. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The standard
identifies indicators to determine whether an impairment of long-lived assets
has been incurred and provides guidance in determining the amount of the
impairment. The Company will adopt SFAS No. 121 in Fiscal 1997. The Company
expects that there will not be a
F-53
<PAGE>
S-K-I LTD.
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
material impact to the Company's financial position or results of operations as
a result of adopting this standard.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." The Company does not intend to adopt the new compensation expense
provisions of FAS 123 but will adopt the disclosure provisions in Fiscal 1997.
12. SUBSEQUENT EVENTS (UNAUDITED)
On June 28, 1996, the Company consummated a transaction with American Skiing
Company in which the Company sold all of its approximately 6,000,000 shares of
outstanding common stock for $18.00 per share.
American Skiing Company has entered into a consent decree with the U.S.
Department of Justice in which American Skiing Company has agreed to divest the
assets constituting the Waterville Valley ski resort. The divestiture is
expected to be consummated no later than December 1, 1996. The unaudited
carrying value of the Waterville Valley ski resort assets to be divested
included in the accompanying S-K-I unaudited consolidated balance sheet as of
April 28, 1996, is approximately $11.1 million and the unaudited net income for
the nine months ended April 28, 1996 of the Waterville Valley ski resort
included in the accompanying S-K-I unaudited consolidated statement of income
for the nine months ended April 28, 1996, is approximately $863,000.
F-54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO KAMORI INTERNATIONAL CORPORATION:
We have audited the accompanying combined balance sheets of the KAMORI
COMBINED ENTITIES (the combined entities listed in Note 1) as of May 31, 1996
and 1997, and the related combined statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1997. These financial statements are the responsibility of Kamori's management.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Kamori Combined
Entities as of May 31, 1996 and 1997, and the combined results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
August 1, 1997
F-55
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED BALANCE SHEETS
AS OF MAY 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 14,391,404 $ 15,653,936
Accounts receivable, net of allowance for doubtful accounts of $67,384 and
$15,551, respectively........................................................ 1,332,653 574,771
Inventory and supplies......................................................... 2,959,210 3,320,540
Receivable from Kamori International Corporation............................... 349,145 246,323
Prepaid expenses and other current assets...................................... 696,322 497,084
-------------- --------------
Total current assets......................................................... 19,728,734 20,292,654
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Ski lifts and trails........................................................... 61,886,703 62,933,368
Buildings and parking structures............................................... 56,199,673 55,678,889
Machinery and equipment........................................................ 46,113,639 47,847,047
Land used in operations........................................................ 17,513,217 16,147,810
Construction in progress....................................................... 3,837,897 4,582,273
-------------- --------------
185,551,129 187,189,387
Less- Accumulated depreciation................................................... (83,810,102) (94,557,022)
-------------- --------------
101,741,027 92,632,365
-------------- --------------
LAND HELD FOR DEVELOPMENT AND SALE............................................... 28,327,824 27,381,613
-------------- --------------
INVESTMENT IN REAL ESTATE PARTNERSHIP (Note 1)................................... 5,536,758 4,894,087
-------------- --------------
OTHER ASSETS, net of accumulated amortization of $2,091,440 and $839,673,
respectively................................................................... 3,733,134 4,243,275
-------------- --------------
$ 159,067,477 $ 149,443,994
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 2,072,766 $ 2,228,956
Accrued property taxes......................................................... 420,034 442,643
Accrued salaries and benefits.................................................. 2,069,674 2,588,032
Other accrued expenses......................................................... 2,367,498 2,568,010
Accrued interest payable....................................................... 1,154,989 1,168,930
Accrued interest payable to Kamori International Corporation................... 431,052 35,159
Current portion of long-term debt (Notes 3 and 4).............................. 4,050,400 5,053,539
-------------- --------------
Total current liabilities...................................................... 12,566,413 14,085,269
-------------- --------------
LONG-TERM DEBT (Notes 3 and 4):
Collateralized notes payable to banks.......................................... 92,866,000 87,812,461
Notes payable to Kamori International Corporation.............................. 45,230,080 42,547,115
-------------- --------------
138,096,080 130,359,576
-------------- --------------
Total liabilities............................................................ 150,662,493 144,444,845
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 8 and 9)
STOCKHOLDERS' EQUITY (Note 11):
Common stock and additional paid-in capital.................................... 44,400,000 44,400,000
Accumulated deficit............................................................ (35,995,016) (39,400,851)
-------------- --------------
8,404,984 4,999,149
-------------- --------------
$ 159,067,477 $ 149,443,994
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these balance sheets.
F-56
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Ski operations.................................................... $ 67,842,988 $ 64,966,616 $ 67,422,873
Retail and ski rental operations.................................. 11,848,262 11,279,791 11,905,843
Commercial leasing................................................ 1,779,339 1,943,583 1,889,300
Reservation services.............................................. 2,881,021 3,271,341 3,336,082
Golf operations................................................... 2,324,361 2,257,214 2,310,431
Land sales........................................................ 519,950 -- 1,199,097
------------- ------------- -------------
Other............................................................. 1,371,156 1,013,458 1,002,642
------------- ------------- -------------
88,567,077 84,732,003 89,066,268
COSTS AND EXPENSES:
Operating expenses--
Ski operations.................................................. 34,682,132 34,032,473 36,712,383
Retail and ski rental operations................................ 8,771,110 8,562,246 8,724,835
Commercial leasing.............................................. 312,430 350,935 310,351
Reservation services............................................ 2,552,523 2,497,808 2,548,538
Golf operations................................................. 1,874,812 1,930,483 1,880,543
Cost of land sales.............................................. 521,855 -- 962,506
Depreciation.................................................... 14,179,049 14,176,014 12,389,363
Amortization.................................................... 463,623 301,212 126,926
General, administrative and marketing............................. 16,468,101 16,511,590 17,238,072
(Gain) loss on disposition of property............................ 606,996 73,521 (60,181)
Writedown of assets (Note 2)...................................... -- -- 2,000,000
------------- ------------- -------------
80,432,631 78,436,282 82,833,336
------------- ------------- -------------
Operating income................................................ 8,134,446 6,295,721 6,232,932
------------- ------------- -------------
OTHER (INCOME) EXPENSES:
Interest expense.................................................. 12,047,155 11,970,893 10,658,465
Interest income................................................... (586,049) (738,639) (681,768)
------------- ------------- -------------
11,461,106 11,232,254 9,976,697
------------- ------------- -------------
Net loss before income taxes.................................... (3,326,660) (4,936,533) (3,743,765)
INCOME TAX (BENEFIT) PROVISION (Note 6)............................. 579,496 (398,267) (337,930)
------------- ------------- -------------
Net loss........................................................ $ (3,906,156) $ (4,538,266) $ (3,405,835)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-57
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
AND ADDITIONAL
PAID-IN
CAPITAL (NOTE ACCUMULATED
11) DEFICIT TOTAL
---------------- -------------- -------------
<S> <C> <C> <C>
BALANCES, at May 31, 1994....................................... $ 40,900,000 $ (27,550,594) $ 13,349,406
Net loss...................................................... -- (3,906,156) (3,906,156)
---------------- -------------- -------------
BALANCES, at May 31, 1995....................................... 40,900,000 (31,456,750) 9,443,250
Issuance of common stock in exchange for the assumption of
debt by Kamori International Corporation.................... 3,500,000 -- 3,500,000
Net loss...................................................... -- (4,538,266) (4,538,266)
---------------- -------------- -------------
BALANCES, at May 31, 1996....................................... 44,400,000 (35,995,016) 8,404,984
Net loss...................................................... -- (3,405,835) (3,405,835)
---------------- -------------- -------------
BALANCES, at May 31, 1997....................................... $ 44,400,000 $ (39,400,851) $ 4,999,149
---------------- -------------- -------------
---------------- -------------- -------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-58
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (3,906,156) $ (4,538,266) $ (3,405,835)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation................................................. 14,179,049 14,176,014 12,389,363
Amortization................................................. 548,664 382,144 260,690
Cost of land sales........................................... 501,733 -- 946,211
Writedown of assets.......................................... -- -- 2,000,000
Equity in earnings from investee............................. (245,626) (178,141) (107,329)
Loss (gain) on disposition of property....................... 111,933 73,521 (60,181)
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable................... (482,951) (114,331) 757,882
(Increase) decrease in inventory and supplies................ (69,766) 135,639 (361,330)
Decrease (increase) in prepaid expenses and other current
assets..................................................... 330,851 (206,636) 199,238
Decrease (increase) in receivable from Kamori
International Corporation.................................. 862,718 (762,402) 102,822
Increase in other assets..................................... (459,290) (607,917) (770,836)
Increase (decrease) in accounts payable...................... 665,689 (23,276) 156,190
Increase (decrease) in accrued expenses...................... 592,145 (586,827) 741,479
Increase (decrease) in accrued interest payable.............. 873,584 (408,197) (381,952)
-------------- -------------- --------------
Net cash provided by operating activities.................... 13,502,577 7,341,325 12,466,412
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to ski lifts and trails.............................. (92,113) (335,359) (979,835)
Additions to machinery and equipment........................... (5,535,146) (3,596,219) (3,103,335)
Additions to buildings and parking structures.................. (440,458) (1,357,493) (516,821)
Net change in construction in progress......................... (857,376) (574,903) (744,376)
Proceeds from sale of property and equipment................... 3,107,677 226,273 123,852
Cash distribution from equity investee......................... -- -- 750,000
Other.......................................................... -- 81,881 --
-------------- -------------- --------------
Net cash used in investing activities.......................... (3,817,416) (5,555,820) (4,470,515)
-------------- -------------- --------------
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-59
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MAY 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from seasonal lines of credit............................... 10,000,000 6,700,000 5,500,000
Payment of seasonal lines of credit.................................. (10,000,000) (6,700,000) (5,500,000)
Payments of collateralized notes payable to banks.................... (5,060,098) (4,054,600) (4,050,400)
Proceeds from collateralized notes payable to banks.................. -- 820,598 --
Proceeds from notes payable to Kamori International Corporation...... 12,689,782 15,095,218 15,827,347
Payments of note payable to Kamori International Corporation......... (14,120,000) (13,400,000) (18,510,312)
Capitalized loan fees................................................ -- (321,128) --
------------- ------------- -------------
Net cash used in financing activities............................ (6,490,316) (1,859,912) (6,733,365)
Net increase (decrease) in cash and cash equivalents............. 3,194,845 (74,407) 1,262,532
CASH AND CASH EQUIVALENTS, beginning of year......................... 11,270,966 14,465,811 14,391,404
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year............................... $ 14,465,811 $ 14,391,404 $ 15,653,936
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest, net of amounts
capitalized.................................................... $ 10,906,553 $ 11,968,488 $ 10,649,477
------------- ------------- -------------
------------- ------------- -------------
Cash paid to Kamori International Corporation during the year for
taxes.......................................................... $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During fiscal 1995, Steamboat Ski & Resort Corporation refinanced a note
payable to a bank and applied the loan balance of $800,402 to the new note
payable.
On March 31, 1996, Orlando Resort Corporation had a $3.5 million note
payable in full to a bank. Kamori International Corporation refinanced the note
at the parent level and accepted 100 shares of common stock in exchange for the
assumption of the note payable.
The accompanying notes to combined financial statements are an integral part of
these statements.
F-60
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF MAY 31, 1996 AND 1997
(1) BUSINESS AND ORGANIZATION
The Kamori Combined Entities ("Kamori") are comprised of the five
wholly-owned subsidiaries of Kamori International Corporation ("KIC"). KIC is a
controlled subsidiary of Kamori Kanko Co., Ltd. ("KKCL"), a Japanese
corporation. The combined financial statements presented herein include the
financial position, results of operations and cash flows of Steamboat Ski &
Resort Corporation ("SSRC"), Steamboat Development Corporation ("SDC"), Heavenly
Valley Ski & Resort Corporation ("HVSRC"), Heavenly Corporation ("HC"), and
Orlando Resort Corporation ("ORC"), all Delaware corporations. Such financial
statements have been combined due to the pending sale of Kamori, as discussed
below.
SSRC owns and operates a major ski and recreation complex in Steamboat
Springs, Colorado (the "Steamboat Ski Resort"). SSRC also owns a majority
interest in a consolidated subsidiary, Walton Pond Apartments, Inc. ("WPA"). WPA
owns and operates an employee housing facility in Steamboat Springs primarily
for the use of SSRC seasonal employees. SDC owns a 50% general partnership
interest in Country Club Highlands Partnership ("CCHP"). CCHP is engaged in the
development and sale of residential real estate adjacent to the Steamboat Ski
Area. HVSRC and HC are the sole partners in Heavenly Valley, Limited Partnership
("HVLP"), which owns and operates the Heavenly Ski Resort, a major destination
ski resort located in South Lake Tahoe, California and Stateline, Nevada. ORC
owns and operates the Sabal Point Golf Course and Country Club ("Sabal Point"),
a golf, tennis and swimming club located in Orlando, Florida.
On August 1, 1997, KIC entered into a stock purchase agreement with ASC
Holdings, Inc. ("ASC"), an unaffiliated third party, wherein ASC will acquire
all of the issued and outstanding shares of Kamori upon the closing date of the
agreement in exchange for approximately $288 million in cash. Certain assets
reflected in the accompanying Kamori combined financial statements will be
distributed to KIC prior to the closing and consist of all Kamori cash and cash
equivalents and certain property with a net book value at May 31, 1997 of
approximately $16.4 million. Proceeds from the sale will be used to retire all
of the outstanding debt of Kamori. The ASC acquisition is subject to certain
significant terms and conditions. In order to consummate the acquisition and
fund the purchase price, ASC must successfully complete the initial public
offering of its common stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Kamori. All
significant intercompany accounts and transactions have been eliminated in
combination. The minority shareholder's interest and share in the profits and
losses of WPA have been reflected in accrued expenses in the accompanying
combined balance sheets.
REVENUE RECOGNITION
Resort revenue primarily consists of revenue from ski operations, lodging,
food and beverage operations and other recreational activities and is recognized
as services are performed or as goods are sold. Real estate revenue is
recognized when consideration has been received, title, possession and other
attributes of ownership have been transferred to the buyer and Kamori is not
obligated to perform significant additional activities after the sale.
F-61
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Kamori considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
LAND HELD FOR DEVELOPMENT AND SALE
Land held for development and sale is carried at the lower of cost or fair
value. Costs related to the development activities of Kamori, including
interest, are capitalized while such property is actively being prepared for its
intended use, until the property is ready for sale. Kamori's land development
and sales activities are impacted by a variety of factors, including local and
regional economic conditions, and local zoning and approval guidelines.
Management of Kamori monitors such conditions and the related effect on the
value of its real estate holdings and will develop, market and dispose of such
holdings at a rate which optimizes its value compared to its cost.
PROPERTY AND EQUIPMENT
Kamori owns substantially all of the base area land and facilities of the
Steamboat and Heavenly Ski Resorts. A significant portion of the ski trails,
lifts and related assets are on land leased from the United States Forest
Service ("USFS") under special use permits which expire in 2029. Kamori also
owns the land and facilities comprising the Sabal Point Country Club.
Property and equipment is carried at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<CAPTION>
ASSETS USEFUL LIVES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Buildings, improvements and parking structures.............................. 10 to 30 years
Ski lifts and trails........................................................ 5 to 15 years
Machinery and equipment..................................................... 3 to 15 years
</TABLE>
HVLP has incurred approximately $3.2 million of project development costs
relating to the proposed expansion of the Heavenly Ski Resort. These costs have
been incurred since 1990 and are included in construction in progress in the
accompanying combined balance sheets. During fiscal 1997, HVLP obtained the
remaining required approvals relating to the proposed expansion. In management's
opinion, these costs will be realized through the future development, operation
and/or sale of the Heavenly Ski Resort.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the
years ended May 31, 1995, 1996 and 1997 totaled approximately $2.1 million, $2.3
million and $2.2 million, respectively.
INVENTORIES
Inventories consist primarily of retail clothing, ski equipment and food and
beverage inventories. Inventories are valued at the lower of cost or market
value, generally on the average cost method.
F-62
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED LOAN COSTS
Costs and fees incurred in connection with Kamori's financing activities
have been capitalized and are being amortized over the terms of the related
loans. Deferred loan costs are included in other assets in the accompanying
combined balance sheets.
GOODWILL
The excess of the purchase price over the fair market value of the assets
acquired in the Steamboat Ski Area acquisition is reflected as goodwill and is
being amortized on a straight-line basis over 40 years. Goodwill is included in
other assets in the accompanying combined balance sheets.
ORGANIZATION COSTS
Organization costs are included in other assets on the accompanying combined
balance sheets and are being amortized on a straight-line basis over five years.
INCOME TAXES
A consolidated federal income tax return is filed by KIC. Kamori
participates in an informal federal income tax sharing arrangement with KIC
whereby taxes paid by KIC are allocated to each individual entity who, on a
stand-alone basis, would have a tax liability. No payment for use of tax
benefits is made to those members generating tax operating losses until such
losses are utilized on a consolidated basis by KIC. Such payments are limited to
the amount of taxes that the loss generating entities paid in prior years.
Companies generating alternative minimum taxes are charged for those taxes on a
stand-alone basis. To the extent alternative minimum tax amounts have been paid,
they may benefit in future years if such benefit is realized by the consolidated
group.
Kamori accounts for income taxes on the liability method by recognizing
deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets, liabilities and carryforwards.
Deferred tax assets are then reduced, if deemed necessary, by a valuation
allowance for the amount of any tax benefits which, more likely than not based
on current circumstances, are not expected to be realized (see Note 6).
EARNINGS PER SHARE
Due to the proposed acquisition of Kamori by ASC, Kamori's historical
capital structure is not indicative of its prospective structure upon the
closing of the anticipated purchase transaction. Accordingly, historical net
income or loss per common share is not considered meaningful and has not been
presented herein.
IMPAIRMENT OF LONG-LIVED ASSETS AND IDENTIFIABLE INTANGIBLES
Kamori reviews its long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Generally, the basis for making such
assessments is based on future cash flow projections.
F-63
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORC has historically generated net cash flow deficits from operations which
have been funded by KIC. As a result, during fiscal 1997, ORC recorded an
impairment loss of $2,000,000 related to its land, buildings and equipment to
properly state these fixed assets at estimated fair values. Fair value was
determined by assessing the present value of estimated expected future cash
flows using a discount rate commensurate with the risks involved and based on
the stock purchase agreement discussed above.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-64
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(3) LONG-TERM DEBT
Long-term debt consists of the following as of May 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
SSRC-
Collateralized note payable to a bank, due May 28, 1999; annual principal
payments of $2,000,000 due March 31; secured by substantially all assets of
SSRC-
Fixed rate portion; interest payable quarterly at 8.05%...................... $ 15,000,000 $ 15,000,000
Variable rate portion; interest payable quarterly based on LIBOR at beginning
of quarter (6.5625% and 6.9375% at May 31, 1996 and 1997, respectively).... 33,350,000 31,350,000
Revolving loan agreement payable to KIC; interest at 6.9%, payable monthly;
principal due October 31, 2001............................................... 32,900,000 31,900,000
Line of credit payable to KIC; interest payable quarterly at prime rate plus 2%
(10.25% and 10.5% at May 31, 1996 and 1997, respectively); principal due
October 31, 2001............................................................. 8,457,149 6,487,174
WPA note payable to a bank, due October 1, 2002; interest at bank's prime rate
and reset annually (8.25% and 8.5% at May 31, 1996 and 1997, respectively);
secured by land, buildings, furniture and equipment of Walton Pond Apartment
Complex...................................................................... 1,566,400 1,516,000
HVLP-
Note payable to a bank, interest payable semiannually based on adjusted LIBOR
(6.8125% and 7.325% on May 31, 1996 and May 31, 1997, respectively); due
March 31, 2001; secured by substantially all assets of HVLP.................. 46,000,000 44,000,000
ORC-
Line of credit payable to KIC; interest payable quarterly at prime rate plus
2%, (10.25% and 10.5% at May 31, 1996 and 1997, respectively); principal due
October 31, 2001............................................................. 3,890,931 4,442,911
SDC-
Line of credit payable to KIC; interest payable quarterly at prime rate plus
2%, (10.25% and 10.5% at May 31, 1996 and 1997, respectively); principal due
October 31, 2001............................................................. 982,000 717,030
-------------- --------------
142,146,480 135,413,115
Less- current portion.......................................................... (4,050,400) (5,053,539)
-------------- --------------
Total long-term debt........................................................... $ 138,096,080 $ 130,359,576
-------------- --------------
-------------- --------------
</TABLE>
SSRC DEBT
At the beginning of each quarter, SSRC can elect to convert the variable
rate portion of the collateralized note payable into fixed rate debt under
certain circumstances. No such election was made by SSRC as of May 31, 1996 or
1997.
