<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION NO. 333-48619
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BOOTH CREEK SKI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 84-1359604
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification Number)
Organization)
</TABLE>
and subsidiary guarantors
TRIMONT LAND COMPANY
SIERRA-AT-TAHOE, INC.
BEAR MOUNTAIN, INC.
BOOTH CREEK SKI ACQUISITION CORP.
WATERVILLE VALLEY SKI RESORT, INC.
MOUNT CRANMORE SKI RESORT, INC.
SKI LIFTS, INC.
GRAND TARGHEE INCORPORATED
B-V CORPORATION
TARGHEE COMPANY
TARGHEE SKI CORP.
LMRC HOLDING CORP.
LOON MOUNTAIN RECREATION CORPORATION
LOON REALTY CORP.
(Exact name of registrants as specified in their respective charters)
<TABLE>
<S> <C>
CALIFORNIA 94-1640750
DELAWARE 68-0305344
DELAWARE 33-0679795
DELAWARE 84-1359820
DELAWARE 02-0492684
DELAWARE 02-0492680
WASHINGTON 91-0412837
DELAWARE 82-0307639
WYOMING 84-1398702
DELAWARE 84-1360243
DELAWARE 68-0393702
DELAWARE 84-1398702
NEW HAMPSHIRE 02-0271423
NEW HAMPSHIRE 02-0276485
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification Number)
or Organization)
</TABLE>
7990
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
------------------------
<TABLE>
<S> <C>
JEFFREY J. JOYCE
EXECUTIVE VICE PRESIDENT, FINANCE
BOOTH CREEK, INC.
1950 SPECTRUM CIRCLE
HIGHWAY 267 AND NORTHSTAR DRIVE SUITE 400
TRUCKEE, CALIFORNIA 96160 MARIETTA, GEORGIA 30067
(530) 562-1010 (770) 980-4903
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER,
EXECUTIVE OFFICE) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
COPY TO:
BRUCE A. TOTH
DANIEL A. NINIVAGGI
WINSTON & STRAWN
200 PARK AVENUE
NEW YORK, NY 10166-4193
(212) 294-6700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [ ]
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
BOOTH CREEK SKI HOLDINGS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ---- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information......................... Summary; Risk Factors; Selected Financial
Data; Pro Forma Financial Information
4. Terms of the Transaction........................ Outside Front Cover Page; Summary;
Description of the Notes; The Exchange Offer;
Certain U.S. Federal Income Tax
Considerations
5. Pro Forma Financial Information................. Pro Forma Financial Information
6. Material Contracts with the Company Being
Acquired...................................... Inapplicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................. Inapplicable
8. Interests of Named Experts and Counsel.......... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... Inapplicable
10. Information with Respect to S-3 Registrants..... Inapplicable
11. Incorporation of Certain Information by
Reference..................................... Inapplicable
12. Information with Respect to S-3 or S-2
Registrants................................... Inapplicable
13. Incorporation of Certain Information by
Reference..................................... Inapplicable
14. Information with Respect to Registrants other
than S-3 or S-2 Registrants................... Outside Front Cover Page; Summary; Risk
Factors; The Transactions; Capitalization;
Pro Forma Financial Information; Selected
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Certain Transactions; Ownership and
Control; Description of Certain
Indebtedness; Description of the Notes
15. Information with Respect to S-3 Companies....... Inapplicable
16. Information with Respect to S-3 or S-2
Companies..................................... Inapplicable
17. Information with Respect to Companies Other than
S-3 or S-2 Companies.......................... Inapplicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ---- ----------------------
<C> <S> <C>
18. Information if Proxies, Consents or
Authorizations are to be Solicited............ Inapplicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................. Management; Ownership and Control; Certain
Transactions
</TABLE>
<PAGE> 4
SUBJECT TO COMPLETION, DATED JUNE 19, 1998
PROSPECTUS
BOOTH CREEK SKI HOLDINGS, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
12 1/2% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
12 1/2% SERIES C SENIOR NOTES DUE 2007, OF WHICH
$17,500,000 PRINCIPAL AMOUNT IS OUTSTANDING
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
------------------------
Booth Creek Ski Holdings, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange $1,000 principal amount of its
12 1/2% Series B Senior Notes due 2007 (the "New Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 12 1/2% Series C Senior Notes due 2007 (the
"Old Notes"), of which $17,500,000 principal amount is outstanding. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
(which they replace), except that the New Notes will bear a Series B designation
and will have been registered under the Securities Act and, therefore, will not
bear legends restricting their transfer and will not contain certain provisions
relating to an increase in the interest rate which were included in the terms of
the Old Notes in certain circumstances relating to the timing of the Exchange
Offer. The New Notes will evidence the same debt as the Old Notes (which they
replace) and will be issued under and be entitled to the benefits of the
Indenture, dated as of March 18, 1997 (as supplemented and amended, the
"Indenture"), among the Company, the Guarantors named therein and Marine Midland
Bank, as trustee (the "Trustee"). The Old Notes, the Outstanding Series B Notes
(as defined herein) and the New Notes are sometimes referred to herein
collectively as the "Notes." See "The Exchange Offer" and "Description of the
Notes."
Interest on the New Notes will be paid in arrears in cash semi-annually on
March 15 and September 15 of each year, commencing on September 15, 1998. The
Notes will mature on March 15, 2007 and are not subject to any sinking fund
requirement. The Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after March 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest to the date of redemption. In
addition, the Company, at its option, may redeem in the aggregate up to 30% of
the original principal amount of the Notes at any time and from time to time
prior to March 15, 2000 at 112.5% of the aggregate principal amount so redeemed,
plus accrued and unpaid interest thereon to the redemption date, with the Net
Proceeds (as defined herein) of one or more Public Equity Offerings (as defined
herein), provided that at least $93.5 million of the principal amount of the
Notes originally issued remain outstanding immediately after the occurrence of
any such redemption and that any such redemption occurs within 90 days following
the closing of any such Public Equity Offering. See "Description of the Notes --
Optional Redemption."
Upon a Change of Control (as defined herein), each holder of the Notes will
be entitled to require the Company to repurchase such holder's Notes at 101% of
the aggregate principal amount thereof plus accrued and unpaid interest to the
repurchase date. See "Description of the Notes -- Change of Control Offer."
There can be no assurance that the Company will have sufficient funds available
to finance such a repurchase triggered by a Change of Control. In addition, upon
a Change of Control, the Indenture would require the Company, before repurchase
of the Notes, to (i) repay in full all obligations under or in respect of the
Senior Credit Facility (as defined herein) or offer to repay in full all such
obligations and repay such obligations of each lender who has accepted such
offer or (ii) obtain the requisite consent under the Senior Credit Facility to
permit the repurchase of the Notes as described above. There can be no assurance
that the Company will have sufficient funds available to finance such repayments
under the Senior Credit Facility or, alternatively, obtain the requisite
consent. See "Risk Factors -- Change of Control." In addition, the Company is
obligated in certain instances to make an offer to repurchase the Notes at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase with the net cash proceeds
of certain asset sales. See "Description of the Notes -- Certain Covenants --
Limitation on Certain Asset Sales."
The New Notes will be general senior unsecured obligations of the Company
ranking pari passu with all other existing and future senior indebtedness of the
Company and senior to any subordinated indebtedness of the Company. The New
Notes will be unconditionally and fully guaranteed, on a senior unsecured basis,
jointly and severally by certain Restricted Subsidiaries (as defined herein) of
the Company. The New Notes and the Guarantees (as defined herein) will be
effectively subordinated to all secured indebtedness of the Company and the
Guarantors, including indebtedness under the Senior Credit Facility (as defined
herein). In addition, the New Notes will be structurally subordinated to any
indebtedness of the Company's subsidiaries that are not Guarantors. At May 1,
1998, the Company had $116.0 million of its 12 1/2% Series B Senior Notes due
2007 outstanding (the "Outstanding Series B Notes"). At May 1, 1998, the Company
had approximately $12.1 million of senior indebtedness outstanding (other than
the Notes and the Guarantees) as
(Continued on Next Page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 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 BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF 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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
<PAGE> 5
(Continued from Cover Page)
well as $18.6 million of additional unused borrowing availability under the
Senior Credit Facility; in addition, debt as a percentage of total
capitalization was 73%. See "Capitalization." For the twelve months ended
October 31, 1997 after giving pro forma effect to the Loon Mountain Transactions
(as defined herein) and the Historical Transactions (as defined herein),
earnings would have been inadequate to cover fixed charges by $23.0 million. See
"Risk Factors -- High Level of Indebtedness and Leverage."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on
, 1998, unless extended by the Company in its sole
discretion (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to
certain customary conditions. The Exchange Offer will remain in effect for only
a limited period of time, not to exceed 60 days from the date the Registration
Statement is declared effective through the Expiration Date, as extended.
The Old Notes were sold in an aggregate principal amount of $17.5 million
by the Company on February 26, 1998 (the "Old Notes Issue Date") to CIBC
Oppenheimer Corp. (the "Initial Purchaser") in a transaction (the "Initial
Offering") not registered under the Securities Act in reliance upon an exemption
under the Securities Act. The Old Notes are eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market of
the National Association of Securities Dealers, Inc. The Initial Purchaser
subsequently placed the Old Notes with qualified institutional buyers in
reliance upon Rule 144A under the Securities Act. Accordingly, the Old Notes may
not be reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The New Notes are
being offered hereunder in order to satisfy the obligations of the Company and
the Guarantors under the Registration Rights Agreement (as defined herein)
entered into by the Company and the Guarantors in connection with the Initial
Offering. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes. See "The Exchange Offer -- Resale of the New
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such Participating
Broker-Dealer as a result of marketmaking activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
The Initial Purchaser has advised the Company that it currently makes a
market in the Old Notes and the Outstanding Series B Notes. However, the Company
does not intend to list the Old Notes, the Outstanding Series B Notes or New
Notes on any securities exchange or to seek approval for quotation through any
automated quotation system. There can be no assurance that an active market for
the New Notes will continue. See "Risk Factors -- Absence of a Public Market."
Moreover, to the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
The New Notes will be available initially only in book-entry form and the
Company expects that the New Notes issued pursuant to the Exchange Offer will be
issued in the form of a Global Note (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
its name or in the name of Cede & Co., its nominee. Beneficial interests in the
Global Note representing the New Notes will be shown on, and transfers thereof
will be effected through, records maintained by DTC and its participants. After
the initial issuance of the Global Note, New Notes in certificated form will be
issued in exchange for the Global Note only under the limited circumstances set
forth in the Indenture. See "Description of the Notes -- Book-Entry, Delivery
and Form."
2
<PAGE> 6
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Exchange Offer Registration Statement,"
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the New Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Exchange Offer Registration Statement, reference is made to the
exhibit for a more complete description of the document or matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is currently subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
The obligation of the Company and the Guarantors to file periodic reports and
other information with the Commission will be suspended if the Notes are held of
record by fewer than an aggregate of 300 holders as of the beginning of any
fiscal year of the Company and the Guarantors. In addition, the Company has
agreed that, whether or not it is required to do so by the rules and regulations
of the Commission, for so long as any Notes remain outstanding, it will furnish
to the holders of the Notes and, to the extent permitted by applicable law or
regulation, file with the Commission (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including for each a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's independent auditors and (ii) all
reports that would be required to be filed on Form 8-K if the Company were
required to file such reports. In addition, for as long as any of the Old Notes
remain outstanding, the Company has agreed to make available to any prospective
purchaser of the Old Notes or beneficial owner of any Old Notes, in connection
with any sale thereof, the information required by Rule 144(d)(4) under the
Securities Act, until such time as the Company has either exchanged the Old
Notes for securities identical in all material respects which have been
registered under the Securities Act or until such time as the holders thereof
have disposed of such securities pursuant to an effective registration statement
under the Securities Act. The Exchange Offer Registration Statement, including
the exhibits thereto, and all periodic reports and other information filed by
the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at the Regional Offices of the Commission
at 7 World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING
FUTURE OPERATIONS OF THE COMPANY. WHEN USED IN THIS DOCUMENT, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE" AND "EXPECT" AND SIMILAR EXPRESSIONS ARE
GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. PROSPECTIVE INVESTORS
ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS
REGARDING INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY OR ITS
MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE ITEMS
3
<PAGE> 7
IDENTIFIED UNDER "RISK FACTORS." THE COMPANY DOES NOT INTEND TO UPDATE THESE
FORWARD-LOOKING STATEMENTS.
CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA
The term "day skier" generally refers to a skier or snowboarder who lives
in a resort's regional ski market and skis or snowboards for one day before
returning home.
The terms "EBITDA," "EBITDA margin" and "resort cash flow" are referred to
in various places in this Prospectus. "EBITDA" represents income from operations
before depreciation, depletion and amortization expense and the non-cash cost of
real estate sales. "EBITDA margin" is EBITDA divided by total revenue. "Resort
cash flow" represents, with respect to a particular resort for a given period,
the EBITDA of the resort for such period before deducting corporate overhead
charges allocated to the resort for such period. Although EBITDA and resort cash
flow are not measures of performance under United States generally accepted
accounting principles ("GAAP"), the terms are presented because management
believes they provide useful information regarding a company's ability to incur
and service debt. Neither EBITDA nor resort cash flow should be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in accordance
with GAAP, or as a measure of profitability or liquidity. In addition, "EBITDA"
and "EBITDA margin" as determined by the Company may not be comparable to
related or similar measures as reported by other companies and do not represent
funds available for discretionary use.
"Guarantors" refers to all Restricted Subsidiaries of the Company having
either assets or stockholders' equity in excess of $20,000. As of the date of
this Prospectus, the Guarantors will consist of (i) Trimont Land Company, a
California corporation and operator of Northstar-at-Tahoe, (ii) Sierra-at-Tahoe,
Inc., a Delaware corporation and operator of Sierra-at-Tahoe, (iii) Bear
Mountain, Inc., a Delaware corporation and operator of Bear Mountain, (iv)
Waterville Valley Ski Resort, Inc., a Delaware corporation and operator of
Waterville Valley, (v) Mount Cranmore Ski Resort, Inc., a Delaware corporation
and operator of Mt. Cranmore, (vi) Booth Creek Ski Acquisition Corp., a Delaware
corporation and direct owner of Waterville Valley Ski Resort, Inc. and Mount
Cranmore Ski Resort, Inc., (vii) Ski Lifts, Inc., a Washington corporation and
operator of the Summit, (viii) Grand Targhee Incorporated, a Delaware
corporation and operator of Grand Targhee, (ix) B-V Corporation, a Wyoming
corporation, (x) Targhee Company, a Delaware corporation, (xi) Targhee Ski
Corp., a Delaware corporation, (xii) LMRC Holding Corp., a Delaware corporation,
(xiii) Loon Mountain Recreation Corporation, a New Hampshire corporation and
operator of Loon Mountain, and (xiv) Loon Realty Corp., a New Hampshire
corporation. As of the date of this Prospectus, the Company's only Unrestricted
Subsidiary (as defined), which will not be a Guarantor, will hold certain
developmental real property formerly owned by Ski Lifts, Inc.
The term "regional overnight skier" generally refers to a skier or
snowboarder who lives in a resort's regional ski market and lodges in the
vicinity of the resort to ski or snowboard for more than one day before
returning home.
The term "regional resort" refers to a resort that primarily serves a
regional ski market.
The term "regional ski market" generally refers to a market that lies
within a 200 mile radius (or three hours driving time) of a resort.
"Restricted Group" means Booth Creek and its Restricted Subsidiaries (as
defined in "Description of the Notes -- Certain Definitions") as of the date of
this Prospectus.
"Revenue per skier day" represents a resort's total revenue from resort
operations, excluding revenues earned from real estate and timber sales, for a
given period divided by such resort's total skier days for the same period.
"Skier day" represents one skier or snowboarder visiting one ski resort for
one day, including skiers and snowboarders using complimentary and season
passes. Calculation of skier days requires an estimation of visits
4
<PAGE> 8
by season pass holders. Although different ski resort operators may use
different methodologies for making such estimations, management believes that
any resulting differences in total skier days are immaterial.
The term "ski season" generally refers to the period during which resorts
offer skiing or snowboarding to paying guests. Depending on the location of the
resort, the natural snowfall patterns and/or the amount of snowmaking, the ski
season can range from early November to late May.
"Ticket yield" is the ratio of the average ticket price paid by all guests
to the price of a full price weekend adult ticket. The ticket yield reflects the
impact of discounting and promotions and the mix of ticket types (adult,
children, complimentary, season passes, etc.)
The term "vertical drop" generally refers to the change in elevation from
the highest skiable point to the base of the mountain.
"Vertical transfer feet per hour" ("VTFH") is the number of people lifted
1,000 vertical feet per hour.
Market data used throughout this Prospectus were obtained from internal
company surveys, industry publications and currently available information. The
sources for this data include, without limitation, the 1996/97 Kottke National
End of Season Survey, the Sporting Goods Manufacturers Association, RRC
Associates and the National Skier/Boarder Opinion Survey. Industry publications
generally state that the information contained therein has been obtained from
sources believed to be reliable, but there can be no assurance as to the
accuracy and completeness of such information. The Company has not independently
verified such market data. Similarly, internal Company surveys, while believed
by the Company to be reliable, have not been verified by any independent
sources.
5
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, the "Company" or
"Booth Creek" refers to Booth Creek Ski Holdings, Inc. and its subsidiaries,
unless the context otherwise requires. The Company is a wholly-owned subsidiary
of Booth Creek Ski Group, Inc. ("Parent"). Since November 27, 1996 the Company
has acquired the Northstar-at-Tahoe ("Northstar") and Sierra-at-Tahoe ("Sierra")
ski resorts in the Lake Tahoe region of Northern California, the Bear Mountain
ski resort (together with Northstar and Sierra, the "California Resorts") in
Southern California, the Waterville Valley and Mt. Cranmore ski resorts in New
Hampshire (the "New Hampshire Resorts"), the Summit at Snoqualmie ski resort
complex (formerly known as Snoqualmie Pass), which consists of four separate and
distinct resorts (the "Summit") in the Cascade Mountains of Northwest Washington
and the Grand Targhee ski resort in the Grand Tetons in Wyoming. Most recently,
on February 26, 1998, the Company acquired the Loon Mountain Ski Resort ("Loon
Mountain") in the White Mountains of New Hampshire. References in this
Prospectus to the closing date of the Initial Offering shall mean February 26,
1998. Please refer to "Certain Definitions and Market Industry Data" beginning
on page 4 for the definitions of certain terms used in this Prospectus.
THE COMPANY
Booth Creek owns and operates eight ski resort complexes encompassing
eleven separate resorts, making the Company the fourth largest operator in North
America based on approximately 2.2 million skier days recorded during the
1996/97 ski season. Booth Creek primarily operates regional ski resorts which,
in the aggregate, attract approximately 85% of their guests from their regional
ski markets, within a 200 mile driving radius of each resort. The Company's
properties offer approximately 9,281 acres of skiable terrain, 392 trails, 92
lifts (including 15 high-speed lifts) and on-mountain capacity to accommodate
approximately 56,000 guests daily. For the year ended October 31, 1997 and six
months ended May 1, 1998, the Company's resorts generated approximately $97.8
million and $98.5 million of pro forma revenue, respectively, $14.2 million and
$33.5 million of pro forma EBITDA, respectively, and $(21.2) million and $15.0
million of pro forma net income (loss), respectively. Pro forma EBITDA for the
twelve months ended May 1, 1998 was $27.1 million, a significant improvement
over the pro forma EBITDA for the twelve months ended October 31, 1997 of $14.2
million.
The Company's resort properties are primarily located near major skiing
populations, including four of the five largest regional ski markets: Los
Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company believes this geographical diversification serves to limit the Company's
exposure to regional economic downturns and unfavorable weather conditions.
The domestic skiing industry has been relatively consistent, averaging
approximately 52 million skier days over the last 10 years with approximately
52.5 million skier days recorded during the 1996/97 ski season. While skier
visitation has been relatively stable, the number of U.S. ski areas has declined
from 709 in 1986 to 507 in 1997. The Company believes that this attrition is
occurring primarily because smaller resorts lack the variety of terrain,
infrastructure, capital and management capability required to compete with
larger, more sophisticated resorts. Furthermore, given the lack of suitable real
estate, environmental concerns and considerable development and start-up costs,
no new major ski resort has opened in the United States since 1989. According to
RRC Associates, the 507 domestic ski areas averaged approximately 104,000 skier
days, and only 25% of all resorts reported more than 200,000 skier days during
the 1996/97 ski season. Six of the Company's eight resort complexes have
historically exceeded the 200,000 skier day threshold. The Company also believes
that the ski resort industry is experiencing a period of consolidation,
resulting in larger companies operating multiple resorts. The four largest ski
resort companies, including the Company, accounted for approximately 26% of all
U.S. skier days recorded during the 1996/97 ski season.
The Company's resorts continue to differentiate themselves in their
respective markets by selectively upgrading on-mountain facilities and guest
services, employing targeted marketing strategies and offering extensive skier
development programs, all of which create a competitively-priced, high-quality
guest
6
<PAGE> 10
experience. The Company's resorts have collectively spent over $40.0 million in
expansion-related capital improvements over the past three years, including the
addition of nine high-speed chairlifts, additional snowmaking capability,
improved trail grooming equipment, and enhanced on-mountain lodging, retail and
food service amenities. The Company believes its existing resorts have been well
maintained and ongoing capital expenditure requirements are expected to be from
$8.0 million to $10.0 million in the aggregate in each of the next two years.
The Company's California Resorts have introduced what management believes to be
one of the industry's leading marketing programs, Vertical Plus, an electronic
annual frequent skier program designed to build customer loyalty, increase
visitation frequency and maximize guest revenue yields. In addition, the Company
has introduced another frequent skier program, Vertical Value, which offers
incentives for frequent visitation. The Company also uses targeted advertising,
database marketing and strategic marketing alliances to enhance the image of its
resorts and increase regional market share. The Company also offers extensive
development programs to improve the technical skill level of all types of
skiers, which management believes is important to expand the total skier
population and increase skier visitation frequency. Northstar and Sierra are
consistently rated by consumer publications as having premier ski instruction
and development programs. The Company intends to implement similar skier
development programs at its other resorts in future ski seasons.
The following is an organizational chart of the Parent and the Company and
its subsidiaries. Each of the Company's subsidiaries is a Guarantor, other than
DRE L.L.C. Each subsidiary of the Company is, directly or indirectly,
wholly-owned by Booth Creek. See "Business -- Overview".
BOOTH CREEK FLOWCHART
7
<PAGE> 11
OPERATING STRATEGY
The Company's objective is to enhance the operating results and value of
its resort properties by pursuing a strategy based on the following elements:
Continually Enhance the Guest Experience. In addition to offering
accessible locations, the Company is committed to providing a high-quality
guest experience by offering a diversity of terrain, consistent snow
conditions (the Company's most weather-sensitive resorts have snowmaking
coverage on nearly 100% of their trails), state-of-the-art ski lift
capacity, attractive facilities, a friendly atmosphere and extensive skier
development programs. The Company believes the physical condition of its
resorts is very competitive with other regional resorts, and will continue
to selectively enhance and expand its resorts in order to continuously
offer a diverse and competitively-priced, high-quality skiing experience.
Incorporate Sophisticated Management Information Systems. The
Company's resorts, other than Loon Mountain, utilize what management
believes is one of the industry's premier management information systems,
providing daily statistical and financial information on all operating
departments within each resort. This system enables management to
continuously monitor and align staffing and services to meet market
demands, while enhancing the quality and timing of communications and
decisions. The Company plans to integrate Loon Mountain into its management
information system in the near future.
Develop Effective Marketing Plans. The Company's marketing plans are
designed to attract skiers and snowboarders by emphasizing the Company's
diverse facilities, high-quality services and proximity to each of the
regional skier markets in which it operates. The Company intends to
position each of its resorts as an economical and attractive alternative to
competing regional resorts and to other forms of leisure entertainment. The
Company's marketing objectives are to (i) increase each of its resorts'
relative market share, (ii) expand the number of skiers in each of its
markets, (iii) increase skier visitation frequency and (iv) influence the
vacation destination choices of prospective guests. A key component to the
Company's marketing plans has been, and will continue to be, the expansion
of Vertical Plus and Vertical Value to enhance guest loyalty and increase
skier visitation frequency. The Company also believes there are additional
opportunities to cross-market its resorts through the integration and
expansion of the Vertical Plus and Vertical Value programs.
Maximize Revenues and Resort Cash Flow. The Company focuses on
increasing revenues and resort cash flow by managing the mix of skier days
and revenue per skier day. The strategy for each resort is based on the
demographic profile of its market and the physical capacity of its mountain
and facilities. The Company seeks to increase skier days by developing
effective ticket pricing strategies and marketing programs to improve peak
and off-peak volume. The Company seeks to improve revenue per skier day by
effectively managing the price, quality and value of each of its
ski-related services, including retail shops, ski rentals, ski lessons and
food and beverage facilities. The Company also generates revenue from a
variety of non-ski related services, such as golf, tennis, health clubs and
conference centers, as well as from real estate and timber sales.
Selectively Develop New Terrain and Real Estate. Management believes
that the Company has significant opportunities to expand skiable terrain
and trails and to develop Company-owned real estate for commercial and
residential use. The Company owns or has access to approximately 2,640
acres at Northstar, 787 acres at Grand Targhee, 700 acres at Mt. Cranmore
and 581 acres at Loon Mountain for potential development of additional ski
terrain and/or for residential and commercial purposes. The Company also
owns approximately 84 acres at the Summit available for additional
residential and commercial development which it holds through an
Unrestricted Subsidiary. See "Certain Transactions -- The Real Estate LLC."
Management believes that the Company's undeveloped acreage at Northstar is
the only significant privately-held land available for skiing expansion in
the Lake Tahoe basin and could double the amount of skiable terrain and the
number of trails at Northstar while significantly increasing the on-site
bed base. The Company believes that increasing the on-site and area bed
base is important in attracting regional overnight skiers, expanding market
share and capturing a greater portion of each guest's expenditures.
Management anticipates that any significant development project would be
8
<PAGE> 12
undertaken through a joint venture with a major real estate development
company, which would offset a significant portion of the infrastructure
cost. See "Business -- Real Estate Development."
ACQUISITION STRATEGY
The Company believes that the domestic ski industry is highly fragmented
but is undergoing a transition from individual resort ownership to ownership by
multiple resort operating companies. With their high-quality facilities and
services, sophisticated information systems and experienced management team, the
California Resorts, in management's view, will serve as the core of the
Company's operations and its base for future expansion. The acquisitions of the
New Hampshire Resorts, the Summit, Grand Targhee and most recently, Loon
Mountain provided the Company with additional geographical diversity and
proximity to other major skiing population centers. Since it commenced
operations in November 1996, the Company has introduced sophisticated management
practices, many of which were already employed at its California Resorts, to its
other resorts. Management believes that the implementation of professional
management practices will lead to an increase in the number of skier days,
revenue per skier day and resort cash flow. The Company will consider future
acquisition opportunities that it believes will further expand the Company's
national presence or enhance its operating synergies.
MANAGEMENT
The Company believes that one of its most important assets is its
experienced and guest-oriented management team. George N. Gillett, Jr., Chairman
of the Board of Directors and Chief Executive Officer of the Company, has 14
years of experience operating ski resorts, including the Vail Ski Resort, which
during his association as owner and Chairman became the largest ski mountain
complex, and one of the most profitable ski resorts, in North America. Each of
the Company's resorts is managed by an on-site resort executive with extensive
local experience and industry expertise. See "Management." The Company's
principal executive offices are located at Highway 267 and Northstar Drive,
Truckee, California 96160. Its telephone number at that location is (530)
562-1010. The Company was incorporated in Delaware on October 8, 1996.
THE HISTORICAL TRANSACTIONS
The Company acquired the New Hampshire Resorts, Waterville Valley and Mt.
Cranmore, for approximately $17.5 million (before giving effect to normal
working capital adjustments for current assets acquired and current liabilities
assumed) and the California Resorts, Northstar, Sierra and Bear Mountain, for
approximately $121.5 million (before giving effect to normal working capital
adjustments for current assets acquired and current liabilities assumed). The
Company financed the purchase of the New Hampshire Resorts and the California
Resorts with the proceeds from: (i) $90.0 million of senior subordinated notes
issued to an affiliate of the Initial Purchaser (the "Bridge Notes"); (ii) $10.0
million of subordinated option notes (the "Hancock Option Notes," and together
with the Bridge Notes, the "Bridge Financing Facilities") issued by Parent;
(iii) the issuance of the ASC Seller Note (as defined) and (iv) the investment
in the Company of $40.0 million of equity by Parent, which was funded through
the issuance by Parent of debt and
9
<PAGE> 13
equity securities to John Hancock and affiliates of George N. Gillett, Jr. and
the Initial Purchaser. The table below summarizes the sources and uses of funds
related to the above transactions:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
Sources of Funds:
Bridge Notes................................................ $ 90.0
Hancock Option Notes........................................ 10.0
Equity contribution by Parent............................... 40.0
------
$140.0
======
Uses of Funds:
Acquisition of New Hampshire Resorts (excluding ASC Seller
Note of $2.75 million).................................... $ 14.8
Acquisition of California Resorts........................... 121.5
Working capital, fees and expenses.......................... 3.7
------
$140.0
======
</TABLE>
The Summit was purchased effective January 15, 1997 for an aggregate
purchase price of approximately $14.0 million, which included the assumption of
approximately $3.6 million of indebtedness, the issuance by the Company of the
Summit Seller Note (as defined) in the amount of approximately $9.8 million, and
other obligations to the selling shareholders of approximately $600,000. Grand
Targhee was purchased on March 18, 1997 for an aggregate purchase price of
approximately $7.9 million. Pursuant to a Securities Purchase Agreement dated as
of March 13, 1997, the Company sold (the "1997 Offering") 12 1/2% senior notes
in an aggregate principal amount of $110.0 million to the Initial Purchaser on
March 18, 1997, and an additional $6.0 million aggregate principal amount of
such notes to the Initial Purchaser on April 25, 1997 pursuant to the exercise
of an option by the Initial Purchaser. In addition, concurrently with the
consummation of the 1997 Offering, the Senior Credit Facility, which initially
provided borrowing availability of up to $10.0 million, was amended to, among
other things, provide a total revolving credit commitment of $20.0 million. The
notes sold pursuant to the 1997 Offering were subsequently exchanged by the
Company in August 1997 for the Outstanding Series B Notes in a transaction
registered under the Securities Act. The Company used the proceeds from the 1997
Offering, together with available cash on hand and an additional equity
contribution of $6.5 million by Parent, (i) to repay the Bridge Financing
Facilities, the Summit Seller Note and certain debt assumed in connection with
the acquisition of the Summit, (ii) to finance the purchase price for the
acquisition of Grand Targhee and repay certain assumed indebtedness in
connection therewith, (iii) to pay fees and expenses in connection with the 1997
Offering and the Senior Credit Facility and (iv) for general corporate purposes.
The table below summarizes the sources and uses of funds related to the
above transactions:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
Sources of Funds:
12 1/2% Senior Notes........................................ $116.0
Available cash on hand...................................... 2.9
Additional equity contribution by Parent.................... 6.5
------
$125.4
======
Uses of Funds:
Repayment of Bridge Notes................................... $ 90.0
Repayment of Hancock Option Notes........................... 10.0
Repayment of Summit Seller Note............................. 9.8
Acquisition of Grand Targhee................................ 7.5
Repayment of Summit assumed debt............................ 3.6
Estimated fees and expenses................................. 4.5
------
$125.4
======
</TABLE>
10
<PAGE> 14
The acquisitions of the New Hampshire Resorts, the California Resorts, the
Summit and Grand Targhee and the Loon Mountain Acquisition (as defined) are
sometimes collectively referred to herein as the "Acquisitions." The foregoing
transactions, except for the Loon Mountain Acquisition, are hereinafter referred
to collectively as the "Historical Transactions."
THE LOON MOUNTAIN TRANSACTIONS
On February 26, 1998, the Company acquired Loon Mountain Recreation
Corporation ("LMRC"), the owner and operator of the Loon Mountain ski resort
located in the White Mountains of New Hampshire. The acquisition of LMRC (the
"Loon Mountain Acquisition") was effected pursuant to an Agreement and Plan of
Merger, dated September 18, 1997, as amended as of December 22, 1997, by and
among the Company, as assignee of Booth Creek Ski Group, Inc., the owner of all
the issued and outstanding capital stock of the Company ("Parent"), LMRC
Acquisition Corp. and LMRC. The aggregate net purchase price for the Loon
Mountain Acquisition was approximately $29.9 million (including the assumption
of debt which was repaid in connection with the acquisition and acquisition
costs). The Loon Mountain Acquisition was financed through (i) proceeds from the
Initial Offering, (ii) a capital contribution of $10.5 million to the Company by
Parent (the "Equity Financing"), and (iii) available cash on hand and borrowings
under the Senior Credit Facility (as defined herein). The funds comprising the
Equity Financing were obtained from the issuance by Parent of equity and notes
to John Hancock Mutual Life Insurance Company ("John Hancock"), CIBC WG Argosy
Merchant Fund 2, L.L.C. (an affiliate of the Initial Purchaser) and Booth Creek
Partners Limited II, L.L.L.P.
In connection with the Loon Mountain Acquisition, the Company amended (the
"Senior Credit Facility Amendment") the Amended and Restated Credit Agreement
dated as of March 18, 1997, as amended (the "Senior Credit Facility"), among the
Company, certain of its subsidiaries and BankBoston, N.A. to, among other
things, increase the maximum borrowing availability thereunder to $25.0 million
and modify certain covenants.
Prior to the consummation of the Loon Mountain Acquisition, the Company
solicited consents (the "Consent Solicitation") from the holders of its
Outstanding Series B Notes to effect certain amendments to the Indenture (the
"Proposed Amendments") which, among other things, (i) permitted the Initial
Offering, (ii) permitted the consummation of the Senior Credit Facility
Amendment, (iii) modified the definitions of "Change of Control" and "Restricted
Subsidiary" in the Indenture, and (iv) made minor modifications to certain other
Indenture provisions. On February 20, 1998, the Company received sufficient
consents to effect the Proposed Amendments and entered into a supplemental
indenture modifying the Indenture, which became effective on February 26, 1998
upon the consummation of the Loon Mountain Acquisition and the Equity Financing.
The Loon Mountain Acquisition, the Equity Financing, the Senior Credit
Facility Amendment and the Consent Solicitation, as described more fully below
in "The Transactions -- The Loon Mountain Transactions," as well as the Initial
Offering and the application of net proceeds therefrom, are hereinafter referred
collectively as the "Loon Mountain Transactions."
11
<PAGE> 15
THE INITIAL OFFERING
Notes
Pursuant to a Securities Purchase Agreement dated as of February 23, 1998
(the "Purchase Agreement"), the Company sold the Old Notes in an aggregate
principal amount of $17.5 million to the Initial Purchaser on February 26, 1998.
The Initial Purchaser subsequently resold the Old Notes purchased from the
Company to qualified institutional buyers pursuant to Rule 144A under the
Securities Act.
Registration Rights Agreement
Pursuant to the Purchase Agreement, the Company, the Guarantors and the
Initial Purchaser entered into a Registration Rights Agreement, dated as of
February 26, 1998 (the "Registration Rights Agreement"), which grants the
holders of the Old Notes certain exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered............ $17,500,000 aggregate principal amount of
12 1/2% Series B Senior Notes due 2007 of the
Company.
The Exchange Offer............ $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $17,500,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the New
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by
any holder thereof (other than any such holder
which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities
Act) without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in
the distribution of such New Notes. Each holder
accepting the Exchange Offer is required to
represent to the Company in the Letter of
Transmittal that, among other things, the New
Notes will be acquired by the holder in the
ordinary course of business and the holder does
not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New
Notes.
Any Participating Broker-Dealer that acquired
Old Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives New
Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the
12
<PAGE> 16
meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time
to time, may be used by a Participating
Broker-Dealer in connection with the resale of
New Notes received in exchange for Old Notes
where such Old Notes were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities. The Company has agreed that, for a
period of 180 days after the Expiration Date,
it will make this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the New Notes will not be able to rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Company.
Minimum Condition............. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered or accepted for exchange.
Expiration Date............... 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the New
Notes and the Old Notes....... Each New Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the New Notes. Such
interest will be paid with the first interest
payment on the New Notes. Interest on the Old
Notes accepted for exchange will cease to
accrue upon issuance of the New Notes.
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer --
Conditions." The Company reserves the right to
terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition.
Procedures for Tendering Old
Notes......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, or an Agent's
Message (as defined) in connection with a
book-entry transfer, together with the Old
Notes and other required documentation to the
Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the New Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business
13
<PAGE> 17
of the person receiving such New Notes, whether
or not such person is the holder, that neither
the holder nor any such other person (i) has
any arrangement or understanding with any
person to participate in the distribution of
such New Notes, (ii) is engaging or intends to
engage in the distribution of such New Notes,
or (iii) is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company.
See "The Exchange Offer -- Purpose and Effect
of the Exchange Offer" and "The Exchange Offer
-- Procedures for Tendering."
Untendered Old Notes.......... Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange rights
and such Old Notes will continue to be subject
to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Old Notes could be adversely affected.
Consequences of Failure
to Exchange................. The Old Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant
to Rule 144A or Rule 144 under the Securities
Act or pursuant to some other exemption under
the Securities Act, (iii) outside the United
States to a non-U.S. person pursuant to the
requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective
registration statement under the Securities
Act. See "The Exchange Offer -- Consequences of
Failure to Exchange."
Shelf Registration
Statement..................... In the event that changes in the law or the
applicable interpretations of the staff of the
Commission do not permit the Company to effect
the Exchange Offer, or if for any other reason
the Exchange Offer is not consummated within
180 days of the date of the original issuance
of the Old Notes, the Company and the
Guarantors will (i) as promptly as possible,
file a shelf registration statement (the "Shelf
Registration Statement") covering resales of
the Old Notes, (ii) use their respective best
efforts to cause the Shelf Registration
Statement to be declared effective under the
Securities Act and (iii) use their respective
best efforts to keep effective the Shelf
Registration Statement until three years after
its effective date. A holder of the Old Notes
that sells such Old Notes pursuant to the Shelf
Registration Statement generally would be
required to be named as a selling security
holder in the related prospectus and to deliver
a prospectus to purchasers, will be subject to
certain of the civil liability provisions under
the Securities Act in connection with such
sales and will be bound by the provisions of
the Registration Rights Agreement which are
applicable to such a holder (including certain
indemnification obligations).
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to
14
<PAGE> 18
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. The Company will keep the
Exchange Offer open for not less than twenty
days in order to provide for the transfer of
registered ownership.
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes....... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer."
Federal Income Tax
Consequences.................. The exchange of Old Notes for New Notes by
tendering holders will not be a taxable
exchange for federal income tax purposes, and
such holders will not recognize any taxable
gain or loss or any interest income as a result
of such exchange. However, the Company is not
providing a tax opinion to holders of the Notes
and recommends that each holder consult such
holder's own tax adviser. See "Certain U.S.
Federal Income Tax Considerations."
Use of Proceeds............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent................ Marine Midland Bank.
THE NEW NOTES
General....................... The form and terms of the New Notes are the
same as the form and terms of the Old Notes
(which they replace) except that (i) the New
Notes bear a Series B designation, (ii) the New
Notes have been registered under the Securities
Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the
holders of New Notes will not be entitled to
certain rights under the Registration Rights
Agreement, including the provisions providing
for an increase in the interest rate on the Old
Notes in certain circumstances relating to the
timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is
consummated. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer." The New
Notes will evidence the same debt as
15
<PAGE> 19
the Old Notes and will be entitled to the
benefits of the Indenture. At May 1, 1998,
$116.0 million of the Company's 12 1/2% Series
B Senior Notes due 2007 (the "Outstanding
Series B Notes") were outstanding. The New
Notes will be identical in all respects (other
than issue dates) to the Outstanding Series B
Notes, which were issued by the Company under
the Indenture in August 1997 in an aggregate
principal amount of $116.0 million in exchange
for the Company's 12 1/2% senior notes issued
pursuant to the 1997 Offering (as defined
herein). The New Notes will bear the same CUSIP
number as the Outstanding Series B Notes. See
"Description of the Notes." The Old Notes, the
New Notes and the Outstanding Series B Notes
are referred to collectively herein as the
"Notes."
Issuer........................ Booth Creek Ski Holdings, Inc.
Securities Offered............ $17,500,000 principal amount of 12 1/2% Series
B Senior Notes due 2007.
The Indenture provides for the issuance of
additional series of Notes in aggregate
principal amounts of not less than $15.0
million per series, subject to compliance with
the covenant regarding incurrence of additional
indebtedness and provided that no Default (as
defined) or Event of Default (as defined)
exists under the Indenture at the time of
issuance or would result therefrom and that the
aggregate principal amount of Notes issued
under the Indenture does not exceed $200.0
million.
Maturity Date................. March 15, 2007.
Interest Payment Dates........ Interest will accrue on the New Notes from the
date of issuance (the "Issue Date") and will be
payable semi-annually on each March 15 and
September 15, commencing September 15, 1998.
Ranking....................... The New Notes will be general senior unsecured
obligations of the Company ranking pari passu
in right of payment with all other existing and
future senior indebtedness of the Company and
senior to any subordinated indebtedness of the
Company. The New Notes will be effectively
subordinated to all secured indebtedness of the
Company and the Guarantors, including
indebtedness under the Senior Credit Facility.
In addition, the New Notes will be structurally
subordinated to any indebtedness of the
Company's subsidiaries that are not Guarantors.
At May 1, 1998, Booth Creek and the Guarantors
had approximately $12.1 million of senior
indebtedness outstanding (other than the Notes
and the Guarantees) and borrowing availability
of $18.6 million under the Senior Credit
Facility. See "Description of Certain
Indebtedness -- Senior Credit Facility."
Guarantees.................... The New Notes will be unconditionally
guaranteed, on an unsecured senior basis, as to
the payment of principal, premium, if any, and
interest, jointly and severally (the
"Guarantees") by the Guarantors. As of the
Issue Date, all of the Company's direct and
indirect subsidiaries will be Restricted
Subsidiaries, except the Real Estate LLC (as
defined). Each Guarantee will be effectively
16
<PAGE> 20
subordinated to all secured indebtedness of
such Guarantor. The Old Notes and the
Outstanding Series B Notes are also guaranteed,
on an unsecured senior basis, by the
Guarantors. See "Description of the
Notes -- Certain Covenants -- Limitation on
Creation of Subsidiaries" and "Description of
the Notes -- Guarantees."
Optional Redemption........... The Notes will be redeemable at the option of
the Company, in whole or in part, at any time
on or after March 15, 2002, at the redemption
prices set forth herein plus accrued interest
to the date of redemption. In addition, the
Company, at its option, may redeem in the
aggregate up to 30% of the original principal
amount of the Notes at any time and from time
to time prior to March 15, 2000 at a redemption
price equal to 112.5% of the principal amount
thereof plus accrued interest to the redemption
date with the Net Proceeds of one or more
Public Equity Offerings, provided that at least
$93.5 million aggregate principal amount of
Notes originally issued remain outstanding
immediately after the occurrence of any such
redemption and that any such redemption occurs
within 90 days following the closing of any
such Public Equity Offering.
Change of Control............. In the event of a Change of Control, holders of
the Notes will have the right to require the
Company to repurchase their Notes at 101% of
the aggregate principal amount thereof plus
accrued and unpaid interest to the repurchase
date. See "Description of the Notes -- Change
of Control Offer." There can be no assurance
that the Company will have sufficient funds
available to finance such a repurchase
triggered by a Change of Control. In addition,
upon a Change of Control, the Indenture would
require the Company, before repurchase of the
Notes, to (i) repay in full all obligations
under or in respect of the Senior Credit
Facility (as defined herein) or offer to repay
in full all such obligations and repay such
obligations of each lender who has accepted
such offer or (ii) obtain the requisite consent
under the Senior Credit Facility to permit the
repurchase of the Notes as described above.
There can be no assurance that the Company will
have sufficient funds available to finance such
repayments under the Senior Credit Facility or,
alternatively, obtain the requisite consent.
See "Risk Factors -- Change of Control."
Asset Sale Proceeds........... The Company will be obligated in certain
instances to make offers to repurchase the
Notes at a purchase price in cash equal to 100%
of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase
with the net cash proceeds of certain asset
sales. See "Description of the Notes -- Certain
Covenants -- Limitation on Certain Asset
Sales."
Certain Covenants............. The Indenture contains covenants for the
benefit of the holders of the Notes that, among
other things, restrict the ability of the
Company and any Restricted Subsidiaries (as
defined) to: (i) incur additional Indebtedness;
(ii) pay dividends and make distributions;
(iii) issue stock of subsidiaries; (iv) make
certain investments; (v) repurchase stock; (vi)
create liens; (vii) enter into transactions
with affiliates; (viii) enter into sale and
leaseback transactions; (ix) create dividend or
other payment restrictions affecting Restricted
Subsidiaries; (x) merge or consolidate the
17
<PAGE> 21
Company or any Guarantors; and (xi) transfer
and sell assets. These covenants are subject to
a number of important exceptions. See
"Description of the Notes -- Certain
Covenants."
Registration Rights........... Pursuant to the Registration Rights Agreement,
the Company and the Guarantors agreed to use
their best efforts to file within 30 days, and
cause to become effective within 120 days, of
the Old Notes Issue Date an Exchange Offer
Registration Statement with respect to an offer
to exchange the Old Notes for New Notes of the
Company with terms substantially identical to
the Old Notes. In addition, under certain
circumstances the Company may be required to
file a Shelf Registration Statement. Among
other provisions, in the event that (i) the
Exchange Offer Registration Statement or Shelf
Registration Statement has not been filed with
the Commission within 30 days after the Old
Notes Issue Date; (ii) the Exchange Offer
Registration Statement or Shelf Registration
Statement is not declared effective within 120
days after the Old Notes Issue Date; or (iii)
either (A) the Company has not exchanged the
Old Notes for all New Notes validly tendered in
accordance with the terms of the Exchange Offer
on or prior to 60 days after the date on which
the Exchange Offer Registration Statement was
declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective
at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the
Shelf Registration Statement has been declared
effective and such Shelf Registration Statement
ceases to be effective at any time prior to the
second anniversary of its effective date (each
such event referred to in clauses (i) through
(iii) above is a "Registration Default"), the
sole remedy available to holders of the Old
Notes will be the immediate accrual of
additional interest ("Additional Interest") as
follows: the per annum interest rate on the Old
Notes will increase by .50%, during the first
90-day period the Registration Default exists
and is not waived or cured; and the per annum
interest rate will increase by an additional
.25% for each subsequent 90-day period during
which the Registration Default remains uncured,
up to a maximum additional interest rate of
2.0% per year in excess of the interest rate
set forth on the cover page hereof. All
Additional Interest will be payable to holders
of the Old Notes in cash on each March 15 and
September 15, commencing with the first such
date occurring after any such Additional
Interest commences to accrue, and continuing
until such Registration Default is cured. After
the date on which such Registration Default is
cured, the interest rate on the Old Notes will
revert to the interest rate originally borne by
the Old Notes. See "The Exchange Offer."