F-65
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(3) LONG-TERM DEBT (CONTINUED)
The collateralized note payable and the revolving credit facility (discussed
below) are secured by a first deed of trust covering all Steamboat Ski Area
assets, assignment of all rents, pledging by KIC of all of SSRC's and SDC's
common stock and an assignment of the USFS Permit covering the Steamboat Ski
Area. This note and the revolving credit facility are also secured by an
intercreditor agreement which provides that all other indebtedness or
obligations of SSRC are subordinate to this debt. Additionally, KKCL has
guaranteed all obligations of SSRC under these arrangements. Under terms of the
collateralized note agreement, SSRC is required to deposit Cash Flow, as
defined, into an interest bearing account beginning one year prior to the date
of the required principal payments. The deposit will then be applied to the
principal payment.
The WPA note payable is guaranteed by SSRC and requires, among other
restrictions, that WPA maintain a Debt Service Coverage ratio, as defined, of
1.15 times and provide additional collateral if the projects appraised value
falls below certain levels. On May 31, 1997, the note payable was refinanced
under similar terms with a maturity date of October 1, 2002.
SSRC also has a revolving credit facility with a bank which expires on May
31, 1999. Under this facility, the bank will provide a revolving line of credit
of up to $5 million to finance SSRC's seasonal cash flow needs. Amounts
outstanding under this facility bear interest at the prime interest rate and are
due and payable on the facility's expiration date. No amounts were outstanding
under this facility as of May 31, 1996 and 1997.
The SSRC line of credit amount available to draw upon is set by KIC and
fluctuates depending on SSRC's cash needs. Both the revolving loan and the line
of credit are subordinate to the collateralized note payable and revolving
credit facility with a bank discussed above. The revolving loan and the line of
credit were renewed during the year to mature on October 31, 2001. Each
agreement contains the same terms and provisions that existed in the original
agreements.
HVLP DEBT
The variable rate debt can be converted, at the election of HVLP, into
fixed-rate debt under certain circumstances. The note payable is secured by a
first deed of trust covering all HVLP assets, security and financing statements
and the USFS Permit covering the Heavenly Ski Resort. The note payable is
guaranteed by KKCL. HVLP is subject to various restrictive covenants in
connection with the loan which may be accelerated upon certain conditions.
The loan terms require HVLP to make a minimum payment of $1 million for the
year ended March 31, 1997 and is required to make another $1 million payment for
the year ended March 31, 1999. However, payments must total $4 million by March
31, 1998 and $8 million by March 31, 2000, in the aggregate. HVLP repaid $2
million of the outstanding note during September 1996.
LETTERS OF CREDIT
Under an agreement with an insurance carrier, SSRC had a $210,000 letter of
credit outstanding with a bank which guarantees payments of workers compensation
claims and expires in January, 1998. No amount was drawn under this letter of
credit as of May 31, 1997.
F-66
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(3) LONG-TERM DEBT (CONTINUED)
HVLP has an agreement with a bank to allow for $1.5 million in letters of
credit to be issued under certain circumstances when needed. Semi-annual fees
under the agreement include a letter of credit fee of .5% per annum on the
average amount of all letters of credit outstanding and a commitment fee of
.3125% per annum on the average amount of credit available. The letters of
credit are subordinate to the collateralized note payable and operating loan
described above. No letters of credit were outstanding as of May 31, 1997.
DEBT MATURITIES
Annual maturities for all long-term debt outstanding at May 31, 1997, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
- ------------------------------------------------------------------------------
<S> <C>
1998.......................................................................... $ 5,053,540
1999.......................................................................... 46,408,268
2000.......................................................................... 4,063,418
2001.......................................................................... 39,069,024
2002.......................................................................... 39,622,239
Thereafter.................................................................... 1,196,626
--------------
Total......................................................................... $ 135,413,115
--------------
--------------
</TABLE>
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH AND CASH EQUIVALENTS
The carrying amounts approximate fair value.
DEBT
An estimate of rates currently available to Kamori for debt with similar
terms was used to determine the fair value of Kamori's debt.
The carrying amounts and estimated fair values of Kamori's financial
instruments are as follows:
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- --------------
Cash and cash equivalents...................... $ 14,391,404 $ 14,391,404 $ 15,653,936 $ 15,653,936
Long-term debt................................. $ 142,146,480 $ 142,330,452 $ 135,413,115 $ 134,457,681
</TABLE>
(5) RELATED PARTY TRANSACTIONS
SSRC, ORC and HVLP reimburse KIC and KKCL for certain services provided.
Such reimbursements for the years ended May 31, 1995, 1996 and 1997 totaled
$3,340,928, $3,302,107 and
F-67
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
$3,399,642, respectively, and are included in general, administrative and
marketing expense in the accompanying combined statements of operations.
(6) INCOME TAXES
The components of the income tax provision or benefit are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ----------- -----------
Current tax (benefit) provision............................................ $ 579,000 $ (398,000) $ (338,000)
Deferred tax (benefit) provision........................................... -- -- --
---------- ----------- -----------
Total tax (benefit) provision.............................................. $ 579,000 $ (398,000) $ (338,000)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
A reconciliation of the income tax provision or benefit and the amount
computed by applying the U.S. federal statutory income tax rate to book income
before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
------------- ------------- -------------
At U.S. federal income tax rate...................................... $ (1,131,000) $ (1,678,000) $ (1,273,000)
State income tax, net of federal benefit............................. (156,000) (131,000) (101,000)
Excess tax deductible amortization................................... (340,000) (340,000) (340,000)
Nondeductible portion of meals and entertainment..................... 55,000 58,000 72,000
Valuation allowance adjustment....................................... 2,064,000 1,647,000 1,280,000
Other................................................................ 87,000 46,000 24,000
------------- ------------- -------------
Income tax (benefit) provision....................................... $ 579,000 $ (398,000) $ (338,000)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-68
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(6) INCOME TAXES (CONTINUED)
The components of gross deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
DEFERRED TAX ASSETS LIABILITIES
MAY 31, MAY 31,
------------------------------ ----------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
-------------- -------------- ---------- ----------
Current:
Insurance accruals..................................... $ 757,000 $ 661,000 $ -- $ --
Vacation accrual....................................... 133,000 136,000 -- --
Accrued expenses....................................... 88,000 160,000 -- --
AMT credit from parent................................. 370,000 -- -- --
-------------- -------------- ---------- ----------
Total current tax assets............................. 1,348,000 957,000 -- --
-------------- -------------- ---------- ----------
Noncurrent:
Fixed assets basis differences......................... -- 999,000 556,000 --
Intangible assets...................................... 69,000 54,000 -- --
AMT credit from parent................................. 823,000 823,000 -- --
Net operating loss carryover........................... 14,373,000 14,504,000 -- --
-------------- -------------- ---------- ----------
Total noncurrent tax asset............................. $ 15,265,000 16,380,000 556,000 --
-------------- -------------- ---------- ----------
Total deferred taxes................................... $ 16,613,000 $ 17,337,000 $ 556,000 $ --
-------------- -------------- ---------- ----------
-------------- -------------- ---------- ----------
Net deferred tax asset................................... $ 16,057,000 $ 17,337,000
Less -- valuation allowance.............................. (16,057,000) (17,337,000)
$ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
As of May 31, 1996 and 1997, Kamori had an income tax receivable of $312,079
and $218,094, respectively, from KIC related to income taxes. These amounts are
included in receivable from KIC in the accompanying combined balance sheets.
At May 31, 1997, Kamori had approximately $36,828,000 of net operating loss
carryforwards for federal income tax purposes which expire in the years 2005
through 2012. Kamori also has alternative minimum tax credit carryforwards of
approximately $823,000. The alternative minimum tax paid can, in general, be
carried forward indefinitely to reduce future regular tax liabilities to the
amount of tentative minimum tax due.
(7) EMPLOYEE SAVINGS PLANS
SSRC has a tax deferred savings plan covering substantially all year-round
and certain seasonal employees. This plan provides for both employee and SSRC
contributions. Employees may contribute, on an annual basis, up to 16% of their
annual compensation. SSRC's contribution is determined by the board of directors
on an annual basis. SSRC's contribution for the fiscal years ended May 31, 1995,
1996 and 1997 was $213,233, $233,053 and $247,042, respectively.
HVLP has a tax deferred profit sharing plan covering certain year-round
employees. The plan contains an added 401(k) feature whereby participants can
elect to make tax deferred contributions to the plan. The plan also provides for
discretionary HVLP contributions. HVLP's cash contribution is
F-69
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(7) EMPLOYEE SAVINGS PLANS (CONTINUED)
determined by management on an annual basis and totaled $256,965, $262,892 and
$300,000 for the fiscal years ended May 31, 1995, 1996 and 1997, respectively.
(8) COMMITMENTS AND CONTINGENCIES
SSRC executed agreements with major airlines to provide direct flights into
the Yampa Valley Regional Airport. These agreements require SSRC to guarantee
specified minimum airline revenue and to fund start-up costs. SSRC did not meet
the specified minimum levels under these agreements in fiscal 1995, 1996 or 1997
and was required to fund the specified differences. Such amounts have been
expensed in the accompanying combined statements of operations.
Kamori leases certain space and equipment under long-term operating leases.
Aggregate future minimum annual rental commitments under noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31-
- ------------------------------------------------------------------------------------
<S> <C>
1998................................................................................ $ 1,538,447
1999................................................................................ 1,202,523
2000................................................................................ 629,580
2001................................................................................ 163,122
2002................................................................................ 80,163
------------
$ 3,613,835
------------
------------
</TABLE>
Total rental expense for all operating leases for the years ended May 31,
1995, 1996 and 1997, was $2,365,555, $2,132,545 and $2,233,113, respectively.
As of May 31, 1997, Kamori had executed contracts for the acquisition of
equipment, construction of buildings and the expenditure of certain amounts
related to planning activities. These commitments total approximately
$5,045,000, including $4,909,000 that will be incurred during fiscal 1998 and
$136,000 in fiscal year 1999 and beyond.
(9) LITIGATION
Due to the nature of their operations, certain of the combined entities are
defendants in several lawsuits which are actively being contested. In
management's opinion, the effect of these disputes will not have a significant
effect on Kamori's combined financial position or results of operations.
F-70
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(10) RENTAL INCOME UNDER OPERATING LEASES
SSRC leases retail space to unaffiliated entities under noncancellable
leases expiring through 2004. Future minimum tenant rentals under the
noncancellable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31-
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 1,353,098
1999............................................................................ 1,296,769
2000............................................................................ 1,105,754
2001............................................................................ 648,167
2002............................................................................ 442,396
Thereafter...................................................................... 677,521
------------
$ 5,523,705
------------
------------
</TABLE>
(11) STOCKHOLDERS' EQUITY
As of May 31, 1995, 1996 and 1997, the stockholders' equity for each of the
Kamori combined entities is as follows:
<TABLE>
<CAPTION>
STEAMBOAT ORLANDO STEAMBOAT
SKI & RESORT HEAVENLY RESORT DEVELOPMENT
CORPORATION VALLEY (1) CORPORATION CORPORATION TOTAL
------------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, at May 31, 1994................. $ (631,347) $ 9,973,703 $ 104,073 $ 3,902,977 $ 13,349,406
Net income (loss)...................... (2,721,345) (509,176) (808,019) 132,384 (3,906,156)
------------- ------------ ----------- ------------ -------------
BALANCE, at May 31, 1995................. (3,352,692) 9,464,527 (703,946) 4,035,361 9,443,250
Net income (loss)...................... (1,015,783) (2,640,120) (955,898) 73,535 (4,538,266)
Issuance of common stock in exchange
for the assumption of debt by the
parent............................... -- -- 3,500,000 -- 3,500,000
------------- ------------ ----------- ------------ -------------
BALANCE, at May 31, 1996................. (4,368,475) 6,824,407 1,840,156 4,108,896 8,404,984
Net income (loss)...................... 2,321,681 (3,121,328) (2,592,649) (13,539) (3,405,835)
------------- ------------ ----------- ------------ -------------
BALANCE, at May 31, 1997................. $ (2,046,794) $ 3,703,079 $ (752,493) $ 4,095,357 $ 4,999,149
------------- ------------ ----------- ------------ -------------
------------- ------------ ----------- ------------ -------------
</TABLE>
F-71
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF MAY 31, 1996 AND 1997
(11) STOCKHOLDERS' EQUITY (CONTINUED)
As of May 31, 1997, the common stock components and additional paid-in
capital by entity are as follows:
<TABLE>
<CAPTION>
STEAMBOAT ORLANDO STEAMBOAT
SKI & RESORT HEAVENLY RESORT DEVELOPMENT
CORPORATION VALLEY (1) CORPORATION CORPORATION TOTAL
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Par value, per share................... $ .01 $ .01 $ 1.00 $ .01
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Shares authorized...................... 22 200 10,000 100
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Shares outstanding..................... 18 100 200 20
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Common stock........................... $ -- $ 1 $ 200 $ -- $ 201
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
Additional paid-in capital............. $ 18,000,000 $ 16,999,999 $ 5,399,800 $ 4,000,000 $ 44,399,799
------------- ------------- ------------ ------------ -------------
------------- ------------- ------------ ------------ -------------
</TABLE>
The equity components above were outstanding as of May 31, 1995, 1996 and
1997 for each entity with the exception of ORC, which issued 100 shares of stock
to KIC in exchange for the assumption of a $3.5 million note payable on March
31, 1996.
(1) Includes HVSRC and HC.
F-72
<PAGE>
KAMORI COMBINED ENTITIES
UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED
AUGUST 31, 1996 AND 1997
F-73
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED BALANCE SHEETS
AS OF AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 13,996,615 $ 14,668,241
Accounts receivable, net....................................................... 526,942 494,650
Inventory and supplies......................................................... 3,195,929 3,099,399
Prepaid expenses and other current assets...................................... 359,679 316,174
-------------- --------------
Total current assets......................................................... 18,079,165 18,578,464
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Ski lifts and trails........................................................... 61,886,703 62,704,568
Buildings and parking structures............................................... 56,223,673 55,647,269
Machinery and equipment........................................................ 46,245,189 47,962,043
Land used in operations........................................................ 17,513,217 16,145,770
Construction in progress....................................................... 4,967,345 6,607,566
-------------- --------------
186,836,127 189,067,216
Less--Accumulated depreciation................................................. (86,934,321) (96,683,885)
-------------- --------------
99,901,806 92,383,331
-------------- --------------
LAND HELD FOR DEVELOPMENT AND SALE............................................... 27,381,613 27,381,613
-------------- --------------
INVESTMENT IN REAL ESTATE PARTNERSHIP............................................ 5,564,143 4,702,615
-------------- --------------
OTHER ASSETS, net of accumulated amortization of $642,926 and $855,730,
respectively................................................................... 3,992,329 4,564,881
-------------- --------------
$ 154,919,056 $ 147,610,904
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these balance sheets.
F-74
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED BALANCE SHEETS
AS OF AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................................................... $ 2,892,666 $ 2,986,021
Accrued property taxes......................................................... 686,023 718,044
Accrued salaries and benefits.................................................. 1,628,338 2,028,357
Other accrued expenses......................................................... 2,100,415 2,523,810
Accrued interest payable....................................................... 2,614,886 2,623,066
Accrued interest payable to Kamori International Corporation................... 668,415 200,920
Current portion of long-term debt.............................................. 10,050,765 10,054,681
Payable to Kamori International Corporation.................................... 24,483 177,229
-------------- --------------
Total current liabilities.................................................... 20,665,991 21,312,128
-------------- --------------
LONG-TERM DEBT:
Collateralized notes payable to banks.......................................... 91,853,035 87,798,713
Notes payable to Kamori International Corporation.............................. 44,916,056 43,709,038
-------------- --------------
136,769,091 131,507,751
-------------- --------------
Total liabilities............................................................ 157,435,082 152,819,879
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock and additional paid-in capital.................................... 44,400,000 44,400,000
Accumulated deficit............................................................ (46,916,026) (49,608,975)
-------------- --------------
(2,516,026) (5,208,975)
-------------- --------------
$ 154,919,056 $ 147,610,904
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these balance sheets.
F-75
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
REVENUES:
Ski operations.................................................................. $ 1,440,362 $ 1,777,840
Retail and ski rental operations................................................ 1,417,284 1,686,338
Commercial leasing.............................................................. 418,292 441,243
Reservation services............................................................ 284,392 318,014
Golf operations................................................................. 512,711 462,616
Land sales...................................................................... 1,199,097 --
Other........................................................................... 127,557 248,959
-------------- --------------
5,399,695 4,935,010
-------------- --------------
COSTS AND EXPENSES:
Operating expenses-
Ski operations................................................................ 3,958,779 4,246,710
Retail and ski rental operations.............................................. 1,543,863 1,873,780
Commercial leasing............................................................ 76,525 112,049
Reservation services.......................................................... 441,176 416,475
Golf operations............................................................... 473,160 427,422
Cost of land sales............................................................ 958,006 --
Depreciation.................................................................. 3,124,219 2,458,479
Amortization.................................................................. 31,731 31,731
General, administrative and marketing........................................... 3,280,890 3,393,931
Gain on disposition of property................................................. -- (303,351)
-------------- --------------
13,888,349 12,657,226
-------------- --------------
Operating loss.............................................................. (8,488,654) (7,722,216)
-------------- --------------
OTHER (INCOME) EXPENSES:
Interest expense................................................................ 2,694,607 2,677,081
Interest income................................................................. (177,774) (193,225)
-------------- --------------
2,516,833 2,483,856
-------------- --------------
Net loss before income taxes................................................ (11,005,487) (10,206,072)
INCOME TAX BENEFIT (Note 3)....................................................... (84,483) --
-------------- --------------
Net loss.................................................................... $ (10,921,004) $ (10,206,072)
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these statements.
F-76
<PAGE>
KAMORI COMBINED ENTITIES (NOTE 1)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (10,921,004) $ (10,206,072)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation.................................................................. 3,124,219 2,458,479
Amortization.................................................................. 31,731 31,731
Cost of land sales............................................................ 946,211 --
Equity in earnings from investee.............................................. (27,385) (38,528)
Gain on disposition of property............................................... -- (303,351)
Changes in operating assets and liabilities-
Decrease in accounts receivable............................................... 842,777 108,310
(Increase) decrease in inventory and supplies................................. (236,719) 221,141
Decrease in prepaid expenses and other current assets......................... 336,643 180,910
Decrease in receivable from Kamori International Corporation.................. 336,562 395,363
Increase in other assets...................................................... (291,029) (355,388)
Increase in accounts payable.................................................. 819,900 757,065
Decrease in accrued expenses.................................................. (442,430) (328,474)
Increase in accrued interest payable.......................................... 1,697,260 1,619,897
-------------- --------------
Net cash used in operating activities....................................... (3,783,264) (5,458,917)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to machinery and equipment............................................ (135,000) (213,500)
Additions to buildings and parking structures................................... (24,000) (2,500)
Net change in construction in progress.......................................... (1,129,448) (2,025,293)
Proceeds from sale of fixed assets.............................................. 3,547 335,198
Cash distribution from equity investee.......................................... -- 230,000
-------------- --------------
Net cash used in investing activities....................................... (1,284,901) (1,676,095)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from seasonal lines of credit.......................................... $ 5,000,000 $ 5,000,000
Payments of collateralized notes payable to banks............................... (12,600) (12,606)
Proceeds from notes payable to Kamori International Corporation................. 143,125 1,236,962
Payments of note payable to Kamori International Corporation.................... (457,149) (75,039)
-------------- --------------
Net cash provided by financing activities................................... 4,673,376 6,149,317
-------------- --------------
Net decrease in cash and cash equivalents................................... (394,789) (985,695)
CASH AND CASH EQUIVALENTS, beginning of period.................................... 14,391,404 15,653,936
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period.......................................... $ 13,996,615 $ 14,668,241
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of amounts capitalized............ $ 916,788 $ 1,020,288
-------------- --------------
-------------- --------------
Cash paid to Kamori International Corporation during the period for taxes....... $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to unaudited condensed combined financial statements
are an integral part of these statements.
F-77
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AUGUST 31, 1996 AND 1997 (UNAUDITED)
(1) BUSINESS AND ORGANIZATION
The Kamori Combined Entities ("Kamori") are comprised of the five
wholly-owned subsidiaries of Kamori International Corporation ("KIC"). KIC is a
controlled subsidiary of Kamori Kanko Co., Ltd. ("KKCL"), a Japanese
corporation. The condensed combined financial statements presented herein
include the financial position, results of operations and cash flows of
Steamboat Ski & Resort Corporation ("SSRC"), Steamboat Development Corporation
("SDC"), Heavenly Valley Ski & Resort Corporation ("HVSRC"), Heavenly
Corporation ("HC"), and Orlando Resort Corporation ("ORC"), all Delaware
corporations. Such financial statements have been combined due to the pending
sale of Kamori, as discussed below.
SSRC owns and operates a major ski and recreation complex in Steamboat
Springs, Colorado (the "Steamboat Ski Resort"). SSRC also owns a majority
interest in a consolidated subsidiary, Walton Pond Apartments, Inc. ("WPA"). WPA
owns and operates an employee housing facility in Steamboat Springs primarily
for the use of SSRC seasonal employees. SDC owns a 50% general partnership
interest in Country Club Highlands Partnership ("CCHP"). CCHP is engaged in the
development and sale of residential real estate adjacent to the Steamboat Ski
Area. HVSRC and HC are the sole partners in Heavenly Valley, Limited Partnership
("HVLP"), which owns and operates the Heavenly Ski Resort, a major destination
ski resort located in South Lake Tahoe, California and Stateline, Nevada. ORC
owns and operates the Sabal Point Golf Course and Country Club ("Sabal Point"),
a golf, tennis and swimming club located in Orlando, Florida. Kamori's revenues
are earned primarily in December through March.
On August 1, 1997, KIC entered into a stock purchase agreement with ASC
Holdings, Inc. ("ASC"), an unaffiliated third party, wherein ASC will acquire
all of the issued and outstanding shares of Kamori upon the closing date of the
agreement in exchange for approximately $288 million in cash. Certain assets
reflected in the accompanying Kamori combined financial statements will be
distributed to KIC prior to the closing and consist of all Kamori cash and cash
equivalents and certain property with a net book value at May 31, 1997 of
approximately $16.4 million. Proceeds from the sale will be used to retire all
of the outstanding debt of Kamori. The ASC acquisition is subject to certain
significant terms and conditions. In order to consummate the acquisition and
fund the purchase price, ASC must successfully complete the initial public
offering of its common stock.
The condensed combined balance sheets as of August 31, 1996 and 1997 and the
related condensed combined statements of operations and cash flows for the three
months ended August 31, 1996 and 1997 have been derived from unaudited interim
financial statements. In management's opinion, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position and results of operations for such periods have been included in the
condensed financial statements. The operating results for the three months ended
August 31, 1996 and 1997 are not necessarily indicative of the results to be
expected for the full year or any future period. These condensed combined
financial statements should be read in conjunction with Kamori's audited
combined financial statements as of May 31, 1996 and 1997 and for each of the
three years in the period ended May 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-78
<PAGE>
KAMORI COMBINED ENTITIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF AUGUST 31, 1996 AND 1997 (UNAUDITED)
(2) EARNINGS PER SHARE
Due to the proposed acquisition of Kamori by ASC, Kamori's historical
capital structure is not indicative of its prospective structure upon the
closing of the anticipated purchase transaction. Accordingly, historical net
income or loss per common share is not considered meaningful and has not been
presented herein.
(3) INCOME TAXES
A consolidated federal income tax return is filed by KIC. Kamori
participates in an informal federal income tax sharing arrangement with KIC
whereby taxes paid by KIC are allocated to each individual entity who, on a
stand-alone basis, would have a tax liability. No payment for use of tax
benefits is made to those members generating tax operating losses until such
losses are utilized on a consolidated basis by KIC. Such payments are limited to
the amount of taxes that the loss generating entities paid in prior years.
Companies generating alternative minimum taxes are charged for those taxes on a
stand-alone basis. To the extent alternative minimum tax amounts have been paid,
they may benefit in future years if such benefit is realized by the consolidated
group.
Kamori accounts for income taxes on the liability method by recognizing
deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets, liabilities and carryforwards.
Deferred tax assets are then reduced, if deemed necessary, by a valuation
allowance for the amount of any tax benefits which, more likely than not based
on current circumstances, are not expected to be realized. As of August 31,
1997, no income tax provision or benefit has been recorded due to the
uncertainty of Kamori's ability to utilize net operating loss carryforwards
considering the pending purchase transaction discussed in Note 1.
(4) LITIGATION
Due to the nature of their operations, certain of the combined entities are
defendants in several lawsuits which are actively being contested. In
management's opinion, the effect of these disputes will not have a significant
effect on Kamori's combined financial position or results of operations.
F-79
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee.
<TABLE>
<CAPTION>
SEC registration fee............................................................ $13,908.99
<S> <C>
New York Stock Exchange listing fee............................................. 1,500
Transfer agent fees............................................................. 500
Accounting fees and expenses.................................................... 15,000
Legal fees and expenses......................................................... 15,000
Printing and mailing expenses................................................... 500
Miscellaneous................................................................... 5,000
---------
Total................................................................... $51,408.99
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Maine corporation. Section 719 of the Maine Business
Corporation Act (13-A M.R.S.A. ss. 101, et seq.) authorizes the indemnification
by a Maine corporation of any person who is a party or is threatened to be made
a party to any action, suit or proceeding by reason of that person's status as a
director, officer, employee or agent of the corporation; provided that no such
indemnification may be provided for any person if he or she shall have been
finally adjudicated (i) not to have acted honestly or in the reasonable belief
that his or her action was in or not opposed to the best interests of the
corporation or its shareholders, or (ii) in any criminal proceeding, to have had
reasonable cause to believe his or her conduct was unlawful. In the case of
actions brought by or on behalf of the corporation, indemnification may only be
provided if the court determines that such person is fairly and reasonably
entitled to the requested indemnification. Indemnification must be provided to
the extent that a director, officer, employee or agent has been successful, on
the merits or otherwise, in defense of an action of the type described in the
second sentence of this paragraph.
The Bylaws of the Company provide that it shall indemnify any person who is
made a party to any threatened, pending or completed action, suit or proceeding
by reason of the fact that he or she is or was a director or officer of the
Company, and may indemnify any employee or agent of the Company in such
circumstances, against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding. No indemnification may be
provided for any person who shall have been finally adjudicated not to have
acted honestly or in the reasonable belief that his or her action was in or not
opposed to the best interests of the Company or who had reasonable cause to
believe that his or her conduct was unlawful. Indemnification must be provided
to any director, officer, employee or agent of the Company to the extent such
person has been successful, on the merits or otherwise, in defense of any action
or claim described above. Any indemnification under this provision of the
Bylaws, unless required under the Bylaws or ordered by a court, can be made only
as authorized in each specific case upon a determination by a majority of
disinterested directors or by independent legal counsel or by the shareholders
that such indemnification is appropriate under the standard set forth in the
preceding sentence.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding all securities
sold and employee stock options granted by the Registrant since July 1994.
Further included is the consideration, if any, received by the Registrant for
such securities, and information relating to the section of the Securities Act
of 1933, as amended (the "Securities Act"), and the rules of the Securities and
Exchange Commission under which exemption from registration was claimed. All
awards of options did not involve any sale under the
II-1
<PAGE>
Securities Act. None of these securities were registered under the Securities
Act. Except as described below, no sale of securities involved the use of an
underwriter and no commissions were paid in connection with the sales of any
securities.
(1) On June 17, 1997, the Registrant issued 1,000,000 shares of common
stock to Leslie B. Otten in exchange for 937,168 shares of common stock ASC
East, Inc. (formerly American Skiing Company), pursuant to the exemption
contained in Section 4(2) of the Securities Act.
(2) On July 16, 1997, the Registrant issued 17,500 shares of Series A
Exchangeable Preferred Stock at a price of $1,000 per share (the "Series A
Preferred Stock") to one institutional investor pursuant to the exemption
contained in Section 4(2) of the Securities Act.
(3) On July 28, 1997, the Registrant issued $17.5 million principal
amount of its 14% Senior Exchangeable Notes due 2002 (the "14% Senior
Notes") to one institutional investor pursuant to the exemption contained in
Section 4(2) of the Securities Act.
(4) In August 1997 the Registrant granted options to purchase up to
2,475,235 shares of Common Stock to employees under its Stock Option Plan.
(5) In October, 1997 the Company issued 14,760,530 shares of Class A
Common Stock to Leslie B. Otten in exchange for all of Leslie B. Otten's
shares of Common Stock, pursuant to the exemption contained in Section 4(2)
of the Securities Act.
(6) On November 12, 1997 the Registrant issued 36,626 shares of its
10 1/2% Repriced Convertible Exchangeable Preferred Stock in exchange for
the Series A Preferred Stock and the 14% Senior Notes pursuant to the
exemption contained in Section 4(2) of the Securities Act.
(7) On January 28, 1998, the Registrant issued 615,022 shares of its
Common Stock to three institutional investors in exchange for shares of
common stock of ASC East representing 3.6% of the outstanding shares
thereof, pursuant to the exemption contained in Section 4(2) of the
Securities Act.
(8) On January 23, 1998 the Company issued 140,000 shares of its Common
Stock to Wendy Penley in exchange for all of the outstanding stock of
Blunder Bay Development Corporation, pursuant to the exemption contained in
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement (incorporated by reference to Exhibit 1.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33483).
2.1 Stock Purchase Agreement dated as of August 1, 1997, among Kamori International Corporation, ASC West and
the Registrant (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33483).
3.1 Articles of Incorporation of the Registrant, as amended. (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant'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 Registrant (incorporated by
reference to Exhibit 4.1 to the Registrant'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 Registrant's Registration Statement on
Form S-1, Registration No. 333-33483.)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.3 Form of Indenture relating to 10 1/2% Repriced Convertible Subordinated Debentures (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1 Registration No.
333-33483).
5.1 Form of Opinion of Pierce Atwood with respect to the validity of the securities being offered.**
10.1 Development Agreement dated September 18, 1997, among ASC Utah, Iron Mountain Associates, LLC, WPA, Ltd.,
Iron Mountain Holding Group, LC and Iron Mountain Alliance, Inc. (incorporated by reference to Exhibit
10.7 to the Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
10.2 Assignment dated May 30, 1997, between Wolf Mountain Resorts, L.C. and ASC Utah (incorporated by
reference to Exhibit 10.14 to the Registrant'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 Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.5 Lease Agreement dated April 2, 1997, between Grand Summit Resort Properties, Inc. and L.B.O. Holding,
Inc. (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.6 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).
10.7 Indenture dated September 25, 1986, between Killington Ltd. and The Howard Bank, as trustee
(representative of indentures with respect to similar indebtedness aggregating approximately $10,873,500
in original principal amount and maturing at various times from 1997 to 2013) (incorporated by reference
to Exhibit 10.20 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.8 Restated Concession Agreement dated as of April 30, 1992, between Sugarloaf Mountain Corporation and
Boston Concessions Group, Inc., together with Amendment thereto, Loan Agreement, and $150,000 Promissory
Notes, each dated July 31, 1995 (incorporated by reference to Exhibit 10.21 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.9 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).
10.10 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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Purchase Agreement dated as of April 13, 1994, among Mt. Attitash Lift Corporation, certain of its
shareholders and L.B.O. Holding, Inc. (incorporated by reference to Exhibit 10.35 to ASC East's
Registration Statement on Form S-4, Registration No. 333-9763).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 Lease Agreement dated as of February 20, 1990, between Pico Pond Associates and Killington Ltd.
(incorporated by reference to Exhibit 10.45 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.20 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).
10.21 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).
10.22 United States Forest Service Special Use Permit No. 4040/01, issued November 29, 1989 to Mount Snow Ltd.
(incorporated by reference to Exhibit 10.48 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.23 United States Forest Service Special Use Permit No. 4059/01 issued July 19, 1994 to L.B.O. Holding, Inc.
and Amendment 1 thereto (incorporated by reference to Exhibit 10.49 to ASC East's Registration Statement
on Form S-4, Registration No. 333-9763).
10.24 United States Forest Service Special Use Permit No. 4041 issued May 17, 1995, to Sugarbush Resort
Holdings, Inc. (incorporated by reference to Exhibit 10.51 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.25 Agreement between Sugarloaf Mountain Corporation and the Inhabitants of the Town of Carrabassett Valley,
Maine, concerning the Sugarloaf Golf Course dated June 3, 1987 (incorporated by reference to Exhibit
10.52 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.26 Commercial Lease dated August 7, 1997, between L.B.O. Holding, Inc. and Grand Summit Hotel Condominium
Unit Owners Association, Inc. (incorporated by reference to Exhibit 10.47 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-33483).
10.27 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).
10.28 Agreement dated June 3, 1996, between ASC East and Eastern Resorts Company, LLC (incorporated by
reference to Exhibit 10.56 to ASC East's Registration Statement on Form S-4, Registration No. 333-9763).
10.29 Employment Agreement dated as of August 24, 1994, among Warren C. Cook, Sugarloaf Mountain Corporation
and S-K-I Ltd. (incorporated by reference to Exhibit 10.57 to ASC East's Registration Statement on Form
S-4, Registration No. 333-9763).
10.30 Christopher E. Howard Employment Terms (Agreement) dated August 22, 1996, between Christopher E. Howard
and ASC East (incorporated by reference to Exhibit 10.51 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33483).
10.31 Partnership Agreement dated March 1993 among Sugarloaf Mountain Corporation, Jordan Lumber Company,
Warren C. Cook, Linwood E. Doble, Inc., H&S Land, Inc. and Loaf Land Inc. relating to Sugarloaf Land
Partners I (incorporated by reference to Exhibit 10.58 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.32 Partnership Agreement dated March 1993 among Sugarloaf Mountain Corporation, Jordan Lumber Company,
Warren C. Cook, H&S Land, Inc., Loaf Land, Inc. and Clement Begin relating to Sugarloaf Land Partners II
(incorporated by reference to Exhibit 10.59 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.33 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).
10.34 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).
10.35 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 Registrant's Registration Statement on Form S-1, Registration No.
333-33483).
10.36 Ground Lease Guaranty dated July 3, 1997, from the Registrant to Wolf Mountain Resorts, L.C.
(incorporated by reference to Exhibit 10.65 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.37 Securities Purchase Agreement dated as of July 2, 1997, between the Registrant and Madeleine LLC
(incorporated by reference to Exhibit 10.66 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.38 First Amendment to Securities Purchase Agreement dated as of July 25, 1997, between the Registrant and
Madeleine LLC (incorporated by reference to Exhibit 10.68 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33483).
10.39 Form of Repriced Converts Indenture between the Registrant and trustee (incorporated by reference to
Exhibit 10.70 to the Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
10.40 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 Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.41 $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 Registrant's Registration Statement on Form S-1, Registration No.
333-33483).
10.42 Management Agreement dated August 7, 1997, between Grand Summit Hotel Condominium Unit Owners
Association, Inc. and L.B.O. Holding, Inc. (incorporated by reference to Exhibit 10.73 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
10.43 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 Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.44 Subscription Agreement dated June 27, 1997, between Leslie B. Otten and ASC East (incorporated by
reference to Exhibit 10.80 to the Registrant's Registration Statement on Form S-1, Registration No.
333-33483).
10.45 Stock Option Plan (incorporated by reference to Exhibit 10.89 to the Registrant's Registration Statement
on Form S-1, Registration No. 333-33483).
10.46 Form of Non-Qualified Stock Option Agreement (Five-Year Vesting Schedule) (incorporated by reference to
Exhibit 10.90 to the Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
10.47 Form of Non-Qualified Stock Option Agreement (Fully-Vested) (incorporated by reference to Exhibit 10.91
to the Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
10.48 Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.92 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-33483).
10.49 Letter Agreement dated August 27, 1996, among S.K.I. Ltd. and certain shareholders of Sugarloaf Mountain
Corporation (incorporated by reference to Exhibit 10.63 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.50 Ski Lease dated September 18, 1997, between ASC Utah and Iron Mountain, LLC (incorporated by reference to
Exhibit 10.99 to the Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.51 Lease Agreement dated September 12, 1997, between Grand Summit Resort Properties, Inc. and Sunday River,
Ltd. (incorporated by reference to Exhibit 10.101 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.52 Lease Agreement dated September 9, 1997, between Grand Summit Resort Properties, Inc. and Killington Ltd.
(incorporated by reference to Exhibit 10.102 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.53 Lease Agreement dated September 4, 1997, between Grand Summit Resort Properties, Inc. and Mount Snow Ltd.
(incorporated by reference to Exhibit 10.103 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.54 Irrevocable Option and Real Estate Purchase Agreement Upon Exercise of Option dated January 28, 1997,
between Wolf Mountain Resorts, L.C. and Harry P. Condas, John P. Condas, George P. Condas, Tessie P.
Condas, Margarita C. Ellis and Jack W. Ellis, and Modification thereof dated May 27, 1997, and Second
Modification thereof dated June 2, 1997 (incorporated by reference to Exhibit 10.105 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-33483).
10.55 Consent Solicitation Advisory Agreement with Donaldson, Lufkin & Jenrette (incorporated by reference to
Exhibit 10.106 to the Registrant's Registration Statement on Form S-1, Registration No. 333-33483).
10.56 Form of Amendment and Waiver Letter Agreement between the Registrant and Madeleine LLC (incorporated by
reference to Exhibit 10.107 to the Registrant's Registration Statement on Form S-1, Registration No.
333-33483).
10.57 Form of Amended and Restated Registration Rights Agreement between the Registrant and Madeleine LLC
(incorporated by reference to Exhibit 10.108 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33483).
10.58 Form of Amended and Restated Credit Agreement dated as of November 12, 1997, among ASC East, certain
Subsidiaries as Borrowers and the Registrant, 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 Registrant's quarterly
report on Form 10-Q for the quarter ended October 26, 1997).
10.59 Amended and Restated Credit Agreement dated as of November 12, 1997, among ASC Utah, ASC West and certain
Subsidiaries as Borrowers, the Registrant 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 Registrant's quarterly report on Form 10-Q for the quarter ended October
26, 1997).
10.60 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 Registrant's quarterly report
on Form 10-Q for the quarter ended October 26, 1997).
10.61 Contract on Sale by and between Orlando Resort Corporation and ELW Golf Group, Inc. (incorporated by
reference to Exhibit 4 to the Registrant's quarterly report on Form 10-Q for the quarter ended October
26, 1997).
10.62 Real Estate Purchase Agreement dated December 8, 1997 by and between WMR Investment Company, L.L.C. and
Alpine Resort Properties, Inc. (incorporated by reference to Exhibit 5 to the Registrant's quarterly
report on Form 10-Q for the quarter ended October 26, 1997).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.63 Securities Purchase Agreement dated January 23, 1998 by and between the Registrant and Wendy E. Penley.**
10.64 Registration Rights Agreement dated January 23, 1998 by and between the Registrant and Wendy E. Penley.**
10.65 Securities Exchange Agreement dated December 29, 1997 by and among the Registrant, Bear, Stearns & Co.,
Inc., SunAmerica Investments, Inc. and Fidelity Management & Research.**
10.66 Registration Rights Agreement dated December 29, 1997 by and among the Registrant, Bear, Stearns & Co.,
Inc., SunAmerica Investments and Fidelity Management & Research.**
10.67 First Supplemental Indenture dated as of November 12, 1997 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.**
11.1 Computation of pro forma earnings per share.**
12.1 Computation of ratios of earnings to combined fixed charges and stock dividends.**
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-33483).
23.1 Consent of Pierce Atwood (see Exhibit 5.1).**
23.2 Consent of Price Waterhouse LLP.**
23.3 Consent of Arthur Andersen LLP.**
</TABLE>
- ------------------------
** Filed herewith.
*** To be filed by amendment.
All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-8
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the time of the
offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Articles of
Incorporation, as amended, and By-Laws, as amended, of the Registrant and
the laws of the State of Maine or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matters have been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bethel,
State of Maine, on this 29th day of January, 1998.
<TABLE>
<S> <C> <C>
AMERICAN SKIING COMPANY
By: /s/ LESLIE B. OTTEN
-----------------------------------------
Leslie B. Otten
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ LESLIE B. OTTEN Chairman of the Board of
------------------------------------------- Directors, President,
Leslie B. Otten Chief Executive Officer January 29, 1998
and Director
(Principal Executive Officer)
/s/ THOMAS M. RICHARDSON Chief Financial Officer,
------------------------------------------- Senior Vice President,
Thomas M. Richardson Treasurer and Director January 29, 1998
(Principal Financial and
Accounting Officer)
/s/ CHRISTOPHER E. HOWARD Senior Vice President, Chief
------------------------------------------- Administrative Officer, January 29, 1998
Christopher E. Howard General Counsel, Clerk and Director
</TABLE>
II-10
<PAGE>
Exhibits 5.1 and 23.1
01/29/98
American Skiing Company
Sunday River Access Road
Bethel, Maine 04217
Re: Registration Statement on Form S-1 (No. 333- )
Dear Sirs:
We have assisted in the preparation of a Registration Statement on Form S-1
(the "Registration Statement") filed with the Securities and Exchange Commission
relating to (i) 36,626 shares of 10 1/2% Repriced Convertible Exchangeable
Preferred Stock, par value $.01 per share (the "Preferred Shares"), of American
Skiing Company, a Maine corporation (the "Company"), (ii) the Company's 10 1/2%
Repriced Subordinated Debentures (the "Debentures"), and (iii) 4,350,740 shares
of the Company's Common Stock, par value $.01 per share (the "Common Shares").
We have examined and relied upon the Company's Articles of Incorporation and
Bylaws and originals, or copies certified to our satisfaction, of all pertinent
records of the meetings of the directors and stockholders of the Company, the
Registration Statement and such other documents relating to the Company as we
have deemed relevant for the purposes of this opinion.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, and the conformity to original documents of all documents
submitted to us as certified or photostatic copies.