RISK FACTORS
Before tendering their Old Notes for the New Notes offered hereby, holders
of the Old Notes should consider carefully the information set forth under the
caption "Risk Factors," and all other information set forth in this Prospectus.
18
<PAGE> 22
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
The summary financial data presented below should be read in conjunction
with the combined financial statements of the Fibreboard Resort Group and the
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The summary combined
financial data (except for the other financial and operating data) of the
Fibreboard Resort Group (i) as of December 31, 1993 have been derived from the
unaudited combined financial statements of the Fibreboard Resort Group, (ii) for
the year ended December 31, 1993 and as of and for the years ended December 31,
1994 and 1995 and as of and for the ten months ended October 31, 1996 have been
derived from the audited combined financial statements of the Fibreboard Resort
Group, which have been audited by Arthur Andersen LLP, independent accountants,
(iii) for the ten months ended October 31, 1995 have been derived from the
unaudited combined financial statements of the Fibreboard Resort Group and (iv)
for the period from November 1, 1996 to December 2, 1996 have been derived from
the audited combined financial statements of the Fibreboard Resort Group, which
have been audited by Ernst & Young LLP, independent auditors. The summary
consolidated financial data (except for the other financial and operating data)
of the Company (i) as of and for the year ended October 31, 1997 have been
derived from the audited consolidated financial statements of the Company, which
have been audited by Ernst & Young LLP, independent auditors and (ii) as of and
for the six months ended May 2, 1997 and May 1, 1998 have been derived from the
unaudited consolidated financial statements of the Company. The interim
financial data of the Company presented below is unaudited, but includes all
adjustments (consisting only of normal, recurring adjustments) which, in the
opinion of management of the Company, are considered necessary for a fair
presentation of the Company's financial position and results of operations for
the periods presented. Due to the highly seasonal nature of the Company's
business and the effect of the Company's acquisitions, the results for the
interim periods are not necessarily indicative of results for the entire year.
Management believes that the disclosures made are adequate to make the
information presented not misleading. The Company was formed in October 1996 and
had no operations until its acquisition of seven ski resort complexes during the
first six months of fiscal 1997. The summary pro forma data presented below
should be read in conjunction with the information contained in "Pro Forma
Financial Information."
The other financial and operating data presented below includes information
on "EBITDA" and "EBITDA margin." "EBITDA" represents income from operations
before depreciation, depletion and amortization expense and the non-cash cost of
real estate sales. "EBITDA margin" is EBITDA divided by total revenue. Although
EBITDA is not a measure of performance under United States generally accepted
accounting principles ("GAAP"), the term is presented because management
believes it provides useful information regarding a company's ability to incur
and service debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other income
or cash flow statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. In addition, "EBITDA" and "EBITDA margin" as
determined by the Company may not be comparable to related or similar measures
as reported by other companies and do not represent funds available for
discretionary use.
<TABLE>
<CAPTION>
FIBREBOARD RESORT GROUP
------------------------------------------------------------------------
PERIOD FROM
10 MONTHS 10 MONTHS NOVEMBER 1,
YEAR ENDED DECEMBER 31, ENDED ENDED 1996 TO
------------------------------ OCTOBER 31, OCTOBER 31, DECEMBER 2,
1993(a) 1994(b) 1995(c) 1995(c) 1996(d) 1996(d)
-------- -------- -------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations.................................... $ 25,528 $ 40,810 $ 39,823 $ 32,072 $ 36,829 $ 1,395
Real Estate and Other................................ -- 610 5,213 4,659 4,288 304
-------- -------- -------- -------- -------- -------
25,528 41,420 45,036 36,731 41,117 1,699
Operating Expenses:
Cost of Sales -- Resort Operations................... 15,603 23,471 24,545 18,547 22,596 2,884
Cost of Sales -- Real Estate and Other............... -- 280 1,989 1,780 2,142 161
Depreciation, Depletion and Amortization............. 2,514 3,449 4,024 2,989 4,354 6
Selling, General and Administrative.................. 4,579 5,545 5,871 4,399 5,220 1,766
Management Fees and Corporate Expenses............... 507 655 1,247 513 701 70
-------- -------- -------- -------- -------- -------
Operating Income (Loss)................................ 2,325 8,020 7,360 8,503 6,104 (3,188)
Interest (Income) Expense, (net)....................... 186 666 821 334 1,189 206
-------- -------- -------- -------- -------- -------
Pre-tax Income (Loss).................................. 2,139 7,354 6,539 8,169 4,915 (3,394)
Income Taxes (Benefit)................................. 876 2,979 2,624 3,308 2,018 (1,358)
-------- -------- -------- -------- -------- -------
Net Income (Loss).............................. $ 1,263 $ 4,375 $ 3,915 $ 4,861 $ 2,897 $(2,036)
======== ======== ======== ======== ======== =======
OTHER FINANCIAL AND OPERATING DATA:
Skier Days............................................. 436,153 837,179 784,964 626,500 706,075 30,818
Revenue per Skier Day (i).............................. $ 58.53 $ 48.75 $ 50.73 $ 51.19 $ 52.16 $ 45.27
Non-cash Cost of Real Estate and Other (j)............. $ -- $ -- $ 1,618 $ 1,488 $ 1,461 $ 133
Capital Expenditures Excluding Acquisitions and Real
Estate and Other..................................... $ 4,619 $ 6,199 $ 5,226 $ 3,786 $ 5,761 $ 5,587
Net cash provided by (used in):
Operating activities................................. $ 4,212 $ 9,482 $ 7,861 $ 7,506 $ 4,923 $ 5,769
Investing activities................................. (18,336) (6,287) (29,430) (28,321) (8,467) (6,151)
Financing activities................................. 9,027 (2,664) 26,071 18,059 (2,778) 1,115
EBITDA................................................. $ 4,839 $ 11,469 $ 13,002 $ 12,980 $ 11,919 $(3,049)
EBITDA Margin.......................................... 19.0% 27.7% 28.9% 35.3% 29.0% (179.5)%
</TABLE>
(see accompanying footnotes)
19
<PAGE> 23
SUMMARY FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
COMPANY
---------------------------------------------------------------------
HISTORICAL UNAUDITED PRO FORMA(G)
------------------------------------- -----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED
OCTOBER 31, MAY 2, MAY 1, OCTOBER 31, MAY 1,
1997(E) 1997(E) 1998(F) 1997 1998
----------- ---------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations........................... $ 68,136 $ 60,469 $ 87,848 $ 93,850 $ 98,487
Real Estate and Other....................... 3,671 450 -- 3,975 --
--------- --------- --------- --------- ---------
71,807 60,919 87,848 97,825 98,487
Operating Expenses:
Cost of Sales -- Resort Operations.......... 44,624 36,105 48,571 82,999(h) 65,018(h)
Cost of Sales -- Real Estate and Other...... 2,799 378 -- 2,960 --
Depreciation, Depletion and Amortization.... 11,681 5,124 7,758 15,795 8,552
Selling, General and Administrative......... 11,048 6,518 8,490 -- --
Management Fees and Corporate Expenses...... 2,671 827 1,764 -- --
--------- --------- --------- --------- ---------
Operating Income (Loss)....................... (1,016) 11,967 21,265 (3,929) 24,917
Interest Expense, net......................... 14,912 6,304 8,951 18,759 9,756
--------- --------- --------- --------- ---------
Pre-tax Income (Loss)......................... (15,928) 5,663 12,314 (22,688) 15,161
Income Taxes (Benefit)........................ (1,728) 1,416 -- (1,728) --
--------- --------- --------- --------- ---------
Income (Loss) Before Minority Interest and
Extraordinary Item.......................... (14,200) 4,247 12,314 (20,960) 15,161
Minority Interest............................. 229 87 138 281 138
--------- --------- --------- --------- ---------
Income (Loss) Before Extraordinary Item....... (14,429) 4,160 12,176 (21,241) 15,023
Extraordinary Loss on Early Retirement of
Debt........................................ (2,664) (1,998) -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss)................... $ (17,093) $ 2,162 $ 12,176 $ (21,241) $ 15,023
========= ========= ========= ========= =========
OTHER FINANCIAL AND OPERATING DATA:
Skier Days.................................... 1,565,917 1,565,917 2,178,726 2,186,196 2,435,122
Revenue per Skier Day(i)...................... $ 43.51 $ 38.62 $ 40.32 $ 42.93 $ 40.44
Non-cash Cost of Real Estate and Other(j)..... $ 2,237 $ 349 $ -- $ 2,370 $ --
Capital Expenditures Excluding Acquisitions
and Real Estate and Other................... $ 9,459 $ 2,416 $ 6,438 $ 20,075 $ 7,659
Net cash provided by (used in):
Operating activities........................ $ 1,552 $ 13,621 $ 22,384 NA NA
Investing activities........................ (152,685) (144,620) (35,810) NA NA
Financing activities........................ 151,595 139,715 15,215 NA NA
Ratio of Earnings to Fixed Charges(k)......... -- 1.75 2.26 -- 2.43
EBITDA........................................ $ 12,902 $ 17,440 $ 29,023 $ 14,236 $ 33,469
EBITDA Margin................................. 18.0% 28.6% 33.0% 14.6% 34.0%
</TABLE>
(see footnotes on following page)
20
<PAGE> 24
<TABLE>
<CAPTION>
FIBREBOARD RESORT GROUP COMPANY
----------------------------------------------------- ----------------------
AS OF DECEMBER 31, AS OF OCTOBER 31, AS OF AS OF
---------------------------- ---------------------- OCTOBER 31, MAY 1,
1993(a) 1994(b) 1995(c) 1995(c) 1996(d) 1997(e) 1998(f)
------- ------- ------- ------- ------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit).................... $(3,271) $(6,555) $(35,980) $(36,123) $(36,187) $(26,634) $(19,926)
Total Assets................................. 39,618 43,065 73,316 64,125 69,602 186,416 219,870
Total Debt................................... 15,743 15,422 41,493 33,487 38,715 136,327 145,588
Preferred Stock of Subsidiary (l)............ -- -- -- -- -- 3,354 2,889
Common Stockholders' Equity/Net Assets....... 17,826 19,752 23,667 24,606 26,564 29,407 52,083
</TABLE>
NOTES TO SUMMARY FINANCIAL DATA
The selection of a December 31 year end by the Fibreboard Resort Group does
not result in the presentation of the results of the California Resorts for a
single ski season. Accordingly, as the results of a single ski season are split
into two reporting periods, differing trends may develop, as compared to results
of operations for other resorts consisting of a single ski season, which should
be evaluated by an investor.
As the results of operations of ski resorts are highly seasonal, with the
majority of revenue generated in the period from November through April, the
results of operations of the Fibreboard Resort Group for the 10 months ended
October 31, 1996 and 1995 and the period from November 1, 1996 to December 2,
1996 are not representative and should not be annualized in determining the
level of operating results for a full fiscal period.
(a) Includes the financial results of Northstar for the entire period and of
Sierra for the period beginning June 11, 1993, the date on which it was
acquired by Fibreboard Corporation.
(b) Includes the financial results of Northstar and Sierra for the entire
period.
(c) Includes the financial results of Northstar and Sierra for the entire period
and of Bear Mountain for the period beginning October 23, 1995, the date on
which it was acquired by Fibreboard Corporation.
(d) Includes the financial results of Northstar, Sierra and Bear Mountain for
the entire period.
(e) Includes the financial results of Waterville Valley and Mt. Cranmore from
November 27, 1996, Northstar, Sierra and Bear Mountain from December 3,
1996, the Summit from January 15, 1997, and, as of and for the year ended
October 31, 1997, Grand Targhee from March 18, 1997, the respective dates of
acquisition of each resort by the Company.
(f) Includes the financial results of Waterville Valley, Mt. Cranmore,
Northstar, Sierra, Bear Mountain, the Summit and Grand Targhee for the
entire period and Loon Mountain for the period subsequent to February 26,
1998.
(g) Pro forma statement of operations and other financial and operating data for
the year ended October 31, 1997 and the six months ended May 1, 1998 give
effect to the Loon Mountain Transactions and the Historical Transactions as
if they had occurred on November 1, 1996.
(h) The historical financial presentations for the Fibreboard Resort Group,
Waterville Valley, Mt. Cranmore, Ski Lifts, Inc., Grand Targhee Incorporated
and Loon Mountain Recreation Corporation are inconsistent in categorizing
cost of sales -- resort operations, selling, general and administrative
expenses and management fees and corporate expenses. For presentation
purposes in this Prospectus, all operating expenses, excluding depreciation,
depletion and amortization, have been aggregated as cost of sales -- resort
operations.
(i) Reflects revenues from resort operations divided by skier days.
(j) Non-cash cost of real estate sales represents the allocated portion of real
estate development expenditures previously capitalized (including
acquisition costs allocated to real estate development) which relate to
current year real estate sales.
(k) For purposes of this computation, earnings are defined as pretax income
(loss) and fixed charges excluding the Ski Lifts Preferred Stock dividend
requirement. Fixed charges are the sum of (i) interest costs (including the
interest portion of operating leases), (ii) amortization of deferred
financing costs and (iii) the Ski Lifts Preferred Stock dividend
requirement. Earnings were inadequate to cover fixed charges by
approximately $16.2 million, and $23.0 million for the historical audited
and unaudited pro forma year ended October 31, 1997, respectively.
(l) Represents preferred stock of a subsidiary of the Company which is subject
to mandatory redemption requirements but which is non-recourse to the
Company or its Restricted Subsidiaries.
21
<PAGE> 25
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for the New Notes offered hereby, holders of the Old
Notes should consider carefully the following factors, which may be generally
applicable to the Old Notes as well as the New Notes.
HIGH LEVEL OF INDEBTEDNESS AND LEVERAGE
The Company is highly leveraged. At May 1, 1998, the Company's total
indebtedness (including current maturities) was approximately $145.6 million,
including $5.7 million of indebtedness of the Guarantors, and debt as a
percentage of total capitalization was 73%. In addition, for the year ended
October 31, 1997, after giving pro forma effect to the Loon Mountain
Transactions and the Historical Transactions, the Company's pro forma EBITDA
would have been $14.2 million, pro forma net loss would have been $(21.2)
million and pro forma interest expense would have been $18.8 million (including
amortization of deferred financing costs of $971,000). The Company's ability to
make scheduled payments of the principal of, or interest on, or to refinance its
indebtedness (including the New Notes and the Outstanding Series B Notes)
depends on its future performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. FOR THE
YEAR ENDED OCTOBER 31, 1997, AFTER GIVING PRO FORMA EFFECT TO THE LOON MOUNTAIN
TRANSACTIONS AND THE HISTORICAL TRANSACTIONS, EARNINGS WOULD HAVE BEEN
INADEQUATE TO COVER FIXED CHARGES BY $23.0 MILLION. THERE CAN BE NO ASSURANCE
THAT THE COMPANY WILL NOT GENERATE NET LOSSES IN THE FUTURE. Continued net
losses could have an adverse effect on the market value and marketability of the
Notes. In addition, assuming compliance with applicable law and the satisfaction
of the covenants contained in the Company's debt agreements, Parent may cause
the Company to pay dividends and distributions of the Company's available cash
flow to Parent in connection with, among other things, Parent's obligations
under the Parent Financing Debt (as defined). See "Certain Transactions -- The
Financing Transactions."
The Company believes that its cash flow from operations, together with
borrowings under the Senior Credit Facility, will be adequate to meet its
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments over the next twelve months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." However, any decline in the
Company's expected operating performance could have a material adverse effect on
the Company's liquidity and on its ability to service its debt and make required
capital expenditures. There can be no assurance that the Company's business will
generate cash flow at or above expected levels. If the Company is unable to
generate sufficient cash flow from operations in the future to service its debt
and make necessary capital expenditures, or if its future earnings are
insufficient to make all required principal or interest payments out of
internally generated funds, the Company may be required to refinance all or a
portion of its existing debt, sell assets or obtain additional financing. There
can be no assurance that any such refinancing or asset sales would be possible
or that any additional financing could be obtained on terms acceptable to the
Company or at all, particularly in view of the Company's high level of debt.
Borrowings under the Senior Credit Facility bear interest based on a
variable interest rate, which was 8.5% at May 1, 1998. See "Description of
Certain Indebtedness." The Senior Credit Facility is the Company's primary
source of borrowing availability for its liquidity needs. As a result,
fluctuations in interest rates could have a significant impact on the Company's
results of operations and liquidity. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity."
The Company's high level of debt will have several important effects on its
future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
operations, expansions and improvements and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
financial covenants and other restrictions contained in the Senior Credit
Facility, the Indenture and other agreements relating to the Company's
indebtedness require the Company to meet certain financial tests and restrict
its ability to borrow additional funds and to dispose of assets; and (c) because
of the Company's debt service requirements, funds available for working capital,
capital expenditures, acquisitions and general corporate purposes may be
limited. The Company's leveraged
22
<PAGE> 26
position may increase its vulnerability to competitive pressures and the
seasonality of the skiing and recreational industries. In addition, although
management believes that capital expenditures above maintenance levels can be
deferred to address cash flow or other constraints, such initiatives cannot be
deferred for extended periods without adverse effects on skier days, revenues
and profitability. The Company's continued growth depends, in part, on its
ability to maintain its facilities, and, therefore, to the extent it is unable
to do so with internally generated cash, its inability to finance capital
expenditures through borrowed funds could have a material adverse effect on the
Company's future operations.
FINANCIAL PERFORMANCE
For the year ended October 31, 1997, after giving pro forma effect to the
Loon Mountain Transactions and the Historical Transactions as if they had
occurred on November 1, 1996, the Company would have incurred a net loss of
$21.2 million, primarily as a result of increased depreciation, depletion and
amortization related to the Acquisitions and increased interest expense related
to the financing of the Acquisitions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General". There can be no
assurance that the Company's results of operations will improve in future
periods.
HOLDING COMPANY STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
All of the Company's operating income will be generated by its
subsidiaries. As a result, the Company will be dependent on the earnings and
cash flow of, and dividends and distributions or advances from, its subsidiaries
to provide the funds necessary to meet its debt service obligations, including
the payment of principal of and interest on the Notes. In particular, the
Company is heavily dependent upon the earnings of Northstar, which accounted for
approximately 33% of the Company's pro forma revenues for the year ended October
31, 1997. There can be no assurance that the Company's subsidiaries will
generate sufficient cash flow to dividend, distribute or advance funds to the
Company. Should the Company fail to satisfy any payment obligation under the
Notes, the holders thereof would have a direct claim therefor against the
Guarantors pursuant to the Guarantees. However, the Guarantees will be
effectively subordinated in right of payment to all secured indebtedness of the
Guarantors, including the obligations of the Guarantors under the Senior Credit
Facility. Substantially all of the assets of the Guarantors will be pledged to
secure the obligations of the Company and such Guarantors under the Senior
Credit Facility. The Indenture will limit, but not prohibit, the ability of the
Company and its Restricted Subsidiaries to incur additional senior or secured
indebtedness. In the event of a default under the Senior Credit Facility (or any
other secured indebtedness), the lenders thereunder would be entitled to a claim
on the assets securing such indebtedness which is prior to any claim of the
holders of the Notes. Accordingly, there may be insufficient assets remaining
after payment of prior secured claims (including claims of lenders under the
Senior Credit Facility) to pay amounts due on the Notes. See "-- High Level of
Indebtedness and Leverage" and "-- Effective Subordination of the Notes."
EFFECTIVE SUBORDINATION OF THE NEW NOTES
The New Notes and the Guarantees will be general senior unsecured
obligations of the Company and the Guarantors, respectively, and will be
effectively subordinated in right of payment to all secured indebtedness of the
Company and the Guarantors, respectively, including indebtedness under the
Senior Credit Facility. In addition, the New Notes will be structurally
subordinated to any indebtedness of the Company's subsidiaries that are not
Guarantors. At May 1, 1998, the Company and the Guarantors had an aggregate of
$6.4 million outstanding under the Senior Credit Facility, to which the New
Notes would have been effectively subordinated in right of payment. The
Indenture will limit, but not prohibit, the ability of the Company and its
Restricted Subsidiaries to incur additional secured indebtedness.
RESTRICTIONS UNDER DEBT AGREEMENTS
The Indenture contains covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries to incur additional
indebtedness, incur liens, pay dividends and make certain other restricted
payments, make investments, consummate certain asset sales, enter into certain
transactions with
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affiliates, issue subsidiary stock, create dividend or other payment
restrictions affecting Restricted Subsidiaries, consolidate or merge with any
other person or transfer all or substantially all of the assets of the Company.
In addition, the Senior Credit Facility contains restrictive covenants
which, generally, are more restrictive than those contained in the Indenture,
and limit the ability of the Company and its subsidiaries to prepay their
indebtedness (including the Notes and obligations under the Guarantees). The
Senior Credit Facility also requires the Company to maintain specified
consolidated financial ratios and satisfy certain consolidated financial tests.
The Company's ability to meet those financial ratios and financial tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those ratios and tests. A breach of any of the covenants under
the Senior Credit Facility or the Indenture could result in a default under the
Senior Credit Facility and/or the Indenture. If an event of default occurs under
the Senior Credit Facility, the lenders could elect to declare all amounts
outstanding thereunder, together with accrued interest, to be immediately due
and payable. If the Company is unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that indebtedness. The
capital stock of the Company's principal subsidiaries, as well as substantially
all of the Company's consolidated assets, are pledged to secure the Senior
Credit Facility. See "Description of the Notes" and "Description of Certain
Indebtedness -- Senior Credit Facility."
REGIONAL AND NATIONAL ECONOMIC CONDITIONS
The skiing industry is seasonal in nature, and is particularly vulnerable
to shifts in regional and national economic conditions. A significant portion of
the Company's guests reside in California, Washington and the New England states
and, therefore, the Company is particularly vulnerable to changes in the
economies of these regions. Skiing is a discretionary recreational activity
entailing relatively high costs of participation, and a worsening in the
regional economy, or deteriorating national economic conditions, could adversely
impact skier days and the Company's real estate and other revenues. Accordingly,
the Company's financial condition, particularly in light of its highly leveraged
condition, could be adversely affected by such a worsening in regional or
national economies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON WEATHER CONDITIONS; SEASONALITY
Although several of the Company's facilities include high quality
snowmaking equipment, its revenues and operating expenses continue to be heavily
influenced by weather conditions, particularly during key holiday periods and
weekends. Adverse weather conditions lead to increased power and other operating
costs associated with snowmaking, and can render snowmaking wholly or partially
ineffective in maintaining quality skiing conditions. Moreover, it has been
management's experience that, despite the presence of high quality snow on the
mountains, unfavorable weather conditions in more highly populated areas can
result in decreased skier days. Prolonged adverse weather conditions, or the
occurrence of such conditions during key periods of the ski season, can
dramatically and adversely affect operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General." In addition, the Company's revenues are highly seasonal in nature,
with the vast majority of its revenues historically being generated in the
Company's first and second quarters. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Seasonality." This high
degree of seasonality of revenues exacerbates the potential effect on operating
results of adverse weather and other developments of even moderate or limited
duration.
COMPETITION
The skiing industry is highly competitive and is characterized by
relatively high fixed operating expenses and heavy dependence upon marginal
revenues and maintenance or improvement of skier day levels. The Company's
competitors include other major ski resorts in the western and northeastern
United States for skiers and snowboarders in those regional ski markets and
destination ski resorts throughout North America for its vacation business. The
Company also competes with other non-ski-oriented resorts. See "Business --
Competition." The Company believes that competition for skiers focuses on snow
conditions, size, quality and variety of terrain, the extent and quality of
other facilities, quality of service, location and accessibility, and price.
While the
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Company regularly monitors the activities of its principal competitors and
modifies its marketing and operational strategies and techniques as necessary,
there can be no assurance that its competitors will not be successful in
capturing a material portion of the Company's present or potential customer
base. Some of the Company's competitors have greater financial resources than
the Company and could use these resources to take steps which could adversely
affect the Company's competitive position. Such competitors may also be better
positioned than the Company to withstand downturns in the skiing industry,
adverse weather conditions, price and other forms of competition, and other
negative developments. See "Business -- Competition."
RISKS OF EXPANSION
An element of the Company's business strategy is the development of new
skiable terrain, recreational facilities and residential and commercial real
estate at its ski resorts. See "Business -- Real Estate Development." Such
efforts will be dependent upon, among other things, receipt of adequate
financing on suitable terms and obtaining and maintaining the requisite permits
and licenses. There can be no assurance as to whether, when or on what terms
such financing, permits and licenses may be obtained. 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 acts of
God, any of which could delay construction and result in a substantial increase
in cost to the Company. See "Business -- Real Estate Development" and
"Business -- Regulatory Matters." The Company may also grow through
acquisitions; however, there can be no assurance that attractive acquisition
candidates will be identified, or that any such acquisitions will be completed
on terms acceptable to the Company, that necessary financing will be available
on suitable terms, if at all, or that such acquisitions will be permitted under
applicable antitrust laws. In addition, no assurances can be given that the
Company will be able to fully implement its business strategy with respect to
acquired companies or achieve expected operating synergies or cost savings. See
"-- High Level of Indebtedness and Leverage."
RISK ASSOCIATED WITH LEASED PROPERTY AND PROPERTY USED PURSUANT TO PERMITS
Portions of the land underlying certain of the Company's ski resorts are
used pursuant to permits or licenses from governmental and private entities. If
any such permit or license were to be terminated as a result of a default by the
user thereunder or not renewed upon expiration or otherwise revoked prior to
expiration, the Company would lose possession of the land subject thereto,
perhaps making it impossible for the Company to operate the affected resort.
Special use permits granted by the United States Forest Service (the "Forest
Service" or the "USFS") are subject to termination if the federal government
determines that the land is needed for a "higher public purpose." Such permits
are granted subject to third party claims to the permitted land, if any, and the
USFS reserves the right to use and permit others to use the permitted land so
long as such use does not materially interfere with the rights and privileges
authorized by the permits. For a description of such permits and licenses, see
"Business -- Regulation and Legislation." In addition, future expansion could
require amendment of the permits or licenses, which may involve additional
review under the federal National Environmental Policy Act (the "NEPA") or other
federal, state or local environmental laws and the imposition of additional
conditions and requirements.
REGULATORY MATTERS
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations designed to protect the environment. Management
believes that the Company's resorts have all permits, licenses and approvals
material to their operations and are presently in compliance with all material
land use and environmental laws and regulations. However, failure to comply with
such laws and regulations could result in the imposition of severe penalties and
other costs or restrictions on operations by government agencies or courts that
could adversely affect operations. The restrictions imposed by or enforcement of
environmental laws and regulations may change from time to time, and there can
be no assurance that such changes will not occur in a manner that will cause a
detrimental effect to the Company, that material permits, licenses or agreements
will not be canceled, non-renewed, or renewed on terms materially less favorable
to the Company, or that necessary new permits and approvals will be obtained.
See "Business -- Regulation and Legislation"
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and "Business -- Regulatory Matters." Certain facilities at Loon Mountain are
subject to ongoing proceedings which may adversely affect Loon Mountain's
operations. See "Business -- Legal Proceedings."
ADEQUACY OF WATER SUPPLY
The Company's operations are heavily dependent upon its continued ability,
under applicable laws, regulations, policies, permits, licenses, or contractual
arrangements, including leases, reservations in deeds, easements and
rights-of-way, 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 could have an adverse effect on the Company, or that
important permits, licenses or agreements will not be canceled, non-renewed, or
renewed on terms materially less favorable to the Company. Additionally, the
rights of the Company to use various water sources on or about its properties
may be also subject to significant restrictions or the rights of other riparian
users and the public generally. See "Business -- Regulatory Matters" and
"Business -- Resort Operations." Waterville Valley's snowmaking equipment is
presently dependent on a single source of water that is inconsistent during the
winter months; construction of storage facilities to accumulate sufficient water
throughout the year will begin pending approval by governmental authorities. See
"-- Dependence on Weather Conditions; Seasonality" and "-- Risk Associated with
Leased Property and Property Used Pursuant to Permits." Loon Mountain's
snowmaking operations and proposed expansion onto South Mountain have been the
subject of litigation and regulatory proceedings for several years, which have
limited its use of South Mountain and of a major water source and lead to the
construction of a new pipeline and associated facilities. The pipeline and
facilities are also subject to pending litigation, further review by the Forest
Service and will necessitate future construction of storage facilities. See
"Business -- Legal Proceedings" and "Business -- Regulatory Matters."
CONTROLLING STOCKHOLDERS
George N. Gillett, Jr. beneficially owns all of the issued and outstanding
shares of voting stock of Parent and owns approximately 36% of the issued and
outstanding shares of capital stock of Parent on a fully-diluted basis. Mr.
Gillett also is Chairman of the Board of Directors and Chief Executive Officer
of the Company and Parent. By virtue of his stock ownership, management position
and pursuant to the Stockholders Agreement (as defined), Mr. Gillett will have
the power to control all matters submitted to stockholders of the Company and
Parent and to elect a majority of the directors of Parent and its subsidiaries.
John Hancock owns common stock and warrants of Parent representing approximately
58% of the issued and outstanding shares of capital stock of Parent on a
fully-diluted basis. Pursuant to the Stockholders Agreement, John Hancock is
entitled to designate two of the five members of Parent's Board of Directors.
See "Ownership and Control" and "Certain Transactions."
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all of the outstanding Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of repurchase. There can be no
assurance that the Company will have sufficient funds available to finance a
Change of Control Offer. In addition, upon a Change of Control, the Indenture
would require the Company, before repurchase of the Notes to (i) repay in full
all obligations under or in respect of the Senior Credit Facility or offer to
repay in full all obligations under or in respect of the Senior Credit Facility
and repay the obligations under or in respect of the Senior Credit Facility of
each lender who has accepted such offer or (ii) obtain the requisite consent
under the Senior Credit Facility to permit the repurchase of the Notes as
described above. See "Description of the Notes -- Change of Control Offer."
There can be no assurance that the Company will have sufficient funds available
to finance such repayments under the Senior Credit Facility or, alternatively,
obtain the requisite consent. The Company's inability to repay its obligations
or obtain the requisite consent under the Senior Credit Facility, and to
repurchase all of the tendered Notes, would constitute an event of default under
the Indenture.
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FRAUDULENT CONVEYANCE
The incurrence by the Company of indebtedness such as the Old Notes and the
New Notes may be subject to review under relevant state and federal fraudulent
conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of
unpaid creditors of the Company. Under these laws, if a court were to find that,
after giving effect to the sale of the Old Notes or the New Notes and the
application of the net proceeds therefrom, either (a) the Company incurred such
indebtedness with the intent of hindering, delaying or defrauding creditors or
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others or (b) the Company received less than
reasonably equivalent value or consideration for incurring such indebtedness and
(i) was insolvent or rendered insolvent by reason of such transaction, (ii) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, such court may subordinate such indebtedness to presently existing and
future indebtedness of the Company, avoid the issuance of such indebtedness and
direct the repayment of any amounts paid thereunder to the Company's creditors
or take other action detrimental to the holders of such indebtedness.
The Company's obligations under the Old Notes are, and the New Notes will
be, fully and unconditionally guaranteed by the Guarantors. The incurrence by a
Guarantor of a Guarantee may be subject to review under relevant state and
federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced
by or on behalf of unpaid creditors of such Guarantor. Under these laws, if a
court were to find that either (a) a Guarantee was incurred by a Guarantor with
the intent of hindering, delaying or defrauding creditors or such Guarantor
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others or (b) such Guarantor received less than
reasonably equivalent value or consideration for incurring such Guarantee and
(i) was insolvent or rendered insolvent by reason of such transaction, (ii) was
engaged in a business or transaction for which the assets remaining with such
Guarantor constituted unreasonably small capital or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, such court may subordinate such Guarantee to presently existing and
future indebtedness of such Guarantor, avoid the issuance of such Guarantee and
direct the repayment of any amounts paid thereunder to such Guarantor's
creditors or take other action detrimental to the holders of such Guarantee. A
legal challenge of a Guarantee on fraudulent conveyance grounds, may, among
other things, focus on the benefits, if any, realized by the Guarantor as a
result of the issuance by the Company of the Old Notes or the New Notes.
To the extent any Guarantee was avoided as a fraudulent conveyance or held
unenforceable for any other reason, holders of the applicable Notes would cease
to have any claim in respect of such Guarantor and would be creditors solely of
the Company and any Guarantor whose Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the applicable Notes
against the issuer of an invalid Guarantee would be subject to the prior payment
of all liabilities and preferred stock claims of such Guarantor. There can be no
assurance that, after providing for all prior claims and preferred stock
interests, if any, there would be sufficient assets to satisfy the claims of the
holders of the applicable Notes relating to any voided portions of any of the
Guarantees.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured. The
Company does not expect to obtain a solvency opinion in respect of the issuance
of the New Notes.
Based upon financial and other information currently available to it,
management of the Company believes that the indebtedness evidenced by the New
Notes and the Guarantees is being, and in the case of the Old Notes was,
incurred for proper purposes and in good faith and that at the time of the
issuance of the Old Notes, the New Notes and the Guarantees, the Company and
each Guarantor, as the case may be, was, in the
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case of the Old Notes, and will be, in the case of the New Notes, (i) neither
insolvent nor rendered insolvent thereby, (ii) in possession of sufficient
capital to run its business effectively and (iii) incurring debts within its
ability to pay as the same mature or become due. See "Management's Discussions
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." In reaching these conclusions, the Company has relied upon
various valuations and estimates of future cash flow that necessarily involve a
number of assumptions and choices of methodology. No assurance can be given,
however, that the assumptions and methodologies chosen by the Company would be
adopted by a court or that a court would concur with the Company's conclusions.
DEPENDENCE ON KEY PERSONNEL
The Company's business depends upon the efforts, abilities and expertise of
its executive officers and other key employees, including George N. Gillett, Jr.
If the Company were to lose the services of certain of these executive officers
or key employees, the Company's operating results could be adversely affected.
The Company has employment contracts with Timothy M. Petrick, Executive Vice
President of the Company, Timothy H. Beck, Executive Vice President, Planning
and President, Eastern Operations, and the general managers of Northstar, Sierra
and Grand Targhee. See "Management."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. The Initial Purchaser has
advised the Company that it currently makes a market in the Old Notes. However,
while the Old Notes are eligible for trading in PORTAL by "qualified
institutional buyers" as defined in Rule 144 under the Securities Act ("QIBs"),
there is no assurance as to the liquidity of any markets that may continue or
develop for the Old Notes, the ability of the holders of the Old Notes to sell
their Notes, or the price at which such holders may sell their Old Notes. The
Old Notes have not been registered under the Securities Act and will be subject
to restrictions on transferability to the extent that they are not exchanged for
New Notes by holders who are entitled to participate in the Exchange Offer. The
New Notes will constitute the same issue of securities as the Outstanding Series
B Notes. The Company has not listed and does not intend to list the Outstanding
Series B Notes and the New Notes on any national securities exchange or seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. The Initial Purchaser has advised the Company that
it currently makes a market in the Outstanding Series B Notes and will continue
to do so with the New Notes, but it is not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop or continue for the New Notes or as
to the liquidity of the trading market for the New Notes. If a trading market is
not maintained, holders of the New Notes may experience difficulty in reselling
the New Notes or may be unable to sell them at all. If a market for the New
Notes continues, any such market may be discontinued at any time.
If a public trading market continues for the New Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the New Notes may trade at a discount from their
principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of the Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general,
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the Old Notes may not be offered or sold, unless registered under the Securities
Act and applicable state securities laws, or pursuant to an exemption therefrom.
Except under certain limited circumstances, the Company does not intend to
register the Old Notes under the Securities Act. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Old Notes not so tendered
could be adversely affected. See "The Exchange Offer."
WAIVER OF DEFAULTS; MODIFICATIONS OF THE INDENTURE
Under the Indenture, holders of a majority in principal amount of the Notes
then outstanding have the right to waive existing defaults or compliance with
certain provisions of the Indenture or the Notes, and to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations specified in the Indenture. In addition, the
Indenture contains certain provisions permitting the Company, the Guarantors and
the Trustee, with the consent of at least a majority in principal amount of the
outstanding Notes, to modify or supplement the Indenture or the Notes.
Accordingly, a holder of the Notes could be adversely affected in certain
circumstances as a result of a waiver or a permitted modification of the
Indenture or the Notes without such holder's consent. See "Description of Notes
- --Modification of Indenture" and "Description of Notes -- Events of Default."
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THE TRANSACTIONS
THE HISTORICAL TRANSACTIONS
The Company was formed by a group of investors led by George N. Gillett,
Jr. in 1996 to acquire the New Hampshire Resorts and the California Resorts. The
New Hampshire Resorts, Waterville Valley and Mt. Cranmore, were acquired for
approximately $17.5 million (before giving effect to normal working capital
adjustments for current assets acquired and current liabilities assumed) and the
California Resorts, Northstar, Sierra and Bear Mountain, were acquired for
approximately $121.5 million (before giving effect to normal working capital
adjustments for current assets acquired and current liabilities assumed). The
Company financed the purchase of the New Hampshire Resorts and the California
Resorts with the proceeds from: (i) the Bridge Notes; (ii) Bridge Financing
Facilities; (iii) the issuance of the ASC Seller Note (as defined) and (iv) the
investment in the Company of $40.0 million of equity by Parent, which was funded
through the issuance by Parent of debt and equity securities to John Hancock and
affiliates of George N. Gillett, Jr. and the Initial Purchaser. The Summit was
purchased effective January 15, 1997 for an aggregate purchase price of
approximately $14.0 million, which included the assumption of approximately $3.6
million of indebtedness, the issuance by the Company of the Summit Seller Note
(as defined) in the amount of approximately $9.8 million, and other obligations
to the selling shareholders of approximately $600,000. Grand Targhee was
purchased on March 18, 1997 for an aggregate purchase price of approximately
$7.9 million. Pursuant to a Securities Purchase Agreement dated as of March 13,
1997, the Company sold its 12 1/2% senior notes pursuant to the 1997 Offering,
and an additional $6.0 million aggregate principal amount of such notes to the
Initial Purchaser on April 25, 1997 pursuant to the exercise of an option by the
Initial Purchaser. In addition, concurrently with the consummation of the 1997
Offering, the Senior Credit Facility, which initially provided borrowing
availability of up to $10.0 million, was amended to, among other things, provide
a total revolving credit commitment of $20.0 million. The notes sold pursuant to
the 1997 Offering were subsequently exchanged by the Company in August 1997 for
the Outstanding Series B Notes in a transaction registered under the Securities
Act. The Company used the proceeds from the 1997 Offering, together with
available cash on hand and an additional equity contribution of $6.5 million by
Parent, (i) to repay the Bridge Financing Facilities, the Summit Seller Note and
certain debt assumed in connection with the acquisition of the Summit, (ii) to
finance the purchase price for the acquisition of Grand Targhee and repay
certain assumed indebtedness in connection therewith, (iii) to pay fees and
expenses in connection with the 1997 Offering and the Senior Credit Facility and
(iv) for general corporate purposes. The acquisitions of the New Hampshire
Resorts, the California Resorts, the Summit and Grand Targhee and the Loon
Mountain Acquisition are sometimes collectively referred to herein as the
"Acquisitions." The foregoing transactions, except for the Loon Mountain
Acquisition, are hereinafter referred to collectively as the "Historical
Transactions."
THE LOON MOUNTAIN TRANSACTIONS
On February 26, 1998, the Company acquired LMRC, the owner and operator of
the Loon Mountain ski resort located in New Hampshire. The Loon Mountain
Acquisition was effected pursuant to an Agreement and Plan of Merger, dated
September 18, 1997, as amended as of December 22, 1997 (the "Merger Agreement"),
by and among the Company as assignee of Parent, LMRC Acquisition Corp. and LMRC
pursuant to which LMRC Acquisition Corp. merged into LMRC, with LMRC remaining
as the surviving entity. The aggregate net purchase price for the Loon Mountain
Acquisition was approximately $29.9 million (including the assumption of debt
which was repaid in connection with the Loon Mountain Acquisition and
acquisition costs.) The Loon Mountain Acquisition was financed through (i)
proceeds from the Initial Offering, (ii) the Equity Financing and (iii)
available cash on hand and borrowings under the Senior Credit Facility.
The Merger Agreement contains representations and warranties typical of
agreements of a like nature, and the representations and warranties of LMRC
generally will expire 15 months following the Merger closing date except that
(i) those relating to environmental matters survive until 30 months following
the Merger Closing Date, (ii) those relating to tax matters generally survive
until the expiration of the applicable statute
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of limitations period, (iii) certain representations and warranties relating to
corporate status and authority, capitalization and subsidiaries, the proxy
statement, and shareholders have no expiration date, and (iv) with respect to
fraud there is no expiration date.
Pursuant to the Merger Agreement, the merger consideration recipients have
jointly and severally agreed to indemnify the purchaser and the surviving
company and all of their officers, directors, shareholders, affiliates,
employees and agents from and against any adverse consequences arising out of or
resulting from (i) any untruth, inaccuracy or incompleteness of any
representation or warranty of LMRC contained in the Merger Agreement or its
disclosure schedules, (ii) the failure by LMRC to perform any of its covenants
or obligations under the Merger Agreement, (iii) any brokers' commissions,
finders' fees or like payments incurred in connection with the merger other than
those disclosed in the Merger Agreement, (iv) all taxes attributable (or if
applicable, an allocable share thereof) to LMRC or its subsidiary for the
taxable periods on or before the closing date (with specific exceptions
described in the Merger Agreement), (v) 50% of the total costs, expenses and
other liabilities (up to a maximum of $50,000) incurred in upgrading or
replacing five underground storage tanks to bring such storage tanks into
compliance with federal regulation, and (vi) a penalty issued, if any, for
violations under the Clean Water Act (subject to the limitations contained in
the Merger Agreement). Parent and LMRC Acquisition Corp. have agreed to
indemnify the merger consideration recipients after the closing from and against
any adverse consequence arising out of or resulting from (i) any untruth,
inaccuracy or incompleteness of any representation or warranty of Parent or LMRC
Acquisition Corp. contained in the Merger Agreement, (ii) the failure by Parent
or LMRC Acquisition Corp. to perform any of their covenants or obligations under
the Merger Agreement and (iii) any brokers' commissions, finders' fees or like
payments incurred in connection with the merger.
With certain exceptions, neither LMRC, Parent nor LMRC Acquisition Corp. is
required to indemnify any other person for breaches of certain representations
and warranties unless the aggregate of all amounts for which indemnity would
otherwise be payable exceeds $500,000 and, in such event, the indemnifying party
will be responsible only for the amount in excess of $500,000. In addition, the
indemnification obligations for breaches of representations and warranties of
each of LMRC, Parent and LMRC Acquisition Corp. are generally limited to the
holdback amount of $1,500,000. The indemnification obligations of the merger
consideration recipients is also limited to the holdback amount with respect to
each of (i) any Clean Water Act penalty imposed and (ii) liabilities incurred in
the replacement of the underground storage tanks.
The foregoing summary of the material terms of the Merger Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Merger Agreement, including the
definitions of certain terms therein and exhibits and schedules thereto.
THE INITIAL OFFERING
The Initial Offering yielded gross proceeds to the Company of approximately
$17.5 million. The Company used the gross proceeds to (i) finance a portion of
the purchase price of the Loon Mountain Acquisition and (ii) pay fees and
expenses in connection with the Initial Offering, the Senior Credit Facility
Amendment and the Loon Mountain Acquisition.
THE EQUITY FINANCING
Financing for the Loon Mountain Acquisition was provided in part by the
investment in the Company of $10.5 million of equity by Parent. The funds
comprising the equity contribution from Parent were obtained from the issuance
by Parent of equity and notes to John Hancock, CIBC WG Argosy Merchant Fund 2,
L.L.C. (an affiliate of the Initial Purchaser) and Booth Creek Partners Limited
II, L.L.L.P. See "Certain Transactions -- The Financing Transactions."
THE SENIOR CREDIT FACILITY AMENDMENT
On March 18, 1997, the Company and certain of its subsidiaries entered into
the Senior Credit Facility with BankBoston, N.A., as lender and administrative
agent, which provided for borrowings in a principal amount of up to $20.0
million at any one time outstanding. The Senior Credit Facility is secured by
31
<PAGE> 35
substantially all of the Company's consolidated assets and a pledge of the stock
of the Company's principal subsidiaries. In connection with the Loon Mountain
Acquisition, the Company effected the Senior Credit Facility Amendment to, among
other things, increase the maximum borrowing availability thereunder to $25.0
million and modify certain covenants. See "Description of Certain Indebtedness
- -- Senior Credit Facility."
THE CONSENT SOLICITATION
Prior to the consummation of the Loon Mountain Acquisition, the Company
solicited consents from the holders of its Outstanding Series B Notes to effect
the Proposed Amendments to the Indenture, which, among other things, (i)
permitted the Initial Offering, (ii) permitted the consummation of the Senior
Credit Facility Amendment, (iii) modified the definitions of "Change of Control"
and "Restricted Subsidiary" contained in the Indenture and (iv) made minor
modifications to certain other Indenture provisions. On February 20, 1998, the
Company received consents sufficient to effect the Proposed Amendments from the
holders of the Outstanding Series B Notes and entered into a supplemental
indenture modifying the Indenture which became effective on February 26, 1998
upon the consummation of the Loon Mountain Acquisition and the Equity Financing.
32
<PAGE> 36
CAPITALIZATION
The following table sets forth the capitalization of the Company at May 1,
1998, which reflects the impact of the Loon Mountain Transactions.
<TABLE>
<CAPTION>
AS OF
MAY 1, 1998
------------
ACTUAL
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash(a)..................................................... $ 2,251
========
Senior Credit Facility(b)................................... $ 6,419
ASC Seller Note(c).......................................... 2,400
Outstanding Series B Notes(d)............................... 116,000
Outstanding Series C Notes(d)............................... 17,500
Other Debt(e)............................................... 3,269
--------
Total Debt............................................. 145,588
Preferred Stock of Subsidiary(f)............................ 2,889
Common Stockholders' Equity(g).............................. 52,083
--------
Total Capitalization................................... $200,560
========
</TABLE>
- ---------------
(a) Cash at May 1, 1998 includes restricted cash of $370,000 relating to advance
deposits for lodging and property rentals.
(b) The Senior Credit Facility provides for a total revolving credit commitment
of $25.0 million, subject to certain conditions.