Based on and subject to the foregoing, we are of the opinion that: (i) the
issuance by the Company of the Preferred Shares and the Common Shares issued
prior to the date hereof has been duly authorized; (ii) the Preferred Shares,
and such issued Common Shares have been legally issued and are fully paid and
non-assessable; (iii) the Company has duly authorized for issuance the
Debentures and unissued Common Shares covered by the Registration Statement and
such unissued Common Shares, when issued as described in the Registration
Statement, will be legally issued, fully paid and non-assessable; and (iv) the
Debentures, when issued as described in the Registration Statement, will be
binding obligations of the Company; provided, however, that the enforceability
of any obligations of the Company under the Debentures may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws or rules of
law or equity affecting the enforcement generally of creditors' rights and
remedies, the discretion of the court before which equitable relief is
requested, and laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission in connection with the Registration Statement. We also
consent to the reference to our firm appearing under the caption "Legal Matters"
in the Prospectus forming part of the Registration Statement.
Very truly yours,
Pierce Atwood
By: s/ David J. Champoux
-------------------------------------------------------------
Its: Partner
<PAGE>
Exhibit 10.63
______________________________________________________________________________
______________________________________________________________________________
AMERICAN SKIING COMPANY
-------------------------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------------------------
Dated as of January 23, 1998
Re: Common Stock, Par Value $.01
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS.................................................... 1
1.2 Rules of Construction............................................... 3
SECTION 2. PURCHASE AND SALE OF THE SECURITIES............................ 3
2.1 Purchase and Sale of Shares........................................ 3
2.2 Exchange........................................................... 3
2.3 Closing............................................................ 3
2.4 Transfer Restrictions.............................................. 3
2.5 Pass Through Payment............................................... 4
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................ 4
3.1 Authority Relative to this Agreement............................... 4
3.2 Exchange of Shares................................................. 4
3.3 Investment Intent.................................................. 4
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 4
4.1 Corporate Organization and Authority of the
Company and its Subsidiaries....................................... 4
4.2 Authorized Capital Stock........................................... 5
4.3 Sale is Legal and Authorized....................................... 5
4.4 Governmental Consent............................................... 5
4.5 Common Stock Legends............................................... 6
4.6 Business Operations and Other Information:
Financial Condition................................................ 6
4.7 Broker's or Finder's Commission.................................... 6
SECTION 5. CLOSING CONDITIONS............................................. 7
5.1 Purchaser's Obligations............................................ 7
5.2 Company's Obligations.............................................. 7
SECTION 6. MISCELLANEOUS.................................................. 8
6.1 Notice: Payments................................................... 8
6.2 Governing Law...................................................... 9
6.3 Severability....................................................... 9
6.4 Survival........................................................... 9
6.5 Successors and Assigns............................................. 9
6.6 Amendment.......................................................... 9
6.7 Counterparts....................................................... 9
6.8 Specific Performance............................................... 9
6.9 Headings and Table of Contents.................................... 10
i
<PAGE>
American Skiing Company
P.O. Box 450
Bethel, Maine 04217
SECURITIES PURCHASE AGREEMENT
Common Stock $0.01 Par Value
Dated as of January 23, 1998
To the Purchaser which is a signatory to this Agreement
Ladies and Gentlemen:
The undersigned, American Skiing Company, a Maine corporation (the
"Company"), hereby agrees with you as follows:
SECTION 1. DEFINITIONS
For all purposes of this Agreement the following terms shall have the
meaning set forth herein or elsewhere in the provisions hereof:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 25% or more of the voting securities of a Person
shall be deemed to be control.
"Agreement" means this Securities Purchase Agreement, as amended from time
to time.
"Common Stock" means the common stock of American Skiing company, $0.01 par
value.
"ASC" or "Company" means American Skiing Company, a Maine corporation.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"Board Resolution" means a resolution of the Board of Directors of the
company set forth in an Officers' Certificate delivered to the Purchaser.
1
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which banks are authorized to be closed in the States of Maine and New
York.
"Closing" shall have the meaning given to such term in Section 2.6 hereof.
"Closing Date" shall have the meaning given to such term in Section 2.6
hereof.
"Common Stock" shall mean the common stock of the Company, $0.01 par value.
"Exchange Act" means the Securities Exchange act of 1934, as amended.
"Exchanged Shares" means all of the issued outstanding shares of Common
Stock of Blunder Bay Development corporation, a Maine corporation owned by the
Purchaser signatory to this Agreement, as described in Section 2.2 hereof.
"Initial Public Offering" means the initial public offering of 14,750,000
shares of the Company's Common Stock completed November 6, 1997 and settled
November 12, 1997 as more particularly described in the Prospectus.
"IPO Common Stock" means Common Stock issued pursuant to the Initial Public
Offering.
"Officer" means, with respect to the Company, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Administrative Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, any Assistant Secretary or any Vice President of such
Person.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any
subdivisions or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Prospectus" means the Prospectus dated November 6, 1997 relating to the
Company's offering of 14, 750,000 shares of its Common Stock.
"Purchaser" shall mean any purchaser signatory hereto.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, by and among the Company and the Purchaser as such
agreement may be amended, modified or supplemented from time to time.
"SEC" means the Securities and Exchange Commission.
"Securities" means and alternatively refers to the Common Stock to be
issued to the Purchaser as described in Section 2.1 hereof.
2
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended.
1.2 Rules of Construction. Unless the context otherwise requires:
(1) a term has the meaning assigned to;
(2) an accounting term not otherwise defined shall be construed in
accordance with GAAP;
(3) words in the singular include the plural, and the plural include
the singular;
(4) provisions apply to successive events and transactions; and
(5) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement or successor sections or rules
adopted by the SEC from time to time.
SECTION 2. PURCHASE AND SALE OF THE SECURITIES
2.1 Purchase and Sale of Shares. The Company hereby agrees to issue,
sell and deliver 140,000 of shares of its Common Stock, $0.01 par value
("Securities") to the Purchaser and the Purchaser agrees to purchase such Shares
through the exchange described in Section 2.2 below. The terms limitations and
relative rights of the Common Stock are set forth in the Prospectus related to
the initial public offering of the Company's Common Stock dated November 6,
1997, attached hereto as Exhibit A. The Company shall also pay to Purchaser the
amount of [$265,000 TBA @Close] in cash at Closing.
2.2 Exchange. As consideration for the Shares and the cash payment
described above, Purchaser shall transfer to the Company all the issued and
outstanding stock of all class of Blunder Bay Development Corporation a Maine
corporation ("Exchanged Securities").
2.3 Closing. The Closing of the purchase and sale of the Securities will
take place at the Company's offices in Bethel, Maine 30 days following the
execution and deliver of this Agreement. At Closing, the Company will deliver
certificates representing the applicable Securities purchased hereunder against
delivery by the Purchaser of certificates for the Exchanged Shares duly enclosed
for transfer, or accompanied by stock powers duly executed in blank. The
Securities will be issued to the Purchaser on the Closing Date and registered in
the name of the Purchaser or the Purchaser's nominee, as applicable.
2.4. Transfer Restrictions. Until such time as the Registration Statement
described in the Registration Rights Agreement has been declared effective by
the SEC, the Purchaser shall not sell, transfer or assign any Security other
than: (i) to an Affiliate of the Purchaser, (ii) to a Qualified Institutional
Buyer or Accredited Investor (as such terms are defined in the Securities
3
<PAGE>
Act), or (iii) upon receipt for an opinion of counsel acceptable to the Company
that the Securities may be sold pursuant to an exemption under the Securities
Act.
2.5 Pass Through Payment. In consideration of the foregoing, the Company
agrees to pay to Purchaser as and when received by Blunder Bay Development, Inc.
any and all amounts received under that certain Lease Amendment among Sunday
River Skiway Corporation, Blunder Bay Development, Inc., Mega Mountain, Inc. and
PEN-EM, Inc dated as of __________,_____, 199__.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to and for the benefit of the
Company as follows:
3.1 Authority Relative to this Agreement. The Purchaser has the requisite
power to enter into this Agreement and to carry out its obligations hereunder.
The execution an delivery of this Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary actions on the part of the
Purchaser. This Agreement and the Registration Rights Agreement, upon its
execution, each constitute a valid and binding obligation of the Purchaser,
enforceable in accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. No other proceedings
on the part of the Purchaser are necessary to authorize this Agreement or the
Registration Rights Agreement and the transactions contemplated hereby and
thereby.
3.2 Exchange of Shares. The Purchaser owns the Exchanged Shares
beneficially and of record free and clear of all liens, encumbrances and
restrictions of any nature whatsoever, and at Closing will transfer the
Exchanged Shares to the Company in the manner described in Section 2.3 hereof,
free and clear of all liens and encumbrances and restrictions.
3.3 Investment Intent. The Purchaser is acquiring the Securities for
investment for its own (or an Affiliate's) account, not as a nominee or agent
and not with a view to the distribution of any part thereof in violation of law.
The Purchaser has no intent of selling, granting any participation in, or
otherwise distributing the Securities, other than to its Affiliates prior to the
effective date of the Registration.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants that:
4.1 Corporate Organization and Authority of the Company and Subsidiaries.
The Company (a) is a corporation duly organized, validly existing and in good
standing under the laws o the State of Maine; (b) has all requisite power and
authority and all necessary licenses and
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permits to own and operate its Properties and to carry on its business as now
conducted and as presently proposed to be conducted, except as would not have a
material adverse effect on the Company; and (c) is duly licensed or qualified
and is authorized to do business in and is in good standing as a foreign
corporation in each jurisdiction where the character of its Properties or the
nature of its activities makes such licensing or qualification necessary.
4.2 Authorized Capital Stock. As of the date hereof the authorized
outstanding Capital Stock of the Company is fully and accurately described in
the Prospectus, and all of the issued shares of Capital Stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable.
4.3 Sale is Legal and Authorized.
(a) The offer, issuance, sale and delivery of the Securities and
compliance by the Company with all of the provisions of this Agreement and
the Registration Rights Agreement (i) are within the corporate powers of
the Company; (ii) are legal and will not violate, conflict with, result in
any breach of, or any of the provisions of, constitute a default under
(upon notice or lapse of time or both), or result in the creation of any
Lien upon any Property of the Company or any of its Affiliates under the
provisions of its articles of incorporation, by-laws, or any order of any
court or governmental authority or any provision of any indenture,
mortgage, contract, instrument or other agreement to which the Company or
any of its Affiliates is a party or by which it may be bound; and (iii)
have been duly authorized by all necessary corporate action on the part of
the Company.
(b) This Agreement has been duly and validly executed and delivered
by the Company. This Agreement constitutes the legal, valid and binding
obligation, contract and agreement of the Company, enforceable in
accordance with its terms, except as enforcement of such terms may be
limited by any applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting the enforcement of creditors' right
generally and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(c) The Common Stock will conform to the terms contained in the
Company's Articles of Incorporation. The Common Stock and the issuance of
the Common Stock in the exchange transaction described herein have been
duly authorized by the Company.
4.4 Governmental Consent. Neither the nature of the Company nor of any
Affiliate, nor of any of their respect businesses or properties, nor any
relationship between the Company or any Affiliate and any other Person, nor any
circumstance in connection with the execution an delivery of this Agreement or
the offer, issue, sale or delivery of the Securities is such as to require a
consent, approval or authorization of, or filing, registration (other than
registration of the Common Stock under the Securities Act as described in the
Registration Rights Agreement), or qualification with, any governmental
authority on the part of the Company as a condition to the execution an delivery
of this Agreement or the offer, issue, sale or delivery of the Securities.
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4.5 Common Stock Legends. (a) The Common Stock, as and when issued by the
Company, will be validly issued and outstanding, fully paid and non-assessable
and will not be subject to any pre-emptive or similar right, and the holder of
each Security will receive good and valid title to the Common Stock free an
clear of any lien or encumbrance, except such as may have been created by the
Purchaser and such restrictions on transfer as may be imposed under this
Agreement, United States federal or state securities or blue sky laws.
(b) Each of the Company's certificates representing the Securities,
(prior to registration, pursuant to the Registration Rights Agreement, and
any certificates issued in exchange therefore or substitution thereof)
shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii)
RULE 144 UNDER SUCH ACT, OR (iii) UPON RECEIPT OF AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT THE SECURITIES MAY BE SOLD
PURSUANT TO ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT
RELATING TO THE DIPSIOTION OF SECURITIES.
4.6 Business Operations and Other Information: Financial Condition. (a)
Since the date of the Initial Public Offering the Company and its Affiliates
have filed all reports required to be filed with the SEC, pursuant to the
Exchange Act, (collectively the "SEC Reports"). The SEC Reports were prepared
in accordance with the requirements of the Securities Act and the Exchange Act,
as the case may be; none of such SEC Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statement
therein, in light of the circumstances under which they were mad, not
misleading. The Financial Statements (as defined below) included in the SEC
Reports present fairly the financial position of ASC and its Affiliates
identified herein as of the respective dates thereof, and the results of their
operations, changes in stockholders equity and their cash flows for the
respective periods set forth therein, all in conformity with GAAP consistently
applied during the periods involved.
4.7 Broker's or Finder's Commission. No broker's or finder's fee or
commission will be payable by the Company with respect to the issuance and sale
of the Securities. The Company agrees to indemnify the Purchaser and hold it
harmless against any loss, cost, claim or liability (including without
limitation, reasonable attorneys' fee sand disbursements for the investigation
and defense of claims) asserted against Purchaser arising out of or relating to
any such actual or alleged for commission.
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SECTION 5. CLOSING CONDITIONS.
5.1 The Purchaser's obligation to purchase the Securities through the
exchange of the Exchanged Securities on the Closing Date pursuant to Section 2
of this Agreement shall be subject to the following conditions precedent.
(a) Representations and Warranties True. The representations and
warranties of the Company contained in Section 4 shall be true in all
material respects on the Closing Date with the same effect as though made
on and as of that date.
(b) Compliance with this Agreement. The Company shall have performed
and complied with all agreements and conditions contained herein which are
required to be performed or complied with by the Company on or before the
Closing date.
(c) Officers' Certificate. The Company shall have delivered to the
Purchaser an Officer's Certificate dated the Closing Date certifying that
the conditions specified in this Section 5.1 have been fulfilled.
(d) Corporate Existence and Authority. The Purchaser shall have
received, in form and substance reasonably satisfactory to the Purchaser,
such documents and evidence with respect to the Company as the Purchaser
may reasonably request in order to establish the existence and good
standing of the Company and the authorization of the transactions
contemplated by this Agreement.
(e) Proceedings Satisfactory. All proceedings taken in connection
with the sale of the Securities to be sold by the Company to the Purchaser
and all documents and papers relating thereto shall be reasonably
satisfactory to the Purchaser and the Purchaser shall have received copies
of such documents and papers as the purchaser may reasonably request in
connection therewith all in form and substance reasonably satisfactory to
the Purchaser.
5.2 The Company's obligation to sell the Securities through the
exchange of the Exchanged Securities on the Closing Date pursuant to Section 2
of this Agreement shall be subject to the following conditions precedent.
(a) Representations and Warranties True. The representations and
warranties of the Purchaser contained in Section 3 shall be true in all
material respects on the Closing Date with the same effect as though made
on and as of that date.
(b) Compliance with this Agreement. The Company shall have performed
and complied with all agreements and conditions contained herein which are
required to be performed or complied with by the Company on or before the
Closing date.
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(c) Officers' Certificate. The Company shall have delivered to the
Company an Officer's Certificate dated the Closing Date certifying that the
conditions specified in this Sections 5.2 have been fulfilled.
(d) Corporate Existence and Authority. The Company shall have
received, in form and substance reasonably satisfactory to the Purchaser,
such documents and evidence with respect to the Company as the Company may
reasonably request in order to establish the existence and good standing of
the Company and the authorization of the transactions contemplated by this
Agreement.
(e) Proceedings Satisfactory. All proceedings taken in connection
with the sale of the Securities to be sold by the Company to the Company
and all documents and papers relating thereto shall be reasonably
satisfactory to the Company and the Company shall have received copies of
such documents and papers as the Company may reasonably request in
connection therewith all in form and substance reasonably satisfactory to
the Company.
SECTION 6. MISCELLANEOUS.
6.1 Notices: Payments. (a) All notices and other communications under
this Agreement or in respect of the Securities shall be given or made in writing
and telecopies or mailed by registered airmail, return receipt requested,
postage prepaid, air courier, or delivered personally to the intended recipient,
(1) If to the Purchaser, to:
Wendy E. Penley
P.O. Box 277
West Paris, Maine 04289
(2) If to the Company, to
American Skiing Company
Sunday River Access Road
P.O. Box 450
Bethel, Maine 04217
Attn: Christopher E. Howard
Tel: (207) 824-8100
Fax: (207) 824-5158
(b) All such notices and other communications shall be deemed to have
been duly given when transmitted by telecopy, subject to telephone
confirmation of receipt, or when personally delivered or, in the case of a
mailed notice, ten days after being duly deposited in the mails, in each
case given or addressed as aforesaid.
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6.2 Governing Law. This Agreement and all other documents
contemplated hereby shall be deemed to be contracts made under, and shall
be construed in accordance with the governed by the laws of the State of
Maine (without reference to the conflicts of laws principles thereof) and
the laws of the United States of America.
6.3 Severability. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and the Agreement shall be carried out as nearly as possible
according to its original terms and intent.
6.4 Survival. All representations, warranties and covenants made by the
Company herein or in any certificate or other instrument delivered or other
instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the Purchaser and shall survive the
delivery of the Securities regardless of any investigation made by the Purchaser
or on the Purchaser's behalf. All statements in any such certificate or other
instrument shall constitute warranties and representations by the Company
hereunder.
6.5 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
and holders of the Securities. The provisions of this Agreement are for the
benefit of, and shall be binding upon, each successive holder, from time to
time, of any of the Securities issued under this Agreement, and shall be
enforceable by and against any such holder, whether or not any express
assignment to such holder of rights, or delegation and assumption or acceptance
by a subsequent holder of rights, or delegation and assumption or acceptance by
a subsequent holder of the Securities or obligations and limitations, under this
Agreement has been made by you or your successor or assign of any holder of
Securities.
6.6 Amendment Prior to the Closing, this Agreement may be amended
and the observance of any term of this Agreement may be waived, with (and
only with) the written consent of the Company and the Purchaser.
6.7 Counterparts. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one Agreement.
6.8 Specific Performance. The parties hereto recognize and agree
that if for any reason any of the material provisions of this Agreement are
not performed in accordance with their specific terms or are otherwise
breached, immediate and irreparable harm or injury would be caused for
which money damages would not be an adequate remedy. Accordingly, each
party agrees that, in addition to any other available remedies, the other
party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event
that any action should be brought in equity to enforce the provision of the
Agreement, no party will allege, and each party hereby waives the defense,
that there is an adequate remedy at law.
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6.9 Headings and Table of Contents. The headings of the sections of
this Agreement and Table of Contents are inserted for purposes of
convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
The execution by the parties below shall constitute a contract between
such parties for the uses and purposes herein above set forth.
Dated by the parties below shall constitute a contract between such
parties for the uses and purposes herien above set forth.
Dated as of the day and year first above written.
AMERICAN SKIING COMPANY
By: /s/ Christopher E. Howard /s/ Wendy E. Penley
------------------------------ ---------------------------
Chief Administrative Officer Wendy E. Penley
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Exhibit 10.64
REGISTRATION RIGHTS AGREEMENT
by and between
AMERICAN SKIING COMPANY
and
WENDY E. PENLEY
Dated as of January 23, 1998
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS ..........................................................1
2. REGISTRATION UNDER THE SECURITIES ACT ................................3
2.1 Registration ....................................................3
2.2 Effective Period ................................................4
2.3 Expenses ........................................................5
2.4 No Underwritten Offerings .......................................5
3. REGISTRATION PROCEDURES ..............................................5
3.1 Obligations of the Company ......................................5
3.2 Selling Information .............................................9
3.3 Notice to Discontinue ...........................................9
4. INDEMNIFICATION: CONTRIBUTION ........................................9
4.1 Indemnification by the Company ..................................9
4.2 Indemnification by Holders ......................................10
4.3 Conduct of Indemnification Proceedings ..........................10
4.4 Contribution ....................................................11
4.5 Other Indemnification ...........................................12
4.6 Indemnification Payments ........................................12
5. GENERAL ..............................................................12
5.1 Adjustments Affecting Registrable Securities ....................12
5.2 Amendments and Waivers ..........................................12
5.3 Notices .........................................................13
5.4 Successors and Assigns ..........................................13
5.5 Counterparts ....................................................14
5.6 Descriptive Headings, Etc........................................14
5.7 Severability ....................................................14
5.8 Governing Law ...................................................14
5.9 Entire Agreement ................................................15
5.10 Nominees for Beneficial Owners ..................................15
5.11 Further Assurances ..............................................15
<PAGE>
Registration Rights Agreement (this or the "Agreement") dated as of
December ___, 1997, by American Skiing Company, a Maine corporation (the
"Company") and Wendy E. Penley (the "Initial Holder").
WITNESSETH:
WHEREAS, the Company and the Initial Holder entered into a Securities
Purchase Agreement, of even date herewith (the "Purchase Agreement") pursuant
to which the Company issued, and the Initial Holder purchased, 140,000 shares
of Common Stock, $.01 Par Value, of the Company; and
WHEREAS, in order to induce the Holder to enter into the Purchase
Agreement, the Company agreed to provide certain registration rights on the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, and for other good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, and intending to
be legally bound hereby, the parties hereto hereby agree as follows:
1. DEFINITIONS.
"Affiliate" shall mean with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided, however, that beneficial ownership of 10% or more of the
voting securities of a Person shall be deemed to be control.
"Business Day" shall mean any day except a Saturday, a Sunday or a day on
which banking institutions in New York, New York generally are required or
authorized by law or other government action to be closed.
"Common Stock" shall mean the class of Common Stock, par value $.01 per
share, of the Company.
"Company" shall have the meaning set forth in the preamble.
"Exchange Act" means the Securities Exchange act of 1934, as amended from
time to time, and the rules and regulations thereunder, or any similar or
successor statute.
"Holders" shall mean the Initial Holder for so long as it owns any
Registrable Securities and such of its respective heirs, successors and
permitted assigns (including any permitted
<PAGE>
transferees of Registrable securities) who acquire or are otherwise the
transferee of Registrable Securities, directly or indirectly, form such
Initial Holder (or any subsequent Holder), for so long as such heirs,
successors and permitted assigns own any Registrable Securities.
"Holders' Counsel" shall mean one firm of counsel (per Registration) to
the Holders of Registrable Securities participating in such Registration,
which counsel shall be selected by the Majority Holders of the Registration.
"Initial Holder" shall mean Wendy E. Penley.
"Inspectors" shall have the meaning set forth in Section 4.1(g).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or agency or political subdivision thereof (including any
subdivisions or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business) and shall include any
successor (by merger or otherwise) of such entity.
"Prospectus" shall mean the prospectus included in a Registration
Statement (including, without limitation, any preliminary prospectus and any
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule
430A promulgated under the Securities Act), and any such Prospectus as
amended or supplemented by any prospectus supplement, and all other
amendments and supplements to such Prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
(or deemed to be incorporated by reference) therein.
"Purchase Agreement" shall have the meaning set forth in the preamble.
"Registration Securities" shall mean (i) the 140,000 shares of Common
Stock issued pursuant to the Purchase Agreement, and (ii) any other
securities of the Company (or any successor or assign of the Company, whether
by merger, consolidation, sale of assets or otherwise) which may be issued or
issuable with respect to, in exchange for, or in substitution of, Registrable
Securities referenced in clause (i) above by reason of any dividend or stock
split, combination of shares, merger, consolidation, recapitalization,
reclassification, reorganization, sale of assets or similar transaction. As
to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (A) a registration statement with respect to the
sale of such securities shall have been declared effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (B) such securities are sold pursuant to
Rule 144 (or any similar provisions then in force) under the Securities Act,
(C) such securities have been otherwise transferred, a new certificate or
other evidence of ownership for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent public
distribution of them shall not require registration under the
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Securities Act, (D) such securities shall have ceased to be outstanding or
(E) such securities are freely tradable under the Securities Act.
"Registration" shall mean a registration required to be effected by the
Company pursuant to Section 2.1.
"Registration Statement" shall mean a registration statement of the
Company which covers the Registrable Securities included therein pursuant to
the provisions of Section 2.1 and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference (or deemed to be incorporated by
reference) therein.
"SEC" shall mean the Securities and Exchange Commission, or any successor
agency having jurisdiction to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any similar or
successor statute.
"Shelf Registration" shall have the meaning set forth in Section 2.1(a)
"Transfer Agent" shall mean Boston EquiServe.
2. REGISTRATION UNDER THE SECURITIES ACT
2.1 Registration
(a) The Company shall cause the registration of all of the
Registrable Securities in accordance with the provision of Section 2.1(b)
hereof, and use its best efforts to cause such Registration to become
effective at the time set forth in Section 2.1(b) below.
(b) The Company shall, as expeditiously as possible following the date
hereof, cause to be filed with the SEC a Registration Statement
providing for the registration under the Securities Act of the
Registrable Securities to the extent necessary to permit the disposition
of such Registrable Securities so to be registered by means of a shelf
registration pursuant to Rule 415 under the Securities Act. The Company
shall cause such Registration Statement to be declared effective by the
SEC as soon as practicable thereafter and shall use its best efforts to
keep such Registration Statement continuously effective of a period of
twelve (12) months following the effective date of such Registration
statement, plus any Delay Period.
The Holder of Registrable Securities shall furnish to the Company in
writing, within 10 business days after receipt of a request therefor,
such information concerning such Holder or its intended method of
disposition as the Company may reasonably request for use in connection
with the Registration Statement or Prospectus or preliminary Prospectus
included therein. Each Holder as to which any Registration
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<PAGE>
Statement is being effected agrees to furnish promptly to the Company all
information requested to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially
misleading.
(c) Registration of Other Securities. Whenever the Company shall
effect a Registration, no securities other than the Registrable Securities
(and the Common Stock issued to the holders of 4% of the common stock of
ASC East, Inc., in exchange therefor by the Company) shall be covered by
such registration unless the Holder of the Registration shall have
consented in writing to the inclusion of such other securities.
(d) Effective Registration Statement: Suspension. The Company shall
use its best efforts to keep the Registration Statement effective in
compliance with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such Registration
Statement for a period of twelve (12) months following the Effective Date
of the Registration, plus a period of time equal to any Delay Period,
provided that the Company may suspend the effective of the Registration
Statement, in the event that, and for a period not to exceed sixty (60)
days in any calendar year (a "Blackout Period") if, (i) an event occurs
and is continuing as a result of which the Registration Statement would,
in the Company's good faith judgment, contain an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading and (ii) the Company
determines in good faith that (a) the disclosure of such event at such
time would have a material adverse effect on the business, operations or
prospects of the Company or (b) the disclosure otherwise relates to a
pending material business transaction which has not yet been public
disclosed. If (i) the offering of any Registrable Securities pursuant to
such Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other
governmental agency or court, or (ii) a Blackout Period shall occur,
then the period of time from the occurrence of any of the events
described in (i), (ii) or (iii) until such event is no longer continuing
shall constitute a "Delay Period".
(f) Registration Statement Form. Registrations under this Section
2.1 shall be on registration form S-1 of the SEC. The Company shall
include in any such Registration Statement, in addition to such
information as the Company may desire, all additional information which
the selling Holder, upon advice of counsel, shall reasonably request.
2.2 Effective Period
Subject to its limited right to impose a Blackout Period, the
Company shall use its best efforts to keep the Registration continuously
effective through the date on which all of the Registrable Securities covered
by such Registration may be sold pursuant to Rule 144(k) under the Securities
Act (or any successors provision have similar effect); provided, however,
that prior to the termination of such Registration, the Company shall first
furnish to each Holder of Registrable Securities participating in such
Registration (i) an opinion, in form and substance reasonably satisfactory to
the Holder of the Registration, of general counsel for such the Company
stating that such Registrable Securities are freely salable pursuant to Rule
144(k) under
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<PAGE>
the Securities Act (or any successor provision having similar effect) or (ii)
a "No-Action Letter" from the staff of the SEC stating that the SEC would not
recommend enforcement action if the Registrable Securities included in such
Registration were sold in a public sale other than pursuant to an effective
registration statement.
2.3 EXPENSES. The Company shall pay all of its registration expenses in
connection with the Registration, whether or not such registration shall
become effective and whether or not all Registrable Securities originally
requested to be included in such registration are withdrawn or otherwise
ultimately not included in such Registration.
2.4 NO UNDERWRITTEN OFFERINGS. The Company shall have no obligation to
provide, and the parties do not intend or contemplate, any underwritten
offering in conjunction with the Registration.
3. REGISTRATION PROCEDURES.
3.1 OBLIGATIONS OF THE COMPANY. In connection with the Registration, the
Company shall, as expeditiously as possible:
(a) prepare and file with the SEC (promptly, and in any event within the
time period set forth in Section 2.1(b) hereof) the requisite
Registration Statement to effect such Registration, which Registration
Statement shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and the Company shall use its
best efforts to cause such Registration Statement to become effective
(provided, that the Company may discontinue any Registration of its
securities that are not Registrable Securities, and, under the
circumstances specified in Section 2.1(e), its securities that are
Registrable Securities); provided, however, that before filing a
Registration Statement or Prospectus or any amendments or supplements
thereto, or comparable statements under the securities or blue sky laws of
any jurisdiction, the Company shall (i) provide Holders' Counsel and any
other Inspector with an adequate and appropriate opportunity to
participate in the preparation of such Registration Statement and each
Prospectus included therein (and each amendment or supplement thereto or
comparable statement) to be filed with the SEC, which documents shall be
subject to the review and reasonable comment of Holders' Counsel, and
(ii) not file any such Registration Statement or Prospectus (or amendment
or supplement thereto or comparable statement) with the SEC to which
Holders' Counsel, any selling Holder or any other Inspector shall have
reasonably objected on the grounds that such filing does not comply in
all material respects with the requirements of the Securities Act or with
the rules or regulations thereunder;
(b) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as
may be necessary (i) to keep such Registration Statement effective
(provided, that the Company
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<PAGE>
may discontinue any registration of its securities that are not Registrable
Securities, and, under the circumstances specified in Section 2.1(e), its
securities that are Registrable Securities, and (ii) to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement, each ease
until such time as all of such Registrable Securities shall have been
disposed of in accordance with the intended methods of disposition by the
seller(s) thereof set forth in such Registration Statement; and provided,
that such period need not extend beyond the time period provided in Section
2.2, and which periods, in any event, shall terminate when all Registrable
Securities covered by such Registration Statement have been sold;
(c) Furnish, without charge, to the Holder or the securities covered by
such Registration Statement, such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits), and the Prospectus included in such Registration Statement
(including each preliminary Prospectus in conformity with the requirements of
the Securities Act, and other documents, as such selling Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such selling Holder (the Company hereby consenting to the
use in accordance with applicable law of each such Registration Statement (or
amendment or post-effective amendment thereto) and each such Prospectus (or
preliminary prospectus or supplement thereto) by selling Holder;
(d) prior to any public sale of Registrable Securities, use its best
efforts to register or qualify all Registrable Securities and other
securities covered by such Registration Statement under such other securities
or blue sky laws of such jurisdictions as any selling Holder of Registrable
Securities covered by such Registration Statement may reasonably request to
enable such selling Holder to consummate the disposition in such
jurisdictions of the Registrable securities owned by such selling Holder to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such selling Holder and to continue such Registration or
qualification in effect in each such jurisdiction for as long as such
Registration Statement remains in effect (including through new filings or
amendments or renewals), and do any and all other acts and things which may
be necessary or advisable to enable any such selling Holder to consummate the
disposition in such jurisdiction of the Registrable Securities owned by such
selling Holder; provided, however that the Company shall not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3.1(d), (ii) subject
itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction;
(e) use its best efforts to obtain all other approvals, consents,
exemptions or authorizations from such governmental agencies or authorities
as may be necessary to enable to selling Holders of such Registrable
Securities to consummate the disposition of such Registrable Securities;
(f) promptly notify Holders' Counsel, each Holder of Registrable
Securities covered by such Registration Statement and the sole or leading
managing Underwriter, if
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any: (i) when the Registration Statement, and pre-effective amendment, the
Prospectus or any prospectus supplement related thereto or post-effective
amendments to the Registration Statement has been filed and, with respect to
the Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the SEC or any state securities or
blue sky authority for amendments or supplements to the Registration
Statement or the Prospectus related thereto or for additional information,
(iii) of the issuance by the SEC or any stop order suspending the
effectiveness of the Registration Statement or the initiation or threat of
any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
existence of any fact of which the Company becomes aware or the happening of
any event which results in (A) the Registration Statement containing an
untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make any statements therein not
misleading, or (B) the Prospectus included in such Registration Statement
containing an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make any
statements therein, in the light of the circumstances under which they were
made, not misleading, (vi) if at any time the representations and warranties
contemplated by Section 2.4(b) cease to be true and correct in all material
respects, and (viii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate or
that there exits circumstances not yet disclosed to the public which make
further sales under such Registration Statement inadvisable pending such
disclosure and post-effective amendment; and, if the notification relates to
an event described in any of the clauses (ii) through (vii) of this Section
3.1(f) the Company shall promptly prepare a supplement or post-effective
amendment to such Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that (1) such Registration Statement shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and (2) as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein in the light of
the circumstances under which they were made not misleading (and shall
furnish to each such Holder a reasonable number of copies of such Prospectus
so supplemented or amended); and if the notification relates to an event
described in clause (iii) of this Section 3.1(f), the Company shall take all
reasonable action required to prevent the entry of such stop order or to
remove it if entered;
(g) make available for inspection by any selling Holder of Registrable
Securities Holders' Counsel and any attorney, accountant or other agent
retained by Holder (each, an "inspector" and, collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company and any subsidiaries thereof as may be in
existence at such time (collectively, the "Records") as shall be necessary, in
the opinion of such Holder's counsel, to enable them to exercise their due
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diligence responsibility and to conduct a reasonable investigation within the
meaning of the Securities Act, and cause the Company's and any of its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspectors in connection with such Registration Statement.
(h) obtain an opinion from the Company's general counsel and "cold
comfort" letter from the Company's independent public accountants who have
certified such Company's financial statements included or incorporated by
reference in such Registration Statement, in each case dated the effective
date of such Registration Statement in customary form and covering such
matters as are customarily covered by such opinions and "cold comfort"
letters delivered to underwriters in underwritten public offerings, which
opinion and letter shall be reasonably satisfactory to the Holder of the
Registration, and furnish to each Holder participating in the offering a copy
of such opinion and letter addressed to such Holder (in the case of the
opinion);
(i) provided a CUSIP number for all Registrable Securities and provide
and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than
the effectiveness of such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC and any other governmental agency or authority
having jurisdiction over the Registration.
(k) if so requested by the Holder use its best efforts to cause all
Common Shares constituting such Registrable Securities to be listed on the
national securities exchange on which the Company's securities are then
listed;
(l) keep such selling Holder of Registrable Securities advised as to the
initiation and progress of any registration under Section 2 hereunder;
(m) enter into and perform customary agreements (including, if
applicable, an underwriting agreement in customary form) and provide
officers' certificates and other customary closing documents;
(n) cooperate with the Holder participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD and make reasonably available its
employees and personnel and otherwise provide reasonable assistance to the
Holder;
(o) furnish to the Holder without charge, at least one manually-signed
copy of the Registration Statement and any post-effective amendments thereto,
including financial statement and schedules, all documents incorporated
therein by reference and all exhibits (including those deemed to be
incorporated by reference);
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<PAGE>
(p) cooperate with the Holder to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing the
Registrable Securities; and
(q) use its best efforts to take all other steps necessary to expedite
or facilitate the registration and disposition of the Registrable Securities
contemplated hereby.
3.2 SELLING INFORMATION. The Company may require the Holder of Registrable
Securities as to which any Registration is being effect to furnish to it such
information regarding such Holder, such Holder's Registrable Securities and
such Holder's intended method of disposition as the Company may from time to
time reasonably request in writing; provided that such information shall be
used only in connection with the Registration.
If any Registration Statement or comparable statement under "blue sky"
laws refers to any Holder by name or otherwise as the Holder of any
Securities of the Company, then such Holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such Holder and the Company, to the effect that the holding by such Holder of
such securities is not to be construed as a recommendation by such Holder of
the investment quality of the Company's securities covered thereby and that
such holder does not imply that such Holder will assist in metering any
future financial requirements of the Company, and (ii) in the event that such
reference to such Holder by name or otherwise is not in the judgment of the
Company, as advised by counsel, required by the Securities Act or any similar
federal statute or any state "blue sky" or securities law then in force, the
deletion of the reference to such Holder.
3.3 NOTICE TO DISCONTINUE. Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Section 3.1(f)(ii) through (vii), such Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Holder's receipt of the
copies of the supplemented or amended prospectus contemplated by Section
3.1(f) and, if so directed by the Company, such Holder shall deliver to the
Company (at Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the Prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period
during which such Registration Statement shall be maintained effective
pursuant to this Agreement (including, without limitation, the period referred
to in Section 3.1(b) by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 3.1(f) to
and including the date when the Holder shall have received the copies of the
supplemented or amended prospectus contemplated by meeting the requirements
of Section 3.1(f).
4. INDEMNIFICATION: CONTRIBUTION
4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Holder of
Registrable Securities, its
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officers, directors, partners, members, shareholders, employees, Affiliates
and agents (collectively "Agents") and each Person who controls such Holder
(within the meaning of the Securities Act) and its Agents with respect to
each registration which has been effected pursuant to Section 2 of this
Agreement, against any and all losses, claims, damages or liabilities, joint
or several, actions or proceedings (whether commenced or threatened) in
respect thereof, and expenses (as incurred or suffered and including, but not
limited to, any and all expenses incurred in investigating, preparing or
defending any litigation or proceeding, whether commenced or threatened) in
respect thereof, and expense (as incurred or suffered and including, but no
limited to, any and all expenses incurred in investigating, preparing or
defending any litigation or proceeding, whether commenced or threatened, and
the reasonable fees, disbursements and other charges of legal counsel) in
respect thereof (collectively, "Claims"), insofar as such claims arise out of
or are based upon any untrue or alleged untrue statement of a material fact
contained in any registration Statement or Prospectus (including any
preliminary, final or summary prospectus and any amendment or supplement
thereto) related to any such registration or any omission or alleged omission
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required by the Company in connection with
any such registration, or any qualification or compliance incident thereto;
provided, however, that the Company will not be liable in any such case to
the extent that any such Claims arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact or omission or
alleged omission of a material fact so made in reliance upon and in
conformity with written information furnished to the Company in an instrument
duly executed by such Holder specifically stating that it was expressly for
use therein.
4.2 INDEMNIFICATION BY HOLDERS. Each Holder, if Registrable Securities
held by it are included in the securities as to which a registration is being
effected, agrees to, severally and not jointly, indemnify and hold harmless,
to the fullest extent permitted by law, the Company, its directors and
officers, and each Person who controls the Company and its Agents against
any and all claims, insofar as such Claims arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement material fact required to
be stated therein or necessary to make the statements therein not misleading,
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company in an
instrument duly executed by such Holder specifically stating that it was
expressly for use therein; provided, however, that the aggregate amount which
any such Holder shall be required to pay pursuant to this Section 4.2 shall
in no event be greater than the amount of the net proceeds received by such
holder upon the sale of the Registrable Securities pursuant to the
Registration Statement giving rise to such Claims less all amounts previously
paid by such Holder with respect to any such Claims. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such indemnified party and shall survive the transfer of such
securities by such Holder.
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4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by an
indemnified party of notice of any Claim or the commencement of any action or
proceeding involving a claim under this Section 4, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 5, (i) notify the indemnifying party in writing of
the Claim or the commencement of such action or proceeding; provide, that the
failure of any indemnified party to provide such notice shall not relieve the
indemnifying party of its obligations under this Section 4, except to the
extent the indemnifying party is materially and actually prejudiced thereby
and shall not relieve the indemnifying party from any liability which it may
have to any indemnified party otherwise than under this Section 4, and (ii)
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however
that any indemnified party shall have the right to employ separate counsel
and to participate in the defense of such claim, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed in writing to pay such fees and expenses, (B)
the indemnifying party shall have failed to assume the defense of such claim
and employ counsel reasonably satisfactory to such indemnified party within
10 days after receiving notice from such indemnified party that the
indemnified party believes it has failed to do so, (C) in the reasonable
judgment of any such indemnified party, based upon advise of counsel, a
conflict of interest may exist between such indemnified party and the
indemnifying party with respect to such claims (in which case, if the
indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
claim on behalf of such indemnified party) or (D) such indemnified party is a
defendant in an action or proceeding which is also brought against the
indemnifying party and reasonably shall have concluded that there may be one
or more legal defenses available to such indemnified party which are not
available to the indemnifying party. No indemnifying party shall be liable
for any settlement of any such claim or action effected without its written
consent, which consent shall not be unreasonably withheld. In addition,
without the consent of the indemnified party (which consent shall not be
unreasonably withheld), no indemnifying party shall be permitted to consent
to entry of any judgment with respect to, or to effect the settlement or
compromise of any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim),
unless such settlement, compromise or judgment (1) includes an unconditional
release of the indemnified party from all liability arising out of such
action or claim, (2) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of any indemnified
party, and (3) does not provide for any action on the part of any party other
than the payment of money damages which is to be paid in full by the
indemnifying party.