(c) The ASC Seller Note was issued in connection with the New Hampshire
Acquisitions. The ASC Seller Note bears interest at 12% per annum and
matures on June 20, 2004.
(d) The Outstanding Series B Notes and Series C Notes bear interest at 12 1/2%
per annum and mature on March 15, 2007.
(e) Other debt consists of various capital lease obligations, notes payable and
improvement bond obligations.
(f) Represents preferred stock of Ski Lifts, Inc., a subsidiary of the Company,
held by the prior owners of Ski Lifts, Inc. An Unrestricted Subsidiary of
the Company has an obligation to purchase the Ski Lifts Preferred Stock.
Such obligation is non-recourse to the Company and its Restricted
Subsidiaries.
(g) Parent contributed an aggregate of $40.0 million to the Company on November
27, 1996 and December 3, 1996 in connection with the New Hampshire
Acquisitions and the California Acquisitions, respectively, and made an
additional capital contribution of $6.5 million in connection with the 1997
Offering. Parent also made a capital contribution to the Company of $10.5
million in connection with the consummation of the Loon Mountain
Acquisition.
33
<PAGE> 37
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma condensed consolidated statements of
operations gives effect to the Loon Mountain Transactions and the Historical
Transactions as if they had occurred on November 1, 1996.
The pro forma financial information presented below should be read in
conjunction with the separate historical consolidated financial statements of
the Company and certain of the businesses it has acquired, and related notes
thereto, included elsewhere in this Prospectus. The pro forma condensed
consolidated financial statements do not purport to be indicative of the results
that actually would have been obtained had the Loon Mountain Transactions and
the Historical Transactions occurred as of the assumed date and for the periods
presented and are not intended to be a projection of future results or trends.
The pro forma adjustments, as described in the accompanying Notes to
Unaudited Pro Forma Financial Information, are based on available information
and certain assumptions that management believes are reasonable. The allocation
of the purchase price of the Loon Mountain Acquisition is subject to revision
when additional information is obtained, however, in management's opinion, the
final allocation is not expected to be materially different from the preliminary
estimated amounts.
34
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 1, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY LOON MOUNTAIN PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations......................... $87,848 $10,639 $ -- $98,487
Real Estate and Other..................... -- -- -- --
------- ------- ------- -------
87,848 10,639 -- 98,487
OPERATING EXPENSES:
Resort Operations......................... 58,825 6,412 (219)(a) 65,018
Cost of Sales -- Real Estate and Other.... -- -- -- --
Depreciation and Amortization............. 7,758 1,280 (486)(b) 8,552
------- ------- ------- -------
Operating Income............................ 21,265 2,947 705 24,917
Interest Expense (Net)...................... 8,951 317 488(c) 9,756(e)
------- ------- ------- -------
Pre-tax Income.............................. 12,314 2,630 217 15,161
Income Taxes (Benefit)...................... -- 1,053 (1,053)(d) --
------- ------- ------- -------
Income Before Minority Interest............. 12,314 1,577 1,270 15,161
Minority Interest........................... 138 -- -- 138
------- ------- ------- -------
Net Income.................................. $12,176 $ 1,577 $ 1,270 $15,023
======= ======= ======= =======
OTHER DATA:
EBITDA...................................... $29,023 $ 4,227 $ 219 $33,469
Non-cash Cost of Real Estate and Other...... $ -- $ -- $ -- $ --
</TABLE>
(see footnotes on following page)
35
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 1, 1998
(a) The following adjustments have been made to reduce historical operating
expenses:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 1, 1998
-----------
<S> <C>
THE LOON MOUNTAIN ACQUISITION
Replacement of executive management......................... $ 40
Removal of directors' fees.................................. 23
Removal of divestiture-related expenses..................... 156
----
$219
====
</TABLE>
Replacement of executive management represents elimination of non-recurring
executive management compensation and benefits paid to a former executive
of Loon Mountain. The responsibilities of this individual will be absorbed
by existing Company management.
Removal of directors' fees represents elimination of directors' fees paid
to directors of Loon Mountain, which will not be incurred by the Company.
Historically, the Company has not paid directors' fees to the directors of
its subsidiaries.
Removal of divestiture-related expenses represents elimination of
non-recurring legal and accounting fees that were incurred by Loon Mountain
to facilitate the sale of Loon Mountain. Legal and accounting costs of this
nature are not expected to be incurred following the Loon Mountain
Acquisition.
(b) Historical depreciation for periods prior to the acquisition date has been
adjusted to reflect post-acquisition date assumptions. Pro forma
depreciation charges relate to the estimated fair value assigned using
purchase accounting. Land improvements and buildings have been assigned a 20
year life, and machinery and equipment 3 to 20 year lives. These charges are
estimates based on preliminary purchase price allocations which are subject
to final allocations pursuant to valuation efforts.
(c) Pro forma interest expense includes interest on $116.0 million of
Outstanding Series B Notes at 12.5%, $17.5 million of Old Notes at 12.5%,
the Senior Credit Facility at 9%, the ASC Seller Note at 12%, certain
capital leases and other debt at varying rates and amortization of
approximately $8.4 million of deferred financing costs (amortized generally
over a 10 year period).
(d) Due to a lack of profitable history, no income tax benefit is expected to be
recorded in the fiscal 1998 annual Booth Creek financial statements to
reflect the operating losses generated in fiscal 1998. Accordingly, no
provision is recorded in the first six months of 1998 as the effective
income tax rate for the year is expected to be zero.
(e) Pro forma cash interest expense would be approximately $9.1 million which
excludes $638,000 in amortization of deferred financing fees.
(f) EBITDA is not a measure of performance under United States generally
accepted accounting principles, and should not be considered in isolation or
as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles, or as a measure of profitability
or liquidity. Pro forma EBITDA does not reflect certain additional
adjustments which management believes are relevant in evaluating the future
operating performance of the Company. The following additional adjustments,
which eliminate the impact of certain nonrecurring charges and reflect the
estimated impact of management's business and operating strategy are based
on estimates and assumptions made and believed to be reasonable by the
Company and
36
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS --
(CONTINUED)
are inherently uncertain and subject to change. The following calculation
should not be viewed as indicative of actual or future results. The
following table reflects the effects of these items:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 1, 1998
-----------
<S> <C>
Pro forma EBITDA............................................ $33,469
Additional adjustments:
Reduction in insurance premiums........................... 86
Reduction in Loon Mountain expenses....................... 234
-------
Total additional adjustments........................... 320
-------
Adjusted pro forma EBITDA................................... $33,789
=======
</TABLE>
Reduction of insurance premiums represents elimination of insurance
expenses as a result of incorporating Loon Mountain into the Company's
consolidated insurance package.
Reduction in Loon Mountain expenses represents the estimated labor,
marketing and purchasing efficiencies expected to be realized subsequent to
the acquisition by the Company.
37
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CALIFORNIA
RESORTS
-----------
FIBREBOARD
RESORT NEW HAMPSHIRE THE GRAND
GROUP RESORTS SUMMIT TARGHEE
HISTORICAL ----------------------- HISTORICAL HISTORICAL
----------- WATERVILLE MT. ------------ -----------
FOR THE VALLEY CRANMORE FOR THE FOR THE
PERIOD FROM HISTORICAL HISTORICAL PERIOD FROM PERIOD FROM
NOVEMBER 1, ---------- ---------- NOVEMBER 1, NOVEMBER 1,
THE 1996 FOR THE PERIOD FROM 1996 1996
COMPANY THROUGH OCTOBER 28, 1996 THROUGH THROUGH
HISTORICAL DECEMBER 2, THROUGH JANUARY 15, MARCH 18, PRO FORMA
(a) 1996 NOVEMBER 27, 1996 1997 1997 ADJUSTMENTS
---------- ----------- ----------------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations............... $ 68,136 $ 1,395 $ 352 $ 45 $3,465 $4,706 $ --
Real Estate and Other........... 3,671 304 -- -- -- -- --
-------- ------- ----- ----- ------ ------ -------
71,807 1,699 352 45 3,465 4,706 --
Operating Expenses:
Resort Operations............... 58,343 4,720 715 245 2,878 4,179 (75)(b)
(22)(c)
Cost of Sales -- Real Estate and
Other......................... 2,799 161 -- -- -- -- --
Depreciation, Depletion and
Amortization.................. 11,681 6 103 18 208 319 1,078(d)
-------- ------- ----- ----- ------ ------ -------
Operating Income (Loss).......... (1,016) (3,188) (466) (218) 379 208 (981)
Interest Expense (net)........... 14,912 206 12 15 79 24 1,122(e)
-------- ------- ----- ----- ------ ------ -------
Pre-tax Income (Loss)............ (15,928) (3,394) (478) (233) 300 184 (2,103)
Income Taxes (Benefit)........... (1,728) (1,358) -- -- -- 37 1,321(f)
-------- ------- ----- ----- ------ ------ -------
Income (Loss) Before Minority
Interest........................ (14,200) (2,036) (478) (233) 300 147 (3,424)
Minority Interest................ 229 -- -- -- -- -- 52(g)
-------- ------- ----- ----- ------ ------ -------
Income (Loss) Before
Extraordinary Loss.............. (14,429) (2,036) (478) (233) 300 147 (3,476)
Extraordinary Loss............... 2,664 -- -- -- -- -- (2,664)(h)
-------- ------- ----- ----- ------ ------ -------
Net Income (Loss)................ $(17,093) $(2,036) $(478) $(233) $ 300 $ 147 $ (812)
======== ======= ===== ===== ====== ====== =======
OTHER DATA:
EBITDA(m)........................ $ 12,902 $(3,049) $(363) $(200) $ 587 $ 527 $ 97
Non-cash Cost of Real Estate and
Other........................... $ 2,237 $ 133 $ -- $ -- $ -- $ -- $ --
<CAPTION>
LOON
MOUNTAIN
HISTORICAL
-----------
YEAR
ENDED
PRO OCTOBER 31, PRO FORMA PRO
FORMA 1997 ADJUSTMENTS FORMA
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations............... $ 78,099 $15,751 $ -- $ 93,850
Real Estate and Other........... 3,975 -- -- 3,975
-------- ------- ------- --------
82,074 15,751 -- 97,825
Operating Expenses:
Resort Operations............... 70,983 12,602 (586)(b) 82,999
Cost of Sales -- Real Estate and
Other......................... 2,960 -- -- 2,960
Depreciation, Depletion and
Amortization.................. 13,413 1,897 485(i) 15,795
-------- ------- ------- --------
Operating Income (Loss).......... (5,282) 1,252 101 (3,929)
Interest Expense (net)........... 16,370 893 1,496(j) 18,759(l)
-------- ------- ------- --------
Pre-tax Income (Loss)............ (21,652) 359 (1,395) (22,688)
Income Taxes (Benefit)........... (1,728) 147 (147)(k) (1,728)
-------- ------- ------- --------
Income (Loss) Before Minority
Interest........................ (19,924) 212 (1,248) (20,960)
Minority Interest................ 281 -- -- 281
-------- ------- ------- --------
Income (Loss) Before
Extraordinary Loss.............. (20,205) 212 (1,248) (21,241)
Extraordinary Loss............... -- -- -- --
-------- ------- ------- --------
Net Income (Loss)................ $(20,205) $ 212 $(1,248) $(21,241)
======== ======= ======= ========
OTHER DATA:
EBITDA(m)........................ $ 10,501 $ 3,149 $ 586 $ 14,236(m)
Non-cash Cost of Real Estate and
Other........................... $ 2,370 $ -- $ -- $ 2,370
</TABLE>
(see footnotes on following pages)
38
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
(a) The Company's historical consolidated statement of operations for the year
ended October 31, 1997 includes the results of operations for the following
acquisitions since the effective dates of such acquisitions:
<TABLE>
<S> <C>
New Hampshire Resorts.................................... November 27, 1996
California Resorts....................................... December 3, 1996
The Summit............................................... January 15, 1997
Grand Targhee............................................ March 18, 1997
</TABLE>
(b) The following adjustments have been made to reduce historical operating
expenses:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
THE ACQUISITIONS (EXCLUDING THE LOON MOUNTAIN ACQUISITION)
Replacement of executive management....................... $ 52
Lease modification........................................ 23
----
$ 75
====
THE LOON MOUNTAIN ACQUISITION
Replacement of executive management....................... $120
Removal of directors' fees................................ 70
Removal of divestiture-related expenses................... 396
----
$586
====
</TABLE>
Replacement of executive management represents elimination of non-recurring
executive management compensation and benefits paid to (i) former owners of
Ski Lifts, Inc. and Grand Targhee Incorporated and (ii) a former executive
and shareholder of Loon Mountain. The responsibilities of these individuals
will be absorbed by existing Company management.
Lease modification represents elimination of lease expenses pursuant to a
lease agreement for the Teewinot Lodge, which was acquired by the Company in
the Grand Targhee Acquisition. Accordingly, such lease expenses will not be
incurred subsequent to the acquisition.
Removal of directors' fees represents elimination of directors' fees paid to
directors of Loon Mountain, which will not be incurred by the Company.
Historically, the Company has not paid directors' fees to the directors of
its subsidiaries.
Removal of divestiture-related expenses represents elimination of
non-recurring legal and accounting fees that were incurred by Loon Mountain
to facilitate the sale of Loon Mountain. Legal and accounting costs of this
nature are not expected to be incurred following the Loon Mountain
Acquisition.
(c) Represents corporate management fee allocations from Fibreboard Corporation
($70,000) for the period from November 1, 1996 through December 2, 1996 and
American Skiing Company and S-K-I Limited for Waterville Valley ($10,000)
for the period from October 28, 1996 through November 27, 1996 net of (i)
the management fees that would have been paid to Booth Creek, Inc. pursuant
to the Management Agreement ($29,000) and (ii) the estimated amounts for
certain corporate expenses if the Company had operated on a stand-alone
basis ($29,000).
(d) Historical depreciation and amortization for periods prior to the respective
resort acquisition dates has been adjusted to reflect post-acquisition date
assumptions. Pro forma depreciation and amortization charges relate to the
estimated fair value assigned using purchase accounting. Land improvements
and buildings have been assigned a 20 year life, machinery and equipment 3
to 15 year lives, and goodwill a 15 year life.
39
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS -- (CONTINUED)
(e) Pro forma interest expense includes interest on $116.0 million of
Outstanding Series B Notes at 12.5%, the Senior Credit Facility at 9%, the
ASC Seller Note at 12%, certain capital leases and other debt at varying
rates and amortization of approximately $7.0 million of deferred financing
fees (amortized generally over a 10 year period).
(f) Adjusts income tax provision to reflect the benefit of operating losses to
the extent of recorded deferred tax liabilities.
(g) Reflects cumulative preferred stock dividend of 9% on the Ski Lifts
Preferred Stock.
(h) Eliminates historical extraordinary loss on early retirement of debt.
(i) Historical depreciation and amortization for periods prior to the
acquisition date has been adjusted to reflect post-acquisition date
assumptions. Pro forma depreciation and amortization charges relate to the
estimated fair value assigned using purchase accounting. Land improvements
and buildings have been assigned a 20 year life, machinery and equipment 3
to 20 year lives, and goodwill a 15 year life. These charges are estimates
based on preliminary purchase price allocations which are subject to final
allocations pursuant to valuation efforts.
(j) Pro forma interest expense includes interest on $116.0 million of
Outstanding Series B Notes at 12.5%, $17.5 million of Old Notes at 12.5%,
the Senior Credit Facility at 9%, the ASC Seller Note at 12%, certain
capital leases and other debt at varying rates and amortization of
approximately $8.0 million of deferred financing costs (amortized generally
over a 10 year period).
(k) Eliminates the historical income tax provision of Loon Mountain, as the
expected effective income tax rate for the Company in fiscal 1998 is zero.
In the offering memorandum for the Initial Offering, the Company reflected a
net deferred tax benefit of $3,776,000 relating to the deferred tax
liabilities established in purchase accounting for the Loon Mountain
Acquisition. After further review and analysis, the Company has changed the
purchase accounting assumptions related to the Loon Mountain Acquisition to
offset the Loon Mountain deferred tax liabilities established against the
Booth Creek deferred tax assets at such date. Accordingly, no net deferred
taxes have been recorded in purchase accounting and the values assigned to
goodwill and property and equipment have been reduced accordingly. The net
non-cash impact was to increase the net loss from $17,769,000 to $21,241,000
for the pro forma year ended October 31, 1997; EBITDA for the period was not
affected.
(l) Pro forma cash interest expense would be approximately $17.8 million which
excludes $971,000 in amortization of deferred financing fees.
(m) EBITDA is not a measure of performance under United States generally
accepted accounting principles, and should not be considered in isolation or
as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles, or as a measure of profitability
or liquidity. Pro forma EBITDA does not reflect certain additional
adjustments which management believes are relevant in evaluating the future
operating performance of the Company. The following additional adjustments,
which eliminate the impact of certain nonrecurring charges and reflect the
estimated impact of management's business and operating strategy are based
on estimates and assumptions made and believed to be reasonable by the
Company and
40
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS -- (CONTINUED)
are inherently uncertain and subject to change. The following calculation
should not be viewed as indicative of actual or future results. The
following table reflects the effects of these items:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1997
----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro forma EBITDA........................................... $14,236
Additional adjustments:
Reduction in insurance premiums....................... 242
In-house operation of certain ski related services.... 435
One-time charges at Grand Targhee..................... 54
Reduction in Loon Mountain expenses................... 293
-------
Total additional adjustments..................... 1,024
-------
Adjusted pro forma EBITDA.................................. $15,260
=======
</TABLE>
Reduction of insurance premiums represents elimination of insurance
expenses as a result of a new insurance package entered into by the
Company, which has reduced insurance premiums as a result of the
consolidation of the Company's resorts.
In-house operation of certain ski-related services represents the increase
in revenues and elimination of expenses related to services performed by
outside vendors at the Summit that will be performed by the Company and
which are performed by the Company at its other resorts.
One-time charges at Grand Targhee represents elimination of the cost
associated with abandoning a land exchange project.
Reduction in Loon Mountain expenses represents the estimated labor,
marketing and purchasing efficiencies expected to be realized subsequent to
the acquisition by the Company.
41
<PAGE> 45
UNAUDITED ADJUSTED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
The following unaudited adjusted pro forma financial data, which are not
determined in accordance with generally accepted accounting principles, give
effect to the Loon Mountain Transactions and the Historical Transactions as if
they had been completed as of November 1, 1996. The information presented may
not be indicative of the actual results had the Loon Mountain Transactions and
the Historical Transactions occurred on such date, and there can be no assurance
that the Company will be able to achieve such results in the future. The
adjusted pro forma financial data reflect the combined financial data of the
Company's eight ski resort complexes adjusted for the removal of (i) corporate
expenses and allocations, (ii) management fees, (iii) one-time expenses and
write-offs and (iv) other non-recurring charges of prior owners. In addition,
the adjusted pro forma financial data give effect to the Management Agreement
(as defined) with Booth Creek, Inc. and other operating improvements which
management of the Company has or expects to implement. See "Certain
Transactions -- Management Agreement with Booth Creek, Inc." The unaudited
adjusted pro forma financial data presented below should be read in conjunction
with the information contained in "Pro Forma Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
ADJUSTED
PRO FORMA
-----------------------------------------
YEAR ENDED SIX MONTHS ENDED
OCTOBER 31, 1997(A) MAY 1, 1998(B)
------------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations....................................... $ 93,850 $ 98,487
Real Estate and Other................................... 3,975 --
--------- ---------
97,825 98,487
Operating Expenses:
Cost of Sales -- Resort Operations(c)................... 81,975 64,698
Cost of Sales -- Real Estate and Other(c)............... 590 --
--------- ---------
Adjusted Pro Forma EBITDA(c).............................. $ 15,260 $ 33,789
========= =========
OTHER FINANCIAL AND OPERATING DATA:
RESTRICTED GROUP(D)
Skier Days................................................ 2,186,196 2,435,122
Revenue per Skier Day..................................... $ 42.93 $ 40.44
Adjusted Pro Forma EBITDA(c).............................. $ 15,260 $ 33,789
Cash Interest Expense(e).................................. $ 17,788 $ 9,125
Ratio of Adjusted Pro Forma EBITDA to Cash Interest
Expense................................................. 0.86x NM
Ratio of total debt to Adjusted Pro Forma EBITDA(f)....... 9.64x NM
</TABLE>
- -------------------------
NM -- Not Meaningful
(see footnotes on following pages)
42
<PAGE> 46
NOTES TO UNAUDITED ADJUSTED PRO FORMA FINANCIAL DATA
(a) The unaudited adjusted pro forma financial data presented reflect the
following pro forma adjustments to operating expenses and management fee and
corporate expenses. The following table reflects the effect of these items
in the calculation of pro forma EBITDA.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1997
----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Historical EBITDA........................................... $13,553
Pro forma adjustments:
Corporate management fee allocations...................... 22
Replacement of executive management....................... 172
Lease modification........................................ 23
Removal of directors' fees................................ 70
Removal of divestiture-related expenses................... 396
-------
Total pro forma adjustments............................. 683
-------
Pro forma EBITDA............................................ $14,236
=======
</TABLE>
In addition, the unaudited adjusted pro forma financial data presented
reflect certain additional adjustments which management believes are
relevant in evaluating the future operating performance of the Company. The
following additional adjustments, which eliminate the impact of certain
nonrecurring charges and reflect the estimated impact of management's
business and operating strategy, are based on estimates and assumptions made
and believed to be reasonable by the Company but that are inherently
uncertain and subject to change. The following calculation should not be
viewed as indicative of actual or future results. The following table
reflects the effect of these items on pro forma EBITDA:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1997
----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro forma EBITDA............................................ $14,236
Additional adjustments:
Reduction of insurance premium............................ 242
In-house operation of certain ski-related services........ 435
One-time charges at Grand Targhee......................... 54
Reduction in Loon Mountain expenses....................... 293
-------
Total additional adjustments............................ 1,024
-------
Adjusted pro forma EBITDA................................... $15,260
=======
</TABLE>
Corporate management fee allocations represent the allocations from
Fibreboard Corporation ($70,000) and American Skiing Company and S-K-I
Limited for Waterville Valley ($10,000) net of (i) the management fees that
would have been paid to Booth Creek, Inc. pursuant to the Management
Agreement ($29,000) and (ii) the estimated amounts for certain corporate
expenses if the Company had operated on a stand-alone basis ($29,000).
Replacement of executive management represents elimination of non-recurring
executive management compensation and benefits paid to (i) former owners of
Ski Lifts, Inc. ($29,000), (ii) former owners of Grand Targhee Incorporated
($23,000) and (iii) former owners of Loon Mountain Recreation Corporation
($120,000). The responsibilities of these individuals will be absorbed by
existing Company management.
Lease modification represents elimination of lease expenses for the Teewinot
Lodge, which was acquired by the Company in the Grand Targhee Acquisition.
Removal of directors' fees represents elimination of directors' fees paid to
directors of Loon Mountain which will not be incurred by the Company.
Removal of divestiture-related expenses represents elimination of
non-recurring legal and accounting fees that were incurred to facilitate the
sale of Loon Mountain.
Reduction of insurance premium represents elimination of insurance expenses
as a result of a new insurance package entered into by the Company, which
has reduced insurance premiums as a result of the consolidation of the
Company's resorts.
In-house operation of certain ski-related services represents the increase
in revenue and elimination of expenses related to services performed by
outside vendors at the Summit that will be performed by the Company and
which are performed by the Company at its other resorts.
One-time charges at Grand Targhee represents elimination of the cost
associated with abandoning a land exchange project.
43
<PAGE> 47
NOTES TO UNAUDITED ADJUSTED PRO FORMA FINANCIAL DATA -- (CONTINUED)
Reduction in Loon Mountain expenses represents the estimated labor,
marketing and purchasing efficiencies expected to be realized subsequent to
the acquisition by the Company.
(b) The unaudited adjusted pro forma financial data presented reflect the
following pro forma adjustments to operating expenses and management fee and
corporate expenses. The following table reflects the effect of these items
in the calculation of pro forma EBITDA.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 1, 1998
-----------
(DOLLARS IN THOUSANDS)
<S> <C>
Historical EBITDA........................................... $33,250
Pro forma adjustments:
Replacement of executive management....................... 40
Removal of directors' fees................................ 23
Removal of divestiture-related expenses................... 156
-------
Total pro forma adjustments............................. 219
-------
Pro forma EBITDA............................................ $33,469
=======
</TABLE>
In addition, the unaudited adjusted pro forma financial data presented
reflect certain additional adjustments which management believes are
relevant in evaluating the future operating performance of the Company. The
following additional adjustments, which eliminate the impact of certain
nonrecurring charges and reflect the estimated impact of management's
business and operating strategy, are based on estimates and assumptions made
and believed to be reasonable by the Company but that are inherently
uncertain and subject to change. The following calculation should not be
viewed as indicative of actual or future results. The following table
reflects the effect of these items on pro forma EBITDA:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 1, 1998
-----------
(DOLLARS IN THOUSANDS)
<S> <C>
Pro forma EBITDA............................................ $33,469
Additional adjustments:
Reduction of insurance premium............................ 86
Reduction in Loon Mountain expenses....................... 234
-------
Total additional adjustments............................ 320
-------
Adjusted pro forma EBITDA................................... $33,789
=======
</TABLE>
Replacement of executive management represents elimination of non-recurring
executive management compensation and benefits paid to former owners of Loon
Mountain Recreation Corporation. The responsibilities of these individuals
will be absorbed by existing Company management.
Removal of directors' fees represents elimination of directors' fees paid to
directors of Loon Mountain which will not be incurred by the Company.
Removal of divestiture-related expenses represents elimination of
non-recurring legal and accounting fees that were incurred to facilitate the
sale of Loon Mountain.
Reduction of insurance premium represents elimination of insurance expenses
as a result of incorporating Loon Mountain into the Company's consolidated
insurance package.
Reduction in Loon Mountain expenses represents the estimated labor,
management and purchasing efficiencies expected to be realized subsequent to
the acquisition by the Company.
(c) Excludes depreciation, depletion and amortization expenses of $15.8 million
and $8.6 million for the year ended October 31, 1997 and the six months
ended May 1, 1998, respectively and the non-cash cost of real estate and
other sales of $2.4 million for the year ended October 31, 1997. The
historical financial presentations for the Fibreboard Resort Group,
Waterville Valley, Mt. Cranmore, Ski Lifts, Inc., Grand Targhee Incorporated
and Loon Mountain Recreation Corporation are inconsistent in categorizing
cost of sales -- resort operations and selling, general and administrative
expenses. For presentation purposes in this Prospectus, all operating
expenses have been aggregated as cost of sales -- resort operations.
(d) The Restricted Group includes Booth Creek and its Restricted Subsidiaries.
The Restricted Group data excludes certain real estate assets at the Summit,
which are held by an entity that is an Unrestricted Subsidiary. See "Certain
Transactions -- The Real Estate LLC." Such assets have not historically
generated cash flow and the Unrestricted Subsidiary has an obligation, as of
May 1, 1998, to purchase shares of preferred stock of Ski Lifts, Inc. having
an aggregate liquidation
44
<PAGE> 48
NOTES TO UNAUDITED ADJUSTED PRO FORMA FINANCIAL DATA -- (CONTINUED)
preference of $2.9 million from the prior owners of the Summit. Such
obligation is recourse only to the assets of the Unrestricted Subsidiary and
is non-recourse to the Company and its Restricted Subsidiaries.
(e) Reflects interest expense on the Notes and the Senior Credit Facility and on
other debt and capitalized leases. Cash interest expense also excludes
$971,000 and $638,000 in pro forma non-cash amortization of deferred
financing fees for the year ended October 31, 1997 and the six months ended
May 1, 1998, respectively.
(f) Total debt for purposes of this ratio includes the Notes, the Senior Credit
Facility, the ASC Seller Note, and certain other debt and capitalized
leases. See "Capitalization."
45
<PAGE> 49
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
The selected financial data presented below should be read in conjunction
with the combined financial statements of the Fibreboard Resort Group and the
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The selected combined
financial data (except for the other financial and operating data) of the
Fibreboard Resort Group (i) as of December 31, 1993 have been derived from the
unaudited combined financial statements of the Fibreboard Resort Group, (ii) for
the year ended December 31, 1993 and as of and for the years ended December 31,
1994 and 1995 and as of and for the ten months ended October 31, 1996 have been
derived from the audited combined financial statements of the Fibreboard Resort
Group, which have been audited by Arthur Andersen LLP, independent accountants,
(iii) for the ten months ended October 31, 1995 have been derived from the
unaudited combined financial statements of the Fibreboard Resort Group and (iv)
for the period from November 1, 1996 to December 2, 1996 have been derived from
the audited combined financial statements of the Fibreboard Resort Group, which
have been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data (except for the other financial and operating data)
of the Company (i) as of and for the year ended October 31, 1997 have been
derived from the audited consolidated financial statements of the Company, which
have been audited by Ernst & Young LLP, independent auditors and (ii) as of and
for the six months ended May 2, 1997 and May 1, 1998 have been derived from the
unaudited consolidated financial statements of the Company. The interim
financial data of the Company presented below is unaudited, but includes all
adjustments (consisting only of normal, recurring adjustments) which, in the
opinion of management of the Company, are considered necessary for a fair
presentation of the Company's financial position and results of operations for
the periods presented. Due to the highly seasonal nature of the Company's
business and the effect of the Company's acquisitions, the results for the
interim periods are not necessarily indicative of results for the entire year.
Management believes that the disclosures made are adequate to make the
information presented not misleading. The Company was formed in October 1996 and
had no operations until its acquisition of seven ski resort complexes during the
first six months of fiscal 1997. The selected pro forma data presented below
should be read in conjunction with the information contained in "Pro Forma
Financial Information."
The other financial and operating data presented below includes information
on "EBITDA" and "EBITDA margin." "EBITDA" represents income from operations
before depreciation, depletion and amortization expense and the non-cash cost of
real estate sales. "EBITDA margin" is EBITDA divided by total revenue. Although
EBITDA is not a measure of performance under United States generally accepted
accounting principles ("GAAP"), the term is presented because management
believes it provides useful information regarding a company's ability to incur
and service debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other income
or cash flow statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. In addition, "EBITDA" and "EBITDA margin" as
determined by the Company may not be comparable to related or similar measures
as reported by other companies and do not represent funds available for
discretionary use.
<TABLE>
<CAPTION>
FIBREBOARD RESORT GROUP
------------------------------------------------------------------------
PERIOD FROM
10 MONTHS 10 MONTHS NOVEMBER 1,
YEAR ENDED DECEMBER 31, ENDED ENDED 1996 TO
------------------------------ OCTOBER 31, OCTOBER 31, DECEMBER 2,
1993(a) 1994(b) 1995(c) 1995(c) 1996(d) 1996(d)
-------- -------- -------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations........................... $ 25,528 $ 40,810 $ 39,823 $ 32,072 $ 36,829 $ 1,395
Real Estate and Other....................... -- 610 5,213 4,659 4,288 304
-------- -------- -------- -------- -------- -------
25,528 41,420 45,036 36,731 41,117 1,699
Operating Expenses:
Cost of Sales -- Resort Operations.......... 15,603 23,471 24,545 18,547 22,596 2,884
Cost of Sales -- Real Estate and Other...... -- 280 1,989 1,780 2,142 161
Depreciation, Depletion and Amortization.... 2,514 3,449 4,024 2,989 4,354 6
Selling, General and Administrative......... 4,579 5,545 5,871 4,399 5,220 1,766
Management Fees and Corporate Expenses...... 507 655 1,247 513 701 70
-------- -------- -------- -------- -------- -------
Operating Income (Loss)....................... 2,325 8,020 7,360 8,503 6,104 (3,188)
Interest Expense, net......................... 186 666 821 334 1,189 206
-------- -------- -------- -------- -------- -------
Pre-tax Income (Loss)......................... 2,139 7,354 6,539 8,169 4,915 (3,394)
Income Taxes (Benefit)........................ 876 2,979 2,624 3,308 2,018 (1,358)
-------- -------- -------- -------- -------- -------
Net Income (Loss)................... $ 1,263 $ 4,375 $ 3,915 $ 4,861 $ 2,897 $(2,036)
======== ======== ======== ======== ======== =======
</TABLE>
46
<PAGE> 50
SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
FIBREBOARD RESORT GROUP
-------------------------------------------------------------------------
AS OF DECEMBER 31, AS OF OCTOBER 31,
--------------------------------------- ----------------------------
1993(a) 1994(b) 1995(c) 1995(c) 1996(d)
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit)...................... $(3,271) $(6,555) $(35,980) $(36,123) $(36,187)
Total Assets................................... 39,618 43,065 73,316 64,125 69,602
Total Debt..................................... 15,743 15,422 41,493 33,487 38,715
Common Stockholders' Equity/Net Assets......... 17,826 19,752 23,667 24,606 26,564
</TABLE>
<TABLE>
<CAPTION>
FIBREBOARD RESORT GROUP
------------------------------------------------------------------------
PERIOD FROM
10 MONTHS 10 MONTHS NOVEMBER 1,
YEAR ENDED DECEMBER 31, ENDED ENDED 1996 TO
------------------------------ OCTOBER 31, OCTOBER 31, DECEMBER 2,
1993(a) 1994(b) 1995(c) 1995(c) 1996(d) 1996(d)
-------- -------- -------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL AND OPERATING DATA:
Skier Days.................................... 436,153 837,179 784,964 626,500 706,075 30,818
Revenue per Skier Day(i)...................... $ 58.53 $ 48.75 $ 50.73 $ 51.19 $ 52.16 $ 45.27
Non-cash Cost of Real Estate and Other(j)..... $ -- $ -- $ 1,618 $ 1,488 $ 1,461 $ 133
Capital Expenditures Excluding Acquisitions
and Real Estate and Other................... $ 4,619 $ 6,199 $ 5,226 $ 3,786 $ 5,761 $ 5,587
Net cash provided by (used in):
Operating activities........................ $ 4,212 $ 9,482 $ 7,861 $ 7,506 $ 4,923 $ 5,769
Investing activities........................ (18,336) (6,287) (29,430) (28,321) (8,467) (6,151)
Financing activities........................ 9,027 (2,664) 26,071 18,059 (2,778) 1,115
EBITDA........................................ $ 4,839 $ 11,469 $ 13,002 $ 12,980 $ 11,919 $(3,049)
EBITDA Margin................................. 19.0% 27.7% 28.9% 35.3% 29.0% (179.5)%
</TABLE>
(see accompanying footnotes)
47
<PAGE> 51
SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
COMPANY
----------------------------------------------------------------------
HISTORICAL Unaudited Pro Forma(g)
--------------------------------------- ----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED
OCTOBER 31, MAY 2, MAY 1, OCTOBER 31, MAY 1,
1997(e) 1997(E) 1998(F) 1997 1998
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations............................... $ 68,136 $ 60,469 $ 87,848 $ 93,850 $ 98,487
Real Estate and Other........................... 3,671 450 -- 3,975 --
--------- --------- -------- --------- ---------
71,807 60,919 87,848 97,825 98,487
Operating Expenses:
Cost of Sales -- Resort Operations.............. 44,624 36,105 48,571 82,999(h) 65,018(h)
Cost of Sales -- Real Estate and Other.......... 2,799 378 -- 2,960 --
Depreciation, Depletion and Amortization........ 11,681 5,124 7,758 15,795 8,552
Selling, General and Administrative............. 11,048 6,518 8,490 -- --
Management Fees and Corporate Expenses.......... 2,671 827 1,764 -- --
--------- --------- -------- --------- ---------
Operating Income (Loss)........................... (1,016) 11,967 21,265 (3,929) 24,917
Interest Expense, net............................. 14,912 6,304 8,951 18,759 9,756
--------- --------- -------- --------- ---------
Pre-tax Income (Loss)............................. (15,928) 5,663 12,314 (22,688) 15,161
Income Taxes (Benefit)............................ (1,728) 1,416 -- (1,728) --
--------- --------- -------- --------- ---------
Income (Loss) Before Minority Interest and
Extraordinary Item.............................. (14,200) 4,247 12,314 (20,960) 15,161
Minority Interest................................. 229 87 138 281 138
--------- --------- -------- --------- ---------
Income (Loss) Before Extraordinary Item........... (14,429) 4,160 12,176 (21,241) 15,023
Extraordinary Loss on Early Retirement of Debt.... (2,664) (1,998) -- -- --
--------- --------- -------- --------- ---------
Net Income (Loss)........................ $ (17,093) $ 2,162 $ 12,176 $ (21,241) $ 15,023
========= ========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
COMPANY
----------------------------
AS OF AS OF
OCTOBER 31, MAY 1,
1997(e) 1998(f)
----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit)...................................................................... $(26,634) $ (19,926)
Total Assets................................................................................... 186,416 219,870
Total Debt..................................................................................... 136,327 145,588
Preferred Stock of Subsidiary(l)............................................................... 3,354 2,889
Common Stockholder's Equity.................................................................... 29,407 52,083
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL Unaudited Pro Forma(g)
--------------------------------------- ----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED
OCTOBER 31, MAY 2, MAY 1, OCTOBER 31, MAY 1,
1997(e) 1997(e) 1998(F) 1997 1998
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT REVENUE PER SKIER DAY)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL AND OPERATING DATA:
Skier Days........................................ 1,565,917 1,565,917 2,178,726 2,186,196 2,435,122
Revenue per Skier Day(i).......................... $ 43.51 $ 38.62 $ 40.32 $ 42.93 $ 40.44
Non-cash Cost of Real Estate and Other(j)......... $ 2,237 $ 349 $ -- $ 2,370 $ --
Capital Expenditures Excluding Acquisitions and
Real Estate and Other........................... $ 9,459 $ 2,416 $ 6,438 $ 20,075 $ 7,659
Net cash provided by (used in):
Operating activities............................ $ 1,552 $ 13,621 $ 22,384 NA NA
Investing activities............................ (152,685) (144,620) (35,810) NA NA
Financing activities............................ 151,595 139,715 15,215 NA NA
Ratio of Earnings to Fixed Charges(k)............. -- 1.75 2.26 -- 2.43
EBITDA............................................ $ 12,902 $ 17,440 $ 29,023 $ 14,236 $ 33,469
EBITDA Margin..................................... 18.0% 28.6% 33.0% 14.6% 34.0%
</TABLE>
(see footnotes on following pages)
48
<PAGE> 52
SELECTED FINANCIAL DATA (CONTINUED)
NOTES TO SELECTED FINANCIAL DATA
The selection of a December 31 year end by the Fibreboard Resort Group does
not result in the presentation of the results of the California Resorts for a
single ski season. Accordingly, as the results of a single ski season are split
into two reporting periods, differing trends may develop, as compared to results
of operations for other resorts consisting of a single ski season, which should
be evaluated by an investor.
As the results of operations of ski resorts are highly seasonal, with the
majority of revenue generated in the period from November through April, the
results of operations of the Fibreboard Resort Group for the 10 months ended
October 31, 1996 and 1995 and the period from November 1, 1996 to December 2,
1996 are not representative and should not be annualized in determining the
level of operating results for a full fiscal period.
(a) Includes the financial results of Northstar for the entire period and of
Sierra for the period beginning June 11, 1993, the date on which it was
acquired by Fibreboard Corporation.
(b) Includes the financial results of Northstar and Sierra for the entire
period.
(c) Includes the financial results of Northstar and Sierra for the entire period
and of Bear Mountain for the period beginning October 23, 1995, the date on
which it was acquired by Fibreboard Corporation.
(d) Includes the financial results of Northstar, Sierra and Bear Mountain for
the entire period.
(e) Includes the financial results of Waterville Valley and Mt. Cranmore from
November 27, 1996, Northstar, Sierra and Bear Mountain from December 3,
1996, the Summit from January 15, 1997, and, as of and for the year ended
October 31, 1997, Grand Targhee from March 18, 1997, the respective dates of
acquisition of each resort by the Company.
(f) Includes the financial results of Waterville Valley, Mt. Cranmore,
Northstar, Sierra, Bear Mountain, the Summit and Grand Targhee for the
entire period and Loon Mountain for the period subsequent to February 26,
1998.
(g) Pro forma statement of operations and other financial and operating data for
the year ended October 31, 1997 and six months ended May 1, 1998 give effect
to the Loon Mountain Transactions and the Historical Transactions as if they
had occurred on November 1, 1996.
(h) The historical financial presentations for the Fibreboard Resort Group,
Waterville Valley, Mt. Cranmore, Ski Lifts, Inc., Grand Targhee Incorporated
and Loon Mountain Recreation Corporation are inconsistent in categorizing
cost of sales -- resort operations, selling, general and administrative
expenses and management fees and corporate expenses. For presentation
purposes in this Prospectus, all operating expenses, excluding depreciation,
depletion and amortization, have been aggregated as cost of sales -- resort
operations.
(i) Reflects revenues from resort operations divided by skier days.
(j) Non-cash cost of real estate sales represents the allocated portion of real
estate development expenditures previously capitalized (including
acquisition costs allocated to real estate development) which relate to
current year real estate sales. The non-cash cost of real estate sales is
presented separately in this Selected Financial Data section as it is a
component in the calculation of EBITDA.
(k) For purposes of this computation, earnings are defined as pretax income
(loss) and fixed charges excluding the Ski Lifts Preferred Stock dividend
requirement. Fixed charges are the sum of (i) interest costs (including the
interest portion of operating leases), (ii) amortization of deferred
financing costs and (iii) the Ski Lifts Preferred Stock dividend
requirement. Earnings were inadequate to cover fixed charges by
approximately $16.2 million and $23.0 million, for the historical audited
and unaudited pro forma year ended October 31, 1997, respectively.
(l) Represents preferred stock of a subsidiary of the Company which is subject
to mandatory redemption requirements but which is non-recourse to the
Company or its Restricted Subsidiaries.
49
<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below relates to (i) the historical financial
statements and results of operations of the Company, the California Resorts,
Waterville Valley, the Summit, Grand Targhee and Loon Mountain, (ii) the pro
forma financial results of operations of the Company and (iii) the liquidity and
capital resources of the Company. The following discussion should be read in
conjunction with the consolidated financial statements and related notes thereto
and the information contained in "Pro Forma Financial Information" included
elsewhere in this Prospectus.
Except for historical matters, the matters discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements that involve risks and uncertainties. Forward-looking
statements are based on management's current views and assumptions and involve
risks and uncertainties that could significantly affect expected results. The
Company wishes to caution the reader that certain factors could significantly
and materially affect the Company's actual results, causing results to differ
materially from those in any forward-looking statement. These factors include:
regional and national economic conditions, the successful or unsuccessful
integration of acquired businesses, weather conditions, natural disasters (such
as earthquakes), industry competition, governmental regulation and risks
associated with expansion, leased property and property used pursuant to United
States Forest Service permits.
GENERAL
The Company's ski operations are highly sensitive to regional weather
conditions and the overall strength of the regional economies in the areas in
which the Company operates. The Company believes that the geographic diversity
of the Company's resorts and the use of extensive snowmaking technology coupled
with advanced trail grooming equipment, which together can provide consistent
skiing conditions, can partially mitigate the risk of both economic downturns
and adverse weather conditions in any given region. However, the Company remains
vulnerable to warm weather, heavy rains and drought conditions, which can have a
significant effect on the operating revenues and profitability at any one of the
Company's resorts. Bear Mountain experienced its worst early winter conditions
in over 40 years during the 1995/96 ski season, with a lack of natural snowfall
and warm weather which severely limited snowmaking. As a result, skier days were
approximately 30% below the prior year's level. In addition, during the peak
period of the 1996/97 ski season, the Lake Tahoe region experienced significant
rainfall, flooding and mudslides. The inclement weather resulted in poor ski
conditions at Northstar and Sierra and a major access highway to Sierra being
closed for several weeks during the first quarter of the Company's fiscal year
ended October 31, 1997. Furthermore, much of the poor weather occurred during
the Christmas holiday period, a traditionally busy period at the Company's
resorts. As a result, skier days and resort revenue at Sierra were adversely
impacted. Certain of the Company's other resorts also experienced poor weather
conditions during the year ended October 31, 1997, which resulted in a reduction
in skier days, revenue and operating income.
The Company's four most weather-sensitive resorts, Bear Mountain,
Waterville Valley, Mt. Cranmore and Loon Mountain, have invested heavily in
snowmaking capabilities to provide coverage on virtually all of their trails and
have been open for skiing at least 112, 159, 103 and 161 days, respectively,
during each of the last six ski seasons. The Company's Northstar, Sierra, Summit
and Grand Targhee resorts are less weather-sensitive based on their historical
natural snowfall, averaging approximately 286, 470, 379, and 528 inches of
snowfall, respectively, per year from the 1991/92 through the 1996/97 ski
seasons. As a result of their historic natural snowfall, their snowmaking
capabilities are considerably less extensive than at Bear Mountain, Waterville
Valley, Mount Cranmore or Loon Mountain.
The Company's results of operations are also highly dependent on its
ability to compete in each of the large regional ski markets in which it
operates. Management estimates that at Northstar and Sierra more than 80% of the
1996/97 ski season total skier days were attributable to residents of the San
Francisco, Sacramento and Central California Valley regions. At Bear Mountain,
more than 95% of the 1996/97 ski season total skier days were attributable to
residents of the Los Angeles and San Diego metropolitan regions. At Waterville
50
<PAGE> 54
Valley and Mt. Cranmore, close to 80% of the 1996/97 ski season total skier days
were attributable to residents of the Boston metropolitan area and southern New
Hampshire. At the Summit, the Company estimates that more than 95% of the
1996/97 ski season total skier days were attributable to residents of the
Seattle/Tacoma metropolitan region. The Company's Grand Targhee resort attracts
approximately 62% of its skiers from outside its local skiing population.
The Company seeks to maximize revenues and operating income by managing the
mix of skier days and revenue per skier day. These strategies are also designed
to maximize resort cash flow. The strategy for each resort is based on the
demographic profile of its market and the physical capacity of its mountain and
facilities. The Company seeks to increase skier days by developing effective
ticket pricing strategies and marketing programs to improve peak and off-peak
volume. The Company seeks to improve revenue per skier day by effectively
managing the price, quality and value of each of its ski-related services,
including retail shops, ski rentals, ski lessons and food and beverage
facilities. The Company also generates revenue from a variety of non-ski related
services, such as golf, tennis, health clubs and conference centers, as well as
from real estate and timber sales.
The Company expects to increase skier days by offering a consistent,
quality guest experience and developing effective target marketing programs. See
"Business -- Marketing and Sales." The Company's resorts have spent more than
$40.0 million in capital expenditures during the last three years to upgrade
chairlift capacity, expand terrain, improve rental lodging and retail facilities
and increase snowmaking capabilities, all of which management believes are
important in providing a consistent, quality guest experience.