4.4 CONTRIBUTION. If the indemnification provided for in Section 4.1 or
4.2 from the indemnifying party for any reason is unavailable (other than by
reason of exceptions provided therein), or is insufficient to hold harmless,
an indemnified party hereunder in respect of any Claim, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
Claim in such proportion as is appropriate to reflect the relative fault of
the indemnifying party, on the one hand, and the indemnified party, on the
other hand, in connection with the actions which resulted
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<PAGE>
in such Claim, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. If, however, the foregoing
allocation is not permitted by applicable law, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only the relative faults
but also the relative benefits of the indemnifying party and the indemnified
party as well as any other relevant equitable considerations.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by party as a result of any
Claim referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth in Section 4.3, any legal or
other fees, costs or expenses reasonably incurred by such party in connection
with any investigation or proceeding. Notwithstanding anything in this
Section 4.4 to the contrary, no indemnifying party (other than the Company)
shall be required pursuant to this Section 4.4 to contribute any amount in
excess of the net proceeds received by such indemnifying party from the sale
of the Registrable Securities pursuant to the Registration Statement giving
rise to such Claims, less all amounts previously paid by such indemnifying
party with respect to such Claims. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
4.5 OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding Sections 4.1 and 4.2 (with appropriate modifications) shall
be given by the Company and each selling Holder of Registrable Securities with
respect to any required registration or other qualification of securities
under any Federal or state law or regulation of any governmental authority,
other than the Securities Act. The indemnity agreements contained herein
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract.
4.6 INDEMNIFICATION PAYMENTS. The indemnification and contribution
required by this Section 4 shall be made by periodic payments of the amount
thereof during the course of any investigation or defense, as and when bills
are received or any expense, loss, damage or liability is incurred.
5. GENERAL
5.1 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company agrees
that it shall not effect or permit to occur any combination or subdivision of
shares which would adversely
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affect in any material respects the ability of the Holder of any Registrable
Securities to include such Registrable Securities in any such registration.
5.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified, supplemented or terminated in any material respect, and
waivers or consents to departures from the provisions hereof may not be
given, without the written consent of the Company and the Holders of not less
than 50% of the Registrable Securities then outstanding; provided, however,
that no such amendments, modifications, supplement, waiver or consent to
departure shall reduce the aforesaid percentage of Registrable Securities
without written consent of all of the holders of Registrable securities; and
provided further, that nothing herein shall prohibit any amendment,
modification, supplement, termination, waiver or consent to departure the
effect of which is limited only to those Holders who have agreed to such
amendment, modification, supplement, termination, waiver or consent to
departure.
5.3 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, telecopier,
any courier guaranteeing overnight delivery or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to the
applicable party at the address set forth below or such other address as may
hereafter be designated in writing by such party to the other parties in
accordance with the provisions of this Section:
(i) If to the Company, to:
American Skiing Company
Sunday River Access Road
P.O. Box 450
Bethel, Maine 04217
Attn: Christopher E. Howard
Telecopy: (207) 824-5158
Telephone: (207) 824-8100
(ii) If to the Holders, to:
Wendy Penley
c/o Richard Penley
Penley Corporation
P.O. Box 277
(iii) If to any subsequent Holder, to the address of such Person set
forth in the records of the Company.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt
is acknowledged, if telecopies; on the next business day, if timely delivered
to a courier guaranteeing overnight delivering and five days after being
deposited in the mail, if sent first class or certified mail, return receipt
requested postage prepaid.
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5.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successor
and permitted assigns (including any permitted transferee of the Registrable
Securities). Any Holder may assign to any permitted (as determined under the
Purchase Agreement transferee of its Registrable Securities (other than a
transferee that acquired such Registrable Securities in a registered public
offering or pursuant to a sale under Rule 144 of the Securities Act (or any
successor rule)), its rights and obligations under this Agreement; provided,
however, if any permitted transferee shall take and hold Registrable
Securities, such transferee shall promptly notify the Company and, by taking
and holder such Registrable Securities, such permitted transferee shall
automatically be entitled to receive the benefits of and be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement as if it were a party hereto (and shall, for all
purposes, be deemed a Holder under this Agreement). If the company shall so
request, any heir, successor or permitted assign (including any permitted
transferee) shall agree in writing to acquire and holder the Registrable
securities subject to all of the terms hereof. For purposes of this
Agreement, "successor" for any entity other than a natural person shall mean
a successor to such entity as a result of such entities merger,
consolidation, liquidation, dissolution, sale of substantially all of its
assets, or similar transaction. Except as provided above or otherwise
permitted by this Agreement, neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by any party hereto without the consent of the other parties.
5.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be deemed
to be an original, but all of such counterparts, taken together, shall
continue one and the same instrument.
5.6 DESCRIPTIVE HEADINGS, ETC. The headings in this Agreement are for
conveyance of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also
include the plural or singular number, respectively; (3) the words "hereof",
"herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section and paragraph references are to the
Sections and paragraphs of this Agreement unless otherwise specified; (4) the
word "including" and words of similar import when used in this Agreement
shall mean "including, without limitation," unless otherwise specified; (5)
"or" is not exclusive; and (6) provisions apply to successive events and
transactions.
5.7 SEVERABILITY. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any
way impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
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5.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maine (without giving effect to the
conflict of laws principles thereof).
5.9 ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the Agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings among the
Company and the other parties to this Agreement with respect to such subject
matter.
5.10 NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing deliver to the
Company (on behalf of the Company), be treated as the holder, of such
Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects,
the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Securities.
5.11 FURTHER ASSURANCES. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute
and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
AMERICAN SKIING COMPANY
By: /s/ Christopher E. Howard /s/ Wendy E. Penley
-------------------------------- --------------------------------
Name: Christopher E. Howard Wendy E. Penley
Title: Chief Administrative
Officer
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Exhibit 10.65
_______________________________________________________________________________
_______________________________________________________________________________
AMERICAN SKIING COMPANY
-------------------------------------------
SECURITIES EXCHANGE AGREEMENT
-------------------------------------------
Dated as of December 29, 1997
Re: Common Stock, Par Value $.01
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS................................................... 1
1.2 Rules of Construction.............................................. 3
SECTION 2. PURCHASE AND SALE OF THE SECURITIES........................... 3
2.1 Purchase and Sale of Shares....................................... 3
2.2 Exchange.......................................................... 3
2.3 Closing........................................................... 3
2.4 Transfer Restrictions............................................. 3
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............... 4
3.1 Authority Relative to this Agreement.............................. 4
3.2 Exchange of Shares................................................ 4
3.3 Investment Intent................................................. 4
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 4
4.1 Corporate Organization and Authority of the Company
and its Subsidiaries............................................. 4
4.2 Authorized Capital Stock.......................................... 5
4.3 Sale is Legal and Authorized...................................... 5
4.4 Governmental Consent.............................................. 5
4.5 Common Stock Legends.............................................. 6
4.6 Business Operations and Other Information: Financial Condition... 6
4.7 Broker's or Finder's Commission................................... 6
SECTION 5. CLOSING CONDITIONS............................................ 7
5.1 Purchaser's Obligations........................................... 7
5.2 Company's Obligations............................................. 7
SECTION 6. MISCELLANEOUS................................................. 8
6.1 Notice: Payments.................................................. 8
6.2 Governing Law..................................................... 9
6.3 Severability...................................................... 9
6.4 Survival.......................................................... 9
6.5 Successors and Assigns............................................ 9
6.6 Amendment......................................................... 9
6.7 Counterparts..................................................... 9
6.8 Specific Performance.............................................. 9
6.9 Headings and Table of Contents................................... 10
i
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American Skiing Company
P.O. Box 450
Bethel, Maine 04217
SECURITIES EXCHANGE AGREEMENT
Common Stock $0.01 Par Value
Dated as of December 29, 1997
To the Purchaser which is a signatory to this Agreement
Ladies and Gentlemen:
The undersigned, American Skiing Company, a Maine corporation (the
"Company"), hereby agrees with you as follows:
SECTION 1. DEFINITIONS
For all purposes of this Agreement the following terms shall have the
meaning set forth herein or elsewhere in the provisions hereof:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided, however, that beneficial ownership of 25% or more of the
voting securities of a Person shall be deemed to be control.
"Agreement" means this Securities Exchange Agreement, as amended from
time to time.
"Common Stock" means the common stock of American Skiing company, $0.01
par value.
"ASC" or "Company" means American Skiing Company, a Maine corporation.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"Board Resolution" means a resolution of the Board of Directors of the
company set forth in an Officers' Certificate delivered to the Purchaser.
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"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which banks are authorized to be closed in the States of Maine and New
York.
"Closing" shall have the meaning given to such term in Section 2.6
hereof.
"Closing Date" shall have the meaning given to such term in Section 2.6
hereof.
"Common Stock" shall mean the common stock of the Company, $0.01 par
value.
"Exchange Act" means the Securities Exchange act of 1934, as amended.
"Exchanged Shares" means all of the issued outstanding shares of Common
Stock of ASC East, Inc., a Maine corporation owned by the Purchaser signatory
to this Agreement, as described in Exhibit A attached hereto.
"Initial Public Offering" means the initial public offering of
14,750,000 shares of the Company's Common Stock completed November 6, 1997
and settled November 12, 1997 as more particularly described in the
Prospectus.
"IPO Common Stock" means Common Stock issued pursuant to the Initial
Public Offering.
"Officer" means, with respect to the Company, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Administrative Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, any Assistant Secretary or any Vice President of
such Person.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any
subdivisions or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business).
"Prospectus" means the Prospectus dated November 6, 1997 relating to the
Company's offering of 14, 750,000 shares of its Common Stock.
"Purchaser" shall mean and individually or collectively, as the case may
be, refer to any purchaser or purchasers signatory hereto.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, by and among the Company and the Purchaser as
such agreement may be amended, modified or supplemented from time to time.
"SEC" means the Securities and Exchange Commission.
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"Securities" means and alternatively refers to the Common Stock to be
issued to the Purchaser as described in Section 2.1 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
1.2 Rules of Construction. Unless the context otherwise requires:
(1) a term has the meaning assigned to;
(2) an accounting term not otherwise defined shall be construed in
accordance with general accepted accounting principles, consistently
applied
(3) words in the singular include the plural, and the plural
include the singular;
(4) provisions apply to successive events and transactions; and
(5) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement or successor sections or rules
adopted by the SEC from time to time.
SECTION 2. PURCHASE AND SALE OF THE SECURITIES
2.1 Exchange of Shares. The Company hereby agrees to issue, sell and
deliver 615,022 shares of its Common Stock, $0.01 par value ("Securities") to
the Purchaser and the Purchaser agrees to purchase such Shares by
transferring to the Company all the issued and outstanding common stock of
ASC East, Inc., a Maine corporation owned by the Purchaser as more
particularly depicted in Exhibit A ("Exchanged Securities"). The terms
limitations and relative rights of the Common Stock are set forth in the
Prospectus related to the initial public offering of the Company's Common
Stock dated November 6, 1997, attached hereto as Exhibit A.
2.2 Closing. The Closing of the purchase and sale of the Securities
will take place at the Company's offices in Bethel, Maine 30 days following
the execution and deliver of this Agreement. At Closing, the Company will
deliver certificates representing the applicable Securities purchased
hereunder against delivery by the Purchaser of certificates for the Exchanged
Shares duly enclosed for transfer, or accompanied by stock powers duly
executed in blank. The Securities will be issued to the Purchaser on the
Closing Date and registered in the name of the Purchaser or the Purchaser's
nominee, as applicable.
2.3. Transfer Restrictions. Until such time as the Registration
Statement described in the Registration Rights Agreement has been declared
effective by the SEC, the Purchaser shall not sell, transfer or assign any
Security other than: (i) to an Affiliate of the Purchaser, (ii) to a
Qualified Institutional Buyer or Accredited Investor (as such terms are
defined in the Securities Act), or (iii) upon receipt for an opinion of
counsel acceptable to the Company that the Securities may be sold pursuant to
an exemption under the Securities Act.
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Each Purchaser hereby represents and warrants for and with respect to
itself (and not with respect to any other Purchaser) as follows:
3.1 Authority Relative to this Agreement. The Purchaser has the
requisite power to enter into this Agreement and to carry out its obligations
hereunder. The execution an delivery of this Agreement and the Registration
Rights Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary actions on the part of
the Purchaser. This Agreement and the Registration Rights Agreement, upon
its execution, each constitute a valid and binding obligation of the
Purchaser, enforceable in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability
of equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
No other proceedings on the part of the Purchaser are necessary to authorize
this Agreement or the Registration Rights Agreement and the transactions
contemplated hereby and thereby.
3.2 Exchange of Shares. The Purchaser owns the Exchanged Shares
beneficially and of record free and clear of all liens, encumbrances and
restrictions of any nature whatsoever, and at Closing will transfer the
Exchanged Shares to the Company in the manner described in Section 2.3
hereof, free and clear of all liens, encumbrances and restrictions.
3.3 Investment Intent. The Purchaser is acquiring the Securities for
investment for its own (or an Affiliate's) account, not as a nominee or agent
and not with a view to the distribution of any part thereof in violation of
law. The Purchaser has no intent of selling, granting any participation in,
or otherwise distributing the Securities, other than to its Affiliates prior
to the effective date of the Registration.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants that:
4.1 Corporate Organization and Authority of the Company and
Subsidiaries. The Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maine; (b) has
all requisite power and authority and all necessary licenses and permits to
own and operate its Properties and to carry on its business as now conducted
and as presently proposed to be conducted, except as would not have a
material adverse effect on the Company; and (c) is duly licensed or qualified
and is authorized to do business, in and is in good standing as a foreign
corporation in, each jurisdiction where the character of its Properties or
the nature of its activities makes such licensing or qualification necessary.
4.2 Authorized Capital Stock. As of the date hereof the authorized
outstanding Capital Stock of the Company is fully and accurately described in
the Prospectus, and all of the
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issued shares of Capital Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable.
4.3 Sale is Legal and Authorized.
(a) The offer, issuance, sale and delivery of the Securities and
compliance by the Company with all of the provisions of this Agreement and
the Registration Rights Agreement (i) are within the corporate powers of
the Company; (ii) are legal and will not violate, conflict with, result in
any breach of, or any of the provisions of, constitute a default under
(upon notice or lapse of time or both), or result in the creation of any
Lien upon any Property of the Company or any of its Affiliates under the
provisions of its articles of incorporation, by-laws, or any order of any
court or governmental authority or any provision of any indenture,
mortgage, contract, instrument or other agreement to which the Company or
any of its Affiliates is a party or by which it may be bound; and (iii)
have been duly authorized by all necessary corporate action on the part of
the Company.
(b) This Agreement has been duly and validly executed and delivered
by the Company. This Agreement constitutes the legal, valid and binding
obligation, contract and agreement of the Company, enforceable in
accordance with its terms, except as enforcement of such terms may be
limited by any applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting the enforcement of creditors' rights
generally and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(c) The Common Stock will conform to the terms contained in the
Company's Articles of Incorporation. The Common Stock and the issuance of
the Common Stock in the exchange transaction described herein have been
duly authorized by the Company.
4.4 Governmental Consent. Neither the nature of the Company nor of any
Affiliate, nor of any of their respect businesses or properties, nor any
relationship between the Company or any Affiliate and any other Person, nor any
circumstance in connection with the execution and delivery of this Agreement or
the offer, issue, sale or delivery of the Securities is such as to require a
consent, approval or authorization of, or filing, registration (other than
registration of the Common Stock under the Securities Act as described in the
Registration Rights Agreement), or qualification with, any governmental
authority on the part of the Company as a condition to the execution an delivery
of this Agreement or the offer, issue, sale or delivery of the Securities.
4.5 Common Stock Legends. (a) The Common Stock, as and when issued by the
Company, will be validly issued and outstanding, fully paid and non-assessable
and will not be subject to any pre-emptive or similar right, and the holder of
each Security will receive good and valid title to the Common Stock free an
clear of any lien or encumbrance, except such as may have been created by the
Purchaser and such restrictions on transfer as may be imposed under this
Agreement, United States federal or state securities or blue sky laws.
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(b) Each of the Company's certificates representing the Securities,
(prior to registration, pursuant to the Registration Rights Agreement, and
any certificates issued in exchange therefore or substitution thereof)
shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii)
RULE 144 UNDER SUCH ACT, OR (iii) UPON RECEIPT OF AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT THE SECURITIES MAY BE SOLD
PURSUANT TO ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT
RELATING TO THE DIPSIOTION OF SECURITIES.
4.6 Business Operations and Other Information: Financial Condition.
(a) Since the date of the Initial Public Offering the Company and its
Affiliates have filed all reports required to be filed with the SEC, pursuant
to the Exchange Act, (collectively the "SEC Reports"). The SEC Reports were
prepared in accordance with the requirements of the Securities Act and the
Exchange Act, as the case may be; none of such SEC Reports, as of their
respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statement therein, in light of the circumstances under
which they were made, not misleading. The Financial Statements (as defined
below) included in the SEC Reports present fairly the financial position of
ASC and its Affiliates identified herein as of the respective dates thereof,
and the results of their operations, changes in stockholders equity and their
cash flows for the respective periods set forth therein, all in conformity
with GAAP consistently applied during the periods involved.
4.7 Broker's or Finder's Commission. No broker's or finder's fee or
commission will be payable by the Company with respect to the issuance and
sale of the Securities. The Company agrees to indemnify the Purchaser and
hold it harmless against any loss, cost, claim or liability (including
without limitation, reasonable attorneys' fee sand disbursements for the
investigation and defense of claims) asserted against Purchaser arising out
of or relating to any such actual or alleged for commission.
SECTION 5. CLOSING CONDITIONS.
5.1 Each Purchaser's obligation to purchase the Securities and consummate
the exchange of the Exchanged Securities on the Closing Date pursuant to Section
2 of this Agreement shall be subject to the following conditions precedent.
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(a) Representations and Warranties True. The representations and
warranties of the Company contained in Section 4 shall be true in all
material respects on the Closing Date with the same effect as though made
on and as of that date.
(b) Compliance with this Agreement. The Company shall have performed
and complied with all agreements and conditions contained herein which are
required to be performed or complied with by the Company on or before the
Closing date.
(c) Officers' Certificate. The Company shall have delivered to the
Purchaser an Officer's Certificate dated the Closing Date certifying that
the conditions specified in this Section 5.1 have been fulfilled.
(d) Corporate Existence and Authority. The Purchaser shall have
received, in form and substance reasonably satisfactory to the Purchaser,
such documents and evidence with respect to the Company as the Purchaser
may reasonably request in order to establish the existence and good
standing of the Company and the authorization of the transactions
contemplated by this Agreement.
(e) Proceedings Satisfactory. All proceedings taken in connection
with the sale of the Securities to be sold by the Company to the Purchaser
and all documents and papers relating thereto shall be reasonably
satisfactory to the Purchaser and the Purchaser shall have received copies
of such documents and papers as the purchaser may reasonably request in
connection therewith all in form and substance reasonably satisfactory to
the Purchaser.
5.2 The Company's obligation to issue the Securities and consummate
the exchange of the Exchanged Securities on the Closing Date pursuant to Section
2 of this Agreement shall be subject to the following conditions precedent.
(a) Representations and Warranties True. The representations and
warranties of the Purchaser contained in Section 3 shall be true in all
material respects on the Closing Date with the same effect as though made
on and as of that date.
(b) Compliance with this Agreement. The Purchaser shall have
performed and complied with all agreements and conditions contained herein
which are required to be performed or complied with by the Purchaser on or
before the Closing date.
(c) Officers' Certificate. The Purchaser shall have delivered to the
Company an Officer's Certificate dated the Closing Date certifying that the
conditions specified in this Sections 5.2 have been fulfilled.
(d) Corporate Existence and Authority. The Company shall have
received, in form and substance reasonably satisfactory to the Company,
such documents and evidence with respect to the Purchaser as the Company
may reasonably request in order to evidence the authorization of the
transactions contemplated by this Agreement.
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(e) Proceedings Satisfactory. All proceedings taken in connection
with the sale of the Securities to be issued by the Company to the
Purchaser and all documents and papers relating thereto shall be reasonably
satisfactory to the Company and the Company shall have received copies of
such documents and papers as the Company may reasonably request in
connection therewith all in form and substance reasonably satisfactory to
the Company.
SECTION 6. MISCELLANEOUS.
6.1 Notices: Payments. (a) All notices and other communications under
this Agreement or in respect of the Securities shall be given or made in writing
and telecopies or mailed by registered airmail, return receipt requested,
postage prepaid, air courier, or delivered personally to the intended recipient,
(1) If to the Purchaser, to:
Mr. Tom Shandell
Bear, Stearns & Co., Inc.
245 Park Avenue, 4th Floor
New York, New York 10167
Ms. Janegail Orringer
Sunamerica Investments, Inc.