The Company believes it can selectively increase lift ticket prices and
skier days to generate additional revenue and resort cash flow from other
related services and activities in conjunction with the upgrading of its resort
infrastructure and facilities. For example, Grand Targhee announced a $4 per
lift ticket increase effective upon installation of two new lifts completed in
January 1997. This resulted in a 4.2% increase in lift ticket revenue per skier
visit in the 1996/97 ski season over the 1995/96 ski season. In addition, the
Company's Northstar resort has been successful in increasing lift ticket
revenues, other ski-related revenues and non-ski related revenues (excluding
real estate and timber sales) by 35.7%, 45.9% and 22.7%, respectively, from the
year ended December 31, 1992 to the year ended October 31, 1997. The Company
believes that by extending its successful operating strategies it can
significantly increase revenue per skier day at each of its resorts.
In addition to revenues generated from skiing operations, the Company's
resorts generate significant revenues from non-ski operations, including
lodging, conference center services, health and tennis clubs and summer
activities such as mountain biking rentals and golf course fees. During the year
ended October 31, 1997, approximately 49.6%, 40.5% and 9.9% of the Company's
revenues were generated from lift ticket sales, other ski-related sales and
non-ski-related sales (excluding real estate and timber sales), respectively.
Moreover, real estate and timber sales at Northstar generated $3.7 million
during the period from December 3, 1996 (the date the Company acquired
Northstar) to October 31, 1997, accounting for 11.8% of Northstar's total
revenue during such period.
A significant portion of total operating costs at the Company's resorts are
variable, consisting primarily of retail and food service cost of sales,
utilities and labor expense. These variable costs can fluctuate significantly
based upon skier days and seasonal factors. With the exception of certain
management, marketing and maintenance personnel, all of the Company's employees
are compensated on an hourly basis. Management believes a key element to
maximizing profitability during the winter season is to closely monitor staffing
requirements and to redirect or lay-off employees when skier volumes or seasonal
needs dictate. In addition to financial performance, the advanced management
information system currently in place at all of the Company's resorts provides
detailed statistics regarding staffing utilization which is instrumental in
adjusting personnel requirements. Management believes that, over time, the
utilization of this system will yield significant labor cost savings.
51
<PAGE> 55
RESULTS OF OPERATIONS OF THE COMPANY
Historical Six Months Ended May 1, 1998 as Compared to the Historical Six
Months
Ended May 2, 1997
The Company was formed October 8, 1996. Since inception, the Company made
the following acquisitions which are included in the results of operations of
the Company from the respective purchase dates and were accounted for using the
purchase method:
<TABLE>
<CAPTION>
RESORT ACQUISITION DATE
------ ----------------
<S> <C>
Waterville Valley......................................... November 27, 1996
Mt. Cranmore.............................................. November 27, 1996
Northstar................................................. December 3, 1996
Sierra.................................................... December 3, 1996
Bear Mountain............................................. December 3, 1996
The Summit................................................ January 15, 1997
Grand Targhee............................................. March 18, 1997
Loon Mountain............................................. February 26, 1998
</TABLE>
Total revenue for the six months ended May 1, 1998 was $87,848,000 an
increase of $26,929,000 or 44.2%, over the Company's revenues for the six months
ended May 2, 1997. Due to the timing of the acquisitions, the 1997 period does
not reflect a full period of operating revenues for the resorts, which accounts
for a significant part of the increase. The increase in revenue is also due to
more typical weather conditions in the Lake Tahoe region in the current period
than during the comparable period in the 1996/97 ski season, which resulted in
increased revenues at Sierra and Northstar of 67.8% and 28.1%, respectively.
During the 1996/97 ski season, revenue was negatively impacted by a mudslide
which shut down the highway which provides primary access to Sierra and poor
weather conditions during the Christmas holiday period at many of the Company's
other resorts. Paid skier visits at Sierra and Northstar increased by 60.3% and
19.6% or approximately 114,000 and 78,000 respectively, in the 1998 period as
compared to the 1997 period.
Total operating expenses for the six months ended May 1, 1998 were
$66,583,000, an increase of $17,631,000 or 36.0%, over the Company's total
operating expenses for the six months ended May 2, 1997. Due to the timing of
the acquisitions, the 1997 period does not reflect a full period of operating
expenses for the resorts, which accounts for a significant part of the increase.
Payroll related costs, the single largest component of operating expenses, was
approximately $25,371,000 for the six months ended May 1, 1998, as compared to
$17,571,000 for the 1997 period.
Interest expense for the six months ended May 1, 1998 totaled $8,347,000 an
increase of $3,184,000 over the Company's interest expense for the six months
ended May 2, 1997, reflecting generally higher levels of borrowings and higher
interest rates in the 1998 period.
During the year ended October 31, 1997, the Company recorded tax benefits
for current operating losses to the extent of recorded deferred tax liabilities.
Due to the Company's lack of profitable history, the tax benefits of excess
operating losses were fully offset by a valuation reserve. Similarly, no federal
income tax provision is expected for the year ended October 30, 1998 due to
continued operating losses. Accordingly, during the six months ended May 1,
1998, no federal income tax provision has been provided.
For the six months ended May 2, 1997, income taxes were based on
preliminary purchase price allocations for the Company's acquisitions of the
resorts. Deferred tax liabilities of approximately $4.4 million were recorded in
the preliminary opening balance sheets. This resulted in an expected income tax
benefit rate of approximately 25%, which was used by the Company in preparing
its financial statements through the third quarter of 1997. Final purchase
allocations, primarily for the Summit acquisition, resulted in less value being
assigned to fixed assets, more to goodwill and a corresponding reduction in the
original deferred tax liabilities. Accordingly, the actual income tax benefit
rate for the year ended October 31, 1997 was 10.8%, and was adjusted for in the
fourth quarter on a catch-up basis as a change in estimate.
52
<PAGE> 56
Pro Forma Six Months Ended May 1, 1998 as Compared to the Pro Forma Six
Months Ended
May 2, 1997
The following unaudited pro forma results of operations of the Company for
the six months ended May 1, 1998 and May 2, 1997 assume that all the resort
acquisitions (including the Loon Mountain Acquisition) and related financings
had occurred on November 1, 1996. These unaudited pro forma results of
operations are not necessarily indicative of the actual results of operations
that would have been achieved nor are they necessarily indicative of future
results of operations.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED SIX MONTHS ENDED
MAY 2, 1997 MAY 1, 1998
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort operations.................................... $83,959 $98,487
Real estate and other................................ 754 --
------- -------
84,713 98,487
Operating expenses:
Resort operations.................................... 64,050 65,018
Cost of sales -- real estate and other............... 539 --
Depreciation, depletion and amortization............... 8,047 8,552
------- -------
Operating income....................................... 12,077 24,917
Interest expense net................................... 8,510 9,756
------- -------
Pre-tax income......................................... 3,567 15,161
Income tax benefit..................................... 385 --
------- -------
Income before minority interest........................ 3,182 15,161
Minority interest...................................... 141 138
------- -------
Net income............................................. $ 3,041 $15,023
======= =======
OTHER DATA:
EBITDA................................................. $20,606 $33,469
Noncash cost of real estate sales...................... $ 482 $ --
</TABLE>
Total pro forma revenues for the six months ended May 1, 1998 would have
been $98,487,000 an increase of $13,774,000 or 16.3% over the comparable period
in 1997. Sierra, Northstar, Grand Targhee, Bear Mountain and Waterville Valley
generated increased revenues in the 1998 period of 65.0%, 25.3%, 15.3%, 13.6%,
and 8.0%, respectively, due primarily to paid skier day increases. The increase
in revenue is primarily due to more typical weather conditions in the Lake Tahoe
region in the current period than during the comparable period in the 1996/97
ski season. Paid skier visits would have increased 9.5%, or approximately
166,000, in the 1998 period as compared to the 1997 period primarily due to
improved weather conditions during the holiday periods which allowed travelers
to reach the Company's resorts. During the 1996/97 ski season, revenues were
negatively impacted by a mudslide which shut down the highway which provides
primary access to Sierra and poor weather conditions during the holiday period
at many of the Company's other resorts. The Company had no sales of real estate
during the six months ended May 1, 1998, as compared to $754,000 in the
comparable 1997 pro forma period.
Pro forma resort operating expenses, excluding depreciation, depletion and
amortization for the six months ended May 1, 1998 would have been $65,018,000,
an increase of $968,000, or 1.5%, over the comparable period in 1997. Pro forma
payroll related costs would have been $27,821,000, an increase of $1,357,000 or
5.1%, over the comparable 1997 period. The increase in pro forma payroll related
costs was due primarily to higher seasonal employment at Northstar and Sierra
due to the improved operating conditions and extended season.
53
<PAGE> 57
Pro forma depreciation, depletion and amortization for the pro forma six
month period ended May 1, 1998 was $8,552,000. The increase of $505,000 or 6.3%
over the 1997 period was due to higher average asset balances in the 1998
period.
Net interest expense for the pro forma six months ended May 1, 1998 would
have totaled $9,756,000, an increase of $1,246,000 or 14.6% from the comparable
period in 1997. The increase was due to interest expense on borrowings under the
Senior Credit Facility used to fund capital expenditures, maintenance activities
and normal seasonal working capital requirements in the off-season period of
1997.
Income tax expense for the pro forma six months ended May 2, 1997 of
$385,000 reflects the effective tax rate of 10.8% utilized for the year ended
October 31, 1997. As it was assumed that the effective rate for the year ended
October 30, 1998 will be zero, no additional income tax expense was recorded
during the pro forma six month period ended May 1, 1998.
Historical Year Ended October 31, 1997
For the year ended October 31, 1997, revenues totaled approximately $71.8
million, approximately $31.2 million, or 43.4%, of which was generated by
Northstar. Operating loss for the same period totaled approximately $1.0
million.
Both revenues and operating income were negatively impacted by the poor
weather conditions experienced by a number of the Company's resorts during the
1996/97 ski season. During the peak period of the 1996/97 ski season, the Lake
Tahoe region experienced significant rainfall, flooding and mudslides. The
inclement weather resulted in poor ski conditions at Northstar and Sierra and a
major access highway to Sierra being closed for several weeks during the first
quarter of the Company's fiscal year ended October 31, 1997. Furthermore, much
of the poor weather occurred during the Christmas holiday period, a
traditionally busy period at the Company's resorts. As a result, skier days and
resort revenue at Sierra were adversely impacted. Certain of the Company's other
resorts also experienced poor weather conditions during the year ended October
31, 1997, which resulted in a reduction in skier days, revenue and operating
income. Payroll related costs were $27.5 million for the year ended October 31,
1997, or approximately 38.3% of revenues. Operating loss is also net of
approximately $11.7 million of depreciation, depletion and amortization expenses
reflecting the stepped-up values of the recently acquired resorts.
Interest expense is primarily comprised of interest on $90 million in
bridge notes and $10 million in intercompany notes to Parent (together, the
"Bridge Financing Facilities"), which bore interest at approximately 11% per
annum through March 18, 1997, and on $116 million aggregate principal amount of
the Outstanding Series B Notes, which have borne interest at 12.5% per annum
since March 18, 1997.
Amortization of deferred financing costs relate primarily to fees
associated with the Bridge Financing Facilities and the Outstanding Series B
Notes. Unamortized fees associated with the Bridge Financing Facilities at March
18, 1997, the date the Bridge Financing Facilities were repaid, totaled
approximately $2.7 million and were written off and reflected as an
extraordinary loss on the early retirement of debt in the consolidated statement
of operations.
The effective income tax rate for the year ended October 31, 1997 was
10.8%. The Company has recorded a tax benefit of $1.7 million primarily to
reflect the benefit of operating losses generated during the period to the
extent of net deferred tax liabilities recorded in purchase accounting. For
financial reporting purposes, the remaining net deferred tax assets arising in
the year ended October 31, 1997, which relate principally to the Company's net
operating losses, have been fully offset by a valuation allowance.
Pro Forma Year Ended October 31, 1997 as Compared to the Pro Forma Year
Ended October 31, 1996
The following unaudited pro forma results of operations of the Company for
the years ended October 31, 1997 and 1996 assume that all the resort
acquisitions (including the Loon Mountain Acquisition) were made on November 1,
1995. These unaudited pro forma results of operations are not necessarily
indicative of the
54
<PAGE> 58
actual results of operations that would have been achieved nor are they
necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1997
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Resort Operations......................................... $ 92,666 $ 93,850
Real Estate and Other..................................... 4,657 3,975
-------- --------
97,323 97,825
Operating Expenses:
Resort Operations......................................... 75,662 82,999
Cost of Sales -- Real Estate and Other.................... 2,297 2,960
Depreciation, Depletion and Amortization.................... 15,579 15,795
-------- --------
Operating Income (Loss)..................................... 3,785 (3,929)
Interest Expense (net)...................................... 18,065 18,759
-------- --------
Pre-tax Loss................................................ (14,280) (22,688)
Income Tax Benefit.......................................... 1,548 --
-------- --------
Loss Before Minority Interest............................... (12,732) (22,688)
Minority Interest........................................... (281) (281)
-------- --------
Net Loss.................................................... $(13,013) $(22,969)
======== ========
OTHER DATA:
EBITDA.................................................... $ 20,971 $ 14,236
Noncash Cost of Real Estate Sales......................... 1,607 2,370
</TABLE>
Total pro forma revenue would have been $97.8 million for the year ended
October 31, 1997, an increase of $502,000, or .5%, over the comparable period in
1996. Northstar, Bear Mountain and the Summit generated increased revenues in
the 1997 period of 9.1%, 15.9%, and 10.6%, respectively, due primarily to skier
day increases of 10.1%, 29.1% and 9.2%, respectively, from the comparable period
of 1996. Skier day growth at Bear Mountain was partially offset by reduced
ticket prices, primarily due to a greater number of young adult and child
discounted tickets. Loon Mountain generated increased revenues in the 1997
period of 3.7% due to slight increases in both prices and skier days. Revenues
for Sierra, Waterville Valley, Cranmore and Grand Targhee for the 1997 period
decreased 20.6%, 8.1%, 5.0% and 10.3%, respectively, from the 1996 period. Road
closures for lengthy periods of time affecting Sierra and Grand Targhee
contributed substantially to their declines in revenue. Waterville Valley and
Cranmore experienced 10 days of rain during peak holiday periods which
contributed significantly to their respective declines. Real estate revenues in
the 1997 period declined $765,000 to $3.3 million, or 18.9%, from the 1996
period due to the Company's decision to sell fewer lots in the 1997 period at
Northstar.
Pro forma resort operating expenses, excluding depreciation, depletion and
amortization, for the year ended October 31, 1997 would have totaled $83.0
million, an increase of $7.3 million, or 9.7%, from the comparable period in
1996. Payroll related costs for the year ended October 31, 1997 would have been
$38.4 million, an increase of $4.7 million, or 14.0%, from the comparable period
in 1996. The increase in both total operating expenses and payroll related costs
was primarily due to the Company's larger resorts (Northstar, Sierra, Bear
Mountain and the Summit) being opened earlier in the 1996/97 ski season, which
resulted in 87 additional total operating days for those resorts and higher
operating expenses for the 1996/97 ski season as compared to the prior ski
season. The early openings of the resorts were due to more favorable weather
conditions at the start of the 1996/97 ski season in November and early
December, and were intended to generate improved momentum into the peak holiday
period. However, as described above, the Company's
55
<PAGE> 59
skier visits and revenues were negatively impacted by unfavorable weather
conditions and road closures during the holiday and other peak periods of the
1996/97 ski season. In addition, Bear Mountain incurred an additional $300,000
in snowmaking costs in the 1997 period as compared to the 1996 period and
several resorts had substantial snow removal costs in the 1996/97 ski season due
to heavy snowfall during certain parts of the season.
Pro forma cost of sales -- real estate and other for the pro forma year
ended October 31, 1997 totaled $3.0 million, an increase of $663,000 from the
comparable period in 1996. This increase is due primarily to increased costs
allocated to each parcel in the 1997 period as part of the purchase accounting
at Northstar effective December 3, 1996.
Pro forma depreciation, depletion and amortization for the pro forma year
ended October 31, 1997 was $15.8 million. The increase of $216,000 over the 1996
period was due to depreciation expense on assets placed in service in the 1997
period.
Net interest expense for the pro forma year ended October 31, 1997 totaled
$18.8 million, an increase of $694,000 from the comparable period in 1996. The
increase was due to interest expense on borrowings under the Senior Credit
Facility recognized in the 1997 period.
The income tax benefit for the pro forma year ended October 31, 1996 of
$1.5 million reflects the benefit of operating losses to the extent of net
deferred tax liabilities recorded in purchase accounting assuming that all the
resort acquisitions (including the Loon Mountain Acquisition) were made on
November 1, 1995. As it was assumed that all of the income tax benefit during
the year ended October 31, 1996 reduced deferred taxes to zero, no additional
income tax benefit was recorded during the year ended October 31, 1997 as it was
assumed that valuation allowances will fully offset the benefit of net operating
losses given the lack of profitability of the Company.
RESULTS OF OPERATIONS OF THE CALIFORNIA RESORTS
The Fibreboard Resort Group was acquired by the Company effective December
3, 1996, and its results of operations have been included in the Company's
consolidated results of operations since such date. The following review of the
performance of the Fibreboard Resort Group is for the audited periods ended
December 31, 1994 and 1995, the unaudited ten month period ended October 31,
1995 and the audited ten month period ended October 31, 1996.
56
<PAGE> 60
The following table summarizes the Fibreboard Resort Group's historical
results of operations as a percentage of revenue for the years ended December
31, 1995 and 1994, and for the ten month periods ended October 31, 1995 and
1996.
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
DECEMBER 31, OCTOBER 31,
----------------- -----------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues
-- Lift Tickets..................................... 50.8% 44.7% 42.7% 45.0%
-- Ski Related Resort............................... 38.5 35.1 34.0 34.0
-- Non-Ski Related Resort........................... 9.2 8.6 10.6 10.6
-- Real Estate and Timber........................... 1.5 11.6 12.7 10.4
----- ----- ----- -----
Total net revenues............................. 100.0 100.0 100.0 100.0
Cost of Sales -- Resort Operations.................. 65.0 63.4 58.6 65.5
Cost of Sales -- Real Estate and Other.............. 0.7 4.4 4.8 5.2
Selling, General and Administrative Expense......... 13.4 13.1 12.0 12.7
Corporate Allocations and Management Fees........... 1.6 2.8 1.4 1.7
----- ----- ----- -----
Operating Income.................................... 19.3 16.3 23.2 14.9
Interest (Income) Expense, Net...................... 1.6 1.8 0.9 2.9
----- ----- ----- -----
Pre-tax Income...................................... 17.7 14.5 22.3 12.0
Income Taxes........................................ 7.2 5.8 9.0 4.9
----- ----- ----- -----
Net Income.......................................... 10.5% 8.7% 13.3% 7.1%
===== ===== ===== =====
OTHER DATA:
EBITDA.............................................. 27.7% 28.9% 35.3% 29.0%
</TABLE>
Ten Months Ended October 31, 1996 as Compared to the Ten Months Ended
October 31, 1995
The ski resort industry is highly seasonal, with operations typically
commencing in November or December of each year, and closing in April or May.
The exclusion of the months of November and December from the 1996 and 1995
fiscal periods results in decreases in virtually all income statement captions
when compared to full fiscal periods.
Total revenue for the ten months ended October 31, 1996 was $41,117,000, an
increase of $4,386,000 or 11.9% from the comparable period in 1995. This
increase is attributable to the acquisition of Bear Mountain in October 1995,
which accounted for $7,147,000 of additional revenue during the ten month period
ended October 31, 1996. Partially offsetting this increase was a $2,390,000
decline in lift ticket and ski-related revenues at the Company's Northstar and
Sierra resorts, primarily resulting from fewer skier days, and a $371,000
decline in real estate and timber sales, primarily resulting from fewer
developmental real estate sales.
Skier days and revenue per skier day were 706,075 and $52.16 for the ten
months ended October 31, 1996, as compared to 626,500 and $51.19 for the
comparable period in 1995. The increase in skier days is attributable to the
acquisition of Bear Mountain in October 1995, which accounted for 174,984 of the
additional skier days. Skier days at the Company's Northstar and Sierra resorts
declined by 95,409 in the ten months ended October 31, 1996 as compared to the
comparable period in the prior year due to particularly favorable ski conditions
in the prior period.
Cost of sales for resort operations for the ten months ended October 31,
1996 increased by $5,414,000, or 25.1%, from the comparable period in the prior
year due to a $5,860,000 increase in costs resulting from the acquisition of
Bear Mountain in October 1995, offset by slightly lower cost of sales for resort
operations at Northstar and Sierra of approximately $500,000.
Selling, general, administrative and other operating expenses (including
management fees and corporate allocations) increased by $1,009,000, or 20.5%, in
the ten months ended October 31, 1996 as compared to the comparable period in
the prior year due to a $1,406,000 increase in costs resulting from the
acquisition of Bear
57
<PAGE> 61
Mountain in October 1995, offset by slightly lower selling, general,
administrative and other operating expenses at Northstar and Sierra.
Interest expense, net for the ten months ended October 31, 1996 increased
by $855,000 as compared to the same period in 1995 as a result of the advance
made by Fibreboard Corporation to the Resort Group in October 1995 to finance
the acquisition of Bear Mountain.
The provision for income taxes for the ten months ended October 31, 1996
decreased by $1,290,000 as compared to the comparable period in 1995 due to the
decrease in income subject to income tax. The effective income tax rate for the
ten months ended October 31, 1996 was 41.1%, as compared to 40.5% for the same
period in 1995.
EBITDA for the ten months October 31, 1996 was $11,919,000, a decrease of
$1,061,000, or 8.2%, from the comparable period in the prior year. EBITDA margin
decreased from 35.3% during the ten months ended October 31, 1995 to 29.0%
during the comparable 1996 period.
Year Ended December 31, 1995 as Compared to the Year Ended December 31,
1994
Total revenue for 1995 was $45,036,000, an increase of $3,616,000, or 8.7%,
from 1994. This increase is attributable to the completion and sale of
residential lots at the Big Springs development at Northstar, which accounted
for an increase in revenue in 1995 of $4,418,000. Partially offsetting this
increase was a $802,000 decline in lift ticket and ski-related revenues,
primarily as a result of fewer skier days.
Skier days and revenue per skier day were 784,964 and $50.73 for 1995, as
compared to 837,179 and $48.75 for 1994. The operating season is dependent on
favorable snow conditions, and in 1995 the season did not open until
mid-December due to unusually warm weather and low precipitation. Revenue per
skier day increased in 1995 as a result of increased lift ticket prices.
Costs of sales for resort operations for 1995 increased by $1,649,000, or
6.1%, from the prior year, primarily as a result of increased costs resulting
from the acquisition of Bear Mountain.
Selling, general, administrative and other operating expenses increased by
$326,000, or 5.9%, from 1994 to 1995. This increase was due to the formation of
the Fibreboard Resort Group, which was necessitated by the acquisition of Bear
Mountain, which added resort operating personnel, and the expansion of
management training programs. Prior to this time, management at Northstar
oversaw both Northstar and Sierra. Management fees allocated to the Fibreboard
Group for 1995 increased by $592,000, or 90.4%, from 1994 due principally to the
effects of a nonrecurring supplemental allocation of Fibreboard Corporation's
corporate expenses to its various operating subsidiaries and divisions in 1995.
Net interest expense increased by $155,000 over the prior year. This
increase is due to an increase in intercompany interest of $488,000 charged to
the California Resorts by Fibreboard Corporation, as Fibreboard Corporation did
not charge intercompany interest in 1994. This increase was partially offset by
a decrease in interest expense to third parties of $302,000, as the Company paid
all of its outstanding debt to third parties during 1995, and an increase in
interest income of $31,000.
For 1995, the tax rate applied to the California Resorts was 40%, a
decrease from the rate of 40.5% applied in 1994.
EBITDA for 1995 was $13,002,000, an increase of $1,533,000, or 13.4%, from
1994. EBITDA margin increased from 27.7% in 1994 to 28.9% in 1995.
RESULTS OF OPERATIONS OF WATERVILLE VALLEY
The following review of the performance of Waterville Valley is for the
audited fiscal periods ended October 31, 1995 and October 27, 1996. Waterville
Valley was sold by S-K-I Limited to American Skiing Company effective June 30,
1996. Accordingly, for the financial statements covering periods subsequent to
June 30, 1996, purchase price accounting was reflected. Therefore, the pre- and
post-acquisition financial statements of Waterville Valley reflect different
bases of accounting which can significantly impact
58
<PAGE> 62
depreciation, amortization, interest and related tax expenses. However, for
purposes of the following discussion regarding fiscal 1996 and fiscal 1995
activity, the pre- and post-acquisition financial information has been combined
to provide the reader with an indication of the trend of results. Such combined
information is referred to herein as "Combined 1996" information. The following
table summarizes Waterville Valley's historical results of operations as a
percentage of revenue for the year ended October 31, 1995 and Combined 1996.
<TABLE>
<CAPTION>
COMBINED
1995 1996
---- --------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... 100.0% 100.0%
Cost of Sales............................................... 48.3 49.1
----- -----
Gross Margin................................................ 51.7 50.9
Other Costs and Expenses.................................... 39.7 38.7
Depreciation and Amortization............................... 11.3 10.5
----- -----
Income from Operations...................................... 0.7 1.7
Interest Expense............................................ 1.0 0.8
----- -----
Income (Loss) Before Income Taxes........................... (0.3) 0.9
Income Tax Expense (Benefit)................................ (0.1) 3.9
----- -----
Net Income............................................. (0.2)% (3.0)%
===== =====
OTHER DATA:
EBITDA...................................................... 12.0% 12.2%
</TABLE>
Year Ended October 27, 1996 as Compared to the Year Ended October 31, 1995
Combined 1996 revenue increased by $2,081,000, or 22%, over fiscal 1995
revenue of $9,653,000. The revenue increase was primarily due to more favorable
weather conditions, including a significant increase in snowfall (203 inches in
fiscal 1996 vs. 101 inches in fiscal 1995) which contributed to a 23.7% increase
in skier days. In addition, fiscal 1995 revenue was negatively impacted by
problems with the high-speed quad lift which was non-operational for two and
one-half weeks in December 1994. Skier days and revenue per skier day were
256,563 and $45.73 for 1996, as compared to 207,386 and $46.55 in 1995.
Cost of sales as a percent of revenue increased slightly to 49.1% in the
Combined 1996 fiscal period compared to 48.3% in fiscal 1995.
Due to increased revenue volumes in fiscal 1996, the other costs and
expenses and depreciation and amortization percentages of revenue decreased
slightly in the Combined 1996 fiscal period as compared to 1995 due to the fixed
nature of certain of these expenses.
The tax provision for the Combined 1996 fiscal period is significantly
higher than the prior year due to the inability in the post-acquisition period
to recognize the tax benefits of the operating losses generated.
EBITDA for the Combined 1996 period was $1,431,000, an increase of
$272,000, or 23.5%, from 1995 EBITDA of $1,159,000. EBITDA margin increased from
12.0% in 1995 to 12.2% in 1996.
RESULTS OF OPERATIONS OF THE SUMMIT AT SNOQUALMIE
Ski Lifts, Inc. ("Ski Lifts"), the owner and operator of the Summit, was
acquired by the Company effective January 15, 1997, and its results of
operations have been included in the Company's consolidated results of
operations since such date. The following review of the performance of Ski Lifts
is for the audited fiscal periods ended September 30, 1995 and 1996, the
estimated unaudited three and one-half month period ended January 15, 1996 and
the audited three and one-half month period ended January 15, 1997. The
comparison of the three and one-half month period ended January 15, 1997 to the
four month period ended January 31, 1996, as summarized in the historical
financial statements, would significantly impact revenues, cost of sales,
general, administrative and other expenses as the second half of January is a
significant revenue producing period. Thus, as noted above, this discussion
covers the two three and one-half month periods ended
59
<PAGE> 63
January 15, 1997 and 1996 based on audited results through January 15, 1997 and
estimated unaudited results through January 15, 1996.
The following table summarizes Ski Lifts' historical results of operations
as a percentage of revenue for the years ended September 30, 1995 and 1996 and
the three and one-half month periods ended January 15, 1996 and 1997.
<TABLE>
<CAPTION>
THREE AND ONE-HALF
YEAR ENDED MONTHS ENDED
SEPTEMBER 30, JANUARY 15,
---------------- -------------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. 100.0% 100.0% 100.0% 100.0%
Operating Salaries, Wages and Other Employee Costs........ 48.0 48.6 54.7 51.3
General, Administrative and Other Operating Expenses...... 30.5 32.1 45.3 35.6
Other Operating Expenses.................................. 15.9 16.4 19.5 15.4
----- ----- ----- -----
Gross Margin.............................................. 5.6 2.9 (19.5) (2.3)
Other Costs and Expenses (Income), Net.................... 3.2 3.0 (0.2) 2.8
----- ----- ----- -----
Income (Loss) from Operations............................. 2.4 (0.1) (19.3) (5.1)
Income Tax Expense (Benefit).............................. (3.7) -- -- --
----- ----- ----- -----
Net Income (Loss)......................................... 6.1% (0.1)% (19.3)% (5.1)%
===== ===== ===== =====
OTHER DATA:
EBITDA.................................................... 15.3% 13.2% (2.4)% 5.6%
</TABLE>
Three and One-Half Months Ended January 15, 1997 as Compared to the Three
and One-Half Months Ended January 15, 1996
Ski Lifts was acquired by the Company effective January 15, 1997. The
discussion below compares the results of operations of Ski Lifts prior to its
acquisition by the Company and since its last completed fiscal year to the
comparable period in the prior year. The operating data presented are based on
audited results through January 15, 1997 and estimated unaudited results through
January 15, 1996.
Total revenues for the 1997 period were $3,511,000, an increase of
$890,000, or 34% from the 1996 period. The increase resulted from increased
operating days and skier visits.
Skier days and revenue per skier day were 167,708 and $20.93 for the 1997
period, as compared to 112,985 and $23.20 for 1996 period. There were 47
operating days through January 15, 1997 as compared to 33 operating days through
January 15, 1996. The Summit's ski areas opened November 22, 1996 for the
1996/97 season as compared to December 9, 1995 for the 1995/96 season. Revenue
per skier day was lower for the 1997 period as compared to the 1996 period as a
result of the ski areas being closed for six days from December 26, 1996 through
January 1, 1997 due to highway closures from avalanche danger and severe weather
conditions. This six day closure was largely responsible for the decrease in
revenue per skier day in the 1997 period as these were higher holiday priced
days. Additionally, the early season days are priced at lower rates initially
until all four ski areas comprising the Summit are in full operation. Due to the
late start in the 1995/96 season, there were fewer days when the lower rates
were in effect.
Operating salaries, wages and other employee costs for the 1997 period
increased by $368,000, or 25.7%, as compared to the 1996 period. The higher
labor costs were due to the earlier start of the 1996/97 ski season as well as
increased labor costs associated with additional snow grooming and removal
required as a result of unusually heavy snowfall during late December and early
January.
General, administrative and other operating expenses for the 1997 period
increased by $63,000, or 5.3%, as compared to the 1996 period. This increase was
due, in part, to increased maintenance, gas, oil, diesel and electricity charges
incurred as a result of the unusually large snowfall experienced at the areas
during 1997, as discussed above. The remaining increase was a result of the
increased number of operating days and skier visits in the 1997 period as
compared to the 1996 period.
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Net interest expense for the 1997 period was approximately $113,000 as
compared to approximately $110,000 for the 1996 period.
EBITDA for the 1997 period was $197,000, an increase of $260,000 from the
1996 period. EBITDA margin increased from (2.4%) in the 1996 period to 5.6% in
the 1997 period due to the increased number of operating days and skier visits
in the 1997 period, which resulted in higher revenues.
Year Ended September 30, 1996 as Compared to the Year Ended September 30,
1995
Total revenues for 1996 were $9,451,000, a decrease of $1,219,000, or
11%,from 1995, primarily due to a shorter operating season. Lift revenues, which
comprised 65% of total revenue in 1996, declined by $922,000, or 13%, from 1995,
while ski rental revenue decreased by 12%. For 1996, the operating ski season
lasted only 117 days, as compared to 158 days for 1995, because of unfavorable
weather conditions.
Skier days and revenue per skier day were 455,240 and $20.76 for 1996, as
compared to 515,487 and $20.69 for 1995. The operating season is dependent on
favorable snow conditions, and in 1996 the season did not open until
mid-December, as compared to mid-November in 1995, due to lack of snow, and
after opening snow coverage was minimal, resulting in lower than average skier
days in December. In addition, in February of 1996 there were unusual weather
patterns which resulted in significantly fewer skier days than in the prior
year. Snow conditions and the quantity of snow most directly impact the number
of skier days, and therefore total revenue.
Operating salaries, wages and other employee costs for 1996 were
$4,595,000, a decrease of $525,000, or 10%, from 1995. The decrease resulted
from the shorter operating season due to the later opening of the resort which
was offset by a profit sharing contribution of $162,000 in 1996. The Summit
employs approximately 60 year-round employees and 1,000 seasonal employees.
Thus, with a shorter operating season, employee costs decreased in proportion to
overall lift revenues. As a result of the poor operating season in 1996, a large
number of year-round employees were laid off for a period of four to ten weeks,
whereas in 1995 the same group of employees were laid off for a two week period.
General, administrative and other operating expenses decreased by $218,000,
or 6.6%, from 1995 to 1996. This decrease was primarily due an overall decrease
in the number of operating days.
Interest expense increased by $37,500 from 1995 to 1996, due primarily to
higher average borrowings.
For 1995, Ski Lifts recognized a tax benefit of $408,000 for the
elimination of certain deferred tax balances upon conversion to S Corporation
status for federal income tax purposes.
EBITDA for 1996 was $1,251,000, a decrease of $378,000, or 23.2%, from
1995. EBITDA margin decreased from 15.3% in 1995 to 13.2% in 1996.
RESULTS OF OPERATIONS OF GRAND TARGHEE
Grand Targhee Incorporated was acquired by the Company on March 18, 1997,
and its results of operations have been included in the Company's consolidated
results of operations since such date. The following review of the performance
of Grand Targhee Incorporated is for the audited fiscal periods ended May 31,
1995 and 1996 and the nine and one-half month periods ended March 18, 1996 and
1997. The comparison of the nine and one-half month period ended March 18, 1997
to the ten month period ended March 31, 1996, as summarized in the historical
financial statements, would significantly impact revenues, direct expenses, and
other costs and expenses as the second half of March is a significant revenue
producing period. Thus, as noted above, this discussion covers the two nine and
one-half month periods ended March 18, 1997 and 1996 based on audited results
through March 18, 1997 and estimated unaudited results through March 18, 1996.
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The following table summarizes Grand Targhee Incorporated's historical
results of operations as a percentage of revenue for the years ended May 31,
1995 and 1996 and the nine and one-half month periods ended March 18, 1996 and
1997.
<TABLE>
<CAPTION>
NINE AND ONE-HALF
YEAR ENDED MONTHS ENDED
MAY 31, MARCH 18,
------------------- -------------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. 100.0% 100.0% 100.0% 100.0%
Direct Expenses.......................... 55.1 56.4 53.1 65.7
----- ----- ----- -----
Gross Margin............................. 44.9 43.6 46.9 34.3
Other Costs and Expenses................. 40.7 39.5 35.6 47.3
----- ----- ----- -----
Income (Loss) Before Income Taxes........ 4.2 4.1 11.3 (13.0)
Income Tax Expense (Benefit)............. 1.2 1.0 3.9 (2.4)
----- ----- ----- -----
Net Income (Loss)........................ 3.0% 3.1% 7.4% (10.6)%
===== ===== ===== =====
OTHER DATA:
EBITDA................................. 15.7% 16.6% 20.8% 2.9%
</TABLE>
Nine and One-Half Months Ended March 18, 1997 as Compared to the Nine and
One-Half Months Ended March 18, 1996
Total revenues for the nine and one-half months ended March 18, 1997 were
$5,639,000, a decrease of $914,000, or 14% as compared to the same period in
1996. Revenues from lift ticket and season pass sales, which comprised 32% of
the 1997 period's total revenue, decreased $501,000 or 22% from the 1996 period.
This decrease was due primarily to a 18.7% decrease in skier days. Actual 1997
period skier days were 94,898 as compared to 116,696 in the 1996 period. Skier
days in the current period were significantly impacted by poor weather
conditions which limited access to the resort, particularly during the Christmas
holiday season, and delays in the completion of a new high-speed detachable quad
lift which became operational on January 27, 1997.
The remaining decrease in revenues is attributable to lower revenues from
food, beverage, retail merchandise and other guest services resulting from fewer
skiers and lodging guests. Total revenue per skier increased to $59.42 in 1997
as compared to $56.16 in 1996.
Direct expenses in the 1997 period were $3,706,000, or 65.7% of revenues,
as compared to $3,476,000, or 53.1% of revenues, in the 1996 period. The
increase in direct expenses as a percentage of revenue was primarily due to
fewer skiers and the relatively high level of direct expenses that are fixed in
nature. As a result, gross margin decreased from 46.9% in the 1996 period to
34.3% in the 1997 period.
Other costs and expenses increased from $2,334,000 in the 1996 period to
$2,669,000 in the 1997 period. This increase, in conjunction with declining
revenues, caused other costs and expenses to increase as a percentage of
revenues from 35.6% to 47.3%. The increase in other costs and expenses as a
percent of revenue was due to fewer skiers and the fixed nature of these costs
and expenses.
Other costs and expenses included interest expense, which decreased $13,000
or 12% from the 1996 period due to lower debt levels, and $54,000 of land
abandonment costs in the 1997 period related to the failed attempt to swap
certain real estate.
EBITDA for the 1997 period was $163,000, a decrease of $1,201,000 from
$1,364,000 in the 1996 period. EBITDA margin was 2.9% in the 1997 period
compared to 20.8% in the 1996 period.
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Year Ended May 31, 1996 as Compared to the Year Ended May 31, 1995
Total revenues for 1996 were $7,376,000, an increase of $614,000, or 9%,
over 1995. Revenues from lift ticket and season pass sales, which comprised 36%
of 1996 total revenues, increased $143,000, or 6%, over 1995. This increase was
due to a 7% increase in lift ticket revenue per skier, offset by a 1% decrease
in skier days. Actual 1996 skier days were 116,696 as compared to 117,772 skier
days in 1995. Skier days were not significantly impacted by the length of the
ski season, which was 148 days in 1996, 8 days shorter than the 156 days in
1995.
The remaining increase in revenues is attributable to a higher level of
spending by both skiers and lodging guests for food, beverage, retail
merchandise and other guest services. Total revenue per skier (excluding lodging
revenue) increased by 11% from $38.64 per skier in 1995 to $42.91 per skier in
1996. Total revenues per lodging guest (excluding lift ticket revenue) were
$63.53, a 7.6% increase from 1995. The number of lodging guests in 1996 was
37,987, a 1% decrease from 1995. Increased spending by skiers and lodging guests
is primarily due to new guest facilities at the resort, including a restaurant,
liquor store, snowboard retail shop and spa.
Direct expenses in 1996 were $4,159,000, or 56.4%, of revenues, as compared
to 55.1% of revenues in 1995. The increase in direct expenses as a percentage of
revenues is primarily due to an increase in direct labor costs resulting from
the hiring of additional staff to operate new guest facilities and a change in
the employee benefit package which increased the percentage of insurance
benefits paid by the Company. As a result of these increases, gross margin
decreased from 44.9% in 1995 to 43.6% in 1996.
Other costs and expenses increased by $167,000 from $2,751,000 in 1995 to
$2,918,000 in 1996 but decreased as a percentage of revenues from 40.7% in 1995
to 39.5% in 1996. The decrease as a percentage of revenues was generally due to
management's efforts to control general and administrative marketing costs, a
$32,000 reduction in lease expense related to employee housing and a $54,000
reduction in interest expense due primarily to lower average borrowings.
Significant increases in other costs and expenses included $99,000 of costs
related to an abandoned land exchange, a $43,000 loss on disposition of
miscellaneous assets and a $43,000 write-off of the net book value of the
Shoshone lift which was replaced in fiscal 1997.
EBITDA for 1996 was $1,225,000, an increase of $159,000, or 14.9%, from
1995. EBITDA margin increased from 15.7% in 1995 to 16.6% in 1996.
RESULTS OF OPERATIONS OF LOON MOUNTAIN
The following review of the performance of LMRC, is for the audited fiscal
years ended April 30, 1997 and 1996, and the unaudited nine month periods ended
January 26, 1997 and January 30, 1998.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, NINE MONTHS ENDED (UNAUDITED)
--------------------- -----------------------------------
1996 1997 JANUARY 26, 1997 JANUARY 30, 1998
---- ---- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues...................................... $14,793 $15,726 $ 8,307 $ 8,982
Expenses
Operating expenses.......................... 11,975 12,192 8,362 9,072
Depreciation and amortization............... 1,752 1,884 1,093 1,125
Interest expense............................ 763 910 789 696
------- ------- ------- -------
Income (loss) before income taxes............. 303 740 (1,937) (1,911)
Income tax expense (benefit).................. 118 299 (775) (765)
------- ------- ------- -------
Net income (loss)............................. $ 185 $ 441 $(1,162) $(1,146)
======= ======= ======= =======
EBITDA........................................ $ 2,818 $ 3,534 $ (55) $ (90)
</TABLE>
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Nine Months Ended January 30, 1998 as Compared to the Nine Months Ended
January 26, 1997
Total revenues for the nine months ended January 30, 1998 were $8,982,000,
an increase of $675,000 as compared to the same period in 1997. The increase is
primarily due to increased paid skier days of approximately 13%.
Operating expenses for the nine months ended January 30, 1998 were
$9,072,000, an increase of $710,000, or 8.5%, as compared to the same period in
1997. Most categories of operating expenses were generally consistent in each
period. Outside services increased $444,000 due primarily to costs incurred in
connection with the planned sale of Loon Mountain.
Depreciation and amortization expense was $1,125,000 for the nine months
ended January 30, 1998. The increase of $32,000 over the 1997 period was due to
higher average assets in service in the 1998 period.
The income tax benefit for the nine months ended January 30, 1998 was
$765,000, a decrease of $10,000 over the 1997 period. The effective income tax
rate in each period was 40%.
Year Ended April 30, 1997 as Compared to the Year Ended April 30, 1996
Total revenues for the year ended April 30, 1997 were $15,726,000, an
increase of $933,000, or 6.3%, as compared to the same period in 1996.
Ski-related revenues for the year ended April 30, 1997, which include winter
lift revenue, ski school and ski rental and repair, increased $580,000, or 6.0%,
over the 1996 period. Total skier days were 340,077 for the 1997 period, a
slight increase over the 1996 period. Improvements in ticket yields accounted
for the remainder of the increase in ski-related revenues. Food and beverage
revenues for the year ended April 30, 1997 increased $468,000 as compared to the
same period in 1996. The increase in food and beverage revenues was primarily
due to operation of the Mountain Club restaurant facilities for a full year in
the 1997 period, as compared to six months of operations in the 1996 period, as
these restaurants were previously operated by an outside party under a
concessionaire arrangement.
Operating expenses for the year ended April 30, 1997 were $12,192,000, an
increase of $217,000, or 1.8%, as compared to the same period in 1996. The
effects of higher labor costs for the operation of the Mountain Club restaurants
were offset by lower spending for insurance and marketing activities.
Depreciation and amortization expense was $1,884,000 for the year ended
April 30, 1997. The increase of $132,000 over the 1996 period was due to higher
average assets in service in the 1997 period.
Interest expense for the year ended April 30, 1997 was $910,000, an
increase of $147,000 as compared to the same period in 1996. The increase was
due to higher average borrowings outstanding in the 1997 period, and lesser
amounts of interest capitalized for self-constructed assets in the 1997 period
as compared to the 1996 period.
Income tax expense for the year ended April 30, 1997 increased $181,000
over the 1996 period, due to the increase in income subject to tax. The
effective income tax rate was 40.5% and 39.0% in the 1997 and 1996 periods,
respectively.
EBITDA for the year ended April 30, 1997 was $3,534,000, an increase of
$716,000 as compared to the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund capital expenditures,
service indebtedness and support seasonal working capital requirements. The
Company's primary sources of liquidity are cash flow from operations and
borrowings under the Senior Credit Facility. Virtually all of the Company's
operating income is generated by its subsidiaries. As a result, the Company is
dependent on the earnings and cash flow of, and dividends and distributions or
advances from, its subsidiaries to provide the funds necessary to meet its debt
service obligations. The Senior Credit Facility currently provides for borrowing
availability of up to $25.0 million during the term of such facility. The Senior
Credit Facility requires that the Company not have borrowings thereunder in
excess of $6.0 million between February 15 and two business days preceding March
15
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of each year, have no borrowings on the business day preceding March 15 of each
year and not have borrowings in excess of $6.0 million between March 15 and
April 15 of each year ($7.5 million between March 15, 1998 and April 15, 1998).
The Company intends to use borrowings under the Senior Credit Facility to meet
seasonal fluctuations in working capital requirements, primarily related to
off-season operations and maintenance activities during the months of May
through October, to fund capital expenditures for lifts, trail work, grooming
equipment and other on-mountain equipment and facilities and to build retail and
other inventories prior to the start of the skiing season and for other cash
requirements.
While the Company's ski resorts typically generate significant amounts of
cash during the ski season, the Company had working capital deficits of $26.6
million and $19.9 million as of October 31, 1997 and May 1, 1998, respectively,
which will negatively affect liquidity during the remainder of 1998.
During the year ended October 31, 1997 the Company generated $1.6 million
of cash provided by operating activities. The cash used in investing activities
for the same period totalled $152.7 million, representing primarily the
acquisition of ski resorts and various capital expenditures. Such expenditures
were funded through capital contributions and long-term debt borrowings, which
were the primary components of cash provided by financing activities of $151.6
million during the year ended October 31, 1997.
The Company generated cash provided by operating activities of $22.4
million for the six months ended May 1, 1998 as compared to $13.6 million for
the six months ended May 2, 1997. This increase is due to the significantly
improved operating results in the 1998 period, the inclusion of all resorts for
the full period in 1998 (except for Loon Mountain which has been included in
1998 operations since February 26, 1998) and the timing of payments of accounts
payable.
Cash used in investing activities totalled $35.8 million and $144.6 million
for the six months ended May 1, 1998 and May 2, 1997, respectively. The results
for the 1998 period reflect primarily capital expenditures and the Loon Mountain
Acquisition, whereas the results for the 1997 period include $142.1 million of
cash used for the acquisition of ski resorts.
Cash provided by financing activities totalled $15.2 million and $139.7
million for the six months ended May 1, 1998 and May 2, 1997, respectively. The
results for the 1998 period reflect net borrowings and receipt of additional
capital contributions to fund the Loon Mountain Acquisition. The results for the
1997 period reflect borrowings on long-term debt and capital contributions used
to fund the ski resort acquisitions.
The Company's capital expenditures for the year ended October 31, 1997 and
the six months ended May 1, 1998 were approximately $9.5 million and $6.4
million, respectively, and were funded by cash provided by operating activities
and borrowings under the Senior Credit Facility. Management anticipates that
annual capital expenditures in each of fiscal 1998 and 1999 will be
approximately $8.0 million to $10 million for resort maintenance and safety and
for resort upgrades that management deems appropriate. The Company plans to fund
these capital expenditures from available cash flows, vendor financing to the
extent permitted under the Senior Credit Facility and the Indenture and
borrowings under the Senior Credit Facility. Commitments for future capital
expenditures through 1999 totaled approximately $3.5 million at October 31,
1997.
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 capital expenditure program described above is regarded by
management as important, both as to timing and scope, discretionary capital
spending above maintenance levels can be deferred, in some instances for
substantial periods of time, in order to address cash flow or other constraints.
With respect to the Company's potential real estate development opportunities,
management believes that such efforts will enhance ski-related revenues and will
contribute independently to earnings. In addition, with respect to significant
development projects, the Company anticipates entering into joint venture
arrangements that would reduce infrastructure and other development costs.
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 is not regarded by management as likely
to adversely affect skier days and ski-related revenues or profitability. The
Company also believes that its current infrastructure is sufficient, and that
development of real estate opportunities is not presently necessary, to support
its existing operations.
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The Company's liquidity is significantly affected by its high leverage. As
a result of its leveraged position, the Company has significant cash
requirements to service debt and funds available for working capital, capital
expenditures, acquisitions, dividends to Parent and general corporate purposes
are limited. In addition, the Company's high level of debt increases its
vulnerability to competitive pressures and the seasonality of the skiing and
recreational industries. Any decline in the Company's expected operating
performance could have a material adverse effect on the Company's liquidity and
on its ability to service its debt and make required capital expenditures. See
"Risk Factors -- High Level of Indebtedness and Leverage." Further, upon the
occurrence of a Change of Control, the Company may be required to repurchase the
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest.
The occurrence of a Change of Control may also constitute a default under the
Senior Credit Facility. See "Risk Factors -- Change of Control" and "Description
of the Notes -- Change of Control."
In addition, the Senior Credit Facility and the Indenture each contain
certain covenants that significantly limit the Company's ability to obtain
additional sources of capital and may affect the Company's liquidity. These
covenants restrict the ability of the Company and its Restricted Subsidiaries
to, among other things, incur additional indebtedness, create liens, make
investments, consummate certain asset sales, create subsidiaries, issue
subsidiary stock, consolidate or merge with any other person, or transfer all or
substantially all of the assets of the Company. See "Risk Factors --
Restrictions under Debt Agreements," and "Description of the Notes -- Certain
Covenants."
The Company currently has $133.5 million of Notes outstanding which will
result in annual cash interest requirements of approximately $16.7 million. The
Company expects that cash generated from operations, together with borrowing
availability, will be adequate to fund the interest requirements on the Notes
and the Company's other capital needs. However, any decline in the Company's
expected operating performance could have a material adverse effect on the
Company's liquidity. In such case, the Company could be required to attempt to
refinance all or a portion of its existing debt, sell assets or obtain
additional financing. See "Risk Factors -- High Level of Indebtedness and
Leverage."
The Company believes that inflation has had little effect on its results of
operations and any impact on costs has been largely offset by increased pricing.
The Company is currently in the process of evaluating its computer software
and hardware for problems associated with the Year 2000. Although a final
assessment has not been completed, the Company believes that the costs to be
incurred will not be material to the overall presentation of the consolidated
financial statements.
SEASONALITY
The business of the Company is highly seasonal, with the vast majority of
its annual revenues expected to be generated between November and April of each
fiscal year. Management considers it essential to achieve optimal operating
results during key holidays and weekends during this period. The Company has
sought to mitigate the downside risk of its seasonal business by purchasing a
skier day insurance policy for the 1997/98 ski season. During the off-season
months of May through October, the Company's resorts typically experience a
substantial reduction in labor and utility expense due to the absence of ski
operations, but make significant expenditures for maintenance, expansion and
capital improvement in preparation for the ensuing ski season. See "Risk Factors
- -- Dependence on Weather Conditions; Seasonality."
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BUSINESS
OVERVIEW
Booth Creek owns and operates eight ski resort complexes encompassing
eleven separate resorts, making the Company the fourth largest operator in North
America based on approximately 2.2 million skier days recorded during the
1996/97 ski season at such resorts. Booth Creek primarily operates regional ski
resorts which, in the aggregate, attract approximately 85% of their guests from
their regional ski markets, within a 200 mile driving radius of each resort. The
Company's properties offer approximately 9,281 acres of skiable terrain, 392
trails, 92 lifts (including 15 high-speed lifts) and on-mountain capacity to
accommodate approximately 56,000 guests daily. For the year ended October 31,
1997 and the six months ended May 1, 1998, the Company's resorts generated
approximately $97.8 and $98.5 million of pro forma revenue, respectively, $14.2
million and $33.5 million of pro forma EBITDA, respectively and $(21.2) million
and $15.0 million of pro forma net income (loss), respectively. Pro forma EBITDA
for the twelve months ended May 1, 1998 was $27.1 million, a significant
improvement over the pro forma EBITDA for the twelve months ended October 31,
1997 of $14.2 million.
The Company was organized by a group of investors led by Mr. George
Gillett, Jr. in 1996 and was incorporated in Delaware on October 8, 1996. In
November 1996, the Company started its operations by acquiring Waterville Valley
Ski Resort, Inc., the operator of Waterville Valley, and Mount Cranmore Ski
Resort, Inc., the operator of Mount Cranmore. In December 1996, the Company
acquired Trimont Land Company, the operator of Northstar-at-Tahoe,
Sierra-at-Tahoe, Inc., the operator of Sierra-at-Tahoe, and Bear Mountain, Inc,
the operator of Bear Mountain, each of which is located in California. In
January 1997, the Company acquired the Summit at Snoqualmie ski resort complex,
which consists of four separate and distinct resorts in the Cascade Mountains of
Washington, through the Company's acquisition of Ski Lifts, Inc. ("Ski Lifts"),
the owner and operator of the ski resort assets of the Summit.
In March 1997, the Company acquired the Grand Targhee ski resort in the
Grand Tetons in Wyoming, which is owned by Grand Targhee Incorporated, the
parent corporation of B-V Corporation, Targhee Company and Targhee Ski Corp. On
February 26, 1998, the Company acquired LMRC, the owner and operator of the Loon
Mountain ski resort located in New Hampshire and wholly-owned by LMRC Holding
Corp., which provides facilities for skiing, other outdoor recreational
activities, food and hospitality services. Loon Realty Corp., a wholly-owned
subsidiary of LMRC, owns land adjacent to land owned or leased by LMRC, which is
currently held for future development.
The Company is a wholly-owned subsidiary of Booth Creek Ski Group, Inc. and
has engaged in certain financing transactions with Parent. See "Certain
Transactions -- The Financing Transactions" and "Certain Transactions --
Stockholders Agreement."
Booth Creek, Inc. (the "Management Company") provides management services
to the Company, the Parent, and the Company's subsidiaries pursuant to the
Management Agreement dated November 27, 1996 (the "Management Agreement")
between the Company and the Management Company. See "Certain Transactions --
Management Agreement with Booth Creek, Inc."
Under the terms of the Management Agreement, the Company provides customary
indemnification, reimburses certain costs and pays the Management Company an
annual management fee of $350,000 plus an operating bonus, not to exceed
$400,000, equal to 2.5% of the excess of Consolidated EBITDA (as defined in the
Securities Purchase Agreements) for such year over $25 million. The operating
bonus for each fiscal year must be paid within 15 days after Parent receives its
fiscal year-end audited financial statements for that year. The Company pays the
Management Company amounts necessary to cover operations costs (other than
office operations costs but including, without limitation, reasonable travel and
entertainment costs) of the Management Company attributable to, arising out of,
in connection with, or related to management services rendered to the Company or
any of its subsidiaries by the Management Company. In addition, the Company
reimburses the Management Company for any other costs or expenses incurred by
the Management Company in connection with independent third party professionals
or persons with respect to its management services.
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The Company's resort properties are primarily located near major skiing
populations, including four of the five largest regional ski markets: Los
Angeles/San Diego, San Francisco/Sacramento, Boston and Seattle/Tacoma. The
Company believes this geographical diversification serves to limit the Company's
exposure to regional economic downturns and unfavorable weather conditions.
The Company's California Resorts have introduced what management believes
to be one of the industry's leading marketing programs, Vertical Plus, an
electronic annual frequent skier program designed to build customer loyalty,
increase visitation frequency and maximize guest revenue yields. In addition,
the Company has introduced another frequent skier program, Vertical Value, which
offers incentives for frequent visitation at all of the Company's resorts. The
Company also uses targeted advertising, database marketing and strategic
marketing alliances to enhance the image of its resorts and increase regional
market share. The Company also offers extensive development programs to improve
the technical skill level of all types of skiers, which management believes is
important to expand the total skier population and increase skier visitation
frequency. Northstar and Sierra are consistently rated by consumer publications
as having premier ski instruction and development programs. The Company intends
to implement similar skier development programs at its other resorts in future
ski seasons.
The Company believes that one of its most important assets is its
experienced and guest-oriented management team. George N. Gillett, Jr., Chairman
of the Board of Directors and Chief Executive Officer of the Company, has 14
years of experience operating ski resorts, including the Vail Ski Resort, which
during his association as owner and Chairman became the largest ski mountain
complex, and one of the most profitable ski resorts, in North America. Each of
the Company's resorts is managed by an on-site resort executive with extensive
local experience and industry expertise. See "Management."
OPERATING STRATEGY
The Company's objective is to enhance the operating results and value of
its resort properties by pursuing a strategy based on the following elements:
Continually Enhance the Guest Experience. In addition to offering
accessible locations, the Company is committed to providing a high-quality
guest experience by offering a diversity of terrain, consistent snow
conditions (the Company's most weather-sensitive resorts have snowmaking
coverage on nearly 100% of their trails), state-of-the-art ski lift
capacity, attractive facilities, a friendly atmosphere and extensive skier
development programs. The Company believes the physical condition of its
resorts is very competitive with other regional resorts, and will continue
to selectively enhance and expand its resorts in order to continuously
offer a diverse and competitively-priced, high-quality skiing experience.
Incorporate Sophisticated Management Information Systems. The
Company's resorts, other than Loon Mountain, utilize what management
believes is one of the industry's premier management information systems,
providing daily statistical and financial information on all operating
departments within each resort. This system enables management to
continuously monitor and align staffing and services to meet market
demands, while enhancing the quality and timing of communications and
decisions. The Company plans to integrate Loon Mountain into its management
information system in the near future.
Develop Effective Marketing Plans. The Company's marketing plans are
designed to attract skiers and snowboarders by emphasizing the Company's
diverse facilities, high-quality services and proximity to each of the
regional skier markets in which it operates. The Company intends to
position each of its resorts as an economical and attractive alternative to
competing regional resorts and to other forms of leisure entertainment. The
Company's marketing objectives are to (i) increase each of its resorts'
relative market share, (ii) expand the number of skiers in each of its
markets, (iii) increase skier visitation frequency and (iv) influence the
vacation destination choices of prospective guests. A key component to the
Company's marketing plans has been, and will continue to be, will be the
expansion of Vertical Plus and Vertical Value to enhance guest loyalty and
increase skier visitation frequency. The Company also believes there are
additional opportunities to cross-market its resorts through the
integration and expansion of the Vertical Plus and Vertical Value programs.
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<PAGE> 72
Maximize Revenues and Resort Cash Flow. The Company focuses on
increasing revenues and resort cash flow by managing the mix of skier days
and revenue per skier day. The strategy for each resort is based on the
demographic profile of its market and the physical capacity of its mountain
and facilities. The Company seeks to increase skier days by developing
effective ticket pricing strategies and marketing programs to improve peak
and off-peak volume. The Company seeks to improve revenue per skier day by
effectively managing the price, quality and value of each of its
ski-related services, including retail shops, ski rentals, ski lessons and
food and beverage facilities. The Company also generates revenue from a
variety of non-ski related services, such as golf, tennis, health clubs and
conference centers, as well as from real estate and timber sales.
Selectively Develop New Terrain and Real Estate. Management believes
that the Company has significant opportunities to expand skiable terrain
and trails and to develop Company-owned real estate for commercial and
residential use. The Company owns or has access to approximately 2,640
acres at Northstar, 787 acres at Grand Targhee, 700 acres at Mt. Cranmore
and 581 acres at Loon Mountain for potential development of additional ski
terrain and/or for residential and commercial purposes. The Company also
owns approximately 84 acres at the Summit available for additional
residential and commercial development which it holds through an
Unrestricted Subsidiary. See "Certain Transactions -- The Real Estate LLC."
Management believes that the Company's undeveloped acreage at Northstar is
the only significant privately-held land available for skiing expansion in
the Lake Tahoe basin and could double the amount of skiable terrain and the
number of trails at Northstar while significantly increasing the on-site
bed base. The Company believes that increasing the on-site and area bed
base is important in attracting regional overnight skiers, expanding market
share and capturing a greater portion of each guest's expenditures.
Management anticipates that any significant development project would be
undertaken through a joint venture with a major real estate development
company, which would offset a significant portion of the infrastructure
cost.
ACQUISITION STRATEGY
The Company believes that the domestic ski industry is highly fragmented
but is undergoing a transition from individual resort ownership to ownership by
multiple resort operating companies. With their high-quality facilities and
services, sophisticated information systems and experienced management team, the
California Resorts, in management's view, will serve as the core of the
Company's operations and its base for future expansion. The acquisitions of the
New Hampshire Resorts, the Summit Grand Targhee and most recently, Loon
Mountain, provide the Company with additional geographical diversity and
proximity to other major skiing population centers. Since it commenced
operations in November 1996, the Company has introduced sophisticated management
practices, many of which were already employed at its California Resorts, to its
other resorts. Management believes that the implementation of professional
management practices will lead to an increase in the number of skier days,
revenue per skier day and resort cash flow. The Company will consider future
acquisition opportunities that it believes will further expand the Company's
national presence or enhance its operating synergies. For further information
regarding the Loon Mountain Acquisition, see "The Transactions -- The Loon
Mountain Transactions."
INDUSTRY
There are 507 ski areas in the United States, which during the 1996/97 ski
season generated approximately 52.5 million skier days. These areas range from
small ski resort operations, which cater primarily to day skiers and regional
overnight skiers from nearby population centers, to larger resorts which, given
the scope of their operations and their accessibility, are able to attract
skiers and snowboarders from their regional ski markets as well as destination
resort guests who are seeking a comprehensive vacation experience. While
regional ski market skiers tend to focus primarily on lift ticket price and
round-trip travel time, destination travelers tend to be heavily influenced by
the number of amenities and activities offered as
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well as the perceived overall quality of the vacation experience. The table
below summarizes regional skier days from the 1992/93 ski season through the
1996/97 ski season.
U.S. SKI INDUSTRY REGIONS AND SKIER DAYS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PACIFIC
SEASON NORTHEAST SOUTHEAST MIDWEST ROCKY MTS WEST LAKE TAHOE TOTAL
------ --------- --------- ------- --------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1992/93......................... 13,217 4,660 6,978 18,602 7,375 3,200 54,032
1993/94......................... 13,718 5,808 7,364 17,503 7,144 3,100 54,637
1994/95......................... 11,265 4,746 6,907 18,412 7,446 3,900 52,676
1995/96......................... 13,825 5,693 7,284 18,148 6,033 3,000 53,983
1996/97......................... 12,407 4,231 7,137 18,904 7,341 2,500 52,520
5 year avg...................... 12,886 5,028 7,134 18,314 7,068 3,140 53,570
</TABLE>
- ---------------
Northeast: CT, MA, ME, NH, NY, VT, RI
Southeast: AL, GA, KY, MD, NC, NJ, PA, TN, VA, WV
Midwest: IA, IL, IN, MI, MN, MO, ND, NE, OH, SD, WI
Rocky Mts: CO, ID, MT, NM, UT, WY
Pacific West: AK, AZ, CA (excluding Lake Tahoe Region), NV, OR, WA
Source: 1996/97 Kottke National End of Season Survey
The ski resort industry is presently experiencing a period of
consolidation. The number of U.S. ski areas has declined from 709 in 1986 to 507
in 1997 and, based on industry estimates, the number of ski areas is expected to
decline further, as many mountain resorts lack the infrastructure, capital and
management capability to compete in this multi-dimensional and service-intensive
industry. No major new ski resort has opened in the United States since 1989. Of
the 507 ski areas, RRC Associates estimates the average resort recorded
approximately 104,000 skier days and only 25% of all resorts reported more than
200,000 skier days during the 1996/97 ski season. Six of the Company's eight
resort complexes have historically exceeded the 200,000 annual skier day
threshold. The trend among leading resorts is toward investing in improving
technology and infrastructure, including high speed lifts, attractive facilities
and extensive snowmaking capabilities to deliver a more consistent, quality
experience. The Company's resorts have spent over $40.0 million in
expansion-related capital expenditures over the last three years to improve
their competitive position. Management believes the need for increased
investment in a resort has required a greater access to capital and has enhanced
the position of larger and better capitalized resort owners. Despite this
consolidation, the ski industry remains highly fragmented, with no one resort
and no one resort operator accounting for more than 4% and 10%, respectively, of
the United States' 52.5 million skier days during the 1996/97 ski season.
Management believes that changes in demographics and certain ski industry
trends will be favorable for the U.S. ski industry. Members of the baby boom
generation, the single largest group of skiers, are moving into an age and
economic cycle when a greater portion of their disposable income is available
for recreational activities and the purchase of vacation homes. The next largest
groups are the echo boom generation (children of baby boomers) and the "X"
generation (young adults). With an estimated 114 million people, members of
these generations are beginning to form their recreational habits and offer the
largest potential increase in skiers since the emergence of the baby boom
generation in the late 1960's through the mid 1970's.
The emergence and growth of snowboarding, driven primarily by the echo boom
and X generations, have energized interest in "on-snow" recreation. According to
the 1996/97 Kottke National End of Season Survey, the estimated number of
snowboarder visits has increased from 5.7 million in the 1993/94 ski season to
9.3 million in the 1996/97 ski season, an increase of almost 64%. Snowboarding
is now regarded as one of the fastest growing sports in the world. Recently the
International Olympic Committee designated snowboarding as a medal event in the
2002 Winter Olympic Games. Snowboarders are primarily between the ages of 13 and
25 and presently represent an estimated 14% of all domestic ski resort visitors,
an estimated 16% at domestic regional resorts, and an estimated 20% at the
Company's resorts. Regional resorts are the industry leaders in
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providing designated snowboarding parks, trails and specialized trial grooming
techniques for snowboarders. All of the Company's resorts have allocated
significant terrain to snowboarders. Management believes that the growth in
snowboarding has had, and will continue to have, a positive impact on the snow
sports industry, especially since it is attracting new age groups, and will
continue to be an important source of lift ticket, ski school, retail and rental
revenue growth for the Company.
The advent of snowboarding has been accompanied by the recent introduction
of new "parabolic," or shaped, alpine skis which are making skiing easier to
learn and enjoy. The new skis, which are estimated to account for up to 75% of
all new ski sales, are expected to significantly improve a new skier's learning
progression, as well as enhance the experience of skiers of all abilities
through increased technical ability and control. The California Resorts have
replaced all of their rental skiing equipment with the new skis. Further
advances and innovations in skier equipment, trail maintenance and lift
technology are also expected to lead to the greater popularity of skiing.
The Lake Tahoe region has averaged approximately 3.1 million annual skier
days over the last five years. Management estimates that approximately 80% of
the skiers visiting Lake Tahoe resorts during the 1996/97 ski season were from
the San Francisco, Sacramento and Central Valley metropolitan areas. Other
guests come principally from Southern California and states with large ski
populations, such as Texas, Illinois and Florida. Skiers in this market can
choose from among six major resorts, which include Northstar, Sierra, Squaw
Valley, Heavenly Valley, Alpine Meadows and Kirkwood. Northstar, Squaw Valley
and Heavenly Valley attract a significantly greater share of destination skiers
than the area's other resorts.
The Southern California market has averaged approximately 2.3 million
annual skier days over the last five years. Management estimates that
approximately 95% of the skiers visiting Southern California resorts during the
1996/97 ski season were drawn primarily from the Los Angeles, Orange County and
San Diego metropolitan areas. Skiers in this market can choose from among three
major resorts, which include Bear Mountain, Snow Summit and Mammoth.
The Northeast market (including New York) has averaged approximately 12.9
million annual skier days over the last five years. The Northeast market
consists of a significant percentage of day or weekend skiers due to the
relatively short driving radius to major metropolitan areas. While the Northeast
does not draw significant numbers of vacationing skiers from the Western regions
of the United States, it does compete with the Rocky Mountains and Pacific West
areas for Eastern vacationing skiers. Within the Northeast region, skiers can
choose from among over 50 major ski areas and resorts. The region's major ski
areas and resorts are concentrated in the mountainous areas of New England and
eastern New York, with the bulk of skiers coming from the population centers
located in eastern Massachusetts, southern New Hampshire, Connecticut, eastern
New York, New Jersey and the Philadelphia area.
The Company's Summit resort complex operates in the Washington State
segment of the Pacific West market, which recorded approximately 1.5 million
skier days during the 1996/97 ski season. Management estimates that
approximately 95% of the skier days recorded at Washington State resorts during
the 1996/97 ski season were attributable to residents of the Seattle/Tacoma
metropolitan area. Other guests come primarily from other parts of Washington,
Oregon and Western Canada. Washington State resorts do not attract a significant
number of destination skiers. Within Washington State, skiers can choose from
among 14 ski resorts, including the four resorts comprising the Summit. The
largest ski areas in Washington State are the Summit, Stevens Pass and Crystal
Mountain, each of which had over 275,000 skier days during the 1996/97 ski
season. Other ski areas in Washington are moderate to small in size.
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The Rocky Mountains market has averaged over 18.3 million skier days over
the last five years, with a high percentage of visitors consisting of
destination skiers. Of the 91 ski areas in the region, 28 are located in
Colorado, accounting for approximately 62% of all recorded skier days during the
1996/97 ski season. The 38 ski resorts in the northern Rocky Mountain states of
Montana, Idaho and Wyoming recorded a total of approximately 2.9 million skier
days during the 1996/97 ski season. Because resorts in this part of the region
are generally less accessible than resorts in Colorado or Utah, they tend to be
smaller and attract fewer destination skiers from outside of the northern Rocky
Mountain states.
RESORT OPERATIONS
The Company's eight resort complexes offer a variety of ski and non-ski
activities. The table below provides a summary of each resort's ski operations
and is followed by a more detailed description of each resort.
<TABLE>
<CAPTION>
TOTAL
SNOW 1996/97
SKIABLE VERTICAL SNOWMAKING GROOMING SKIER BEDS WITHIN
RESORT ACRES DROP TRAILS LIFTS COVERAGE MACHINES VISITS 12 MILES
------ ------- -------- ------ ----- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northstar-at-Tahoe............. 2,400 2,280 63 1 Gondola 50% 14 445,753 16,000
4 High-Speed
Quads(1)
4 Fixed Grip
3 Surface
Sierra-at-Tahoe................ 1,663 2,212 46 3 High-Speed 10% 12 213,156 30,000
Quads
6 Fixed Grip
1 Surface
Bear Mountain.................. 195 1,665 32 1 High-Speed 100% 8 276,729 11,000
Quad
8 Fixed Grip
3 Surface
Waterville Valley.............. 255 2,020 50 2 High-Speed 100% 8 219,313 6,500
Quads
6 Fixed Grip
4 Surface
Mt. Cranmore................... 190 1,167 36 1 High-Speed 100% 4 120,052 16,000
Quad
4 Fixed Grip
1 Surface
The Summit at Snoqualmie....... 1,916 2,200 96 23 Fixed Grip 0% 20 476,218 1,000
5 Surface
Grand Targhee.................. 2,412 2,200 28 1 High-Speed 0% 7 94,898 750
Quad
2 Fixed Grip
1 Surface
Loon Mountain.................. 250 2,100 41 1 Gondola 96% 8 340,077 13,000
1 High-Speed
Quad
5 Fixed Grip
1 Surface
</TABLE>
- -------------------------
(1) High-Speed Quads are four-person chairlifts which decelerate and detach from
a cable during passenger loading and unloading and reattach and accelerate
thereafter.
Northstar-at-Tahoe
In management's opinion, Northstar-at-Tahoe, located near the north end of
Lake Tahoe, offers more activities and services in both winter and summer than
any of its competitors in the Lake Tahoe area. The resort's 8,600-foot Mt. Pluto
features 2,400 acres of skiable terrain for all abilities and a 2,280 foot
vertical drop. Northstar's 63 ski trails are served by 12 operating lifts,
including one gondola, four high-speed quads, two triple lifts and two double
lifts, which combine to transport up to 19,275 skiers uphill per hour. Northstar
also has approximately 42 kilometers of groomed trails for cross-country skiing
and snowshoeing and several on-mountain terrain parks for snowboarders and
adventurous skiers offering non-traditional bumps, jumps and turns. Since the
1988 ski season, Northstar has spent over $25.0 million in capital expenditures,
including $10.0 million to install four new high-speed lifts, $12.0 million to
install snowmaking equipment, upgrade trail grooming equipment, and expand
skiable terrain, and $3.0 million to upgrade lodging and retail facilities.
Other facilities at Northstar include a European-style village that consists of
condominium/hotel
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accommodations, various restaurants, bars, shops, a day-care center and
entertainment and convention facilities and a 22,700 sq. ft. on-mountain ski
lodge. Summer recreation facilities include an 18-hole golf course, ten tennis
courts, a horseback riding stable, mountain bike rentals and trails and a
swimming pool. Northstar currently ranks third in skier days in the Lake Tahoe
area and is one of only 18 resorts in the United States to surpass the 500,000
skier days milestone, which it did during the 1994/95 ski season. Between 1990
and 1997, Northstar was named one of the top ten United States family resorts by
Travel & Leisure, Better Homes & Gardens and Family Circle, as well as one of
the best 50 North American ski resorts by Snow Country and Ski magazines.
Northstar provides a full-service skiing experience for its clientele,
which typically includes the upper-income, baby boomer population. Northstar's
marketing is focused on the San Francisco Bay and the Sacramento Valley areas as
a destination alternative to Colorado and Utah resorts. Northstar also markets
aggressively in Southern California and states with large ski populations.
Northstar is within a one hour drive of the Reno International Airport, which
offers convenient scheduled air service to all parts of the United States,
Western Canada and Mexico. Small private planes can fly into the all-weather
Truckee Airport, where Northstar operates transit buses to the resort.
Typical Northstar guests include single male intermediate skiers between
the ages of 25 and 44 earning between $50,000 and $100,000 and families headed
by professionals or business executives with incomes in excess of $100,000.
Northstar is within a 200 mile driving radius of the major population centers of
San Francisco and Sacramento and, therefore, attracts a significant number of
its guests from Northern California. Northstar has approximately 6,000 beds at
the resort with an additional 40,000 beds in the vicinity, 10,000 of which are
within a 12 mile radius. Management estimates that during the 1996/97 ski season
77% of the skiers visiting Northstar came from Northern California, 10% from
Southern California, 12% from other states, and 1% from international locales.
Northstar's snowmaking system is engineered to cover approximately 50% of
its ski trails, which management believes is adequate given the area's heavy
annual snowfall, which averaged approximately 286 inches per year during the
past six years. Northstar has pumping rights from nearby water sources which,
when coupled with its 60 million gallon water storage capacity, have been more
than sufficient to support the resort's needs. Snowmaking during the 1996/97 ski
season consumed approximately 35.3 million gallons of water, which was slightly
below Northstar's six year average of 35.7 million gallons per year.
Northstar consists of over 6,500 acres of privately owned land, of which
less than one-third has been developed. Management believes that Northstar has
significant opportunities to develop additional ski terrain as well as
residential and commercial space. See "-- Real Estate Development."
The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at Northstar during the previous five ski seasons.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93................................................ 162 415,959 370
1993/94................................................ 142 416,498 153
1994/95................................................ 156 527,653 432
1995/96................................................ 121 404,736 269
1996/97................................................ 138 445,753 375
</TABLE>
Sierra-at-Tahoe
Sierra-at-Tahoe is conveniently located near the large bed base of South
Lake Tahoe and is the closest major ski resort to Sacramento and the Central
California Valley. The resort's 8,852-foot peak offers 1,663 skiable acres and a
2,212 foot vertical drop. Sierra's 46 ski trails are currently served by 10
operating lifts, including three high-speed quads, one triple lift and five
double lifts, which combine to transport up to 14,921 skiers uphill per hour. In
addition to significantly upgrading its retail and restaurant facilities in
recent years, Sierra has invested approximately $11.5 million since 1994 to
install new high-speed lifts, upgrade its grooming equipment and rebuild its
base lodge facilities. Sierra operates a 46,000 sq. ft. base lodge which
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offers a variety of food and beverage services. Management believes that
Sierra's recent investment in its ski infrastructure has made it the best ski
value in the South Lake Tahoe area. Sierra does not offer summertime activities.
Sierra's demographic characteristics closely parallel Northstar's, although
Sierra's core customer base is slightly younger and less affluent with more
aggressive skiing demands. Sierra does not own or manage any real estate units
in the area but there are 50,000 beds in the South Lake Tahoe vicinity,
including 30,000 beds within a 12 mile radius. Sierra attracts a larger share of
its guests from the Sacramento and Central Valleys than the San Francisco Bay
area.
Sierra owns 20 acres of its 1,689 gross acreage and leases the remainder
under a special use permit with the United States Forest Service. See "--
Regulation and Legislation." Sierra's skiable terrain, notable for its extensive
summer grooming and wind-protected slopes, requires less snow than other resorts
to provide ideal ski conditions. Due to its abundant annual snowfall, which has
averaged approximately 470 inches per year since 1991, Sierra is not dependent
upon snowmaking and, as a result, its snowmaking equipment covers only 10% of
Sierra's total acreage. Sierra also employs a modern fleet of snow grooming
machines which maintain high-quality skiing surfaces.
The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at Sierra during the previous five ski seasons.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93................................................ 136 243,254 608
1993/94................................................ 135 247,883 425
1994/95................................................ 165 369,932 590
1995/96................................................ 121 257,499 480
1996/97................................................ 142 213,156 457
</TABLE>
Bear Mountain
Bear Mountain is located in the San Bernardino mountains of Southern
California. Its 8,805-foot peak features 195 acres of skiable terrain and a
1,665 foot vertical drop. Bear Mountain's 32 ski trails are served by 12 lifts,
including one high-speed quad, one fixed grip quad, three triple lifts and four
double lifts, which combine to transport up to 14,790 skiers uphill per hour.
During the last two ski seasons, Bear Mountain invested approximately $1.5
million to upgrade its base lodge facilities. Other facilities at Bear Mountain
include three lodges which provide an aggregate of approximately 31,000 sq. ft.
of space for food and beverage services (restaurants and cafeterias), skier
services and entertainment. Summer recreation facilities include a nine-hole
golf course.
Bear Mountain is within a one to three hour drive of the Los Angeles and
San Diego metropolitan areas, providing it with access to nearly 16 million
Southern Californians of whom approximately 800,000 actively participate in
skiing and snowboarding. Nearly 95% of Bear Mountain's skiers are from Southern
California. Bear Mountain appeals to the younger generations of skiers, the echo
boom and "X" generations, who are generally less affluent than the targeted
customers at the Company's Lake Tahoe resorts. While Bear Mountain is in the
middle of an 11,000 bed base area, it is primarily a day ski facility.
Bear Mountain owns 116 of its 819 gross acreage and leases 698 acres of
mountain terrain under a Forest Service special use permit. See "-- Regulation
and Legislation." Management believes that Bear Mountain has one of the largest
snowmaking capacities per acre of any resort west of the Mississippi and
incorporates a state-of-the-art system which allows it to efficiently cover 100%
of its ski trails. Bear Mountain also has access to three reservoirs capable of
holding six million gallons of water for snowmaking. Management believes that
the skiing infrastructure at Bear Mountain, including lifts, snowmaking and
trail grooming equipment, is very strong, making it one of the most attractive
ski areas in Southern California.
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<PAGE> 78
The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at Bear Mountain during the previous five ski
seasons.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93................................................ 159 295,070 240
1993/94................................................ 156 320,227 117
1994/95................................................ 175 305,799 161
1995/96................................................ 123 214,284 119
1996/97................................................ 143 276,729 102
</TABLE>
Waterville Valley
Waterville Valley has long been recognized as one of the largest and most
picturesque ski resorts in New Hampshire. Waterville Valley's major base
facilities are located on the 4,004 foot high Mt. Tecumseh and offer 255 skiable
acres and a vertical drop of 2,020 feet. Waterville Valley's 50 trails are
served by 12 operating lifts, including two high-speed quads, two triple lifts
and four double lifts, which combine to transport up to 15,672 skiers uphill per
hour.
The resort operates a 41,872 sq. ft. base lodge (complete with multiple
food service centers and child care), a mid-mountain lodge featuring a cafeteria
and deli and a mountain-top lodge with snack bar and acclaimed restaurant
dining.
The Waterville Valley resort has a year-round Base Camp Adventure Center
offering mountain bikers, cross-country skiers, and hikers access to 105
kilometers of trails in the White Mountain National Forest. Other resort
amenities include an ice skating arena, golf course, tennis center, sports and
fitness center, and horseback riding. Waterville Valley's Conference Center has
17,000 sq. ft. of meeting space and provides banquet facilities for up to 1,000
people. With 11 meeting rooms, a business center, audio-visual capabilities and
a self-contained pub, the Conference Center's on-site staff supports events
year-round.
Waterville Valley has traditionally created an environment conducive to
families who are either day skiers, regional overnight skiers or vacation
skiers. Its location adjacent to Interstate 93 (a major north-south thoroughfare
for skiers) makes it one of the most accessible of the larger New England
resorts and it has the facilities, trails and programs to satisfy adults and
children of all abilities. Waterville Valley's proximity to large East Coast
markets (Boston is less than two and one-half hours away by car) attracts day
skiers, while the town's substantial bed base can accommodate the regional
overnight skiers and vacationers who will stay an average of two to four days.
There are approximately 6,500 beds in the Waterville Valley area, of which
approximately 3,000 can be rented. The majority of Waterville Valley's skiers
come from Massachusetts (43%) and New Hampshire (36%), with the remainder coming
from Rhode Island, Connecticut, New York, New Jersey and other regional
locations.
Waterville Valley owns 35 acres on its smaller Snow's Mountain and two
acres at the Conference Center. It leases 790 acres of land on Mt. Tecumseh from
the federal government under a Special Use Permit issued by the Forest Service.
See "-- Regulation and Legislation." Waterville Valley's snowmaking system is
engineered to cover 100% of the ski trails on Mt. Tecumseh. Snowmaking during
the 1996/97 ski season consumed approximately 89 million gallons of water for
about 558 acre feet of coverage; water for snowmaking is currently pumped from a
local river and a pond. Waterville Valley is in the process of obtaining permits
for additional water sources and water storage facilities for snowmaking.
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The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at Waterville Valley during the previous five ski
seasons. Prior to the 1994/95 ski season, Waterville was operated by a local
developer who eventually lost the property and related real estate through
bankruptcy.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93................................................ 160 333,213 145
1993/94................................................ 165 300,821 148
1994/95................................................ 163 207,386 101
1995/96................................................ 168 256,563 203
1996/97................................................ 162 219,313 182
</TABLE>
Mt. Cranmore
Mt. Cranmore is the oldest continuously operated ski area in the United
States. Strategically located in the hub of New Hampshire's Mount Washington
Valley, Mt. Cranmore's 1,714 foot summit offers 190 skiable acres and a 1,167
foot vertical drop. Mt. Cranmore's 36 trails, including nine trails lighted for
night skiing, are served by six operating lifts, including one high-speed quad,
one triple lift, three double lifts and one surface lift, which combine to
transport up to 6,420 skiers uphill per hour. The installation of the high-speed
quad in 1995 and other recent capital improvements totaling $3.0 million,
together with an aggressive marketing program, contributed to a 24% increase in
skier days for Mt. Cranmore during the 1996/97 ski season compared to the
1994/95 ski season. The mountain is serviced by two base lodges, offering
multiple eating locations and pub/restaurant facilities, as well as a restaurant
at the summit. In addition, Mt. Cranmore owns a year-round 46,000 sq. foot
athletic facility which includes an outdoor tennis stadium with seating for up
to 5,500 people, four indoor tennis courts, a pool, a spa, a weight-lifting
area, aerobic rooms, an indoor-climbing wall, locker rooms, a snack area and a
nursery. Mt. Cranmore also operates on-premises ski and rental shops.
Management believes that Mt. Cranmore has great appeal to the family skier
due to its intimate size, high percentage of intermediate trails (45%, with 33%
for advanced) and its well-developed children's ski programs. An additional
family attraction is Mt. Cranmore's neighboring town of North Conway, which is
within walking distance of the mountain and has one of New England's largest
rural retail outlet and restaurant centers. North Conway is part of the White
Mountains area, which is the dominant tourist destination in New Hampshire.
Approximately 13 million people live within a four-hour drive of Mt. Cranmore.
During the 1996/97 ski season, management estimates that 57% of the resort's
guests were from the Boston metropolitan area, 22% were from New Hampshire and
10% were from Rhode Island. To accommodate destination/vacation skiers there are
16,000 rental beds in the Mt. Washington Valley, including 76 condominium units
at Mt. Cranmore itself.
Mt. Cranmore owns 754 acres and holds deeded easements enabling it to
develop an additional 1,200 acres of ski terrain. Mt. Cranmore does not lease
any of its land from the federal government. Mt. Cranmore's snowmaking equipment
consists of a computerized Hydralink weather-monitoring snowmaking system which,
when installed in 1995, increased snowmaking output by 40% and currently covers
100% of the resort's ski trails. In addition to pumping rights from a nearby
stream, Mt. Cranmore has an agreement with the local water district for
unrestricted access to an additional reservoir of 1 million gallons of water for
snowmaking. Mt. Cranmore's base area pond also holds 2.5 million gallons.
Snowmaking during the 1996/97 ski season consumed approximately 90 million
gallons of water.
The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at Mt. Cranmore during the previous five ski
seasons.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93........................................ 112 103,841 96
1993/94........................................ 106 104,935 90
1994/95........................................ 105 96,527 63
1995/96........................................ 142 123,201 115
1996/97........................................ 135 120,052 114
</TABLE>
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The Summit at Snoqualmie
The Summit is located in the Cascade mountains of Northwest Washington and
consists of four separate resorts, Alpental at the Summit, Summit West, Summit
Central, and Summit East, which collectively offer 1,916 acres of skiable
terrain. Individually, Alpental has a 5,400 foot top elevation, a 2,200 foot
vertical drop and 170 acres of skiable trails and runs (93 of which are
lighted); Summit West has a 3,860 foot top elevation, an 810 foot vertical drop
and 172 acres of skiable trails and runs (166 of which are lighted); Summit
Central has a 3,860 foot top elevation, a 1,020 foot vertical drop and 246 acres
of skiable trails and runs (176 of which are lighted); and Summit East has a
3,760 foot top elevation, a 1,080 vertical drop and 110 acres of skiable trails
and runs (58 of which are lighted). In total, the Summit complex has 96
designated trails and runs served by 28 operating lifts, including two fixed
grip quads, four triple lifts, 17 double lifts and various surface lifts, which
combine to transport up to 32,490 skiers uphill per hour. The Summit Nordic
Center also offers approximately 55 kilometers of cross-country skiing on an
expert trail system and a lighted beginner student trail which hosts a
season-long night racing series. In addition, the Summit West, Summit Central,
and Summit East areas are interconnected by a cross-over trail system. Since
1987, the Company and its predecessors have invested approximately $11.5 million
to improve base facilities and install additional lifts, including approximately
$3.1 million in the last two years. The Summit operates seven lodges which
provide an aggregate of approximately 111,175 sq. ft. of space for food and
beverage services (restaurants and cafeterias), skier services and
entertainment.
The Summit is within a one-hour drive of the Seattle/Tacoma metropolitan
area, providing it with access to nearly 450,000 active skiers and snowboarders.
Although the complex offers a relatively even variety of trail difficulty, each
of the separate properties have been designed to appeal to specific skier
profiles: Alpental at the Summit's trails are designed primarily for
intermediate to expert skiers; Summit West's open slopes are geared toward
beginner and intermediate skiers; Summit Central's trail systems are heavily
weighted toward intermediate to advanced skiers; and Summit East's trails are
designed primarily for novice to intermediate skiers. Overall, the Summit
complex is one of the largest learn-to-ski areas in the United States, with
approximately 26% of its 1996/97 skier days being attributable to guests
enrolled in ski school. In addition, the Summit is the largest night ski complex
in the United States, with approximately 40% of its skier visits being recorded
at night.
The Summit owns 686 acres of its 4,152 gross acreage, leases over 1,400
acres under a private permit and utilizes 1,864 acres of mountain terrain under
a Forest Service special use permit. The Summit enjoys abundant annual snowfall,
averaging approximately 379 inches per year since 1991. As a result, there are
no snowmaking capabilities at any of the resorts. The Company does, however,
possess water rights that would allow it to engage in snowmaking, if necessary.
The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at the Summit during the previous five ski seasons.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93........................................ 127 521,127 295
1993/94........................................ 130 519,953 300
1994/95........................................ 158 515,487 405
1995/96........................................ 117 455,240 375
1996/97........................................ 148 476,218 650
</TABLE>
Grand Targhee
Grand Targhee is located in the Grand Teton mountains of Wyoming,
approximately 50 miles northwest of the town of Jackson. Jackson, Wyoming is a
major ski destination resort center, recording an average of 434,000 skier days
at the area's three resorts in the last three ski seasons. Grand Targhee, with a
top elevation of 9,873 feet, 2,412 acres of skiable terrain for all abilities
and a 2,200 foot vertical drop, offers two different mountain ski areas. The
first mountain is served by four operating lifts, including the longest
high-speed quad in the state of Wyoming, which combine to transport up to 5,460
skiers uphill per hour. The second mountain
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is reserved for Snowcat powder skiing. Grand Targhee also has approximately 15
kilometers of groomed trails for cross-country skiing. Grand Targhee recently
has invested approximately $4.0 million to improve uphill capacity and the
overall ski experience. Other facilities at Grand Targhee include base lodge
facilities, hotel accommodations, restaurants, shops, a child care center and
retail stores. In addition, Grand Targhee owns and operates a spa, fitness and
conference center.
Grand Targhee competes for day and regional overnight skiers in the
northern Rocky Mountain region as well as national destination skiers traveling
to the greater Jackson, Wyoming area. Guests from Idaho, Utah, Wyoming and
Montana have accounted for approximately 38% of Grand Targhee's total skier days
over the past five ski seasons. Grand Targhee's national destination guests,
those guests residing outside the northern Rocky Mountain region, accounted for
the remaining 62% of the resort's skier days during the same period. A majority
of these guests came from California, Washington, New York and Minnesota.
Overall, approximately 60% of Grand Targhee's skiers reside more than 200 miles
from the resort. Given that Grand Targhee only operates 96 rental units, many of
the resort's overnight regional and destination skiers secure hotel
accommodations at other resorts or hotels in the area. The Company believes that
there are in excess of 5,000 beds in the vicinities of Jackson, Wyoming and
Driggs, Idaho. Management believes that the distinguishing features of Grand
Targhee are well-maintained and uncrowded facilities, excellent ski conditions,
attractive vacation packages and a high quality family ski school.
Grand Targhee is located entirely on land leased under a Forest Service
special use permit. See "-- Regulation and Legislation." Grand Targhee has
averaged approximately 528 inches of snowfall during the last five years, and
historically has received the second highest snowfall amount of all ski resorts
in the United States. In 1997, Snow Country magazine rated Grand Targhee as the
best ski area in North America for snow conditions.
Management believes that Grand Targhee is currently underutilized, and that
a key component of increasing skier days at the resort will be expanding its
on-mountain bed base. Grand Targhee has recently received United States Forest
Service approval to build 590 rental units and has had discussions that would
allow for the future development of private dwellings.
The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at Grand Targhee during the previous five ski
seasons.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93........................................ 153 108,666 553
1993/94........................................ 151 113,298 368
1994/95........................................ 153 117,772 537
1995/96........................................ 149 116,696 523
1996/97........................................ 146 94,898 659
</TABLE>
Loon Mountain
Loon Mountain is located in the White Mountains of New Hampshire in the
town of Lincoln. The resort's 3,050 foot peak features 250 skiable acres and a
2,100 foot vertical drop. Loon Mountain's 41 trails are served by eight
operating lifts, including a four-passenger gondola and a high-speed quad, which
combine to transport over 10,000 skiers uphill per hour. Loon Mountain's trails
cater mostly to intermediate level skiers (64%), with trails provided for
beginners (20%) and experts (16%) as well. Resort amenities include access to
certain core areas of the on-mountain Mountain Club, including a restaurant, a
bar, a swimming pool and conference rooms. Additionally, the resort offers a
base lodge with a cafeteria and coffee shop, a restaurant and deck at the
summit, the Governor Adams lodge (which provides traditional lodge facilities
and also serves as a forum for summer outdoor activities and concerts), trails
for cross country skiing, horseback riding and mountain biking, a steam engine
railroad for shuttling visitors, and a Wildlife Theater.
Loon Mountain has traditionally created an environment conducive to
families who are either day skiers, regional overnight skiers or destination
skiers. Its location adjacent to Interstate 93 (a major north-south thoroughfare
for skiers) enabled it to receive the number one ranking in North America east
of the Mississippi
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River for accessibility by Snow Country magazine in 1997. Loon Mountain's
proximity to large East Coast markets (Boston is less than two and one-half
hours away by car) attracts day skiers, while an approximate bedbase of 13,000
within twelve miles of the resort can accommodate regional overnight and
destination skiers.
Loon Mountain owns 565 acres upon which substantially all of the buildings
and improvements relating to the resort are located. Loon Mountain leases 775
acres of land in the White Mountain National Forest from the federal government
under a Special Use Permit issued by the United States Forest Service permitting
year-round recreational use. Adjacent to such land, an additional 581 acres are
leased on "South Mountain" under a separate Special Use Permit permitting
certain limited activities, including mountain biking, cross country skiing and
horseback riding. These 581 acres have been designated by management for the
eventual development, subject to the resolution of certain litigation, of skiing
terrain to complement the current skiing area. See "Legal Proceedings." The
average annual snowfall at Loon Mountain was 139 inches over the last five
seasons, although when necessary Loon Mountain has the snowmaking capacity to
cover approximately 96% of the skiable acreage.