733 third Avenue, 3rd Floor
New York, New York 10017
Mr. Tom Hense
Fidelity Management & Research
1 Federal Street, 20th Floor
Boston, MA 02110
(2) If to the Company, to
American Skiing Company
Sunday River Access Road
P.O. Box 450
Bethel, Maine 04217
Attn: Christopher E. Howard
Tel: (207) 824-8100
Fax: (207) 824-5158
(b) All such notices and other communications shall be deemed to have
been duly given when transmitted by telecopy, subject to telephone
confirmation of receipt, or
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when personally delivered or, in the case of a mailed notice, ten days
after being duly deposited in the mails, in each case given or addressed
as aforesaid.
6.2 Governing Law. This Agreement and all other documents
contemplated hereby shall be deemed to be contracts made under, and shall
be construed in accordance with the governed by the laws of the State of
Maine (without reference to the conflicts of laws principles thereof) and
the laws of the United States of America.
6.3 Severability. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and the Agreement shall be carried out as nearly as possible
according to its original terms and intent.
6.4 Survival. All representations, warranties and covenants made by the
Company herein or in any certificate or other instrument delivered or other
instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the Purchaser and shall survive the
delivery of the Securities regardless of any investigation made by the Purchaser
or on the Purchaser's behalf. All statements in any such certificate or other
instrument shall constitute warranties and representations by the Company
hereunder.
6.5 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
and holders of the Securities. The provisions of this Agreement are for the
benefit of, and shall be binding upon, each successive holder, from time to
time, of any of the Securities issued under this Agreement, and shall be
enforceable by and against any such holder, whether or not any express
assignment to such holder of rights, or delegation and assumption or acceptance
by a subsequent holder of rights, or delegation and assumption or acceptance by
a subsequent holder of the Securities or obligations and limitations, under this
Agreement has been made by you or your successor or assign of any holder of
Securities.
6.6 Amendment Prior to the Closing, this Agreement may be amended
and the observance of any term of this Agreement may be waived, with (and
only with) the written consent of the Company and the Purchaser.
6.7 Counterparts. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one Agreement.
6.8 Specific Performance. The parties hereto recognize and agree
that if for any reason any of the material provisions of this Agreement are
not performed in accordance with their specific terms or are otherwise
breached, immediate and irreparable harm or injury would be caused for
which money damages would not be an adequate remedy. Accordingly, each
party agrees that, in addition to any other available remedies, the other
party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event
that any action should be
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brought in equity to enforce the provision of the Agreement, no party
will allege, and each party hereby waives the defense, that there is an
adequate remedy at law.
6.9 Headings and Table of Contents. The headings of the sections
of this Agreement and Table of Contents are inserted for purposes of
convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
The execution by the parties below shall constitute a contract between
such parties for the uses and purposes herein above set forth.
Dated by the parties below shall constitute a contract between such
parties for the uses and purposes herien above set forth.
Dated as of the day and year first above written.
AMERICAN SKIING COMPANY BEAR, STEARNS CO., INC.
By: /s/ Christopher E. Howard By: /s/ Paul S. Gray
-------------------------- -------------------------
Its Senior Vice President Its Senior Managing Director
SUNAMERICA INVESTMENTS, INC.
By: /s/ Janegail Orringer
-------------------------
Its Authorized Agent
FIDELITY MANAGEMENT & RESEARCH
By: /s/ Thomas C. Hense
----------------------------
Its Vice President
Manufacturers Life Hy
Portfolio Manager
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EXHIBIT A
Holder Outstanding Shares Held
----------- ------------------------
Bear, Stearns & Co., Inc. 5,000 (Bear Stearns)
Sunamerica Investments, Inc. 33,632 (Sunamerica)
Fidelity Management & Research 500 (Fidelity)
A
<PAGE>
EXHIBIT 10.66
REGISTRATION RIGHTS AGREEMENT
by and between
AMERICAN SKIING COMPANY
and
BEAR STEARNS & CO, INC.
SUNAMERICA INVESTMENTS, INC.
AND
FIDELITY MANAGEMENT & RESEARCH
Dated as of December 29, 1997
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS................................................. 1
2. REGISTRATION UNDER THE SECURITIES ACT....................... 3
2.1 Registration............................................ 3
2.2 Effective Period........................................ 4
2.3 Expenses................................................ 5
2.4 No Underwritten Offerings............................... 5
3. REGISTRATION PROCEDURES..................................... 5
3.1 Obligations of the Company.............................. 5
3.2 Selling Information..................................... 9
3.3 Notice to Discontinue................................... 9
4. INDEMNIFICATION: CONTRIBUTION.............................. 9
4.1 Indemnification by the Company.......................... 9
4.2 Indemnification by Holders.............................. 10
4.3 Conduct of Indemnification Proceedings.................. 10
4.4 Contribution............................................ 11
4.5 Other Indemnification................................... 12
4.6 Indemnification Payments................................ 12
5. GENERAL..................................................... 12
5.1 Adjustments Affecting Registrable Securities............ 12
5.2 Amendments and Waivers.................................. 12
5.3 Notices................................................. 13
5.4 Successors and Assigns.................................. 13
5.5 Counterparts............................................ 14
5.6 Descriptive Headings, Etc............................... 14
5.7 Severability............................................ 14
5.8 Governing Law........................................... 14
5.9 Entire Agreement........................................ 15
5.10 Nominees for Beneficial Owners......................... 15
5.11 Further Assurances..................................... 15
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Registration Rights Agreement ( this or the "Agreement") dated as of
December _, 1997, by American Skiing Company, a Maine corporation (the
"Company) and Bear Stearns & Co, Inc., Sunamerica Investments, Inc. and
Fidelity Management & Research (the "Initial Holder").
W I T N E S S E T H:
WHEREAS, the Company and the Initial Holder entered into a Securities
Purchase Agreement, of even date herewith (the "Purchase Agreement") pursuant
to which the Company issued, and the Initial Holder purchased, 615,022 shares
of Common Stock, $.01 Par Value, of the Company; and
WHEREAS, in order to induce the Initial Holder to enter into the
Purchase Agreement, the Company agreed to provide certain registration rights
on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, and for other good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, and intending to
be legally bound hereby, the parties hereto hereby agree as follows:
1. DEFINITIONS.
"Affiliate" shall mean with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided, however, that beneficial ownership of 10% or more of the
voting securities of a Person shall be deemed to be control.
"Business Day" shall mean any day except a Saturday, a Sunday or a day
on which banking institutions in New York, New York generally are required or
authorized by law or other government action to be closed.
"Common Stock" shall mean the class of Common Stock, par value $.01 per
share, of the Company.
"Company" shall have the meaning set forth in the preamble.
"Exchange Act" means the Securities Exchange act of 1934, as amended
from time to time, and the rules and regulations thereunder, or any similar
or successor statute.
"Holders" shall mean the Initial Holder for so long as it owns any
Registrable Securities and such of its respective successors and permitted
assigns (including any permitted transferees
<PAGE>
of Registrable securities) who acquire or are otherwise the transferee of
Registrable Securities, directly or indirectly, form such Initial Holder (or
any subsequent Holder), for so long as such heirs, successors and permitted
assigns own any Registrable Securities.
"Holders' Counsel" shall mean one firm of counsel (per Registration) to
the Holders of Registrable Securities participating in such Registration,
which counsel shall be selected by the Majority Holders of the Registration.
"Initial Holder" shall mean Bear Stearns & Co, Inc., Sunamerica
Investments, Inc. and Fidelity Management & Research.
"Inspectors" shall have the meaning set forth in Section 4.1(g).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Person" shall means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or agency or political subdivision thereof (including any
subdivisions or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business) and shall include any
successor (by merger or otherwise) of such entity.
"Prospectus" shall mean the prospectus included in a Registration
Statement (including, without limitation, any preliminary prospectus and any
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule
430A promulgated under the Securities Act), and any such Prospectus as
amended or supplemented by any prospectus supplement, and all other
amendments and supplements to such Prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
(or deemed to be incorporated by reference) therein.
"Purchase Agreement" shall have the meaning set forth in the preamble.
"Registration Securities" shall mean (i) the 615,022 shares of Common
Stock issued to the Initial Holder pursuant to the Purchase Agreement, and
(ii) any other securities of the Company (or any successor or assign of the
Company, whether by merger, consolidation, sale of assets or otherwise) which
may be issued or issuable with respect to, in exchange for, or in
substitution of, Registrable Securities referenced in clause (i) above by
reason of any dividend or stock split, combination of shares, merger,
consolidation, recapitalization, reclassification, reorganization, sale of
assets or similar transaction. As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when (A) a
registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (B)
such securities are sold pursuant to Rule 144 (or any similar provisions then
in force) under the Securities Act, (C) such securities have been otherwise
transferred, a new certificate or other evidence of ownership for them not
bearing a legend restricting further transfer shall have been
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delivered by the Company and subsequent public distribution of them shall not
require registration under the Securities Act, (D) such securities shall have
ceased to be outstanding or (E) such securities are freely tradable under the
Securities Act.
"Registration" shall mean a registration required to be effected by the
Company pursuant to Section 2.1.
"Registration Statement" shall mean a registration statement of the
Company which covers the Registrable Securities included therein pursuant to
the provisions of Section 2.1 and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference (or deemed to be incorporated by
reference) therein.
"SEC" shall mean the Securities and Exchange Commission, or any
successor agency having jurisdiction to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any similar or
successor statute.
"Shelf Registration" shall have the meaning set forth in Section 2.1(a)
"Transfer Agent" shall mean Boston EquiServe.
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 Registration.
(a) The Company shall cause the registration of all of the
Registrable Securities in accordance with the provision of Section
2.1(b) hereof, and use its best efforts to cause such Registration to
become effective at the time set forth in Section 2.1(b) below.
(b) The Company shall, as expeditiously as possible following the
date hereof, cause to be filed with the SEC a Registration Statement
providing for the registration under the Securities Act of the
Registrable Securities to the extent necessary to permit the disposition
of such Registrable Securities so to be registered by means of a shelf
registration pursuant to Rule 415 under the Securities Act. The Company
shall cause such Registration Statement to be declared effective by the
SEC as soon as practicable thereafter and shall use its best efforts to
keep such Registration Statement continuously effective of a period of
twelve (12) months following the effective date of such Registration
statement, plus any Delay Period.
The Holder of Registrable Securities shall furnish to the Company
in writing, within 10 business days after receipt of a request therefor,
such information concerning such Holder or its intended method of
disposition as the Company may reasonably request for use in connection
with the Registration Statement or Prospectus or
3
<PAGE>
preliminary Prospectus included therein. Each Holder as to which any
Registration Statement is being effected agrees to furnish promptly to
the Company all information request to be disclosed in order to make the
information previously furnished to the Company by such Holder not
materially misleading.
(c) Registration of Other Securities. Whenever the Company shall
effect a Registration, no securities other than the Registrable
Securities (and (i) the Common Stock issued to Wendy E. Penley pursuant
to a Securities Purchase Agreement dated January 23, 1998; and (ii)
the Exchangeable Convertible Preferred Stock of the Company ("Repriced
Converts") and the Common Stock into which the Repriced Converts may be
converted held by Madeleine, L.L.C.) shall be covered by such
registration unless the Holder of the Registration shall have consented
in writing to the inclusion of such other securities.
(d) Effective Registration Statement: Suspension. The Company
shall use its best efforts to keep the Registration Statement effective
in compliance with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such
Registration Statement for a period of twelve (12) months following the
Effective Date of the Registration, plus a period of time equal to any
Delay Period, provided that the Company may suspend the effective of the
Registration Statement for a period not to exceed sixty (60) days in any
calendar year (a "Blackout Period") if (i) an event occurs and is
continuing as a result of which the Registration Statement would, in the
Company's good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein not misleading and (ii) the Company determines in
good faith that (a) the disclosure of such event at such time would have
a material adverse effect on the business, operations or prospects of
the Company or (b) the disclosure otherwise relates to a pending
material business transaction which has not yet been public disclosed.
If (i) the offering of any Registrable Securities pursuant to such
Registration Statement is interfered with by any stop order, injunction
or other order or requirement of the SEC or any other governmental
agency or court, or (ii) a Blackout Period shall occur, then the period
of time from the occurrence of any of the events described in (i) or
(ii) until such event is no longer continuing shall constitute a "Delay
Period".
(f) Registration Statement Form. Registrations under this Section
2.1 shall be on registration form S-1 of the SEC. The Company shall
include in any such Registration Statement, in addition to such
information as the Company may desire, all additional information which
the selling Holder, upon advice of counsel, shall reasonably request.
2.2 Effective Period.
Subject to its limited right to impose a Blackout Period, the Company
shall use its best efforts to keep the Registration continuously effective
for a period of twelve (12) months following the Effective Date plus a period
equal in length to any Delay Period; provided, however, that prior to the
termination of such Registration, the Company shall first furnish to
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each Holder of Registrable Securities participating in such Registration (i)
an opinion, in form and substance reasonably satisfactory to the Holder of
the Registration, of general counsel for such the Company stating that such
Registrable Securities are freely salable pursuant to Rule 144(k) under the
Securities Act (or any successor provision having similar effect) or (ii) a
"No-Action Letter" from the staff of the SEC stating that the SEC would not
recommend enforcement action if the Registrable Securities included in such
Registration were sold in a public sale other than pursuant to an effective
registration statement.
2.3 Expenses. The Company shall pay all of its registration expenses
in connection with the Registration, whether or not such registration shall
become effective and whether or not all Registrable Securities originally
requested to be included in such registration are withdrawn or otherwise
ultimately not included in such Registration.
2.4 No Underwritten Offerings. The Company shall have no obligation to
provide, and the parties do not intend or contemplate, any underwritten
offering in conjunction with the Registration.
3. REGISTRATION PROCEDURES.
3.1 Obligations of the Company. In connection with the Registration,
the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC (promptly, and in any event
within the time period set forth in Section 2.1(b) hereof) the requisite
Registration Statement to effect such Registration, which Registration
Statement shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and the Company shall use its
best efforts to cause such Registration Statement to become effective
(provided, that the Company may discontinue any Registration of its
securities that are not Registrable Securities, and, under the
circumstances specified in Section 2.1(e), its securities that are
Registrable Securities); provided, however, that before filing a
Registration Statement or Prospectus or any amendments or supplements
thereto, or comparable statements under the securities or blue sky laws
of any jurisdiction, the Company shall (i) provide Holders' Counsel and
any other Inspector with an adequate and appropriate opportunity to
participate in the preparation of such Registration Statement and each
Prospectus included therein (and each amendment or supplement thereto or
comparable statement) to be filed with the SEC, which documents shall be
subject to the review and reasonable comment of Holders' Counsel, and
(ii) not file any such Registration Statement or Prospectus (or
amendment or supplement thereto or comparable statement) with the SEC to
which Holders' Counsel, any selling Holder or any other Inspector shall
have reasonably objected on the grounds that such filing does not comply
in all material respects with the requirements of the Securities Act or
with the rules or regulations thereunder;
(b) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the Prospectus used in connection
therewith as may be
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necessary (i) to keep such Registration Statement effective (provided,
that the Company may discontinue any registration of its securities
that are not Registrable Securities, and, under the circumstances
specified in Section 2.1(e), its securities that are Registrable
Securities, and (ii) to comply with the provisions of the Securities Act
with respect to the disposition of al Registrable Securities covered by
such Registration Statement, each case until such time as all of such
Registrable Securities shall have been disposed of in accordance with
the intended methods of disposition by the seller(s) thereof set forth
in such Registration Statement; and provided, that such period need not
extend beyond the time period provided in Section 2.2, and which
periods, in any event, shall terminate when all Registrable Securities
covered by such Registration Statement have been sold;
(c) Furnish, without charge, to the Holder of the securities
covered by such Registration Statement, such number of copies of such
Registration Statement, each amendment and supplement thereto (in each
case including all exhibits), and the Prospectus included in such
Registration Statement (including each preliminary Prospectus in
conformity with the requirements of the Securities Act, and other
documents, as such selling Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
selling Holder (the Company hereby consenting to the use in accordance
with applicable law of each such Registration Statement (or amendment or
post-effective amendment thereto) and each such Prospectus (or
preliminary prospectus or supplement thereto) by selling Holder;
(d) prior to any public of Registrable securities, use its best
efforts to register or qualify all Registrable Securities and other
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as any selling Holder
of Registrable securities covered by such Registration Statement may
reasonably request to enable such selling Holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by
such selling Holder, to consummate the disposition in such jurisdictions
of the Registrable Securities owned by such selling Holder and to
continue such Registration or qualification in effect in each such
jurisdiction for as long as such Registration Statement remains in
effect (including through new filings or amendments or renewals), and do
any and all other acts and things which may be necessary or advisable to
enable any such selling Holder to consummate the disposition in such
jurisdiction of the Registrable Securities owned by such selling Holder;
provided, however that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3.1(d), (ii)
subject itself to taxation in any such jurisdiction, or (iii) consent to
general service of process in any such jurisdiction;
(e) use its best efforts to obtain all other approvals, consents,
exemptions or authorizations from such governmental agencies or
authorities as may be necessary to enable the selling Holders of such
Registrable Securities to consummate the disposition of such Registrable
Securities;
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(f) promptly notify Holders' Counsel and each Holder of
Registrable Securities covered by such Registration Statements: (i) when
the Registration Statement, and pre-effective amendment, the Prospectus
or any prospectus supplement related thereto or post-effective
amendments to the Registration Statement has been filed and, with
respect to the Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request by the SEC or
any state securities or blue sky authority for amendments or supplements
to the Registration Statement or the Prospectus related thereto or for
additional information, (iii) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the
initiation or threat of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale
under the securities or blue sky laws of any jurisdiction or the
initiation of any proceeding for such purpose, (v) of the existence of
any fact of which the Company becomes aware or the happening of any
event which results in (A) the Registration Statement containing an
untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make any statements
therein not misleading, or (B) the Prospectus included in such
Registration Statement containing an untrue statement of a material fact
or omitting to state a material fact required to be stated therein or
necessary to make any statements therein, in the light of the
circumstances under which they were made, not misleading, (vi) if at any
time the representations and warranties contemplated by Section 2.4(b)
cease to be true and correct in all material respects, and (viii) of the
Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate or that there exits
circumstances not yet disclosed to the public which make further sales
under such Registration Statement inadvisable pending such disclosure
and post-effective amendment; and, if the notification relates to an
event described in any of the clauses (ii) through (vii) of this Section
3.1(f), the Company shall promptly prepare a supplement or
post-effective amendment to such Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that (1) such Registration Statement shall
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (2) as thereafter delivered to
the purchasers of the Registrable Securities being sold thereunder, such
Prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading (and shall furnish to each such
Holder a reasonable number of copies of such Prospectus so supplemented
or amended); and if the notification relates to an event described in
clause (iii) of this Section 3.1(f), the Company shall take all
reasonable action required to prevent the entry of such stop order or to
remove it if entered;
(g) make available for inspection by any selling Holder of
Registrable Securities, Holders' Counsel and any attorney, accountant or
other agent retained by Holder (each, an "inspector" and, collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company and any subsidiaries
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thereof as may be in existence at such time (collectively, the
"Records") as shall be necessary, in the opinion of such Holder's
counsel, to enable them to exercise their due diligence responsibility
and to conduct a reasonable investigation within the meaning of the
Securities Act, and cause the Company's and any of its subsidiaries'
officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably
requested by any such Inspectors in connection with such Registration
Statement;
(h) obtain an opinion from the Company's general counsel and
"cold comfort" letter from the Company's independent public accountants
who have certified such Company's financial statements included or
incorporated by reference in such Registration Statement, in each case
dated the effective date of such Registration Statement in customary
form and covering such matters as are customarily covered by such
opinions and "cold comfort" letters delivered to underwriters in
underwritten public offerings, which opinion and letter shall be
reasonably satisfactory to the Holder of the Registration, and furnish
to each Holder participating in the offering a copy of such opinion and
letter addressed to such Holder (in the case of the opinion);
(i) provide a CUSIP number for all Registrable Securities and
provide and cause to be maintained a transfer agent and registrar for
all such Registrable Securities covered by such Registration Statement
not later than the effectiveness of such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and any other governmental agency or
authority having jurisdiction over the Registration.
(k) if so requested by the Holder use its best efforts to cause
all Common Shares constituting such Registrable Securities to be listed
on the national securities exchange on which the Company's securities
are then listed;
(l) keep such selling Holder of Registrable Securities advised as
to the initiation and progress of any registration under Section 2
hereunder;
(m) enter into and perform customary agreements and provide
officers' certificates and other customary closing documents;
(n) cooperate with the Holder participating in the disposition of
such Registrable Securities and their respective counsel in connection
with any filings required to be made with the NASD and make reasonably
available its employees and personnel and otherwise provide reasonable
assistance to the Holder;
(o) furnish to the Holder without charge, at least one
manually-signed copy of the Registration Statement and any
post-effective amendments thereto, including
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financial statement and schedules, all documents incorporated therein by
reference and all exhibits (including those deemed to be incorpoarted by
reference);
(p) cooperate with the Holder to facilitate the timely preparation
and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities; and
(q) use its best efforts to take all other steps necessary to
expedite or facilitate the registration and disposition of the
Registrable Securities contemplated hereby.