The following table summarizes the number of ski days operated, skier days
and seasonal snowfall totals at Loon Mountain during the previous five ski
seasons.
<TABLE>
<CAPTION>
YEAR DAYS OPERATED SKIER DAYS SNOWFALL (INCHES)
- ---- ------------- ---------- -----------------
<S> <C> <C> <C>
1992/93........................................ 157 347,040 104
1993/94........................................ 145 331,068 131
1994/95........................................ 158 301,595 74
1995/96........................................ 170 337,503 186
1996/97........................................ 172 340,077 200
</TABLE>
REAL ESTATE DEVELOPMENT
The Company believes that it has significant opportunities to develop
available acreage for additional skiing terrain and trails as well as for
residential lodging and commercial uses. Management believes that selective real
estate development can enhance the Company's resorts and that there is
opportunity for synergy between real estate development and the Company's ski
operations. In management's view, increasing the on-mountain bed base, expanding
retail and other commercial services and developing additional skiable terrain
at a resort can accelerate growth in skier days and ski-related revenues. The
following table lists certain owned or leased land available to the Company for
expansion.
<TABLE>
<CAPTION>
RESIDENTIAL/
COMMERCIAL/ NUMBER
LOCATION OWNED/DEEDED SKI TERRAIN OF ACRES PRINCIPAL USES
-------- ------------ ------------ -------- --------------
<S> <C> <C> <C> <C>
Northstar: Big Springs.... Owned Residential 90 On-mountain housing
Northstar: North Lookout
Mountain.................. Owned Ski Terrain 1,300 Expand ski terrain
Northstar: Sawtooth
Ridge..................... Owned Ski Terrain 700 Expand ski terrain
Northstar:
Zoned/Undeveloped......... Owned Residential/ 550 On-mountain housing
Commercial
Mt. Cranmore: Black Cap... Deeded: Ski Terrain 700 Significantly expand and
Privately Owned vary ski terrain
Bear Mountain............. Leased: Ski Terrain 126 Expand ski terrain
Forest Service
Bear Mountain: Big Bear
Lake...................... Owned Residential 6 56 condominiums
</TABLE>
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<TABLE>
<CAPTION>
RESIDENTIAL/
COMMERCIAL/ NUMBER
LOCATION OWNED/DEEDED SKI TERRAIN OF ACRES PRINCIPAL USES
-------- ------------ ------------ -------- --------------
<S> <C> <C> <C> <C>
Grand Targhee............. Leased: Ski Terrain 680 Expand ski terrain
Forest Service
Grand Targhee............. Leased: Residential/ 107 Ski Village which would
Forest Service Commercial increase on-mountain bed
base by 615% and expand
commercial facilities
The Summit................ Owned Residential 84 On-mountain housing
Loon Mountain:
South Mountain............ Leased: Ski Terrain 581 Expand ski terrain
Forest Service
</TABLE>
The Company's strategy with regard to the expansion of skiable terrain at
its resorts is based on the evaluation of several key factors, including (i) the
anticipated growth of the skier base within the relevant market and the
Company's ability to improve its competitive market position in that market, as
measured by the potential increase in the number of skier days and revenue per
skier on a long-term basis which the Company believes it can capture through
expansion and (ii) the return on capital expected to be realized from an
expansion project versus alternative projects. Management plans to undertake
extensive planning and pre-development steps prior to investing significant
capital into any development project. Currently, the Company is in the process
of developing comprehensive master plans for Northstar, Waterville Valley, the
Summit and Grand Targhee. As the Company has done with Northstar's "Big Springs"
development project, management intends to undertake a number of these projects
with real estate partners who can provide a substantial portion of the
construction capital.
The Company's resorts have traditionally taken a conservative approach
toward residential and commercial development and real estate development
efforts have taken place primarily at Northstar. Beginning in 1995, the resort
developed a new single family home residential community on Mt. Pluto ("Big
Springs") consisting of 158 private residential subdivision lots. The total
project has been planned in five phases to reduce infrastructure development
costs and maximize returns by controlling both the timing and inventory of lots
on the market. Northstar sold all of the 44 lots offered in phase one and all of
the 35 lots offered in phase two for an average price of approximately $154,000.
New homes built by the owners of such properties range in price from
approximately $600,000 to $1.2 million. Phases three, four and five will require
an estimated $5.0 million in capital expenditures, at an average price per lot
for 79 lots of approximately $63,000, to complete infrastructure development.
Northstar expects to sell the remaining properties over the next five years.
Management believes that the Big Springs development project alone will increase
the on-mountain bed base by 5% over the next two years, and should contribute to
an increase in paid skier days. Northstar also has opportunities to develop an
additional 550 acres of owned real property on Mt. Pluto, which has been zoned
for commercial and residential use.
In addition, Northstar has begun a program to harvest timber through third
party contracting. The timber harvesting program, which produced revenues of
approximately $678,000 in the period from December 3, 1996 through October 31,
1997, is managed carefully to avoid interference with Northstar's resort
operations and prevent any diminution in the quality of the resort's natural
environment. The Company also intends to eventually expand Northstar's ski
operations to the challenging additional terrain it owns on both North Lookout
Mountain and Sawtooth Ridge, which are adjacent to the resort's current
operations. Management believes that the skiable acreage at Northstar could more
than double with the development of this terrain. The timing and scope of this
expansion will depend on market conditions and on an evaluation of the Company's
other expansion criteria.
Mt. Cranmore holds an easement entitling it to develop at least 700 acres
of additional ski terrain known as the "Black Cap Mountain area" or "Black Cap."
The Black Cap easement was granted in 1951 and allows the Company to expand Mt.
Cranmore's existing ski and recreational infrastructure and develop additional
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trails. The Black Cap property underlying the Company's easement is privately
owned and therefore not subject to the same governmental regulations which
presently restrict the activities of many New England ski areas that are located
on national or state forest land. The Black Cap land available for development
by the Company is high-quality, mostly north and west-facing ski terrain located
in an area that can accommodate alpine and cross country trails, ski lifts and
snowmaking. Expansion would not only significantly increase Mt. Cranmore's skier
capacity, but would also enhance the quality and diversity of its skiable
terrain. Given the resort's location in the heart of the Mt. Washington region,
the dominant tourist destination in New Hampshire, the Company believes that
expansion into Black Cap could position Mt. Cranmore as a premier attraction in
the White Mountains area and one of the largest and most appealing resorts in
New Hampshire.
Bear Mountain has received final approval from the Forest Service and local
governmental authorities of an expansion plan that would, among other things,
increase the resort's skiable terrain by 114 acres and increase daily skier
capacity by approximately 25%. The approval, however, is subject to numerous
mitigation conditions, including a requirement that Bear Mountain acquire and
dedicate to the Forest Service two acres of spotted owl habitat and one acre of
flying squirrel habitat in exchange for each acre proposed for development. Bear
Mountain has also entered into a developer's agreement with the City of Big Bear
Lake that generally authorizes, subject to certain conditions, the construction
of up to 56 condominium units on property currently owned by Bear Mountain. The
Company does not presently have any imminent expansion or development plans for
Bear Mountain, and any future expansion or development would depend on a variety
of factors, including local market conditions and the resolution of regulatory
and Forest Service permitting issues.
The Summit owns 84 acres of real property at the base of its mountain,
which is available for residential development. The developmental real estate at
the Summit is currently owned by the Real Estate LLC, an Unrestricted Subsidiary
of the Company. The Real Estate LLC has executed a deed of trust with respect to
the real property in favor of the holders of the Ski Lifts Preferred Stock to
secure the Real Estate LLC's obligation to purchase such preferred stock. See
"Certain Transactions -- The Real Estate LLC." In the event the Real Estate LLC
defaults under its obligation to purchase the Ski Lifts Preferred Stock, the
holders thereof could foreclose on the developmental real property and deprive
the Company of the benefit thereof.
The Company, through a study commissioned by Grand Targhee, has identified
approximately 320 acres of additional skiable terrain adjacent to the resort
which could be developed with Forest Service approval. The study also contains
numerous recommendations for the further development of Grand Targhee's
infrastructure, including the creation of a European-style village center
comprising a variety of tightly-knit structures with central pedestrian streets,
plazas, commercial and recreation facilities and amenity spaces which reflect
and complement the sloped mountain topography. The village center design
includes nine additional or renovated hotel/condotel developments providing 590
additional public accommodation units, which would increase the resort's
on-mountain bed base by 615%. The village center would be built on Forest
Service land, and the Company has received preliminary approval for the
construction of the residential units envisioned by the study, together with the
development of an additional 320 acres of skiable terrain, subject to certain
conditions. Management believes that the expansion of Grand Targhee's
on-mountain bed base will be an important component in addressing the resort's
historic underutilization. The Company intends to pursue long-term development
opportunities with third parties, although the timing and scope of any such
development is still being evaluated.
Loon Mountain currently leases approximately 581 acres known as "South
Mountain" from the Forest Service. Although currently limited to recreational
uses not including downhill skiing, this permitted area has been designated by
both Loon Mountain and the Forest Service as an area for expanded skiing
activities and the development of additional trails and lifts. A permit allowing
this expansion was issued by the Forest Service in 1993, but was subsequently
invalidated by the U.S. Court of Appeals. See "Legal Proceedings." Pending the
issuance of additional permits, expansion on South Mountain depends upon the
Company and Forest Service fulfilling the requirements, including the
preparation of supplemental NEPA documentation, of a court order issued by the
federal district court to which the related litigation was remanded. The
available South Mountain land is located in an area directly adjacent to the
present Loon Mountain ski area and will be able to accommodate alpine and cross
country trails, ski lifts (including one connecting the current ski area
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with South Mountain) and snowmaking from newly installed snowmaking facilities.
Expansion would not only significantly increase Loon Mountain's skier capacity,
but would also enhance the quality and diversity of its skiable terrain.
The Company has no agreements, arrangements or understandings with respect
to financing the development of any of the real estate projects discussed
herein. Any future development would be subject to, among other things, the
Company's ability to obtain the necessary financing and all necessary permits
and approvals. The Senior Credit Facility, the Indenture and the Securities
Purchase Agreements (as defined) significantly limit the Company's ability to
incur additional indebtedness. No assurance can be given that the Company will
develop successfully any additional properties or, if completed, any such
properties will be successful. In addition, there are risks inherent in any
expansion project and in the implementation of the Company's development
strategy. See "Risk Factors -- Risks of Expansion" and "Risk Factors -- High
Level of Indebtedness and Leverage."
MARKETING AND SALES
Staff
The Company has a total marketing staff of approximately 45 persons,
including a marketing director at each resort who reports to the corporate
director of marketing as well as to each resort's general manager. The marketing
staff at each resort is responsible for the development of resort-specific
marketing plans and also participates in the development of the Company's
overall marketing strategy.
Strategy
The Company's marketing plans are designed to attract both day skiers and
vacationers by emphasizing the Company's diverse facilities and services and
proximity to approximately 20% of the total skiers in the United States. The
Company intends to position each of its resorts as an attractive alternative to
competing regional resorts and to other forms of leisure and entertainment. The
primary objectives of the Company's marketing efforts are to (i) increase each
of its resorts' relative market share, (ii) expand the number of skiers in each
of its markets, (iii) increase skier visitation frequency, (iv) increase the
expenditures of each of its visitors and (v) influence the vacation destination
choice of its prospective guests.
The Company's marketing efforts are predicated on knowing its guests and
understanding the markets in which it competes. Accordingly, the Company's
resorts, typically through professional firms, conduct extensive market
research, including on-site guest surveys, focus groups, advertising tests and
regional phone surveys. Each of the Company's resorts develops its own
resort-specific marketing program based upon its unique qualities and
characteristics as well as the demographics of its skier base. Management
believes that a major benefit of being a multiple resort operator will be the
ability to coordinate resort marketing programs in a manner that makes them more
effective. For example, the extension of frequency/loyalty programs to all of
the Company's resorts will, in management's view, reinforce the existing
marketing programs at each resort and create significant cross-marketing
opportunities.
The Company's resorts offer a variety of terrain for alpine skiing and
snowboarding, with most providing a high percentage of intermediate trails and
well developed skier development programs, which can accommodate skiers and
snowboarders of all skill levels. Northstar markets primarily to the upper
income baby boom generation and their families residing in the San Francisco Bay
and Sacramento Valley areas as a full service, all season resort for day and
vacation guests. In addition, the resort has been successful in attracting
vacationing skiers from major Southern California markets largely through the
use of targeted marketing programs, including tour packages with major airlines
and tour operators. Management believes that Northstar's diverse year round
activities and services have made it attractive to affluent families interested
in recreation-centered vacation homes. Real estate development and the resulting
increase in on-mountain bed base likewise provide Northstar with significant
opportunities for future growth. Sierra has been positioned as Lake Tahoe's
economical "value" resort, primarily targeted to families, teenagers and young
adults from the Central California Valley. Bear Mountain primarily targets
generation "X" skiers and snowboarders as well as value-oriented families from
the major Southern California metropolitan areas. Waterville Valley generally
focuses on regional and vacationing families from the Southern New Hampshire and
Boston metropolitan
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markets by promoting the resort's diverse year round facilities and New England
village atmosphere. Mt. Cranmore targets vacationing families (including
non-skiers) from the Boston metropolitan area by emphasizing its proximity to
the Mt. Washington 16,000 area bed base and North Conway retail and restaurant
district. The Summit's diversity of terrain among its four resorts and
significant night skiing programs allow the resort to target multiple
demographic groups including families, teenagers and young adults from the
Seattle/Tacoma metropolitan area. Grand Targhee primarily targets destination
skiers visiting the Jackson Hole area as well as day skiers and regional
overnight skiers from Wyoming, Idaho and Utah. Loon Mountain primarily targets
regional and vacationing families from the Boston metropolitan area and Southern
New Hampshire.
Programs
The Company has developed a number of specific marketing programs to
achieve its objectives, including the following:
- Customer loyalty programs
- Multimedia advertising
- Data-based marketing programs
- Skier development programs
- Strategic marketing alliances
- School, group and business affiliations
Customer loyalty programs. The Company believes that the success of each of
its resorts depends, in large part, on its ability to retain and increase the
skier visitation frequency of its existing customer base. For example,
approximately 82% of Northstar's 1996/97 ski season skier days were attributable
to guests who had visited the resort on at least one other occasion. The Company
believes a critical component to developing customer loyalty will be the
expansion of the Company's two-tiered approach to frequent skier programs,
Vertical Plus and Vertical Value. For an annual membership fee of $49, Vertical
Plus members receive a special, personalized identification wristband containing
a preprogrammed computer microchip which acts as their lift access for the
season. In addition to offering daily ticket discounts, the system tracks the
amount of vertical feet skied at participating resorts and rewards members with
prizes based on the number of vertical feet skied in a season. Other benefits of
the program include members-only lift lines, direct lift access, the convenience
of being able to make cashless retail transactions and electronic messaging. An
additional major benefit provided by this proprietary program is a
state-of-the-art data collection system that provides "real-time" information
for marketing, operations and capital investment analysis. Vertical Plus is
currently in operation at Northstar, Sierra and Bear Mountain, and experienced a
27% increase in membership during the 1996/97 ski season over the prior year. In
addition to Vertical Plus, the Company has developed Vertical Value, a program
that appeals to a broader range of skiers and offers incentives for frequent
visitation at all of the Company's resorts. Visitors also receive a welcome
packet with targeted offers and a newsletter which allows the resorts to
communicate effective and timely information to their frequent guests.
Multimedia advertising. The Company's marketing efforts include print,
broadcast, outdoor, Internet and direct mail advertising, with the particular
method tailored for each resort and existing market opportunities. The Company
is also very active in a variety of promotional programs designed to attract
guests from population centers in and around the Los Angeles, San Diego, San
Francisco, Sacramento and Boston metropolitan areas and states with large skier
populations such as Texas, Illinois, Florida and New York. For example, the
Company's Northstar and Sierra resorts have participated in extensive
cooperative marketing with other Lake Tahoe resorts to promote the region as a
premier vacation destination.
Data-based marketing programs. Through the information obtained from
Vertical Plus, Vertical Value and extensive market surveys and other market
research, the Company maintains a database containing detailed information on
its existing customers. Management believes that database marketing is an
effective and efficient method to identify, target and maintain an on-going
relationship with the Company's best customers. For example, the Company has
been successful in the use of targeted direct mailings and e-mail broadcasts,
which are designed to match customer preferences with special ski package offers
to build peak
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and off-peak volume. Management believes that these types of relationship-based
marketing programs build guest loyalty and play an important role in solidifying
a resort's existing customer base.
Skier development programs. The Company's resorts operate a variety of
skier development programs designed to improve the skills of children and
beginners, as well as more advanced skiers and snowboarders. Management believes
that these development programs increase skier days at the Company's resorts by
expanding the total market of skiers and making skiing more enjoyable.
Northstar, Sierra and Waterville Valley operate ski schools that are
consistently rated among the best in their respective regions. In addition,
several of the Company's resorts have introduced a development program, Vertical
Improvement, geared toward intermediate and advanced skiers, which offers free
specialized instruction and daily training. Northstar has also been an industry
leader in developing interesting terrain features and trails designed to improve
the skill levels of its guests. For example, the resort recently developed four
"terrain feature" ski trails geared toward its intermediate and advanced-level
guests. The Company intends to expand its highly successful skiing and
snowboarding instruction programs developed at Northstar and Sierra to all of
its resorts over the next two ski seasons.
Strategic marketing alliances. The Company is a national ski resort
operator with more than 2.2 million skier days recorded during the 1996/97 ski
season. At least one of the Company's resorts is within driving distance of four
of the five largest consumer markets in the United States. These factors,
together with the attractive demographics of the Company's skier base, position
the Company to further develop resort marketing programs with major corporate
sponsors. Sponsorship opportunities include potential relationships with
automobile manufacturers, soft drink companies, and ski and snowboard equipment
manufacturers. For example, Northstar and Sierra have a relationship with a
major automobile manufacturer that involves over $1 million worth of television
exposure, free use of vehicles for Company purposes and a vehicle give-away
promotion for resort guests. Management believes that the media exposure
generated by this partnership is important in building market share and the
image of the resorts, and that current joint marketing programs can be greatly
expanded.
School, group and business affiliations. The Company is dedicated to
developing special programs designed to attract school, business and other
groups. By introducing skiing and snowboarding to a wider audience, these
programs broaden the Company's customer base and have proven to be a
particularly effective way to build name recognition and brand loyalty. Ski
groups have also emerged as the fastest and most profitable way of increasing
business during non-peak periods. Marketing personnel at each resort provide
year-round assistance to group leaders in organizing and developing events.
Business affiliations are developed and maintained through corporate tickets
programs, whereby participating businesses are given an opportunity to provide
their employees with incentive-based pricing.
COMPETITION
The general unavailability of new mountains, regulatory requirements and
the high costs and expertise required to build and operate resorts present
significant barriers to entry in the ski industry. The last major new ski resort
to open in the United States was in 1989, and in the past 15 years, management
believes at least 85 proposed resorts have been stalled or abandoned due to
environmental issues and the high costs of entering into the capital intensive
ski industry. The domestic ski industry is currently comprised of 507 resorts
and is highly competitive. The Company's competitive position in the markets in
which it competes is dependent upon many diverse factors, including proximity to
population centers, pricing, snowmaking capabilities, type and quality of skiing
offered, prevailing weather conditions, quality and price of complementary
services. The Company's Lake Tahoe resorts, Northstar and Sierra, face strong
competition from Lake Tahoe's seven other major ski resorts. Northstar's primary
competition in the North Lake Tahoe area is from Squaw Valley and Alpine
Meadows. Northstar also competes with major ski and non-ski destination resorts
throughout North America. Sierra primarily competes in the Southern Lake Tahoe
area with Heavenly Valley and Kirkwood. The Company's other California Resort,
Bear Mountain, competes primarily with Snow Summit and Mammoth.
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The Company's New England resorts, Waterville Valley, Mt. Cranmore and Loon
Mountain, compete in the highly competitive Northeast ski market, which consists
of Maine, New Hampshire, Vermont, Massachusetts, Connecticut and New York.
Within the Northeast region, skiers can choose from over 50 major resorts and
ski areas, most of which are located in the mountainous areas of New England and
eastern New York. Waterville Valley's primary regional competitors include
Bretton Woods, Attitash/Bear Peak and Gunstock. Mt. Cranmore's primary regional
competitors are the Attitash/Bear Peak ski resort and Gunstock. Loon Mountain's
primary regional competitors are Okemo and Sunday River.
The Summit competes primarily with five local ski areas, including Crystal
Mountain, Stevens Pass, White Pass, Mission Ridge and Mt. Baker. Additional
competition comes from the regional destination resorts at Mt. Bachelor, Mt.
Hood Meadows, Sun Valley and Whistler/Blackcomb, as well as other day and
weekend ski facilities in Washington, Oregon and British Columbia.
Grand Targhee competes for day and regional overnight skiers in the
northern Rocky Mountain region as well as national destination skiers traveling
to the greater Jackson, Wyoming area. Jackson Hole Ski Resort is the resort's
largest single competitor. Grand Targhee has participated in joint marketing
programs with Jackson Hole to promote the Jackson area and many visitors to the
region ski at both resorts. Grand Targhee also competes for day and regional
overnight skiers with Sun Valley and resorts in Utah.
On a regional basis, at least one of the Company's resorts is readily
accessible to four of the five largest ski markets in the United States.
Management estimates that approximately 80% of the skiers visiting the Company's
Lake Tahoe resorts are from the San Francisco, Sacramento Valley and Central
Valley metropolitan areas, while approximately 95% of Bear Mountain's skiers are
from the Los Angeles and San Diego metropolitan areas. Waterville Valley and Mt.
Cranmore are estimated to attract approximately 79% of their guests from the
Boston metropolitan area and southern New Hampshire. The Summit attracts
approximately 95% of its skier guests from the Seattle/Tacoma region. Grand
Targhee primarily attracts day and regional overnight skiers from the northern
Rocky Mountain region and destination skiers visiting the region. Loon Mountain
attracts approximately 77% of its guests from the Boston metropolitan area and
southern New Hampshire.
REGULATION AND LEGISLATION
The Company's operations are dependent upon its ownership or control over
the real estate constituting each resort. The real property presently used at
the Northstar and Mt. Cranmore resorts is owned by the Company. The Company has
the right to use a substantial portion of the real property associated with the
Bear Mountain, Sierra, Summit, Grand Targhee and Waterville Valley resorts under
the terms of special use permits issued by the Forest Service. The special use
permits for the Bear Mountain, Sierra, Waterville Valley, Summit and Grand
Targhee resorts were reissued at the time of the Company's acquisition of such
resorts, with the Bear Mountain permit expiring in 2020, the Sierra permit
expiring in 2008, the Waterville Valley permit expiring in 2034, the Summit
permit expiring in 2032 and the Grand Targhee permit expiring in 2034.
A substantial portion of the real property associated with the Loon
Mountain resort is likewise used under Forest Service permits. In 1993, the
Forest Service authorized various lift, trail and snowmaking improvements on
Loon Mountain and an expansion onto South Mountain. In 1996, the United States
Court of Appeals for the First Circuit overturned this authorization on the
ground that the Forest Service had failed to properly address certain
environmental issues under the NEPA. Certain improvements and part of the
expansion had been constructed before the First Circuit ruled. On May 5, 1997,
the United States District Court for the District of New Hampshire entered a
stipulated order which authorizes existing improvements to remain in place and
existing operations to continue, but generally prohibits future construction,
restricts use of a major snowmaking water source, and requires certain water
discharge permits to be pursued, pending Forest Service reconsideration of the
project under NEPA. See "-- Legal Proceedings."
Existing use of Loon Mountain is authorized under a term permit, which
covers facilities and expires in 2006, and a supplemental permit, which covers
the balance of Loon Mountain. Existing, non-skiing, use of South Mountain is
authorized under an annual permit which expires in February 1999, but is
expected to be reissued. After the Forest Service reconsiders the improvements
and expansion under NEPA, it will need to
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render a new decision and, if appropriate, issue a new permit. At that time, the
District Court order will terminate. Based upon the existing administrative
record, and certain proposed modifications to the resort's snowmaking operations
which are intended to better protect water resources, the Company expects that
the improvements and expansion will be approved by the Forest Service. However,
no assurance can be given regarding the timing or outcome of this process.
In August 1997, the Forest Service authorized the Loon Mountain resort to
construct a new snowmaking pipeline across permitted land. The Forest Service
found that such construction is consistent with the District Court order and
will enable the resort to modify its snowmaking operations to better protect
water resources and replace snowmaking capacity lost under the order. Although
the pipeline has been completed, its use has been challenged by private parties
who assert that the Forest Service violated NEPA. On January 20, 1998, the
United States District Court for the District of New Hampshire issued a decision
finding that the Forest Service violated NEPA in failing to address the
potential for the new pipeline to increase the amount of snow made and any
associated environmental effects. The Company expects the pipeline to be
re-approved upon its reconsideration under NEPA by the Forest Service. However,
no assurances can be given regarding the timing or outcome of this process. See
"-- Legal Proceedings."
The Forest Service has the right to approve the location, design and
construction of improvements in the permit area and many operational matters.
Under the permits, the Company is required to pay fees to the Forest Service.
Under recently enacted legislation, retroactively effective to the 1995/96 ski
season, the fees range from 1.5% to approximately 4.0% of certain revenues, with
the rate generally rising with increased revenues. However, through fiscal 1998,
the Company is required to pay the greater of (i) the fees due under the new
legislation and (ii) the fees actually paid for the 1994/95 ski season, unless
gross revenue in a ski season falls more than 10% below that of the 1994/95 ski
season, in which case the fees due are calculated solely under the new
legislation. The calculation of gross revenues includes, among other things,
lift tickets, ski school lessons, food and beverages, rental equipment and
retail merchandise revenues. Total fees paid to the Forest Service by the
Company during the year ended October 31, 1997 were approximately $665,000. The
new legislation is not expected to have a material effect on fees payable in
future periods.
The Company believes that its relations with the Forest Service are good,
and, to the best of its knowledge, no special use permit for any major ski
resort has ever been terminated by the Forest Service. Prior to permit
termination, the USFS would be required to notify the Company of the grounds for
such action and to provide it with reasonable time to correct any curable
non-compliance.
LEGAL PROCEEDINGS
Each of the Company's resorts has pending and is regularly subject to
litigation with respect to personal injury claims relating principally to skiing
activities at its resorts. The Company and each of its resorts maintain
liability insurance that the Company considers adequate to insure claims related
to usual and customary risks associated with the operation of ski resorts. The
Company does not believe that it or any of its resorts are involved in any
litigation that will, individually or in the aggregate, have a material adverse
effect on its financial condition or future results of operations.
On March 25, 1997, Killington West, Ltd., a California corporation formerly
known as Bear Mountain, Ltd. ("Killington"), filed a breach of contract lawsuit
in the Superior Court of the State of California (County of San Bernardino)
against Fibreboard Corporation ("Fibreboard") and Bear Mountain, Inc. alleging
that Fibreboard and Bear Mountain, Inc. breached the asset purchase agreement
dated October 6, 1995 (the "Original Bear Mountain Agreement") among Killington,
Fibreboard and Bear Mountain, Inc., pursuant to which Bear Mountain, Inc.
acquired the Bear Mountain ski resort from Killington. Killington's lawsuit
concerns an alleged breach by Fibreboard and Bear Mountain, Inc. of a change of
control provision in the Original Bear Mountain Agreement. In connection with
the Company's acquisition of Bear Mountain, Inc. in December 1996, the Company
obtained from Fibreboard indemnification for any claim that might be made by
Killington, and further, required that $1.0 million of the purchase price be
held in escrow pending the outcome of any potential disputes with Killington.
Fibreboard has acknowledged its obligation to indemnify Bear Mountain, Inc. with
respect to the Killington lawsuit and has commenced the defense of such lawsuit
on
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behalf of Fibreboard and Bear Mountain, Inc. However, no assurances can be given
regarding the outcome of this litigation.
In connection with the Company's acquisition of Loon Mountain, certain
shareholders of Loon Mountain Recreation Corporation, the owner and operator of
Loon Mountain, filed a lawsuit in New Hampshire state court against LMRC and its
directors alleging breach of fiduciary duty and against the Company alleging
that the Company failed to comply with the New Hampshire Security Takeover
Disclosure Act (the "Takeover Statute"). Prior to the filing of the lawsuit
against the Company, the Company had sought and received a "no action" letter
from the Bureau of Securities Regulation, New Hampshire Department of State (the
"Bureau") finding that the Takeover Statute was inapplicable to the proposed
merger. Following a request by the plaintiffs in the lawsuit to reconsider the
"no action" order, the Bureau reaffirmed its decision. The two lawsuits have
been combined and currently are pending in the Superior Court in Grafton County,
New Hampshire. The plaintiffs' initial request for a preliminary injunction
prohibiting the Company (or its affiliates) from proceeding with the Loon
Mountain Acquisition was denied on October 28, 1997. Before the litigation
proceeded further, both parties amended the merger agreement. The Company then
sought and obtained an additional order by the Bureau that the Takeover Statute
did not apply. On January 30, 1998, the Company filed its answer to the
plaintiffs' petition and, on February 10, 1998, filed a motion to dismiss the
action against the Company in its entirety, asserting, inter alia, that the
Takeover Statute does not apply to the transaction as a matter of law. That
motion is currently pending before the court. If ultimately successful, the
plaintiffs could seek money damages or a rescission of the Loon Mountain
Acquisition. While management of the Company believes that its position will
prevail, no assurance can be given regarding the outcome of this litigation.
In 1995, an individual sued the Forest Service in the United States
District Court for the District of New Hampshire alleging that the Forest
Service had violated NEPA, the Clean Water Act ("CWA"), and an executive order
in 1993 by approving improvements to facilities on Loon Mountain and an
expansion of the Loon Mountain resort onto South Mountain. LMRC and an
environmental group intervened. The District Court entered summary judgment for
the Forest Service on all claims and the plaintiffs appealed. In December 1996,
the United States Court of Appeals for the First Circuit reversed the District
Court and ruled that the Forest Service must reconsider certain environmental
issues under NEPA and that LMRC must obtain a discharge permit under the CWA for
certain discharges from its snowmaking system. On May 5, 1997, the District
Court entered a stipulated order that: enjoins LMRC from any further
construction implementing the project, with certain limited exceptions; imposes
various restrictions on LMRC's existing snowmaking operations and requires LMRC
to apply for a CWA discharge permit for discharges of water and any associated
pollutants associated with snowmaking; allows existing construction to remain in
place and existing uses to continue; requires LMRC to undertake certain erosion
control and monitoring measures; requires the Forest Service to prepare
supplemental NEPA documentation on the improvements and expansion; and reserves
the right to require restoration of areas developed under the 1993 Forest
Service decision to their preexisting condition if not ultimately approved by
the Forest Service. This order will remain in effect until the supplemental NEPA
process is completed and the Forest Service issues a new special use permit. The
Company has applied for requisite permits under the CWA for its snowmaking
system and expects them to be issued upon acceptable terms. However, no
assurance can be provided on the timing or terms of the permit process.
Following the First Circuit's decision, the plaintiffs filed a motion with
the District Court asking it to impose a civil penalty under the CWA of
$5,550,125 and attorneys fees and costs against LMRC for unpermitted discharges
into Loon Pond without a discharge permit during its snowmaking operations in
the 1996/97 ski season and preceding years. The discharges at issue involve
water transfers from the East Branch of the Pemigewasset River and drain back
from the snowmaking system into the Loon Pond. In connection with its
acquisition of LMRC, the Company has obtained environmental pollution insurance
for $4,500,000 of coverage above a $1.2 million deductible to cover any
penalties, fees, and costs that the Court assesses against LMRC. To the extent
any CWA penalty exceeds the lesser of (i) $100,000 or (ii) the remaining amount
under the $500,000 indemnification threshold under the Merger Agreement, the
Company may utilize the $1,500,000 holdback thereunder to satisfy such
deductible. See "The Transactions -- The Loon Mountain
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Acquisition." In addition, LMRC has asserted various defenses to the merits and
amount of the penalty sought. However, no assurance can be given regarding the
outcome of this litigation.
On August 29, 1997, the plaintiffs filed a second lawsuit against the
Forest Service in the United States District Court for the District of New
Hampshire alleging that the Forest Service violated NEPA in authorizing LMRC to
construct and operate a snowmaking pipeline across permitted land. Another party
intervened as plaintiff, and LMRC intervened as defendant. The Forest Service
and LMRC asserted various defenses. On January 20, 1998, the District Court held
that the pipeline may be analyzed and approved by the Forest Service separately
from the South Mountain expansion, but that the Forest Service violated NEPA by
failing to consider the potential environmental effects of the alleged increase
in snowmaking capacity. In response, the Forest Service will prepare additional
NEPA documents which will be subject to challenge. Following the preparation of
this documentation and consideration of any resulting challenge, the Court will
determine whether to issue an injunction restricting the use or requiring
removal of the pipeline. The Company would expect the pipeline to be reapproved
following the further Forest Service proceeding. However, no assurances can be
given regarding the outcome or timing of this proceeding or the litigation
itself.
On August 1, 1997, two of the plaintiffs filed a lawsuit against the Town
of Lincoln Planning Board and LMRC in the Grafton County Superior Court in the
State of New Hampshire alleging that the Planning Board had improperly approved
various facilities associated with the snowmaking pipeline. On September 30,
LMRC moved to dismiss the claims against it, but sought to remain in the case as
in intervenor. Also on September 30, the Planning Board answered the complaint,
denying most of the allegations and raising various defenses. On February 23,
1998, the court granted LMRC's motion to dismiss. However, in the event that the
plaintiffs are successful, the Planning Board would be requested to reconsider
the facilities and issue a new decision. No assurance can be given regarding the
outcome or timing of this litigation or any resulting Planning Board review.
EMPLOYEES
As of June 1, 1998, the Company employed a full-time corporate staff of 16
persons. In addition, the Company's resorts employ an aggregate of approximately
490 full-time and 4,500 seasonal employees. None of the employees of the Company
or its resorts is represented by a labor union, and the Company considers its
employee relations to be good.
REGULATORY MATTERS
The Company's resorts are subject to a wide variety of federal, state and
local laws and regulations relating to land use, water resources, discharge,
storage, treatment and disposal of various materials and other environmental
matters. Management believes that the Company's resorts are presently in
compliance with all land use and environmental laws, except where non-compliance
is not expected to result in a material adverse effect on its financial
condition. The Company also believes that the cost of complying with known
requirements, as well as anticipated investigation and remediation activities,
will not have a material adverse effect on its financial condition or future
results of operations. However, failure to comply with such laws could result in
the imposition of severe penalties and other costs or restrictions on operations
by government agencies or courts that could adversely affect operations.
The Company has not received any notice of material non-compliance with
permits, licenses or approvals necessary for the operation of its properties or
of any material liability under any environmental law or regulation. However, at
Grand Targhee, the Wyoming Department of Environmental Quality (the "DEQ") has
issued a Notice of Violation of state water pollution requirements based on
alleged discharge from a wastewater lagoon without a permit. The Company has
entered into a negotiated compliance order with the DEQ requiring construction
and operation of a new wastewater facility by November 1998 at a cost of
approximately $1.0 million. In November 1997, the concrete construction of the
footings, walls and treatment tanks of such facility was completed.
Pursuant to the air emissions reduction program currently in effect in the
area regulated by the South Coast Air Quality Management District (the
"SCAQMD"), where Bear Mountain is located, Bear Mountain
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will be required to "bank" emission credits from other facilities which have
already implemented NOx emission reductions. The Company may purchase "banked"
emission credits in a one-time transaction at the current market rate of
approximately $700,000 or over time up to the year 2010 at prevailing market
rates.
The operations at the resorts require permits and approvals from certain
federal, state and local authorities. In addition, 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 could have a detrimental effect on the Company, or that material
permits, licenses or agreements will not be canceled, non-renewed, or renewed on
terms materially less favorable to the Company. Major expansions of any one or
more resorts could require, among other things, the filing of an environmental
impact statement or other documentation with the Forest Service and state or
local governments under the NEPA and certain state or local counterparts.
Although the Company has no reason to believe that it will not be successful in
implementing its operations and development plans, no assurance can be given
that necessary permits and approvals will be obtained.
Pursuant to the First Circuit's decision and the District Court order
referred to under "-- Legal Proceedings," LMRC has applied to the Environmental
Protection Agency ("EPA") for a CWA discharge permit covering discharges
associated with its snowmaking operations. Certain ongoing discharges are
authorized by the District Court order pending final action on the permit and
subject to the Court's reserved power to modify such approval to address any
resulting environmental issues. The Company expects EPA to issue a permit
addressing future discharges prior to the 1998/99 ski season. LMRC does not
expect this permit to involve costs or restrictions that have a material adverse
affect on the resort's operations, but no assurances may be given as to the
outcome or timing of this process.
Certain regulatory approvals associated with the new snowmaking pipeline at
Loon Mountain impose minimum stream flow requirements on LMRC. These
requirements will compel LMRC to construct water storage facilities within the
next ten years, and such construction will require further regulatory approvals
and environmental documentation under the NEPA.
In addition, LMRC was notified in September 1997 that it had allegedly
filled certain wetlands at the resort in violation of the CWA. In response, LMRC
worked with the EPA to remove the alleged fill and implement certain erosion
control measures. On January 15, 1998, an individual notified the EPA, LMRC, and
certain other persons that he intends to instigate a lawsuit under the CWA
regarding the alleged wetland violation. On February 2, 1998, the EPA wrote such
individual that the alleged fill had been removed and that it does not believe
there is a continuing violation at the site.
MANAGEMENT AGREEMENT WITH BOOTH CREEK, INC.
Pursuant to the Management Agreement, the Management Company provides the
Company, the Parent and the Company's subsidiaries with financial advice with
respect to, among other matters, cash management, accounting and data processing
systems and procedures, budgeting, equipment purchases, business forecasts,
treasury functions and investor relations. The Management Company also provides
general supervision and management advice concerning tax, legal and corporate
finance matters, administration and operation, personnel matters, business
insurance and the employment of consultants, contractors and agents. If
requested by the officers or directors of the Company, Parent or any of its
subsidiaries, the Management Company may have its managers attend the board of
directors meetings of the respective boards of each such Company and advise such
boards with respect to the conduct of the business of such companies.
The Management Agreement will terminate automatically upon consummation of
a sale of all or substantially all of the assets or stock of the Parent and its
subsidiaries on a consolidated basis, and may be terminated earlier for certain
causes by either the Company, or the Management Company. George N. Gillett, Jr.,
Chairman and Chief Executive Officer of the Company is the sole shareholder,
sole director and the Chief Executive Officer of the Management Company. See
"Certain Transactions -- Management Agreement with Booth Creek, Inc."
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information with respect to the directors,
executive officers and other key employees of the Company and Parent.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George N. Gillett, Jr........................... 59 Chairman of the Board of Directors, Chief
Executive Officer and Assistant Secretary;
Director of the Company and Parent
Christopher P. Ryman............................ 44 Chief Operating Officer, President and
Assistant Secretary of the Company
Jeffrey J. Joyce................................ 36 Executive Vice President, Finance of the
Company; Director of Parent
Elizabeth J. Cole............................... 38 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of the
Company
Timothy M. Petrick.............................. 43 Executive Vice President of the Company
Timothy H. Beck................................. 47 Executive Vice President, Planning and
President, Eastern Operations
Julianne Maurer................................. 41 Corporate Director of Marketing and Sales
Timothy Silva................................... 46 General Manager -- Northstar
John A. Rice.................................... 42 General Manager -- Sierra
Brent G. Tregaskis.............................. 38 General Manager -- Bear Mountain
Thomas H. Day................................... 43 General Manager -- Waterville Valley
Malcolm A. McInnis.............................. 45 General Manager -- The Summit
Larry H. Williamson............................. 56 General Manager -- Grand Targhee
</TABLE>
George N. Gillett, Jr. Mr. Gillett has been the Chairman of the Board of
Directors of the Company since its formation in October 1996 and Chief Executive
Officer since February 1997. Mr. Gillett served as Chairman from 1977 until
September 1996 of Gillett Holdings, Inc. (which was renamed Vail Resorts, Inc.
in 1996). Gillett Holdings, Inc. owned Packerland Packing Company, Inc. until
its sale in 1994, the Vail ski resort since its acquisition in 1985 and various
media properties, including a controlling interest in SCI Television, Inc. from
1987 until 1993. Since August 1994 he has served as Chairman of Packerland
Packing Company, Inc., a meatpacking company based in Green Bay, Wisconsin. From
October 1987 until May 1993, Mr. Gillett served as Chairman and Chief Executive
Officer of SCI Television, Inc. and from May 1993 until May 1996 as President of
New World Television, Inc. (renamed from SCI Television Inc. in 1993). Mr.
Gillett filed a petition of voluntary bankruptcy under Chapter 7 of the United
States Bankruptcy Code on August 13, 1992 and was discharged from bankruptcy on
July 27, 1993. In addition, certain entities for which Mr. Gillett has served as
an executive officer or director, including Gillett Holdings, Inc., SCI
Television, Inc. and their respective subsidiaries, filed bankruptcy petitions,
or had bankruptcy petitions filed against them, in 1991 and 1993 under Chapter
11 of the United States Bankruptcy Code. All of these entities have since been
discharged from bankruptcy.
Christopher P. Ryman. Mr. Ryman became Chief Operating Officer, President
and Assistant Secretary of the Company in May 1998. Mr. Ryman was Chief
Operating Officer and Senior Vice President of Vail Associates from 1995. Prior
to that time, from 1992 to 1995, he was Senior Vice President of Mountain
Operations at Vail Associates.
Jeffrey J. Joyce. Mr. Joyce has held the position of Executive Vice
President, Finance of the Company since October 1996. He also has served since
August 1994 as a Vice President of Packerland Packing Company, Inc., which is
indirectly controlled by George N. Gillett, Jr., Chairman of the Board of
Directors and Chief Executive Officer of the Company. From July 1988 until July
1993, Mr. Joyce was employed by Gillett Holdings, Inc., an affiliate of George
N. Gillett, Jr., in various financial management positions.
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Elizabeth J. Cole. Ms. Cole has held the positions of Executive Vice
President, Chief Financial Officer, Treasurer and Secretary of the Company since
May 1998. From May 1995 until May 1998, Ms. Cole worked at Vail Resorts with her
most recent position there being that of Vice President, Business Development.
Prior to this time, Ms. Cole was affiliated with Aurora Capital Partners. During
her employment with Aurora Capital Partners, she served as the Chief Financial
Officer of Petrowax PA, Inc., a manufacturer of petroleum waxes.
Timothy M. Petrick. Mr. Petrick has held the position of Executive Vice
President of the Company since May 1997. Prior to this time, he served as Vice
President and General Manager of K2 North America since July 1992.
Timothy H. Beck. Mr. Beck has held the positions of Executive Vice
President, Planning and President, Eastern Operations of the Company since July
1997. Prior to this time, he served as President of Sno.engineering, Inc. since
January 1991.
Julianne Maurer. Ms. Maurer has held the position of Corporate Director of
Marketing and Sales of the Company since December 1996. Prior to this time, she
served as Director of Marketing of the Fibreboard Resort Group as well as
Director of Marketing for Northstar.
Timothy Silva. Mr. Silva has been the General Manager of Northstar since
January 1995. Prior to this time, he served as Director of Operations of Trimont
Land Company, the owner and operator of Northstar, since February 1992.
John A. Rice. Mr. Rice has been the General Manager of Sierra since July
1993. Prior to this time, he served as Vice President of Administration of Bear
Mountain, Ltd. (the predecessor of Bear Mountain, Inc.) since July 1988.
Brent G. Tregaskis. Mr. Tregaskis became the General Manager of Bear
Mountain in February 1998. Prior to this time, he served as Food and Beverage
and Facilities Director of Jackson Hole Mountain Resort since July 1996. From
1985 until July 1996, he served in a variety of positions at Snow Summit
Mountain Resort, including Profit Centers Manager and General Manager of the
Food and Beverage Department.
Thomas H. Day. Mr. Day has been the General Manager of Waterville Valley
since May 1997. Prior to this time, he served as Mountain Manager of Waterville
Valley since 1986.
Malcolm A. McInnis. Mr. McInnis became the General Manager of the Summit in
February 1998. Prior to this time, he served as President of Mission Ridge Ski
Area since 1992.
Larry H. Williamson. Mr. Williamson became the General Manager of Grand
Targhee in March 1997. Mr. Williamson has held the position of General Manager
of Grand Targhee Incorporated, the owner and operator of Grand Targhee, since
March 1996. Prior to this time, he served as Director of Mountain Operations of
Grand Targhee since 1989.
EMPLOYMENT AND OTHER AGREEMENTS
The Company is a party to an employment agreement with Timothy M. Petrick,
Executive Vice President of the Company. Mr. Petrick's employment under such
agreement commenced on May 5, 1997 and will expire on April 30, 2002, unless
sooner terminated. Under such agreement, Mr. Petrick receives a base salary of
$175,000 per annum, subject to certain increases as Mr. Petrick and the Company
may agree. Mr. Petrick will also be entitled to receive a bonus following an
initial public offering by the Company and, beginning with the Company's fiscal
year 1998, an annual incentive bonus of up to 50% of his base salary based upon
the Company's attainment of certain targeted financial, business and personal
goals. Under the terms of his employment agreement, Mr. Petrick is eligible to
participate in the health, disability and retirement plans offered to other
executives of the Company. In addition, pursuant to his agreement, the Company
provides Mr. Petrick with a $1,000,000 term life insurance policy, reimburses
him for all reasonable and necessary expenses incurred by him in the discharge
of his duties and indemnifies him to the maximum extent permitted by Delaware
law. In the event that Mr. Petrick is required to relocate his residence due to
a
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relocation of the Company's executive offices (as described in his agreement),
the Company shall reimburse Mr. Petrick for certain costs related to such
relocation.
Under the terms of his employment agreement, Mr. Petrick's employment may
be terminated by the Company at any time, with or without cause, or upon his
death or disability. In the event Mr. Petrick's employment is terminated
"without cause" or by Mr. Petrick for "good reason" (as described in his
agreement), the Company will provide Mr. Petrick with salary continuation and
continuation of health and disability insurance coverage for a period of 18
months or until such time as Mr. Petrick is eligible for comparable benefits
from another entity, whichever date is sooner. During the term of his employment
and for a period of one year thereafter, Mr. Petrick will be subject to
provisions prohibiting his competition with the Company, solicitation of certain
of the Company's executives or diversion of the Company's customers. Mr.
Petrick's employment agreement also contains provisions relating to
non-disclosure of the Company's proprietary information.
The Company is a party to an employment agreement with Timothy H. Beck,
President of Eastern Operations and Executive Vice President, Planning of the
Company. Mr. Beck's employment under such agreement commenced on July 1, 1997
and will expire on June 30, 2002, subject to automatic annual one-year
extensions, unless sooner terminated. Under such agreement, Mr. Beck receives a
base salary of $137,500 per annum, subject to annual review and discretionary
increase by the Company. Mr. Beck will also be entitled to receive a bonus
following an initial public offering by the Company and, beginning with the
Company's fiscal year 1998, an annual incentive bonus of up to 50% of his base
salary based upon the Company's attainment of certain targeted financial,
business and personal goals. Under the terms of his employment agreement, Mr.
Beck is entitled to four weeks paid vacation per year and is eligible to
participate in the health, disability, retirement, profit sharing, equity award
and savings plans offered to other executives of the Company. In addition,
pursuant to his agreement, the Company provides Mr. Beck with a $1,000,000 term
life insurance policy, reimburses him for all reasonable and necessary expenses
incurred by him in the discharge of his duties and indemnifies him to the
maximum extent permitted by Delaware law. In the event that the Company requires
Mr. Beck to relocate his residence to the community in which the Company's
executive offices are located (as described in his agreement), the Company shall
reimburse Mr. Beck for certain costs related to such relocation.
Under the terms of his employment agreement, Mr. Beck's employment may be
terminated by the Company at any time, with or without cause, or upon his death,
disability or resignation. In the event Mr. Beck's employment is terminated
"without cause" or by Mr. Beck for "good reason" (as described in his
agreement), the Company will provide Mr. Beck with salary continuation and
continuation of health and disability insurance coverage for a period of 18
months or until such time as Mr. Beck is eligible for comparable benefits from
another entity, whichever date is sooner. In the event Mr. Beck's employment is
terminated "without cause" within six months of a "change of control" (as
described in his agreement), the Company will provide Mr. Beck with salary
continuation and continuation of health and disability insurance coverage until
the earlier of (i) June 30, 2002 or (ii) the third anniversary of such
termination, but at least for a period of 18 months. However, such salary
continuation shall be reduced by any compensation received for services as an
employee or independent contractor during such periods and such benefit
continuation will cease at such time as Mr. Beck is eligible for comparable
benefits from another entity. During the term of his employment and for a period
of one year thereafter, Mr. Beck will be subject to provisions prohibiting his
competition with the Company, solicitation of certain of the Company's
executives or diversion of the Company's customers. Mr. Beck's employment
agreement also contains provisions relating to non-disclosure of certain
confidential information of the Company (as described in his agreement).
DIRECTORS
All directors of Booth Creek and Parent hold office until the respective
annual meeting of stockholders next following their election, or until their
successors are elected and qualified. George N. Gillett, Jr. is the sole
director of Booth Creek. In June 1997, pursuant to the Stockholders Agreement
(as defined), (i) Dean C. Kehler and Gregg L. Engles, as the designees of John
Hancock, and Jeffrey J. Joyce, as a designee of Booth Creek Partners Limited II,
L.L.L.P. (the "Gillett Family Partnership"), became members
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of Parent's Board of Directors and (ii) George N. Gillett, Jr., as a designee of
the Gillett Family Partnership, was re-appointed as Chairman of the Board of
Directors of Parent. One additional nomination to Parent's Board of Directors
remains to be made by the Gillett Family Partnership. See "Certain Transactions
- --Stockholders Agreement." No directors of Booth Creek or Parent receive
compensation for acting in such capacity.
Since August 1985, Mr. Kehler has been a Managing Director of CIBC
Oppenheimer Corp., an affiliate of CIBC WG Argosy Merchant Fund 2, L.L.C. (the
"CIBC Merchant Fund"), and has investment responsibilities with respect to the
CIBC Merchant Fund. See "Certain Transactions -- The Financing Transactions" and
"Certain Transactions -- Stockholders Agreement." From February 1990 to August
1995, Mr. Kehler was a Managing Director of Argosy Group, L.P., an investment
banking firm. Mr. Engles has served as the Chairman of the Board and Chief
Executive Officer of Suiza Foods Corporation since October 1994. He has also
served as the Chairman of the Board and Chief Executive Officer of Reddy Ice
Corporation since May 1988, Chairman of the Board of Suiza Holdings, L.P. since
December 1993, and Chairman of the Board of Velda Farms since April 1994.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by Booth Creek to (i)
its Chairman of the Board and Chief Executive Officer and (ii) each of the three
most highly compensated individuals who served as executive officers of the
Company during the Company's fiscal year ended October 31, 1997 and received
salary and bonus in excess of $100,000 during such year (collectively, the
"Named Executives"), for services rendered in all capacities to Booth Creek
during the periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER
FISCAL YEAR ANNUAL ALL OTHER
ENDED SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION OCTOBER 31, ($) ($) ($) ($)
--------------------------- ----------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
George N. Gillett, Jr.................. 1997 3,333(2) -- -- --
Chairman of the Board, Chief
Executive Officer and Director(1)
Timothy M. Petrick..................... 1997 87,950 30,625 -- 1,837(3)
Executive Vice President
Timothy Silva.......................... 1997 92,551 17,500 -- 2,941(4)
General Manager -- Northstar
Nanci N. Northway (6).................. 1997 100,410 6,000 -- 3,181(5)
Former Vice President, Treasurer,
Chief Financial Officer and Secretary
</TABLE>
- -------------------------
(1) Mr. Gillett is the sole shareholder, sole director and Chief Executive
Officer of Booth Creek, Inc., which, pursuant to the Management Agreement
(as defined), provides the Company with management services in exchange for
an annual management fee. See "Certain Transactions -- Management Agreement
with Booth Creek, Inc."
(2) Mr. Gillett was compensated by the Company during January and February of
1997.
(3) Consists of term life insurance premiums.
(4) Consists of a 401(k) matching contribution of $2,891 and term life insurance
premiums of $50.
(5) Consists of a 401(k) matching contribution of $3,158 and term life insurance
premiums of $23.
(6) Ms. Northway resigned from her positions at the Company effective March 14,
1998.
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<PAGE> 97
OPTIONS/SAR GRANTS IN FISCAL 1997
The following table sets forth certain information with respect to option
grants made to the Named Executives for the fiscal year ended October 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS GRANTED TO PRICE APPRECIATION FOR
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION OPTION TERM
NAME GRANTED FISCAL YEAR PRICE ($/SH) DATE -----------------------
---- -------------------- ----------------------- ------------ ---------- 5% 10%
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Timothy M.
Petrick(1)......... 100 100% $500 October 1, 2007 $31,400 $79,700
</TABLE>
- -------------------------
(1) Represents an option to purchase Class A Common Stock of Parent pursuant to
that certain Stock Option Agreement dated as of October 1, 1997 by and
between Parent and Mr. Petrick. See "Management -- Parent Stock Options."
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997 AND 1997
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SHARES OPTIONS/SARS AT VALUE OF UNEXERCISED IN-THE-
ACQUIRED ON FISCAL YEAR-END, MONEY OPTIONS/SARS AT
EXERCISE VALUE EXERCISABLE/UNEXERCISABLE FISCAL YEAR-END, EXERCISABLE/
NAME (#)(1) REALIZED ($) (#) UNEXERCISABLE
---- ----------- ------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Timothy M. Petrick........ -- -- 20/80 $0/$0
</TABLE>
- -------------------------
(1) No options were exercised during the fiscal year ended October 31, 1997.
PARENT STOCK OPTIONS
Parent has established the Booth Creek Ski Group, Inc. 1997 Stock Option
Plan (the "BCG Option Plan"), pursuant to which options with respect to a
maximum of 400 shares of Parent's Class A Common Stock may be granted. Options
may be granted under the BCG Option Plan to executive officers and key employees
of the Company at the discretion of the Board of Directors of Parent.
Under the BCG Option Plan, Parent has entered into several stock option
agreements (each, a "Stock Option Agreement" and collectively, the "Stock Option
Agreements") pursuant to which certain executive officers of the Company (each a
"Holder") have been granted options, subject to vesting, to purchase from Parent
a specified number of shares of Parent's Class A Common Stock at an exercise
price of $500 per share, subject to adjustment under certain circumstances. Each
Holder's option vested with respect to 20% of the related shares on the date of
grant, and will vest with respect to an additional 20% of the related shares on
each of the second, third, fourth and fifth anniversaries of such date. Upon the
occurrence of certain events resulting in the termination of such Holder's
employment (for example, the Holder's death, disability or for reasons other
than for "cause" (as defined in the Stock Option Agreement)) during a year in
which vesting would have taken place, such vesting will occur on a monthly, pro
rata basis. A Holder's option will become fully vested with respect to all of
the related shares upon a "change of control" (as defined in the Stock Option
Agreement) or if he terminates his employment within 45 days following certain
occurrences relating to the continued control and ownership of Parent by George
N. Gillett, Jr. and his family. Upon the termination of the Holder's employment,
all of his unvested options will be cancelled and, depending on the reason for
such termination, certain percentages of his vested options will be cancelled.
Following any termination of his employment, the Holder must, subject to certain
exceptions, exercise his option to purchase shares within 120 days following
such termination. In addition, the Holder generally may not exercise his option
after 10 years from the date of grant.
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<PAGE> 98
Pursuant to each Stock Option Agreement, if the Holder's employment is
terminated other than for "cause," he will have the right to require Parent to
purchase any shares of stock issued or issuable pursuant to his option at the
fair market value of such shares, as described therein. In addition, Parent will
have the right following the termination of the Holder's employment for "cause"
or his resignation without "good reason" to purchase all shares of stock
acquired by him pursuant to an exercise of his option at the fair market value
of such shares, as described in the Stock Option Agreement. Any shares of stock
issued pursuant to the options granted under the Stock Option Agreements will be
subject to the Stockholders Agreement (as defined). See "Certain Transactions --
Stockholders Agreement."
To date, Parent has entered into a Stock Option Agreement with and has
granted options to purchase shares of Parent's Class A Common Stock to each of
Timothy Petrick, Timothy Beck, Timothy Silva and John A. Rice, with respect to
100, 80, 10 and 10 shares, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by the Board of Directors of the Company, other
than decisions regarding the grant of options under the BCG Option Plan, which
is administered by the Board of Directors of Parent. Mr. George N. Gillett, Jr.
is the sole director of the Company and a director of Parent.
CERTAIN TRANSACTIONS
THE FINANCING TRANSACTIONS
Since its formation in October 1996, the Company has engaged in a series of
related transactions for the purpose of raising capital to finance the
acquisitions of its resorts. As part of these transactions, (i) in November and
December 1996, the Gillett Family Partnership contributed an aggregate of $7.5
million to Parent in exchange for 3,630 shares of Class A Common Stock of
Parent; (ii) on November 27, 1996, Parent entered into a Securities Purchase
Agreement (the "Hancock Securities Purchase Agreement") with John Hancock
pursuant to which John Hancock purchased for an aggregate consideration of $42.5
million (a) 2,558 shares of Parent's Class B Common Stock (the "Hancock
Purchased Common Shares"), (b) warrants (the "Hancock Warrants") to purchase an
additional 2,500 shares of Parent's Class B Common Stock (the "Hancock
Underlying Shares") and (c) $35.0 million aggregate principal amount of Parent's
notes, including the Hancock Option Notes (the "Hancock Parent Financing Debt");
(iii) on November 27, 1996, Parent entered into a Securities Purchase Agreement,
as amended (the "CIBC Merchant Fund Securities Purchase Agreement" and, together
with the Hancock Securities Purchase Agreement, the "Securities Purchase
Agreements") with the CIBC Merchant Fund pursuant to which the CIBC Merchant
Fund purchased for an aggregate consideration of $6.5 million (a) 512 shares of
Parent's Class B Common Stock (the "CIBC Merchant Fund Purchased Common Shares"
and, together with the Hancock Purchased Common Shares, the "Purchased Common
Shares"), (b) warrants (the "CIBC Merchant Fund Warrants" and, together with the
Hancock Warrants, the "Warrants") to purchase an additional 400 shares of
Parent's Class B Common Stock (the "CIBC Merchant Fund Underlying Shares" and,
together with the Hancock Underlying Shares, the "Underlying Shares") and (c)
$5.0 million aggregate principal amount of Parent's notes (the "CIBC Merchant
Fund Parent Financing Debt"); and (iv) in December 1996, using the proceeds of
the foregoing, Parent made an equity contribution of $40.0 million and a loan of
$10.0 million to the Company, which was used to consummate the acquisitions of
certain of the Company's resorts (the foregoing transactions are collectively
referred to herein as the "Financing Transactions"). The loan from Parent to the
Company had terms identical to the Hancock Option Notes and was repaid in
connection with the consummation of the 1997 Offering.
In connection with the consummation of the 1997 Offering, the Hancock
Option Notes were exchanged for notes of the Company with substantially
identical terms and repaid with a portion of the proceeds of the 1997 Offering.
The remaining portion of the Hancock Parent Financing Debt and the CIBC Merchant
Fund Parent Financing Debt (collectively, together with the 1998 Hancock Parent
Financing Debt (as defined) and
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<PAGE> 99
the 1998 CIBC Parent Financing Debt (as defined), the "Parent Financing Debt")
matures on November 27, 2008 and bears interest at 12% per annum, if paid in
cash, or 14% per annum, if paid in kind, payable semi-annually on each May 27
and November 27. In connection with the consummation of the Equity Financing,
(i) the Gillett Family Partnership contributed an aggregate of $1.1 million to
Parent in exchange for 536 shares of Class A Common Stock of Parent; (ii) John
Hancock purchased for an aggregate consideration of $4.8 million (a) a senior
note which has been converted into 378 shares of Parent's Class B Common Stock,
(b) warrants to purchase an additional 295 shares of Parent's Class B Common
Stock and (c) $3.7 million aggregate principal amount of Parent's notes (the
"1998 Hancock Parent Financing Debt") and (iii) the CIBC Merchant Fund purchased
for an aggregate consideration of $4.6 million (a) 361 shares of Parent's Class
B Common Stock, (b) warrants to purchase an additional 282 shares of Parent's
Class B Common Stock and (c) $3.5 million aggregate principal amount of Parent's
notes (the "1998 CIBC Parent Financing Debt").
The Securities Purchase Agreements, which govern the Parent Financing Debt,
contain financial covenants relating to the maintenance of ratios of (a)
consolidated total debt to consolidated cash flow, (b) consolidated cash flow to
consolidated fixed charges and (c) consolidated cash flow to consolidated
interest charges. The Securities Purchase Agreements also contain restrictive
covenants pertaining to the management and operation of Parent and its
subsidiaries, including the Company. The covenants include, among others,
significant limitations on discounts or sales of receivables, funded debt and
current debt, dividends and other stock payments, redemption, retirement,
purchase or acquisition of equity interests in Parent and its subsidiaries,
transactions with affiliates, investments, liens, issuances of stock, asset
sales, acquisitions, mergers, fundamental corporate changes, tax consolidation,
modifications of certain documents and leases. The Securities Purchase
Agreements further required that all of the issued and outstanding common stock
of Booth Creek be pledged upon consummation of the 1997 Offering to secure the
Parent Financing Debt and provide that Parent shall cause Booth Creek to pay
cash dividends to Parent in the maximum amount permitted by law, subject to
restrictions contained in the Company's debt agreements, in order to satisfy
Parent's interest payment obligations under the Parent Financing Debt.
The Securities Purchase Agreements provide for events of default customary
in agreements of this type, including: (i) failure to make payments when due;
(ii) breach of covenants; (iii) bankruptcy defaults; (iv) breach of
representations or warranties in any material respect when made; (v) default by
Parent or any of its subsidiaries under any agreement relating to debt for
borrowed money in excess of $1.0 million in the aggregate; (vi) final judgments
for the payment of money against Parent or any of its subsidiaries in excess of
$1.0 million in the aggregate; (vii) ERISA defaults; (viii) any operative
document ceasing to be in full force and effect; (ix) any enforcement of liens
against Parent or any of its subsidiaries; and (x) a change of control of
Parent. The Securities Purchase Agreements contain financial and operating
covenants, events of default and other provisions customary for agreements of
this type.
The Warrants are exercisable, subject to certain conditions, at a per share
price of $0.01 (as adjusted by certain anti-dilution provisions) at any time
prior to November 27, 2008, on which date all unexercised Warrants will be
deemed automatically exercised. The Securities Purchase Agreements provide that
the holders of at least two-thirds of the Purchased Common Shares and the
Underlying Shares will each be entitled to require Parent to register their
shares under the Securities Act for resale to the public. The holders of
Registrable Shares (as defined in the Securities Purchase Agreements) are also
entitled to certain piggyback and other registration rights, subject in all
cases to certain qualifications.
STOCKHOLDERS AGREEMENT
In connection with the consummation of the Financing Transactions, Parent,
the Gillett Family Partnership, John Hancock and the CIBC Merchant Fund entered
into a Stockholders Agreement dated November 27, 1996 (the "Stockholders
Agreement"). Pursuant to the Stockholders Agreement, the Board of Directors of
Parent shall consist of five directors, three of whom shall be designated by the
Gillett Family Partnership and two of whom (the "Unaffiliated Directors") shall
be designated by John Hancock. No transaction between Parent or any of its
subsidiaries, including the Company, and George N. Gillett, Jr. or any of his
affiliates may be approved by the Board of Directors of Parent unless such
transaction is approved by all
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<PAGE> 100
of the Unaffiliated Directors. Moreover, without the consent of John Hancock and
the CIBC Merchant Fund (or their respective transferees) (collectively, the
"Institutional Investors"), neither Parent nor any subsidiary of Parent,
including the Company, may issue any equity securities except, in the case of
Parent, for certain enumerated permitted issuances and, in the case of any
subsidiary of Parent, issuances to Parent or to any wholly-owned subsidiary of
Parent. With respect to issuance of equity securities of Parent requiring the
approval of the Institutional Investors, the Institutional Investors also are
entitled to certain preemptive rights. In addition, the Stockholders Agreement
provides that neither Parent nor any of its subsidiaries, including the Company,
may acquire any assets or business from any other person (other than inventory
and equipment in the ordinary course of business) without the consent of the
Required Institutional Investors (as defined in the Stockholders Agreement).
The Stockholders Agreement further provides that, subject to certain
exceptions, the Gillett Family Partnership may not sell, assign, gift, pledge or
otherwise transfer any equity securities of Parent beneficially owned by it
(other than to an affiliate of the Gillett Family Partnership that becomes a
party to the Stockholders Agreement) prior to November 27, 1999. In the event
that at any time after such date, the Gillett Family Partnership shall not hold
a majority of the outstanding Class A Common Stock of Parent as a result of the
conversion of shares of Class B Common Stock into Class A Common Stock, the
Stockholders Agreement requires that Parent grant to the Gillett Family
Partnership registration rights with respect to its equity securities which are
in all material respects the same as those provided to the Institutional
Investors under the Securities Purchase Agreements.
In addition to the foregoing, the Stockholders Agreement gives each party
thereto certain co-sale rights and rights of first offer upon the sale or other
transfer of any equity securities of Parent by any other party, and requires
that, as a condition to the issuance or transfer of any equity securities of
Parent to any third party (other than a person who acquires such securities
pursuant to an effective registration statement under the Securities Act) that
such person become a party to the Stockholders Agreement and agree to be bound
by all the terms and conditions thereof.
The provisions of the Stockholders Agreement relating to the composition of
the Board of Directors of Parent terminate following any transfer or transfers
of equity securities of Parent by the Gillett Family Partnership, John Hancock
and the CIBC Merchant Fund (other than a transfer by any of them to any of their
respective affiliates) if after giving effect to any such transfer or transfers
the Gillett Family Partnership, John Hancock and the CIBC Merchant Fund have
transferred in the aggregate 20% or more of the equity securities of Parent, as
calculated in the Stockholders Agreement. The Stockholders Agreement shall
terminate, and be of no force or effect, upon the consummation of a Qualified
Public Offering (as defined in the Stockholders Agreement).
In June 1997, pursuant to the Stockholders Agreement, (i) Dean C. Kehler
and Gregg L. Engles, as the designees of John Hancock, and Jeffrey J. Joyce, as
a designee of the Gillett Family Partnership, became members of Parent's Board
of Directors and (ii) George N. Gillett, Jr., as a designee of the Gillett
Family Partnership, was re-appointed as Chairman of the Board of Directors of
Parent. One additional nomination to Parent's Board of Directors remains to be
made by the Gillett Family Partnership. George N. Gillett, Jr., Chairman and
Chief Executive Officer of the Company, is the managing general partner of the
Gillett Family Partnership. See "Management -- Directors."
INITIAL OFFERING
CIBC Oppenheimer Corp. was the Initial Purchaser in the Initial Offering
and in the 1997 Offering and received customary compensation in such capacity.
In addition, CIBC Oppenheimer Corp. acted as a financial advisor to the Company
with respect to the Consent Solicitation. In connection therewith, the Company
reimbursed CIBC Oppenheimer Corp. for its out-of-pocket expenses and provided
customary indemnification.
The Initial Purchaser is an affiliate of Canadian Imperial Bank of
Commerce, which was the lender under the Bridge Notes, and is an affiliate of
the CIBC Merchant Fund, which owns 873 shares, and Warrants to acquire an
additional 682 shares, of Class B Common Stock of Parent and $8.5 million
aggregate principal amount of notes issued by Parent. Dean C. Kehler, who has
been a Managing Director of the Initial Purchaser since August 1995 and has
investment responsibilities with respect to the CIBC Merchant Fund, serves on
Parent's Board of Directors.
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<PAGE> 101
MANAGEMENT AGREEMENT WITH BOOTH CREEK, INC.
Pursuant to the Management Agreement, the Management Company provides the
Company, the Parent and the Company's subsidiaries with financial advice with
respect to, among other matters, cash management, accounting and data processing
systems and procedures, budgeting, equipment purchases, business forecasts,
treasury functions and investor relations. The Management Company also provides
general supervision and management advice concerning tax, legal and corporate
finance matters, administration and operation, personnel matters, business
insurance and the employment of consultants, contractors and agents. If
requested by the officers or directors of the Company, Parent or any of its
subsidiaries, the Management Company may have its managers attend the board of
directors meetings of the respective boards of each such company and advise such
boards with respect to the conduct of the business of such companies.
Under the terms of the Management Agreement, the Company provides customary
indemnification, reimburses certain costs and pays the Management Company an
annual management fee of $350,000 plus an operating bonus (the "Operating
Bonus") (not to exceed $400,000) equal to 2.5% of the excess of Consolidated
EBITDA (as defined below) for such year over $25 million. The Operating Bonus
for each fiscal year must be paid within 15 days after Parent receives its
fiscal year-end audited financial statements for that year. The Company pays the
Management Company amounts necessary to cover operations costs (other than
office operations costs but including, without limitation, reasonable travel and
entertainment costs) of the Management Company attributable to, arising out of,
in connection with, or related to management services rendered to the Company or
any of its subsidiaries by the Management Company. In addition, the Company
reimburses the Management Company for any other costs or expenses incurred by
the Management Company in connection with independent third party professionals
or persons with respect to its management services.
The term "Consolidated EBITDA," as used in the Management Agreement, means
the EBITDA of the Company and its subsidiaries consolidated in accordance with
generally accepted accounting principles ("GAAP"), and after giving appropriate
effect to outside minority interests, if any, in subsidiaries, and taking into
account certain exclusions, including without limitation (a) the net income of
any person (other than a subsidiary of the Company) in which the Company or any
such subsidiary has an ownership interest; (b) any undistributed net income of a
subsidiary of the Company which for any reason is unavailable for distribution
to the Company or any other subsidiary of the Company; (c) the net income of any
person accrued prior to the date it becomes a subsidiary of the Company or is
merged into or consolidated with the Company or a subsidiary of the Company; (d)
in the case of a successor to the Company by consolidation, merger or transfer
of assets, the net income of such successor accrued prior to such consolidation,
merger or transfer; (e) any deferred or other credit representing the excess of
the equity in any subsidiary of the Company at the date of acquisition thereof
over the cost of the investment in such subsidiary; (f) any restoration to
income of any contingency reserve, except to the extent that provision for such
reserve was made out of income accrued during the same period; (g) any aggregate
net gain and any aggregate net loss arising from the sale, conversion, exchange
or other disposition of capital assets; (h) any gains resulting from any
write-up of any assets (but not any loss resulting from any write-down); (i) any
net gain from the collection of any proceeds of life insurance policies; (j) any
gain arising from the acquisition of any shares or other securities or the
extinguishment, under GAAP, of any indebtedness, of the Company or any
subsidiary of the Company; (k) any net income or gain (but not any net loss)
from (1) any change in accounting principles in accordance with GAAP, (2) any
prior period adjustments resulting from any change in accounting principles in
accordance with GAAP and (3) any discontinued operations or the disposition
thereof; and (l) any portion of net income that cannot be freely converted into
United States Dollars. In determining Consolidated EBITDA, the net income of any
person for any period shall be (x) increased by the amount deducted therefrom in
respect of "non cash costs of real estate sales" incurred during such period and
(y) decreased by the amount of "cash real estate development costs" to the
extent capitalized during such period.
Certain obligations of the Company to make payments under the Management
Agreement are subject to the provisions of the Securities Purchase Agreements.
The Company may make payments under the Management Agreement so long as (i) both
at the time of making such payments and after giving effect thereto, no default
or event of default shall have occurred and be continuing under the Securities
Purchase Agreements and (ii) the aggregate amount of such management fees paid
during any fiscal year of the Parent shall not exceed the lesser of (1) $750,000
and (2) the sum of (x) $350,000 plus (y) 2.5% of Consolidated EBITDA in excess
of $25,000,000 for the then most recently completed fiscal year of Parent.
Management fees that are not permitted to be paid due to the creation of a
default or event of default under the Securities Purchase Agreements will accrue
without interest and may be paid at such time as no default or event of default
shall exist.
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The management fees and the calculation of the Operating Bonus may be
amended only by the mutual consent of both the Company and the Management
Company. In the year ended October 31, 1997 and the six months ended May 1,
1998, the Company accrued fees of $350,000 and $175,000 respectively, and
reimbursed certain expenses under the Management Agreement.
To the fullest extent permitted by law, with certain limitations, the
Management Company and any officer, director, employee, agent or attorney of the
Management Company (collectively, the "Indemnitees") shall not have any
liability to any of the Parent, the Company or any of their subsidiaries for any
loss, damage, cost or expense (including, without limitation, any court costs,
attorneys' fees and any special, indirect, consequential or punitive damages)
allegedly arising out of the Management Company's management services rendered
to the Parent, the Company or any of their subsidiaries or Indemnities' acts,
conduct or omissions in connection with the Management Company's management
services rendered to the Company or any of their subsidiaries.
In addition, to the fullest extent permitted by law, the Company
indemnifies the Indemnitees and holds the Indemnitees harmless against, any
loss, damage, cost or expense (including, without limitation, court costs and
reasonable attorneys' fees) which the Indemnitees may sustain or incur by reason
of any threatened, pending or completed investigation, action, claim, demand,
suit, proceeding or recovery by any person (other than the Indemnitees)
allegedly arising out of the Management Company's management services rendered
to the Parent, the Company or any of their subsidiaries or the Indemnitees'
acts, conduct or omissions in connection with the Management Company's
management services rendered to the Parent, the Company or any of their
subsidiaries.
Since the formation of the Company, the Management Company and certain of
its affiliates have made advances and deposits, and have incurred fees and
expenses, in connection with certain of the acquisitions of the Company's
resorts for which they were later reimbursed by the Company pursuant to the
Management Agreement. Reimbursement amounts did not include any payment of
interest.
The Management Agreement will terminate automatically upon consummation of
a sale of all or substantially all of the assets or stock of the Parent and its
subsidiaries on a consolidated basis, and may be terminated earlier for certain
cause by either the Company or the Management Company. George N. Gillett, Jr.,
Chairman and Chief Executive Officer of the Company is the sole shareholder,
sole director and the Chief Executive Officer of the Management Company.
THE REAL ESTATE LLC
In connection with the consummation of the Summit Acquisition, Ski Lifts
transferred approximately 71 acres of owned real estate held for development
purposes into the Real Estate LLC, of which Ski Lifts is a member and 99% equity
interest holder and the Company is the other member and 1% equity interest
holder. The Real Estate LLC is an Unrestricted Subsidiary of the Company and has
been since the Initial Offering. In addition, Ski Lifts granted the Real Estate
LLC an option (the "Real Estate Option") to purchase an additional 14 acres of
developmental real estate for nominal consideration, exercisable under certain
conditions. Ski Lifts also issued 28,000 shares of non-voting preferred stock
(the "Ski Lifts Preferred Stock") to its prior owners having an aggregate
liquidation preference equal to $3.5 million, the aggregate estimated fair
market value of the real estate transferred to the Real Estate LLC and the real
estate subject to the Real Estate Option. Concurrently with these transactions,
the Real Estate LLC entered into an agreement to purchase (the "Preferred Stock
Purchase Agreement") the Ski Lifts Preferred Stock, on a quarterly basis over
the five years following the date of the Summit Acquisition, at a purchase price
equal to the liquidation preference thereof plus accrued dividends to the date
of purchase. Through May 1, 1998, the Company had paid the first five quarterly
payments under the Preferred Stock Purchase Agreement aggregating $625,000. The
Real Estate LLC's obligations under the Preferred Stock Purchase Agreement are
secured by a first priority lien on the developmental real estate held by the
Real Estate LLC and substantially all of its other assets. The Ski Lifts
Preferred Stock provides for a 9% cumulative dividend and is redeemable at the
option of Ski Lifts without premium. In addition, pursuant to the terms of the
Ski Lifts Preferred Stock, the holders thereof have no redemption rights and are
entitled to receive dividend payments only when and if declared by the board of
directors of Ski Lifts. See "Description of Certain Indebtedness -- Ski Lifts
Preferred Stock Purchase Agreement."
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OWNERSHIP AND CONTROL
The Company is a wholly-owned subsidiary of Parent. The following table
sets forth information concerning the beneficial ownership of Parent's Common
Stock (including Class A Common Stock and Class B Common Stock) as of June 1,
1998, by (i) each person known to the Company to own beneficially more than 5%
of the outstanding Common Stock of Parent, (ii) by each director of the Company
and each Named Executive and (iii) all directors and executive officers of the
Company as a group. Each share of Parent's Class B Common Stock is non-voting
(except with respect to certain amendments to the certificate of incorporation
and bylaws of Parent and as otherwise required by the General Corporation Law of
the State of Delaware) and is convertible into one share of voting Class A
Common Stock of Parent at any time, subject to applicable regulatory approvals.
All shares are owned with sole voting and investment power, unless otherwise
indicated.
<TABLE>
<CAPTION>
PARENT'S
PARENT'S CLASS A CLASS B
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED OWNED
---------------- ----------------
BENEFICIAL OWNER SHARES % SHARES %
---------------- ------ - ------ -
<S> <C> <C> <C> <C>
Booth Creek Partners Limited II, L.L.L.P.................... 4,166 100%
6755 Granite Creek Road
Teton Village, Wyoming 83025
John Hancock Mutual Life Insurance Company.................. 5,731(1) 58% 5,731(1) 79%
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
CIBC WG Argosy Merchant Fund 2, L.L.C....................... 1,555(2) 27% 1,555(2) 21%
425 Lexington Avenue, 3rd Floor
New York, New York 10017
George N. Gillett, Jr....................................... 4,166(3) 100%
Chairman of the Board of the Company
Rose Gillett................................................ 4,166(3) 100%
6755 Granite Creek Road
Teton Village, Wyoming 83025
Jeffrey J. Joyce............................................ 624.9(4) 15%
Executive Vice President, Finance of the Company
Timothy M. Petrick.......................................... 20(5) *
Executive Vice President of the Company
Timothy Silva............................................... 2(6) *
General Manager -- Northstar(6)
Total Executive Officers and Directors as a Group........... 4,204(7) 100%
</TABLE>
- -------------------------
* Less than 1%.
(1) Comprised of 2,936 shares of Class B Common Stock of Parent and Warrants to
purchase 2,795 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(2) Comprised of 873 shares of Class B Common Stock of Parent and Warrants to
purchase 682 shares of Class B Common Stock of Parent. Each share of
Parent's Class B Common Stock is convertible into one share of Class A
Common Stock of Parent at any time, subject to applicable regulatory
approvals. Each Warrant may be exercised for one share of Parent's Class B
Common Stock at an exercise price of $.01 per share.
(3) Booth Creek Partners Limited II, L.L.L.P. owns directly 4,166 shares of
Class A Common Stock of Parent. George N. Gillett, Jr. is the managing
general partner and Rose Gillett is a co-general partner of Booth Creek
Partners Limited II, L.L.L.P. and each may be deemed to possess shared
voting and/or investment power with respect to the interests held therein.
Accordingly, the beneficial ownership of such interests may be attributed to
George N. Gillett, Jr. and Rose Gillett. Rose Gillett is the wife of George
N. Gillett, Jr.
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<PAGE> 104
(4) Represents shares of Class A Common Stock of Parent that Mr. Joyce has an
option to purchase from Booth Creek Partners Limited II, L.L.L.P. (the
"Option") pursuant to that certain Option Letter Agreement dated December 3,
1996, which was amended in connection with the Equity Financing. The Option
is exercisable, in whole or in part, at any time on or prior to December 1,
2006 at an initial exercise price equal to $2,066.12 per share, which
exercise price shall increase by $55.10 on each December 1. The shares
subject to the Option and the per share exercise price are subject to
adjustment under certain circumstances, and the obligation of Booth Creek
Partners Limited II, L.L.L.P. to sell shares of Class A Common Stock of
Parent upon exercise of the Option is subject to compliance with applicable
securities laws.
(5) Represents shares of Class A Common Stock of Parent that Mr. Petrick has an
option to purchase from Parent pursuant to that certain Stock Option
Agreement, dated as of October 1, 1997, by and between Parent and Mr.
Petrick. See "Management -- Parent Stock Options."
(6) Represents shares of Class A Common Stock of Parent that Mr. Silva has an
option to purchase from Parent pursuant to that certain Stock Option
Agreement, dated as of February 28, 1998, by and between Parent and Mr.
Silva. See "Management -- Parent Stock Options."
(7) Represents (i) 4,166 shares of Class A Common Stock of Parent owned by Booth
Creek Partners Limited II, L.L.L.P., of which George N. Gillett, Jr. may be
deemed to be the beneficial owner, (ii) 20 shares of Class A Common Stock of
Parent that Timothy M. Petrick has an option to purchase from Parent
pursuant to the option described in note (5) above (iii) 2 shares of Class A
Common Stock of Parent that Timothy Silva has an option to purchase from
Parent pursuant to the option described in Note (6) above and (iv) 16 shares
of Class A Common Stock of Parent that Timothy Beck, an executive officer of
the Company, has an option to purchase pursuant to the option described in
"Management -- Parent Stock Options." Jeffrey J. Joyce may be deemed to be
the beneficial owner of 624.9 of the shares owned by Booth Creek Partners
Limited II, L.L.L.P. pursuant to the Option described in note (4) above.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
The following is a summary of certain provisions of the Amended and
Restated Credit Agreement dated as of March 18, 1997, among the Company, its
subsidiaries, the financial institutions party thereto and BankBoston, N.A., as
administrative agent ("Agent"), as amended by the Senior Credit Facility
Amendment (as so amended, the "Senior Credit Facility"). The following summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all of the provisions of the Senior Credit Facility, including
all of the definitions therein of terms not defined in this Prospectus.
General. The Senior Credit Facility provides for borrowing availability of
up to $25.0 million. The Senior Credit Facility requires that the Company not
have borrowings thereunder in excess of $6.0 million between February 15 and two
business days preceding March 15 of each year, have no borrowings on the
business day preceding March 15 of each year and not have borrowings in excess
of $6.0 million (or, in the case of the 1998 period, $7.5 million) between March
15 and April 15 of each year. Borrowings under the Senior Credit Facility are
collectively referred to herein as the "Loans." Total borrowings outstanding
under the Senior Credit Facility at May 1, 1998 were approximately $6.4 million,
which bore interest on such date at 8.5%. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Interest. For purposes of calculating interest, the Loans can be, at the
election of the Company, Base Rate Loans or LIBOR Rate Loans or a combination
thereof. Base Rate Loans will bear interest at the sum of (a) a margin of
between 0% and .50%, depending on the level of consolidated EBITDA of the
Company and its subsidiaries (as determined pursuant to the Senior Credit
Facility), plus (b) the higher of (i) BankBoston's base rate or (ii) the federal
funds rate plus .50%. LIBOR Rate Loans will bear interest at the LIBOR Rate plus
a margin of between 2.0% and 3.0%, depending on the level of consolidated
EBITDA.
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<PAGE> 105
Repayment. Subject to the provisions of the Senior Credit Facility, the
Company may, from time to time, borrow, repay and reborrow under the Senior
Credit Facility. The entire unpaid balance under the Senior Credit Facility is
payable on March 31, 1999.
Security. Borrowings under the Senior Credit Facility are secured by (i) a
pledge to the Agent for the ratable benefit of the financial institutions party
to the Senior Credit Facility of all of the capital stock of the Company's
principal subsidiaries and (ii) a grant of a security interest in substantially
all of the consolidated assets of the Company and its Restricted Subsidiaries.
Covenants. The Senior Credit Facility contains financial covenants
relating to the maintenance of (i) ratios of (a) financing debt to consolidated
cash flow, (b) adjusted consolidated cash flow to total debt service and (c)
consolidated cash flow to consolidated interest expense, (ii) consolidated net
worth and (iii) consolidated cash flow. The Senior Credit Facility also contains
restrictive covenants pertaining to the management and operation of the Company
and its subsidiaries. The covenants include, among others, significant
limitations on indebtedness, guarantees, mergers, acquisitions, fundamental
corporate changes, capital expenditures, asset sales, leases, investments, loans
and advances, liens, dividends and other stock payments, transactions with
affiliates, optional payments and modification of debt instruments and issuances
of stock.
Events of Default. The Senior Credit Facility provides for events of
default customary in facilities of this type, including: (i) failure to make
payments when due; (ii) breach of covenants; (iii) breach of representations or
warranties in any material respect when made; (iv) default by the Company or
Parent under any agreement relating to financing debt for borrowed money in
excess of $1.0 million in the aggregate; (v) bankruptcy defaults; (vi) judgments
in excess of $1.0 million; (vii) ERISA defaults; (viii) any security document
ceasing to be in full force and effect or any security interest created thereby
ceasing to be enforceable and of the same effect and priority purported to be
created thereby; and (ix) a change of control of the Company.
ASC SELLER NOTE
As part of the purchase price for the acquisitions of the New Hampshire
Resorts, Booth Creek Ski Acquisition Corp., a wholly-owned subsidiary of the
Company, and Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski Resort,
Inc., wholly-owned subsidiaries of Booth Creek Ski Acquisition Corp. and the
respective owners of the assets of the Waterville Valley and Mt. Cranmore
resorts, jointly and severally issued a promissory note to American Skiing
Company in the aggregate principal amount of $2.75 million (the "ASC Seller
Note"). The ASC Seller Note matures on June 30, 2004 and bears interest at 12%
per annum payable semi-annually on each June 30 and December 31.
SKI LIFTS PREFERRED STOCK PURCHASE AGREEMENT
In connection with the consummation of the Summit Acquisition, Ski Lifts
issued 28,000 shares of Ski Lifts Preferred Stock to its former shareholders
having an aggregate liquidation preference equal to $3.5 million, the aggregate
estimated fair market value of the developmental real estate held by the Real
Estate LLC and the real estate subject to the Real Estate Option. Concurrently
with these transactions, the Real Estate LLC entered into the Preferred Stock
Purchase Agreement pursuant to which the Real Estate LLC is required to purchase
the Ski Lifts Preferred Stock, on a quarterly basis over the five years
following the date of the Summit Acquisition, at a purchase price equal to the
liquidation preference thereof plus accrued dividends to the date of purchase.
Through May 1, 1998, the Company had paid the first five quarterly payments
under the Preferred Stock Purchase Agreement aggregating $625,000. The Real
Estate LLC's obligations under the Preferred Stock Purchase Agreement are
secured by a first priority lien on the development real estate held by the Real
Estate LLC and substantially all of its other assets. The Ski Lifts Preferred
Stock provides for a 9% cumulative dividend and is redeemable at the option of
Ski Lifts without premium. In addition, pursuant to the terms of the Ski Lifts
Preferred Stock, the holders thereof have no redemption rights and are entitled
to receive dividend payments only when and if declared by the board of directors
of Ski Lifts.
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<PAGE> 106
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company to the Initial Purchaser
pursuant to the Purchase Agreement. The Initial Purchaser subsequently resold
the Old Notes to qualified institutional buyers in reliance on Rule 144A under
the Securities Act. As a condition to the Purchase Agreement, the Company and
the Guarantors entered into the Registration Rights Agreement with the Initial
Purchaser pursuant to which the Company and the Guarantors have agreed, for the
benefit of the holders of the Old Notes, at the Company's cost, to use their
best efforts to (i) file the Exchange Offer Registration Statement within 30
days after the closing date of the Initial Offering with the Commission with
respect to the Exchange Offer for the New Notes and (ii) use their best efforts
to cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act within 120 days after the closing date of the Initial
Offering. Upon the Exchange Offer Registration Statement being declared
effective, the Company will offer the New Notes in exchange for surrender of the
Old Notes. The Company will keep the Exchange Offer open for not less than 20
business days (or longer if required by applicable law) after the date on which
notice of the Exchange Offer is mailed to the holders of the Old Notes. For each
Old Note surrendered to the Company pursuant to the Exchange Offer, the holder
of such Old Note will receive a New Note having a principal amount equal to that
of the surrendered Old Note. Each New Note will bear interest from its issuance
date. Holders of Old Notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the issuance date of the New
Notes. Such interest will be paid with the first interest payment on the New
Notes. Interest on the Old Notes accepted for exchange will cease to accrue upon
issuance of the New Notes.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes will in general be
freely tradeable after the Exchange Offer without further registration under the
Securities Act, provided that in the case of a Participating Broker-Dealer, a
prospectus meeting the requirements of the Securities Act be delivered as
required. Any purchaser of Old Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing the
New Notes (i) will not be able to rely on the interpretation of the staff of the
Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer
and (iii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the Old Notes,
unless such sale or transfer is made pursuant to an exemption from such
requirements. The Company and the Guarantors have agreed for a period of 180
days after consummation of the Exchange Offer to make available a prospectus
meeting the requirements of the Securities Act to any Participating
Broker-Dealer for use in connection with any resale of any such New Notes
acquired as described below. A Participating Broker-Dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act, and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder that wishes to exchange its Old Notes for New Notes in
the Exchange Offer is required to represent to the Company in the Letter of
Transmittal that (i) the New Notes are to be acquired by the holder or the
person receiving such New Notes, whether or not such person is the holder, in
the ordinary course of business, (ii) the holder or any such other person (other
than a broker-dealer referred to in the next sentence) is not engaging, and does
not intend to engage, in a distribution of the New Notes, (iii) the holder or
any such other person has no arrangement or understanding with any person to
participate in the distribution of the New Notes, (iv) neither the holder nor
any such other person is an "affiliate" of the Company or any of the Guarantors
within the meaning of Rule 405 under the Securities Act, (v) the holder or any
such other person acknowledges that if such holder or any other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
those no-action letters and (vi) it is not acting on behalf of any person who
could not truthfully make the foregoing representations. As indicated above,
each Participating Broker-Dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it (i) acquired the Old Notes for
its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement or understanding with
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<PAGE> 107
the Company or any "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act) to distribute the New Notes to be received in the
Exchange Offer and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. For a
description of the procedures for resales by Participating Broker-Dealers, see
"Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
180 days of the closing date of the Initial Offering, the Company and the
Guarantors will, at their own expense (i) as promptly as practicable, file a
shelf registration statement covering resales of the Old Notes (the "Shelf
Registration Statement"), (ii) use their respective best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
and (iii) use their respective best efforts to keep effective the Shelf
Registration Statement until three years after its effective date. The Company
will, in the event of the filing of the Shelf Registration Statement, provide to
each holder of the Old Notes copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Old Notes. A holder of the
Old Notes that sells such Old Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations). In addition, each holder of the Old Notes will be
required to deliver information to be used in connection with the Shelf
Registration Statement within the periods set forth in the Registration Rights
Agreement in order to have their Old Notes included in the Shelf Registration
Statement.
If the Company and the Guarantors fail to comply with the above provisions
or if a registration statement filed pursuant to the above provisions fails to
become effective, then, as liquidated damages, additional interest shall become
payable in respect of the Old Notes as follows: If (i) the Exchange Offer
Registration Statement or Shelf Registration Statement is not filed within 30
days after the date of the closing of the Initial Offering; (ii) an Exchange
Offer Registration Statement or Shelf Registration Statement is not declared
effective within 120 days after the date of the closing of the Initial Offering;
and (iii) either (A) the Company has not exchanged the New Notes for all Old
Notes validly tendered in accordance with the terms of the Exchange Offer on or
prior to 60 days after the date on which the Exchange Offer Registration
Statement was declared effective or (B) the Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the Shelf Registration Statement has
been declared effective and such Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of its effective date;
(each such event referred to in clauses (i) through (iii) above a "Registration
Default"), the sole remedy available to holders of the Old Notes will be the
immediate accrual of additional interest ("Additional Interest") as follows: the
per annum interest rate on the Old Notes will increase by 0.5% during the first
90-day period the Registration Default exists and is not waived or cured and the
per annum interest rate will increase by an additional 0.25% for each subsequent
90-day period during which the Registration Default remains uncured, up to a
maximum additional interest rate of 2.0% per annum in excess of 12 1/2% per
annum. Notwithstanding the foregoing, no Additional Interest will be payable
with respect to a Registration Default described in clause (iii)(C) above if,
pending a material corporate transaction, the Company issues a notice that the
registration statement, or the prospectus contained therein, is unusable, or
such a notice is required under applicable securities laws to be issued by the
Company, and the aggregate number of days in any consecutive twelve-month period
for which all such notices have been issued or required to be issued has not
exceeded 30 days in the aggregate. All Additional Interest will be payable to
holders of the Old Notes in cash on each March 15 and September 15, commencing
with the first such date occurring after any such Additional Interest commences
to accrue, until such Registration Default is cured. After the date on which
such Registration Default is cured, the interest rate on the Old Notes will
revert to 12 1/2% per annum.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights
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<PAGE> 108
Agreement, a copy of which is filed as an exhibit to the Exchange Offer
Registration Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP number from the Old Notes and will bear the same CUSIP number as
the Outstanding Series B Notes, (ii) the New Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (iii) the holders of the New Notes will not be entitled to certain
rights under the Registration Rights Agreement, including the provisions
providing for an increase in the interest rate on the Old Notes in certain
circumstances relating to the timing of the Exchange Offer, all of which rights
will terminate when the Exchange Offer is terminated. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $17,500,000 aggregate principal amount
of Old Notes was outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company in its sole discretion extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
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<PAGE> 109
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, prior to the
Expiration Date (i) to delay accepting any Old Notes, to extend the Exchange
Offer or to terminate the Exchange Offer if any of the conditions set forth
below under "Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(ii) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders.