3.2 Selling Information. The Company may require the Holder of
Registrable Securities as to which any Registration is being effect to
furnish to it such information regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of disposition as
the Company may from time to time reasonably request in writing; provided
that such information shall be used only in connection with the Registration.
If any Registration Statement or comparable statement under "blue sky"
laws refers to any Holder by name or otherwise as the Holder of any
Securities of the Company, then such Holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such Holder and the Company, to the effect that the holding by such Holder of
such securities is not to be construed as a recommendation by such Holder of
the investment quality of the Company's securities covered thereby and that
such holder does not imply that such Holder will assist in metering any
future financial requirements of the Company, and (ii) in the event that such
reference to such Holder by name or otherwise is not in the judgment of the
Company, as advised by counsel, required by the Securities Act or any similar
federal statute or any state "blue sky" or securities law then in force, the
deletion of the reference to such Holder.
3.3 Notice to Discontinue. Each Holder of Registrable Securities
agrees by acquisition of such Registrable Securities that, upon receipt of
any notice from the Company of the happening of any event of the kind
described in Section 3.1(f)(ii) through (vii), such Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3.1(f) and, if so directed by the Company, such
Holder shall deliver to the Company (at Company's expense) all copies, other
than permanent file copies, then in such Holder's possession of the
Prospectus covering such Registrable Securities which is current at the time
of receipt of such notice. If the Company shall give any such notice, the
Company shall extend the period during which such Registration Statement
shall be maintained effective pursuant to this Agreement (including, without
limitation, the period referred to in Section 3.1(b)) by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 3.1 (f) to and including the date when the Holder shall
have received the copies of the supplemented or amended prospectus
contemplated by meeting the requirements of Section 3.1(f).
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4. INDEMNIFICATION; CONTRIBUTION
4.1 Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law, each Holder of
Registrable Securities, its officers, directors, partners, members,
shareholders, employees, Affiliates and agents (collectively "Agents") and
each Person who controls such Holder (within the meaning of the Securities
Act) and its Agents with respect to each registration which has been effected
pursuant to Section 2 of this Agreement, against any and all losses, claims,
damages or liabilities, joint or several, actions or proceedings (whether
commenced or threatened) in respect thereof, and expenses (as incurred or
suffered and including, but not limited to, any and all expenses incurred in
investigating, preparing or defending any litigation or proceeding, whether
commenced or threatened) in respect thereof, and expense (as incurred or
suffered and including, but no limited to, any and all expenses incurred in
investigating, preparing or defending any litigation or proceeding, whether
commenced or threatened, and the reasonable fees, disbursements and other
charges of legal counsel) in respect thereof (collectively, "Claims"),
insofar as such claims arise out of or are based upon any untrue or alleged
untrue statement of a material fact contained in any registration Statement
or Prospectus (including any preliminary, final or summary prospectus and any
amendment or supplement thereto) related to any such registration or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required by the Company in connection with any such registration, or any
qualification or compliance incident thereto; provided, however, that the
Company will not be liable in any such case to the extent that any such
Claims arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact so made in reliance upon and in conformity with written information
furnished to the Company in an instrument duly executed by such Holder
specifically stating that it was expressly for use therein.
4.2 Indemnification by Holders. Each Holder, if Registrable Securities
held by it are included in the securities as to which a registration is being
effected, agrees to, severally and not jointly, indemnify and hold harmless,
to the fullest extent permitted by law, the Company, its directors and
officers, and each Person who controls the Company and its Agents against any
and all claims, insofar as such Claims arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to such
registration, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
furnished to the Company in an instrument duly executed by such Holder
specifically stating that it was expressly for use therein; provided,
however, that the aggregate amount which any such Holder shall be required to
pay pursuant to this Section 4.2 shall in no event be greater than the amount
of the net proceeds received by such holder upon the sale of the Registrable
Securities pursuant to the Registration Statement giving rise to such Claims
less all
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amounts previously paid by such Holder with respect to any such Claims. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such Holder.
4.3 Conduct of Indemnification Proceedings. Promptly after receipt by
an indemnified party of notice of any Claim or the commencement of any action
or proceeding involving a claim under this Section 4, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 5, (i) notify the indemnifying party in writing of
the Claim or the commencement of such action or proceeding; provided, that
the failure of any indemnified party to provide such notice shall not relieve
the indemnifying party of its obligations under this Section 4, except to the
extent the indemnifying party is materially and actually prejudiced thereby
and shall not relieve the indemnifying party from any liability which it may
have to any indemnified party otherwise than under this Section 4, and (ii)
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however
that any indemnified party shall have the right to employ separate counsel
and to participate in the defense of such claim, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed in writing to pay such fees and expenses, (B)
the indemnifying party shall have failed to assume the defense of such claim
and employ counsel reasonably satisfactory to such indemnified party within
10 days after receiving notice from such indemnified party that the
indemnified party believes it has failed to do so, (C) in the reasonable
judgment of any such indemnified party, based upon advise of counsel, a
conflict of interest may exist between such indemnified party and the
indemnifying party with respect to such claims (in which case, if the
indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
claim on behalf of such indemnified party) or (D) such indemnified party is a
defendant in an action or proceeding which is also brought against the
indemnifying party and reasonably shall have concluded that there may be one
or more legal defenses available to such indemnified party which are not
available to the indemnifying party. No indemnifying party shall be liable
for any settlement of any such claim or action effected without its written
consent, which consent shall not be unreasonably withheld. In addition,
without the consent of the indemnified party (which consent shall not be
unreasonably withheld ), no indemnifying party shall be permitted to consent
to entry of any judgment with respect to, or to effect the settlement or
compromise of any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (wether or not the
indemnified party is an actual or potential party to such action or claim),
unless such settlement, compromise or judgment (1) includes an unconditional
release of the indemnified party from all liability arising out of such
action or claim, (2) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of any indemnified
party, and (3) does not provide for any action on the part of any party other
than the payment of money damages which is to be paid in full by the
indemnifying party.
4.4 Contribution. If the indemnification provided for in Section 4.1
or 4.2 from the indemnifying party for any reason is unavailable (other than
by reason of exceptions provided therein), or is insufficient to hold
harmless, an indemnified party hereunder in respect of any
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Claim, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such Claim in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and
the indemnified party, o the other hand, in connection with the actions which
resulted in such Claim, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to , among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. If, however, the foregoing allocation is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only the relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by a party as a result of any Claim
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth in Section 4.3, any legal or
other fees, costs or expenses reasonably incurred by such party in connection
with any investigation or proceeding. Notwithstanding anything in this
Section 4.4 to the contrary, no indemnifying party (other than the Company)
shall be required pursuant to this Section 4.4 to contribute any amount in
excess of the net proceeds received by such indemnifying party from the sale
of the Registrable Securities pursuant to the Registration Statement giving
rise to such Claims, less all amounts previously paid by such indemnifying
party with respect to such Claims. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
4.5 Other Indemnification. Indemnification similar to that specified
in the preceding Sections 4.1 and 4.2 (with appropriate modifications) shall
be given by the Company and each selling Holder of Registrable Securities
with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act. The indemnity agreements contained
herein shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract.
4.6 Indemnification Payments. The indemnification and contribution
required by this Section 4 shall be made by periodic payments of the amount
thereof during the course of any investigation or defense, as and when bills
are received or any expense, loss, damage or liability is incurred.
5. GENERAL
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5.1 Adjustments Affecting Registrable Securities. The Company agrees
that it shall not effect or permit to occur any combination or subdivision of
shares which would adversely affect in any material respects the ability of
the Holder of any Registrable Securities to include such Registrable
Securities in any such registration.
5.2 Amendments and Waivers. The provisions of this Agreement may not
be amended, modified, supplemented or terminated in any material respect, and
waivers or consents to departures from the provisions hereof may not be
given, without the written consent of the Company and the Holders of not less
than 50% of the Registrable Securities then outstanding; provided, however,
that no such amendments, modifications, supplement, waiver or consent to
departure shall reduce the aforesaid percentage of Registrable Securities
without written consent of all of the holders of Registrable securities; and
provided further, that nothing herein shall prohibit any amendment,
modification, supplement, termination, waiver or consent to departure the
effect of which is limited only to those Holders who have agreed to such
amendment, modification, supplement, termination, waiver or consent to
departure.
5.3 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, telecopier,
any courier guaranteeing overnight delivery or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to the
applicable party at the address set forth below or such other address as may
hereafter be designated in writing by such party to the other parties in
accordance with the provisions of this Section:
(i) If to the Company, to:
American Skiing Company
Sunday River Access Road
P.O. Box 450
Bethel, Maine 04217
Attn: Christopher E. Howard
Telecopy: (207) 824-5158
Telephone: (207) 824-8100
(ii) If to the Holders, to:
Mr. Tom Shandell
Bear, Stearns & Co., Inc.
245 Park Avenue, 4th Floor
New York, New York 10167
Ms. Janegail Orringer
Sunamerica Investments, Inc.
733 third Avenue, 3rd Floor
New York, New York 10017
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Mr. Tom Hense
Fidelity Management & Research
1 Federal Street, 20th Floor
Boston, MA 02110
(iii) If to any subsequent Holder, to the address of such Person set
forth in the records of the Company.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt
is acknowledged, if telecopies; on the next business day, if timely delivered
to a courier guaranteeing overnight delivering and five days after being
deposited in the mail, if sent first class or certified mail, return receipt
requested postage prepaid.
5.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successor and permitted assigns (including any permitted transferee of the
Registrable Securities). Any Holder may assign to any permitted (as
determined under the Purchase Agreement transferee of its Registrable
Securities (other than a transferee that acquired such Registrable Securities
in a registered public offering or pursuant to a sale under Rule 144 of the
Securities Act (or any successor rule)), its rights and obligations under
this Agreement; provided, however, if any permitted transferee shall take and
hold Registrable Securities, such transferee shall promptly notify the
Company and, by taking and holder such Registrable Securities, such permitted
transferee shall automatically be entitled to receive the benefits of and be
conclusively deemed to have agreed to be bound by and to perform all of the
terms ad provisions of this Agreement as if it were a party hereto (and
shall, for all purposes, be deemed a Holder under this Agreement). If the
company shall so request, any heir, successor or permitted assign (including
any permitted transferee) shall agree in writing to acquire and holder the
Registrable securities subject to all of the terms hereof. For purposes of
this Agreement, "successor" for any entity other than a natural person shall
mean a successor to such entity as a result of such entities merger,
consolidation, liquidation, dissolution, sale of substantially all of its
assets, or similar transaction. Except as provided above or otherwise
permitted by this Agreement, neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by any party hereto without the consent of the other parties.
5.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be deemed
to be an original, but all of such counterparts, taken together, shall
continue one and the same instrument.
5.6 Descriptive Headings, Etc. The headings in this Agreement are for
conveyance of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (1) words of any gender shall be
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deemed to include each other gender; (2) words using the singular or plural
number shall also include the plural or singular number, respectively; (3)
the words "hereof", "herein" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Section and paragraph
references are to the Sections and paragraphs of this Agreement unless
otherwise specified; (4) the word "including" and words of similar import
when used in this Agreement shall mean "including, without limitation,"
unless otherwise specified; (5) "or" is not exclusive; and (6) provisions
apply to successive events and transactions.
5.7 Severability. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any
way impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
5.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maine (without giving effect to
the conflict of laws principles thereof).
5.9 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the Agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no
restrictions, promises or undertakings, other than those set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings among the Company and the other parties to this Agreement with
respect to such subject matter.
5.10 Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing deliver to the
Company (on behalf of the Company), be treated as the holder, of such
Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects,
the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Securities.
5.11 Further Assurances. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
AMERICAN SKIING COMPANY BEAR, STEARNS CO., INC.
By: /s/ Christopher E. Howard By: /s/ Paul S. Gray
-------------------------- -----------------------------
Its Senior Vice President Its Senior Managing Director
SUNAMERICA INVESTMENTS, INC.
By: /s/ Janegail Orringer
-----------------------------
Its Authorized Agent
FIDELITY MANAGEMENT & RESEARCH
By: /s/ Thomas C. Hense
-----------------------------
Its Vice President
Manufacturers Life Hy
Portfolio Manager
16
<PAGE>
Exhibit 10.67
FIRST SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), dated as
of November 12, 1997, between ASC East, Inc. (formerly American Skiing
Company), a Maine corporation (the "Company"), the Guarantors listed on the
signature pages hereof (the "Guarantors") and United States Trust Company
of New York, a New York banking corporation, as trustee under the Indenture
referred to below (the "Trustee").
W I T N E S S E T H:
WHEREAS, pursuant to the Indenture (the "Original Indenture"), dated
as of June 28, 1996 among the Company, the Guarantors listed therein and the
Trustee, the Company duly issued its 12% Senior Subordinated Notes Due 2006
(the "Securities"), in the aggregate principal amount of $120 million;
WHEREAS, in accordance with the Indenture, the Company has obtained
the written consent of the Holders of at least a majority in principal amount
of the then outstanding Securities to certain amendments to the Indenture as
set forth in this Supplemental Indenture.
WHEREAS, pursuant to Section 9.02 of the Indenture, the Company and
the Guarantors, when authorized by resolution of their respective Boards of
Directors, and the Trustee together, with the written consent of the Holders
of at least a majority in aggregate principal amount of the Securities then
outstanding, are authorized to amend or supplement the Indenture as set forth
in this Supplemental Indenture.
WHEREAS, all conditions and requirements necessary to make this
Supplemental Indenture a valid, binding and legal instrument in accordance
with its terms have been performed and fulfilled and the execution and
delivery hereof have been in all respects duly authorized by all necessary
parties; and
WHEREAS, in accordance with Section 9.02 of the Indenture, the
Company, each of the Guarantors and the Trustee desire and have agreed to
execute and deliver this Supplemental Indenture in order to amend the
Indenture as herein provided.
NOW, THEREFORE, for and in consideration of the premises, it is
mutually covenanted and agreed for the benefit of all Holders of the Securities
as follows:
SECTION 1. (a) (i) The definition of "Permitted Holders" in Section
1.01 is hereby amended by deleting the definition in its entirety and
substituting the following therefor:
"Permitted Holders" means (a) Leslie B. Otten (or, in the event of his
incompetence or death, his estate and his estate's heirs, executor,
administrator, committee or other representative (collectively, "Heirs")), (b)
any Person in which Leslie B. Otten and his Heirs, directly or indirectly, have
an 80% controlling interest, or (c) American Skiing Company
<PAGE>
a Maine corporation ("Holdings"), provided that, unless Holdings satisfies
the provisions of clause (b) of this definition, then (i) Holdings shall have
consummated an initial public offering of its common stock, par value $0.01
per share ("Holdings Common Stock"), generating gross proceeds of at least
$200 million on or prior to December 31, 1997 and (ii) no Person, other than
Leslie B. Otten and his Heirs, shall have acquired, directly or indirectly,
more than 35% of the voting power of all outstanding Holdings Common stock
and Holdings Class A Common Stock, $0.1 par value per share, voting together
as a single class.
SECTION 2. The Trustee accepts this Supplemental Indenture and agrees
to execute the trust created by the Indenture as hereby supplemented, but
only upon the terms and conditions set forth in the Indenture, including the
terms and provisions defining and limiting the liabilities and
responsibilities of the Trustee, which terms and provisions shall in like
manner define and limit its liabilities and responsibilities in the
performance of the trust created by the Indenture as hereby supplemented.
SECTION 3. The Indenture, supplemented as hereinabove set forth, is
in all respects ratified and confirmed, and the terms and conditions thereof,
supplemented as hereinabove set forth, shall be and remain in full force and
effect.
SECTION 4. The recitals contained in this Supplemental Indenture
shall be taken as the statements made solely by the Company and the
Guarantors, and the Trustee shall have no liability or responsibility for
their correctness, and without limiting the generality of the foregoing, the
Trustee shall not be responsible in any manner whatsoever for or with respect
to (i) the validity or sufficiency of this Supplemental Indenture or any of
the terms or provisions hereof, (ii) the proper authorization hereof by the
Company and the Guarantors by corporate action or otherwise, (iii) the due
execution hereof by the Comapny and the Guarantors or (iv) the consequences
(direct or indirect and whether deliberate or inadvertent) of any amendment
herein provided for, and the Trustee makes no representation with respect to
any such matters.
SECTION 5. This Supplemental Indenture shall become effective upon
the execution and delivery hereof by the Company and the Trustee.
SECTION 6. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 7. This Supplemental Indenture may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 8. Capitalized terms not otherwise defined herein are defined
as set forth in the Indenture.
2
<PAGE>
IN WITNESS WHEREOF. the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
ASC EAST, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
SUNDAY RIVER SKIWAY CORPORATION
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
SUNDAY RIVER LTD.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
PERFECT TURN, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
3
<PAGE>
LBO HOLDINGS, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
SUNDAY RIVER TRANSPORTATION. INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
SUGARBUSH RESORT HOLDINGS, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
SUGARBUSH LEASING COMPANY
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
4
<PAGE>
SUGARBUSH RESTAURANTS, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
CRANMORE, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
MOUNTAIN WASTEWATER TREATMENT, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
LBO HOTEL CO.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
5
<PAGE>
S-K-I LIMITED
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
KILLINGTON LTD.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
MOUNT SNOW LTD.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
WATERVILLE VALLEY SKI AREA, LTD.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
6
<PAGE>
SUGARLOAF MOUNTAIN CORPORATION
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
KILLINGTON RESTAURANTS, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
DOVER RESTAURANTS, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
RESORTS TECHNOLOGIES, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
7
<PAGE>
RESORT SOFTWARE SERVICES, INC.
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
MOUNTAINSIDE
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
SUGARTECH
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
DEERFIELD OPERATING COMPANY
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
8
<PAGE>
PICO SKI AREA MANAGEMENT COMPANY
By: /s/ Christopher E. Howard
-----------------------------------
Name: Christopher E. Howard
Title: Senior Vice President and
Chief Administrative Officer
UNITED STATES TRUST COMPANY OF NEW
YORK, Trustee
By: /s/ Louis P. Young
-----------------------------------
Name: Louis P. Young
Title: Vice President
<PAGE>
EXHIBIT 11.1
AMERICAN SKIING COMPANY
PRO FORMA EPS EXHIBIT
OCTOBER 26, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 26,
1997
PRIMARY CALCULATION
<S> <C> <C>
Pro forma net loss available to common shareholders (27,715)
Weighted average shares outstanding 1,000,000
Effect of stock split (note 16) 14.76053
----------
14,760,530
Leslie B. Otten stock options 1,853,197
Management stock options 622,038 552,923
Minority interest shareholders 615,022 615,022
Employee stock options 108,108 -
Mandatorily redeemable preferred stock 2,087,944 143,500
Offering shares 14,750,000 14,750,000
-----------
30,821,975
-----------
Primary earnings per share (.90)
-----------
</TABLE>
Page 1
<PAGE>
Statement 12.1
Statement regarding computation of ratios
<TABLE>
Computation of ratio of earnings to combined fixed charges and preferred stock dividend:
(In thousands)
<CAPTION>
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
July 25, 1993 July 31, 1994 July 30, 1995 July 28, 1995 July 27, 1997
<S> <C> <C> <C> <C> <C>
Pre-tax income
from continuing
operations 4,887 4,873 5,519 1,561 (9,345)
Interest expense 849 1,023 2,205 4,699 23,730
Preferred stock 0 0 0 0 0
charges ________________________________________________________________________
Adjusted Earnings 5,736 5,896 7,724 6,260 14,385
Fixed Charges
Interest expense 849 1,023 2,205 4,699 23,730
Preferred stock
charges 0 0 0 0 0
_____________________________________________________________________
Total fixed
charges 849 1,023 2,205 4,699 23,730
Ratio of earnings
to fixed charges 6.756 4.763 3.503 1.332 0.606
Deficiency n/a n/a n/a n/a n/a
Pro forma Pro forma
For the Year For the Quarter For the Quarter
Ended Ended Ended
July 27, 1997 October 26, 1997 October 26, 1997
Pre-tax income
from continuing
operations (5,886) (34,238) (41,414)
Interest expense 27,737 7,521 8,473
Preferred stock
charges _____________________________________________________
Adjusted Earnings 21,851 (26,717) (32,941)
Fixed Charges
Interest expense 27,737 7,521 8,473
Preferred stock
charges 444 2,431 2,431
_____________________________________________________
Total fixed
charges 28,181 9,952 10,904
Ratio of earnings
to fixed charges 0.775 (2.685) (3.021)
Deficiency n/a (29,148) (35,372)
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of American Skiing Company of our report
dated September 19, 1997, except as to Note 16 which is as of October 10, 1997,
relating to the financial statements of American Skiing Company, which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Historical Consolidated Financial Data of the Company"
in such Prospectus. However, it should be noted that Price Waterhouse LLP has
not prepared or certified such "Selected Historical Consolidated Financial Data
of the Company."
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of American Skiing Company of our report
dated August 31, 1995 relating to the financial statements of S-K-I Ltd., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 30, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
January , 1998