If the Company waives any such condition to the Exchange Offer, or amends
the Exchange Offer in any other material respect, and if at the time that notice
of such waiver, or amendment is given to holders of Old Notes in the manner
specified above, the Exchange Offer is scheduled to expire at any time earlier
than the expiration of a period ending on the fifth business day from, and
including, the date that such notice is first so given, then the Exchange Offer
will be extended until the expiration of such period of five business days.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from their date of issuance. Holders of
Old Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the New Notes. Such
interest will be paid with the first interest payment on the New Notes on
September 15, 1998. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
Interest on the New Notes is payable semi-annually on each March 15 and
September 15, commencing on September 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal or an Agent's Message in connection with a
book-entry transfer and other required documents must be completed and received
by the Exchange Agent at the address set forth below under "Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Old Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent, forming a part of a
confirmation of a book-entry transfer, which states that such book-entry
transfer facility has received an express acknowledgment from the participant in
such book-entry transfer facility tendering the Notes that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal, each holder will make the
representations set forth above in the third paragraph under the heading "--
Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
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ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALER, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of the Medallion System (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedures for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at its address set forth below on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to DTC does not constitute delivery to the Exchange Agent.
All questions as to the validity, form eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or
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<PAGE> 111
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution,
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at DTC), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC), and
all other documents required by the Letter of Transmittal are received by
the Exchange Agent upon three New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at DTC to be credited); (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer.
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Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein prior to the
Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
above conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw such
Old Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
If the Company waives any of the above conditions to the Exchange Offer and
if at the time that notice of such waiver is given to holders of Old Notes, the
Exchange Offer is scheduled to expire at any time earlier than the fifth day
from and including the date that such notice is first given, then the Exchange
Offer will be extended until the expiration of such period of five business
days.
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EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
MARINE MIDLAND BANK MARINE MIDLAND BANK
140 Broadway -- Level A 140 Broadway -- Level A
New York, New York 10005-1180 New York, New York 10005-1180
Attention: Corporate Trust Services Attention: Corporate Trust Services
(registered or certified mail recommended)
By Hand: Facsimile Transmission:
MARINE MIDLAND BANK (212) 658-2292
140 Broadway -- Level A Confirm by Telephone:
New York, New York 10005-1180 (212) 658-5931
Attention: Corporate Trust Services
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer will be expensed over
the remaining term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iii) in accordance with
Rule 144 under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Company), (iv) outside the United States to
a foreign person in a transaction meeting the requirements
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of Rule 904 under the Securities Act, or (v) pursuant to an effective
registration under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of the New Notes, will be allowed to resell the New Notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the New Notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act. However, if any holder acquires New Notes in
the Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in such no-action letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, unless an exemption from registration is otherwise available.
Further, each Participating Broker-Dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging, and does not intend to engage, in the distribution of
the New Notes, (iii) the holder of any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder of any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
those no-action letters. As indicated above, each Participating Broker-Dealer
that receives a New Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
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DESCRIPTION OF THE NOTES
The New Notes will be issued under an Indenture, dated as of March 18, 1997
(as supplemented and amended, the "Indenture") among the Company, the Guarantors
named therein and Marine Midland Bank, as trustee (the "Trustee"). The terms of
the New Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), as in effect on the date of the Indenture. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
(which they replace) except that (i) the New Notes bear a Series B designation,
(ii) the New Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, and (iii) the holders of
New Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The New Notes shall bear the same CUSIP number as the Outstanding
Series B Notes. The New Notes are subject to all such terms, and holders of the
New Notes are referred to the Indenture and the Trust Indenture Act for a
statement of them. The following is a summary of the material terms and
provisions of the New Notes. This summary does not purport to be a complete
description of the New Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the New Notes and the Indenture
(including the definitions contained therein). A copy of the Indenture,
including all amendments and supplements thereto, has been filed as an exhibit
to the Exchange Offer Registration Statement of which this Prospectus is a part.
See "Available Information." Definitions relating to certain capitalized terms
are set forth under "-- Certain Definitions" and throughout this description.
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Indenture and such definitions are incorporated
herein by reference. The Old Notes, the New Notes and the Outstanding Series B
Notes are sometimes referred to herein collectively as the "Notes."
The Indenture provides for the issuance of additional series of Notes in
aggregate principal amounts of not less than $15.0 million per series, subject
to compliance with the covenant described below under "Limitation on Additional
Indebtedness" and provided that no Default or Event of Default exists under the
Indenture at the time of issuance or would result therefrom and that the
aggregate principal amount of Notes issued under the Indenture does not exceed
$200.0 million. All Notes will be substantially identical in all material
respects other than issuance dates.
GENERAL
The Notes are general senior unsecured obligations of the Company.
The Notes are unconditionally guaranteed, on a senior unsecured basis, as
to payment of principal, premium, if any, and interest, jointly and severally,
by all direct and indirect Restricted Subsidiaries of the Company having either
assets or stockholders equity in excess of $20,000 (including each Restricted
Subsidiary which guarantees payment of the Notes pursuant to the covenant
described under "Limitation on Creation of Subsidiaries") (the "Guarantors").
MATURITY, INTEREST AND PRINCIPAL
The Notes mature on March 15, 2007. The Notes are limited in aggregate
principal amount to $200.0 million. Any Notes issued after the Issue Date can
only be issued in compliance with the covenant described under "Limitation on
Additional Indebtedness." The Notes bear interest at a rate of 12 1/2% per annum
from the date of original issuance until maturity. Interest is payable
semi-annually in arrears on March 15 and September 15 to holders of record of
the Notes at the close of business on the immediately preceding March 1 and
September 1, respectively. Payment of interest on the New Notes will commence on
September 15, 1998.
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OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after March 15, 2002, at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on March 15 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- -----------
<S> <C>
2002........................................................ 106.250%
2003........................................................ 104.167%
2004........................................................ 102.083%
2005 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 30% of the original principal amount of the Notes at any time and from time
to time prior to March 15, 2000 at a redemption price equal to 112.5% of the
aggregate principal amount so redeemed plus accrued and unpaid interest thereon
to the redemption date out of the Net Proceeds of one or more Public Equity
Offerings; provided that at least $93.5 million of the principal amount of the
Notes originally issued remain outstanding immediately after the occurrence of
any such redemption and that any such redemption occurs within 90 days following
the closing of any such Public Equity Offering.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed. The Notes will be redeemable in whole or in part upon
not less than 30 nor more than 60 days' prior written notice, mailed by first
class mail to a holder's last address as it shall appear on the register
maintained by the Registrar of the Notes. On and after any redemption date,
interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants. Except as
otherwise specified, all of the covenants described below appear in the
Indenture.
Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) unless (a) after giving effect to the incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the ratio
of the Company's EBITDA to the Company's Consolidated Interest Expense
(determined on a pro forma basis for the last four fiscal quarters of the
Company for which financial statements are available at the date of
determination (the "Specified Period")) is greater than 2.0 to 1 and (b) no
Default or Event of Default shall have occurred and be continuing at the time or
as a consequence of the incurrence of such Indebtedness.
If, during the Specified Period or subsequent thereto and on or prior to
the date of determination, the Company or any of its Restricted Subsidiaries
shall have engaged in any Asset Sale or acquisition or shall have designated any
Restricted Subsidiary to be an Unrestricted Subsidiary or any Unrestricted
Subsidiary to be a Restricted Subsidiary, EBITDA and Consolidated Interest
Expense for the Specified Period shall be calculated on a pro forma basis giving
effect to such Asset Sale or acquisition or designation, as the case may be, and
the application of any proceeds therefrom as if such Asset Sale or acquisition
or designation had occurred on the first day of the Specified Period.
If the Indebtedness which is the subject of a determination under this
provision is Acquired Indebtedness, or Indebtedness incurred in connection with
the simultaneous acquisition of any Person, business, property or assets, or
Indebtedness of an Unrestricted Subsidiary being designated as a Restricted
Subsidiary, then such ratio shall be determined by giving effect (on a pro forma
basis, as if the transaction had occurred at the beginning of the Specified
Period) to both the incurrence or assumption of such Acquired Indebtedness or
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such other Indebtedness by the Company or any of its Restricted Subsidiaries and
the inclusion in EBITDA of the EBITDA of the acquired Person, business, property
or assets or redesignated Subsidiary.
If any Indebtedness outstanding or to be incurred (x) bears a floating rate
of interest, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate for
the entire Specified Period (taking into account on a pro forma basis any
Interest Rate Agreement applicable to such Indebtedness if such Interest Rate
Agreement has a remaining term as at the date of determination in excess of 12
months), (y) bears, at the option of the Company or a Restricted Subsidiary, a
fixed or floating rate of interest, the interest expense on such Indebtedness
shall be computed by applying, at the option of the Company or such Restricted
Subsidiary, either a fixed or floating rate and (z) was incurred under a
revolving credit facility, the interest expense on such Indebtedness shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period. For purposes of this covenant, EBITDA for the fiscal quarter
ended January 31, 1997 shall be deemed to be $5,002,000, for the fiscal quarter
ended October 31, 1996 shall be deemed to be ($924,000), for the fiscal quarter
ended July 31, 1996 shall be deemed to be ($3,344,000) and for the fiscal
quarter ended April 30, 1996 shall be deemed to be $15,156,000. Consolidated
Interest Expense for each of the four fiscal quarters in the year ended January
31, 1997 shall be deemed to be $3,682,750.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under "Limitation
on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) an amount equal to the excess of (x)
cumulative Adjusted EBITDA of the Company subsequent to the Issue Date
less, (y) 1.75 times cumulative Consolidated Interest Expense of the
Company subsequent to the Issue Date, plus (2) 100% of the aggregate Net
Proceeds and the fair market value of securities or other property received
by the Company from the issue or sale, after the Issue Date, of Capital
Stock (other than Disqualified Capital Stock or Capital Stock of the
Company issued to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which has been so converted or exercised or
exchanged, as the case may be, plus (3) 100% of the capital contributions
made by the Parent to the Company after the Issue Date (other than capital
contributions which constitute Indebtedness), plus (4) in the case of the
disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount equal to the lesser of the
cash return of capital with respect to such Investment and the initial
amount of such Investment, in either case, less the cost of disposition of
such Investment, plus (5) $3,500,000. For purposes of determining under
this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness by conversion into, or by or in exchange for, shares
of Capital Stock (other than Disqualified
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Capital Stock), or out of, the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Capital Stock of
the Company (other than Disqualified Capital Stock), (iii) the redemption or
retirement of Indebtedness of the Company subordinated to the Notes in exchange
for, by conversion into, or out of the Net Proceeds of, a substantially
concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed
to a Subsidiary) of the Company that is contractually subordinated in right of
payment to the Notes to at least the same extent as the subordinated
Indebtedness being redeemed or retired, (iv) the retirement of any shares of
Disqualified Capital Stock by conversion into, or by exchange for, shares of
Disqualified Capital Stock, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares of
Disqualified Capital Stock, (v) the payment by the Company of cash dividends to
the Parent for the purpose of paying, so long as all proceeds thereof are
promptly used by the Parent to pay, franchise taxes and federal, state and local
income taxes and interest and penalties with respect thereto, if any, payable by
the Parent, provided that any refund shall be promptly returned by the Parent to
the Company, (vi) payments to employees (other than George N. Gillett, Jr. and
Jeffrey J. Joyce) for repurchases of Capital Stock; provided, however, that the
amount of all such payments under this clause (vi) does not exceed $500,000
during any twelve month period; and provided, further, that with respect to this
clause (vi), no Default or Event of Default shall have occurred and be
continuing at the time of any such payment or will occur immediately after
giving effect to any such payment; and provided, further, that, in determining
the aggregate amount of all Restricted Payments made subsequent to the Issue
Date, all payments made pursuant to this clause (vi) shall be included, (vii)
deposits and loans, not to exceed $3,000,000 at any time outstanding, made in
connection with acquisition agreements; provided, however, that if an
acquisition is not consummated within 180 days after the deposit or loan is made
with respect to such acquisition, in determining the aggregate amount of all
Restricted Payments made subsequent to the Issue Date, such deposit or loan
shall be included, or (viii) contingent payments made in accordance with the
terms of the Purchase Agreement dated as of February 11, 1997 relating to the
acquisition of the capital stock of Grand Targhee Incorporated.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements, and that no Default or Event of Default exists and is continuing and
no Default or Event of Default will occur immediately after giving effect to any
Restricted Payments.
Limitations on Investments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Investment other than (i) a Permitted Investment or
(ii) an Investment that is made as a Restricted Payment in compliance with the
"Limitation on Restricted Payments" covenant, after the Issue Date.
Limitations on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Company or any Restricted Subsidiary or any shares of stock or
debt of any Restricted Subsidiary which owns property or assets, now owned or
hereafter acquired, unless (i) if such Lien secures Indebtedness which is pari
passu with the Notes, then the Notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligation is no longer
secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to the Lien
granted to the Holders of the Notes to the same extent as such subordinated
Indebtedness is subordinated to the Notes.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the
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sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which the Company or any of its Restricted
Subsidiaries own a minority interest) or holder of 10% or more of the Company's
Common Stock (an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless (i) such Affiliate Transaction is between or among the Company and
its Wholly-Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction
are fair and reasonable to the Company or such Restricted Subsidiary, as the
case may be, and the terms of such Affiliate Transaction are at least as
favorable as the terms which could be obtained by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an arm's-
length basis between unaffiliated parties. In any Affiliate Transaction
involving an amount or having a value in excess of $1,000,000 which is not
permitted under clause (i) above, the Company must obtain a resolution of the
Board of Directors certifying that such Affiliate Transaction complies with
clause (ii) above. In transactions with a value in excess of $3,000,000 which
are not permitted under clause (i) above, the Company must obtain a written
opinion as to the fairness of such a transaction from an independent investment
banking firm or a firm experienced in the subject matter of the Affiliate
Transaction in question.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitations on Restricted
Payments" contained herein, (ii) any transaction, approved by the Board of
Directors of the Company, with an officer or director of the Company or of any
Subsidiary in his or her capacity as officer or director entered into in the
ordinary course of business, including compensation and employee benefit
arrangements with any officer or director of the Company or any of its
Subsidiaries, (iii) capital contributions made by the Parent to the Company or
made by the Company and its Subsidiaries to Subsidiaries of the Company, or (iv)
if no Default or Event of Default has occurred and is continuing, payments by
the Company pursuant to the Management Agreement as in effect on the Issue Date
in an amount not to exceed $350,000 in any fiscal year.
Limitation on Creation of Subsidiaries
The Company will not create or acquire, nor permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary existing as of the date of the Indenture, (ii) a Restricted
Subsidiary that is created after the date of the Indenture to hold assets or
conduct businesses previously held or conducted by the Company or any of its
other Subsidiaries or that is acquired or created after the date of the
Indenture in connection with the acquisition by the Company of a ski resort
related business or asset, or (iii) an Unrestricted Subsidiary; provided,
however, that each Restricted Subsidiary acquired or created pursuant to clause
(ii) shall at the time it has either assets or stockholders equity in excess of
$20,000 have evidenced its guarantee with such documentation, satisfactory in
form and substance to the Trustee relating thereto as the Trustee shall require,
including, without limitation a supplement or amendment to the Indenture and
opinions of counsel as to the enforceability of such guarantee, pursuant to
which such Restricted Subsidiary shall become a Guarantor. See "Description of
the Notes -- General."
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or its
Restricted Subsidiaries, as the case may be, receives consideration at the time
of such sale or other disposition at least equal to the fair market value
thereof (as determined in good faith by the Company's board of directors, and
evidenced by a board resolution); (ii) not less than 85% of the consideration
received by the Company or its Subsidiaries, as the case may be, is in the form
of cash or Temporary Cash Investments; and (iii) the Asset Sale Proceeds
received by the Company or such Restricted Subsidiary are applied (a) first, to
the extent the Company elects, or is required, to prepay, repay or purchase debt
of the Company or any Restricted Subsidiary under the Senior Credit Facility
within 180 days following the receipt of the Asset Sale Proceeds from any Asset
Sale, provided that any such repayment shall result in a permanent reduction of
the commitments thereunder in an amount equal to the principal amount so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds after
application as described above, to the extent the Company elects, to an
investment in the existing businesses of the Company and its Restricted
Subsidiaries or in assets (including Capital Stock or other securities purchased
in connection with the acquisition of Capital Stock or property of another
person) used or useful in businesses similar or ancillary to
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the business of the Company or its Restricted Subsidiaries as conducted at the
time of such Asset Sale, provided that such investment occurs or the Company or
a Restricted Subsidiary enters into contractual commitments to make such
investment, subject only to customary conditions (other than the obtaining of
financing), on or prior to the 181st day following receipt of such Asset Sale
Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually
committed are so applied within 270 days following the receipt of such Asset
Sale Proceeds; and (c) third, if on the Reinvestment Date with respect to any
Asset Sale, the Available Asset Sale Proceeds exceed $5,000,000, the Company
shall apply an amount equal to such Available Asset Sale Proceeds to an offer to
repurchase the Notes, at a purchase price in cash equal to 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not
fully subscribed, the Company may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
holders stating, among other things: (1) that such holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than 60
days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each holder must follow in order to have such Notes
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
Notwithstanding the foregoing, (i) the Company and its Subsidiaries may
sell real property constituting residential or commercial development parcels
and timber provided that (x) the aggregate fair market value of all such
property sold in any period of 365 consecutive days does not exceed $5,000,000
and (y) at the time of such sale and after giving effect thereto, no Default or
Event of Default shall exist and (ii) Ski Lifts, Inc. (or any successor company)
may sell and transfer real property pursuant to the Real Estate Option.
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Restricted
Subsidiary) to hold any such Preferred Stock unless the Company or such
Restricted Subsidiary would be entitled to incur or assume Indebtedness under
the first paragraph of the covenant described under "Limitation on Additional
Indebtedness" in the aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock to be issued; provided that the
foregoing covenant shall not apply to Preferred Stock of a Restricted Subsidiary
outstanding on the Issue Date.
Limitation on Capital Stock of Restricted Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary (other than under the
Senior Credit Facility or a successor facility) or (ii) permit any of its
Restricted Subsidiaries to issue any Capital Stock, other than to the Company or
a Wholly-Owned Subsidiary of the Company. The foregoing restrictions shall not
apply to an Asset Sale made in compliance with "Limitation on Certain Asset
Sales" or the issuance of Preferred Stock in compliance with the covenant
described under "Limitation on Preferred Stock of Restricted Subsidiaries."
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined in good faith by the board of
directors of the Company and (ii) the Company could incur the Attributable
Indebtedness in respect of such Sale and Lease-Back Transaction in compliance
with the covenant described under "Limitation on Additional Indebtedness."
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Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (A) on its Capital stock or
(B) with respect to any other interest or participation in, or measured by, its
profits, or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (b) make loans or advances or capital contributions to
the Company or any of its Restricted Subsidiaries or (c) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (i)
encumbrances or restrictions existing on the Issue Date or under the Senior
Credit Facility, (ii) the Indenture, the Notes and the Guarantees, (iii)
applicable law, (iv) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries or of any
Person that becomes a Restricted Subsidiary as in effect at the time of such
acquisition or such Person becoming a Restricted Subsidiary (except to the
extent such Indebtedness was incurred in connection with or in contemplation of
such acquisition of such Person becoming a Restricted Subsidiary), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person (including any Subsidiary of the Person), so acquired, provided that the
EBITDA of such Person is not taken into account (to the extent of such
restriction) in determining whether any financing or Restricted Payment in
connection with such acquisition was permitted by the terms of the Indenture,
(v) customary non-assignment provisions in leases or other agreements entered
into in the ordinary course of business and consistent with past practices, (vi)
Refinancing Indebtedness, provided that such restrictions are in the aggregate
no more restrictive than those contained in the agreements governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded, (viii) customary restrictions in security agreements or mortgages
securing Indebtedness of the Company or a Restricted Subsidiary to the extent
such restrictions restrict the transfer of the property subject to such security
agreements and mortgages, (ix) customary net worth provisions contained in
leases and other agreements entered into by a Restricted Subsidiary in the
ordinary course of business or (x) customary restrictions with respect to a
Restricted Subsidiary pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary.
Payments for Consent
Neither the Company nor any of the Guarantors shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued and unpaid
interest to the Change of Control Payment Date (as hereinafter defined) (such
applicable purchase price being hereinafter referred to as the "Change of
Control Purchase Price") in accordance with the procedures set forth below.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each
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holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
The Indenture requires that if the Senior Credit Facility is in effect, or
any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the preceding paragraph, but in any event within 30 days following
any Change of Control, the Company covenants to (i) repay in full all
obligations under or in respect of the Senior Credit Facility or offer to repay
in full all obligations under or in respect of the Senior Credit Facility and
repay the obligations under or in respect of the Senior Credit Facility of each
lender who has accepted such offer or (ii) obtain the requisite consent under
the Senior Credit Facility to permit the repurchase of the Notes as described
above. The Company must first comply with the covenant described in the
preceding sentence before it shall be required to purchase Notes in the event of
a Change of Control; provided that the Company's failure to comply with the
covenant described in the preceding sentence constitutes an Event of Default
described in clause (iii) under "Events of Default" below if not cured within 30
days after the notice required
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by such clause. As a result of the foregoing, a holder of the Notes may not be
able to compel the Company to purchase the Notes unless the Company is able at
the time to refinance all of the obligations under or in respect of the Senior
Credit Facility or obtain requisite consents under the Senior Credit Facility.
Failure by the Company to make a Change of Control Offer when required by the
Indenture constitutes a default under the Indenture and, if not cured within 30
days after notice, constitutes an Event of Default.
The Indenture provides that, (A) if the Company or any Subsidiary thereof
has issued any outstanding (i) Indebtedness that is subordinated in right of
payment to the Notes or (ii) Preferred Stock, and the Company or such Subsidiary
is required to repurchase, or make an offer to repurchase, such Indebtedness, or
redeem, or make an offer to redeem, such Preferred Stock, in the event of a
Change of Control or to make a distribution with respect to such subordinated
Indebtedness or Preferred Stock in the event of a Change of Control, the Company
shall not consummate any such repurchase, redemption, offer or distribution with
respect to such subordinated Indebtedness or Preferred Stock until such time as
the Company shall have paid the Change of Control Purchase Price in full to the
holders of Notes that have accepted the Company's Change of Control Offer and
shall otherwise have consummated the Change of Control Offer made to holders of
the Notes and (B) the Company will not issue Indebtedness that is subordinated
in right of payment to the Notes or Preferred Stock with change of control
provisions requiring the payment of such Indebtedness or Preferred Stock prior
to the payment of the Notes in the event of a Change in Control under the
Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither the Company nor any Guarantor will consolidate with, merge with or
into, or transfer all or substantially all of its assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions), to any Person unless: (i) the Company or the Guarantor, as the
case may be, shall be the continuing Person, or the Person (if other than the
Company or the Guarantor) formed by such consolidation or into which the Company
or the Guarantor, as the case may be, is merged or to which the properties and
assets of the Company or the Guarantor, as the case may be, are transferred
shall be a corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, in
form and substance satisfactory to the Trustee, all of the obligations of the
Company or the Guarantor, as the case may be, under the Notes and the Indenture,
and the obligations under the Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis the Consolidated Net Worth of the Company or the surviving
entity as the case may be is at least equal to the Consolidated Net Worth of the
Company immediately before such transaction or series of transactions; and (iv)
immediately after giving effect to such transaction on a pro forma basis the
Company or the surviving Person could incur at least $1.00 additional
Indebtedness (other than Permitted Indebtedness) under the covenant set forth
under "Limitation on Additional Indebtedness," provided that a Person that is a
Guarantor may consolidate with, merge into or transfer all or substantially all
of its assets to the Company or another Person that is a Guarantor without
complying with this clause (iv).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto, if any, comply with this provision and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
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GUARANTEES
The Notes are jointly and severally unconditionally guaranteed on a senior
unsecured basis by the Guarantors.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under "Limitation on Certain Asset Sales," or the Guarantor
merges with or into or consolidates with, or transfers all or substantially all
of its assets to, the Company or another Guarantor in a transaction in
compliance with "Merger, Consolidation or Sale of Assets," and such Guarantor
has delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent herein provided for relating to such
transaction have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Company or any Guarantor in the observance or
performance of any other covenant in the Notes or the Indenture for 30 days
after written notice from the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding;
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $5,000,000 or more with respect to any Indebtedness of
the Company or any Restricted Subsidiary thereof (other than Indebtedness
owed to the Company or any Subsidiary of the Company), or the acceleration
of any such Indebtedness aggregating $5,000,000 or more, which default
shall not be cured, waived or postponed pursuant to an agreement with the
holders of such Indebtedness within 60 days after written notice as
provided in the Indenture, or such acceleration shall not be rescinded or
annulled within 20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5,000,000 (which are not paid or
covered by third party insurance by financially sound insurers that have
not disclaimed coverage) shall be rendered against the Company or any
Restricted Subsidiary thereof, and shall not be discharged for any period
of 60 consecutive days during which a stay of enforcement shall not be in
effect;
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Significant Restricted Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued
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interest to the date of acceleration and (i) such amounts shall become
immediately due and payable or (ii) if there are any amounts outstanding under
or in respect of the Senior Credit Facility, such amounts shall become due and
payable upon the first to occur of an acceleration of amounts outstanding under
or in respect of the Senior Credit Facility or five business days after receipt
by the Company and the Representative of the holders of Indebtedness under or in
respect of the Senior Credit Facility, of notice of the acceleration of the
Notes; provided, however, that after such acceleration but before a judgment or
decree based on acceleration is obtained by the Trustee, the holders of a
majority in aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than nonpayment of accelerated principal, premium or interest that has
come due solely because of such acceleration, have been cured or waived as
provided in the Indenture and if the rescission would not conflict with any
judgment or decree. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, the principal, premium and
interest amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or the Notes or for any remedy thereunder, unless such
holder shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request and
offered reasonable indemnity to the Trustee to institute such proceeding as a
trustee, and unless the Trustee shall not have received from the holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor shall have any liability for any obligations of the Company or
the Guarantors under the Notes, the Guarantees or the Indenture or for a claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "Covenants" ("covenant defeasance"), upon the deposit with the Trustee (or
other qualifying trustee), in trust for such purpose, of money and/or U.S.
Government Obligations which through the payment of principal and interest in
accordance with their terms will provide money, in an amount sufficient to pay
the principal of, premium, if any, and interest on the Notes, on the scheduled
due dates therefor or on a selected date of redemption in accordance with the
terms of the Indenture. Such a trust may only be established if, among other
things, the Company has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) (i) to the effect that neither the trust nor the
Trustee will be required to register as an investment company under the
Investment Company Act of 1940, as amended, and (ii) to the effect that holders
of the Notes or persons in their positions will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount
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and in the same manner and at the same times, as would have been the case if
such deposit, defeasance and discharge had not occurred which, in the case of
defeasance only, must be based upon a private ruling concerning the Notes, a
published ruling of the Internal Revenue Service or a change in applicable
federal income tax law.
MODIFICATION OF INDENTURE
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend or waive provisions of the Indenture
or the Notes or supplement the Indenture for certain specified purposes,
including providing for uncertificated Notes in addition to certificated Notes,
and curing any ambiguity, defect or inconsistency, or making any other change
that does not materially and adversely affect the rights of any holder. The
Indenture contains provisions permitting the Company, the Guarantors and the
Trustee, with the consent of holders of at least a majority in principal amount
of the outstanding Notes, to modify or supplement the Indenture or the Notes,
except that no such modification shall, without the consent of each holder
affected thereby, (i) reduce the principal amount of outstanding Notes whose
holders must consent to an amendment, supplement, or waiver to the Indenture or
the Notes, (ii) reduce the rate of or change the time for payment of interest on
any Note, (iii) reduce the principal of or premium on or change the stated
maturity of any Note, (iv) make any Note payable in money other than that stated
in the Note or change the place of payment from New York, New York, (v) change
the amount or time of any payment required by the Notes or reduce the premium
payable upon any redemption of Notes, or change the time before which no such
redemption may be made, (vi) waive a default in the payment of the principal of,
interest on, or redemption payment with respect to any Note, (vii) take any
other action otherwise prohibited by the Indenture to be taken without the
consent of each holder affected thereby or (viii) affect the ranking of the
Notes or the Guarantee in a manner adverse to the Holders.
The consent of the holders is not necessary to approve the particular form
of any proposed amendment. It is sufficient if such consent approves the
substance of the proposed amendment.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, they will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 100 days after the end
of the Company's fiscal year and on or before 50 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee need perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default actually known to the Trustee, the Trustee will exercise such rights and
powers vested in it under the Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and
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transfer documents, and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar is not required to transfer or exchange any Note
selected for redemption. Also, the Registrar is not required to transfer or
exchange any Note for a period of 15 days before selection of the Notes to be
redeemed.
The Notes will be issued in a transaction exempt from registration under
the Act and will be subject to the restrictions on transfer described in
"Transfer Restrictions."
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted EBITDA" means EBITDA minus cash taxes actually paid.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee of such Guarantor at such date and
(y) the present fair salable value of the assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of such
Guarantor on its debts (after giving effect to all other fixed and contingent
liabilities and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of the obligations of such Subsidiary under the
Guarantee), excluding Indebtedness in respect of the Guarantee, as they become
absolute and matured.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the 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, means 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 that neither CIBC nor any of its Affiliates shall be treated
as an Affiliate of the Company or of any Subsidiary of the Company.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction or
series of related transactions involving assets with a fair market value in
excess of $500,000 of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Company, (b) all or substantially all of the assets
of the Company or of any Restricted Subsidiary thereof, (c) real property or (d)
all or substantially all of the assets of any ski resort property, or part
thereof, owned by the Company or any Restricted Subsidiary thereof, or a
division, line of business or comparable business segment of the Company or any
Restricted Subsidiary thereof; provided that Asset Sales shall not include
sales, leases, conveyances, transfers or other dispositions to the Company or to
a Restricted Subsidiary or to any other Person if after giving effect to such
sale, lease, conveyance, transfer or other disposition such other Person becomes
a Restricted Subsidiary.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of
appropriate amounts
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to be provided by the Company or a Restricted Subsidiary as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or a Restricted
Subsidiary after such Asset Sale, including, without limitation, pension and
other post employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other noncash consideration received by the Company or any Restricted Subsidiary
from such Asset Sale or other disposition upon the liquidation or conversion of
such notes or noncash consideration into cash.
"Attributable Indebtedness" under the Indenture in respect of a Sale and
Lease-Back Transaction means, as at the time of determination, the present value
(discounted at a rate of 10%, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Lease-Back Transaction (including any period for which such
lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
or committed in accordance with clauses (iii)(a) or (iii)(b), and which has not
yet been the basis for an Excess Proceeds Offer in accordance with clause
(iii)(c), of the first paragraph of "Certain Covenants -- Limitation on Certain
Asset Sales."
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Cash Equivalents" means (i) direct obligations of the United States of
America or any agency thereof, or obligations guaranteed or insured by the
United States of America, provided that in each case such obligations mature
within one year from the date of acquisition thereof, (ii) certificates of
deposit maturing within one year from the date of creation thereof issued by any
U.S. national or state banking institution having capital, surplus and undivided
profits aggregating at least $250,000,000 and at the time of investment rated at
least A-1 by S&P and P-1 by Moody's, (iii) commercial paper with maturity of 180
days or less issued by a corporation (except an Affiliate of the Company)
organized under the laws of any state of the United States or the District of
Columbia and at the time of investment rated at least A-1 by S&P or at least P-1
by Moody's and (iv) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the United States of America or issued by an agency thereof and backed by the
full faith and credit of the United States of America, in each case maturing
within one year from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency and (v) tax-exempt auction rate
securities and municipal preferred stock, in each case, subject to reset no more
than 35 days after the date of acquisition and having a rating of at least AA by
S&P or AA by Moody's at the time of investment.
A "Change of Control" of the Company means the occurrence of one or more of
the following events:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof; (ii) the approval by the holders of Capital Stock of the Company
of any plan or proposal for the liquidation or dissolution of the Company;
(iii) prior to a Qualified IPO, John Hancock Mutual Life Insurance Company
and/or its Affiliates (other than its portfolio companies, including,
without limitation, the Parent and its Subsidiaries) shall cease to
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, Voting Stock representing, or Class B Common Stock
and/or Warrants exercisable for shares of Class B Common Stock representing
upon conversion, at least 40% of the total voting power of all Voting Stock
of the Company or Parent on a fully
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diluted basis; (iv) any Person or Group (other than the Permitted Holders)
shall become the beneficial owner, directly or indirectly, of Voting Stock
representing, or Common Stock or Warrants exercisable for Common Stock
representing upon conversion, more than 35% of the total voting power of
all Voting Stock of the Company or Parent on a fully diluted basis; (v)
prior to a Qualified IPO, Booth Creek Partners Ltd. II, L.L.L.P. or any
Affiliate thereof that is a Permitted Holder shall cease to have the right
to appoint a majority of the Board of Directors of Parent; (vi) the
replacement of a majority of the Board of Directors of Parent over a
two-year period from the directors who constituted the Board of Directors
of Parent at the beginning of such period, and such replacement shall not
have been approved or recommended by a vote of at least two-thirds of the
Board of Directors of Parent then still in office who either were members
of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved;
(vii) there shall be consummated any consolidation or merger of the Company
in which the Company is not the continuing or surviving corporation or
pursuant to which the Common Stock of the Company would be converted into
cash, securities or other property, other than a merger or consolidation of
the Company in which the holders of the Common Stock of the Company
outstanding immediately prior to the consolidation or merger hold, directly
or indirectly, at least a majority of the Common Stock of the surviving
corporation immediately after such consolidation or merger; (viii) George
N. Gillett, Jr. ceases, other than by death or disability, to have an
executive management position with the Company; or (ix) any creditor of
Parent shall foreclose on any Capital Stock of the Company.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to, Redeemable Dividends, whether paid or accrued,
on Preferred Stock of Subsidiaries of such Person (other than Preferred Stock
outstanding on the Issue Date), imputed interest included in Capitalized Lease
Obligations, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, the net costs
associated with hedging obligations, amortization of other financing fees and
expenses, the interest portion of any deferred payment obligation, amortization
of discount or premium, if any, and all other non-cash interest expense (other
than interest amortized to cost of sales)) plus, without duplication, all net
capitalized interest for such period and all interest incurred or paid under any
guarantee of Indebtedness (including a guarantee of principal, interest or any
combination thereof) of any Person, plus the amount of all dividends or
distributions paid on Disqualified Capital Stock (other than dividends paid or
payable in shares of Capital Stock of the Company).
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or its Subsidiaries, (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Notes or the Indenture) shall be
excluded to the extent of such restriction or limitation, (c)(i) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any gain or loss resulting from
an asset sale by the Person in question or any of its Subsidiaries or
abandonments or reserves relating thereto and the related tax effects according
to GAAP other than asset sales in the ordinary course of business shall be
excluded, and (d) extraordinary gains and losses shall be excluded.
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"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholder's equity of such Person less the amount of such
stockholder's equity attributable to Disqualified Capital Stock of such Person
and its Subsidiaries, as determined in accordance with GAAP.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to 180 days after the maturity date of the Notes, for cash or securities
constituting Indebtedness. Without limitation of the foregoing, Disqualified
Capital Stock shall be deemed to include (i) any Preferred Stock of a Restricted
Subsidiary of the Company and (ii) any Preferred Stock of the Company, with
respect to either of which, under the terms of such Preferred Stock, by
agreement or otherwise, such Restricted Subsidiary or the Company is obligated
to pay current dividends or distributions in cash during the period prior to the
maturity date of the Notes; provided, however, that Preferred Stock of the
Company or any Restricted Subsidiary thereof that is issued with the benefit of
provisions requiring a change of control offer to be made for such Preferred
Stock in the event of a change of control of the Company or such Restricted
Subsidiary, which provisions have substantially the same effect as the
provisions of the Indenture described under "Change of Control," and Capital
Stock of the Company or any Restricted Subsidiary thereof that is issued to
employees (other than George N. Gillett, Jr. and Jeffrey J. Joyce) in connection
with compensation arrangements that is issued with the benefit of provisions
requiring the Company or such Restricted Subsidiary to redeem such Capital Stock
shall not be deemed to be Disqualified Capital Stock solely by virtue of such
provisions.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) amortization of any capitalized real estate
development costs, plus (vii) any other non-cash items reducing Consolidated Net
Income for such period, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Company each of the
foregoing items shall be determined on a consolidated basis with respect to the
Company and its Restricted Subsidiaries only; and provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such Person shall be included only (x) if cash income
has been received by such Person with respect to such Investment during each of
the previous four fiscal quarters, or (y) if the cash income derived from such
Investment is attributable to Temporary Cash Investments.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by
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bonds, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding, without
limitation, any balances that constitute accounts payable or trade payables, and
other accrued liabilities arising in the ordinary course of business) if and to
the extent any of the foregoing indebtedness would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, and shall also
include, to the extent not otherwise included (i) any Capitalized Lease
Obligations, (ii) obligations secured by a Lien to which the property or assets
owned or held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed (provided, however, that if
such obligation or obligations shall not have been assumed, the amount of such
Indebtedness shall be deemed to be the lesser of the principal amount of the
obligation or the fair market value of the pledged property or assets), (iii)
guarantees of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction (provided that in the case of any such letters of credit, the items
for which such letters of credit provide credit support are those of other
Persons which would be included within this definition for such other Persons),
(v) in the case of the Company, Disqualified Capital Stock of the Company or any
Restricted Subsidiary thereof, and (vi) obligations of any such Person under any
Interest Rate Agreement applicable to any of the foregoing (if and to the extent
such Interest Rate Agreement obligations would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP). The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum reasonably anticipated liability upon the
occurrence of the contingency giving rise to the obligation, provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) that Indebtedness shall not
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Company or
any Restricted Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Company in connection
with an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude (i) extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices and (ii) the repurchase of securities of any Person by such Person.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
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"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company, the aggregate net proceeds received by the Company, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors, at the time of
receipt) and (b) in the case of any exchange, exercise, conversion or surrender
of outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
expenses incurred by the Company in connection therewith).
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman, Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer, Controller or any Treasurer of such
Person that shall comply with applicable provisions of the Indenture.
"Permitted Holders" means Booth Creek Partners Limited II, L.L.L.P. as long
as George N. Gillett, Jr. is the managing general partner, Jeffrey J. Joyce,
only with respect to shares he purchases upon exercise of his option to purchase
up to 15% of the shares of Common Stock of Parent held by George N. Gillett, Jr.
and Affiliates of George N. Gillett, Jr., the Parent as long as it is controlled
by another Permitted Holder other than Jeffrey J. Joyce, John Hancock Mutual
Life Insurance Company and/or its Affiliates (other than its portfolio
companies, including without limitation, the Parent and its Subsidiaries), CIBC
WG Argosy Merchant Fund 2, L.L.C. and/or its Affiliates, George N. Gillett, Jr.,
Rose Gillett, any trust solely for the benefit of George N. Gillett, Jr. and
Rose Gillett or their respective immediate family members, or any partnership or
other entity all the ownership interests in which are beneficially owned by any
of the foregoing; provided that with respect to any such trust, partnership or
other entity either George N. Gillett, Jr. or Rose Gillett shall at all times
have the exclusive power to direct, directly or indirectly, the voting of the
shares of Voting Stock of the Company held by such trust, partnership or other
entity.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary arising
under or in connection with the Senior Credit Facility in a principal
amount at any time not to exceed $25,000,000 less each permanent reduction
of commitments to extend credit thereunder as provided for under the
Indenture;
(ii) Indebtedness under Notes issued by the Company pursuant to the
Indenture in an aggregate principal amount of up to $133,500,000 and
Indebtedness evidenced by the Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(iv) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred after the Issue Date to acquire property in the ordinary course of
business which Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed $2,500,000 at any time outstanding;
(vi) Obligations of the Company or any Restricted Subsidiary under (A)
Interest Rate Agreements designed to protect against fluctuations in
interest rates in respect of Indebtedness of the Company and its Restricted
Subsidiaries permitted to be incurred under the Indenture, which
obligations do not exceed the aggregate principal amount of such
Indebtedness, and (B) Currency Agreements designed to protect the Company
and its Subsidiaries against fluctuations in foreign currency exchange
rates in respect of foreign exchange exposures incurred by the Company and
its Restricted Subsidiaries;
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(vii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(viii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the acquisition or disposition of any business, assets or a
Subsidiary;
(ix) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(x) any guarantee by the Company of Indebtedness or other obligations
of any of its Restricted Subsidiaries, and any guarantee by any Restricted
Subsidiary of Indebtedness of the Company or any other Restricted
Subsidiary, so long as the incurrence of such Indebtedness is permitted
under the terms of the Indenture;
(xi) additional Indebtedness of the Company and its Restricted
Subsidiaries not to exceed $2,500,000 in principal amount outstanding at
any time;
(xii) Refinancing Indebtedness; and
(xiii) Indebtedness assumed and subsequently repaid in connection with
the acquisition of Grand Targhee Incorporated.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof;
(iv) reasonable and customary loans and advances made to employees in
connection with their relocation (including related travel expenses) not to
exceed $500,000 in the aggregate at any one time outstanding;
(v) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under the covenant described under "Certain Covenants --
Limitation on Certain Asset Sales;"
(vi) any Investment existing on the Issue Date;
(vii) any Investment acquired by the Company or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such Investment or accounts receivable or
(b) as the result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of
title with respect to any secured Investment in default;
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(viii) Investments the payment for which consists of Capital Stock of
the Company (exclusive of Disqualified Capital Stock);
(ix) Investments by Ski Lifts in the Real Estate LLC pursuant to the
Real Estate Option; and
(x) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (ix)
that are at that time outstanding, not to exceed $1,000,000.
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; provided that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Company or any of its Restricted Subsidiaries, (iv) Liens
securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness that is otherwise permitted under the Indenture, provided that (a)
any such Lien is created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection with, such purchase
or construction) of such Property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such costs, and (c) such Lien does
not extend to or cover any Property other than such item of Property and any
improvements on such item, (vi) statutory liens or landlords', carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor, (vii) other Liens securing obligations incurred in the ordinary
course of business which obligations do not exceed $2,500,000 in the aggregate
at any one time outstanding, (viii) any extensions, substitutions, replacements
or renewals of the foregoing, (ix) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings, (x)
Liens securing Capital Lease Obligations permitted to be incurred under clause
(v) of the definition of "Permitted Indebtedness," provided that such Lien does
not extend to any property other than that subject to the underlying lease, (xi)
easements or minor defects or irregularities in title and other similar charges
or encumbrances on property not interfering in any material respect with the use
of such property by the Company or any Restricted Subsidiary, (xii) Liens
securing Indebtedness of the Company or any Restricted Subsidiary under the
Senior Credit Facility and (xiii) deposit arrangements entered into in
connection with acquisitions or in the ordinary course of business.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company of shares
of its Common Stock (however designated and whether voting or non-voting) and
any and all rights, warrants or options to acquire such Common Stock.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of
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which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Qualified IPO" shall mean an underwritten initial offering and sale by the
Company to the public of its Common Stock pursuant to an effective registration
statement filed by the Company under the Securities Act; provided that the
aggregate net proceeds to the Company from such offering and sale is at least
$35,000,000.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company or its Restricted Subsidiaries
outstanding on the Issue Date or other Indebtedness permitted to be incurred by
the Company or its Restricted Subsidiaries pursuant to the terms of the
Indenture, but only to the extent that (i) the Refinancing Indebtedness is
subordinated to the Notes to at least the same extent as the Indebtedness being
refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness
is scheduled to mature either (a) no earlier than the Indebtedness being
refunded, refinanced or extended, or (b) after the maturity date of the Notes,
(iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to
mature on or prior to the maturity date of the Notes has a weighted average life
to maturity at the time such Refinancing Indebtedness is incurred that is equal
to or greater than the weighted average life to maturity of the portion of the
Indebtedness being refunded, refinanced or extended that is scheduled to mature
on or prior to the maturity date of the Notes, (iv) such Refinancing
Indebtedness is in an aggregate principal amount that is equal to or less than
the sum of (a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended, (b) the amount of accrued
and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended, except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly-Owned Subsidiary of the Company; provided, however, that
subclauses (ii) and (iii) of this definition will not apply to any refunding or
refinancing of any Indebtedness under the Senior Credit Facility.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Capital Stock), and (y) in the case of
Restricted Subsidiaries of the Company, dividends or distributions payable to
the Company or to a Wholly-Owned Subsidiary of the Company), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Company or any of its Restricted Subsidiaries (other than Capital Stock
owned by the Company or a Wholly-Owned Subsidiary of the Company, excluding
Disqualified Capital Stock), (iii) the making of any principal payment on, or
the purchase, defeasance, repurchase, redemption or other acquisition or
retirement for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of any Indebtedness which is subordinated in
right of payment to the Notes other than subordinated Indebtedness acquired in
anticipation of satisfying a scheduled sinking fund obligation, principal
installment or final maturity (in each case due within one year of the date of
acquisition), (iv) the making of any Investment or guarantee of any Investment
in any Person other than a Permitted Investment, (v) any designation of a
Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the
Investment by the Company therein and (vi) forgiveness of any Indebtedness of an
Affiliate of the Company (other than a Restricted Subsidiary) to the Company or
a Restricted Subsidiary. For purposes of determining the amount expended for
Restricted Payments, cash distributed or invested shall be valued at the face
amount thereof and property other than cash shall be valued at its fair market
value.
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"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date, except the Real Estate LLC. The Board of
Directors of the Company may designate any Unrestricted Subsidiary or any Person
that is to become a Subsidiary as a Restricted Subsidiary if immediately after
giving effect to such action (and treating any Acquired Indebtedness as having
been incurred at the time of such action), (i) the Company could have incurred
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 4.06 of this Indenture or (ii) the ratio of the Company's
EBITDA to the Company's Consolidated Interest Expense (determined on a pro forma
basis for the last four fiscal quarters of the Company for which financial
statements are available at the date of determination in accordance with Section
4.06 of this Indenture) does not decrease and the Company does not incur any
Indebtedness (other than Indebtedness under the Notes permitted under clause
(ii) of the definition of "Permitted Indebtedness" and up to $1.5 million of
additional Permitted Indebtedness) in connection with such action.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which Property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"Senior Credit Facility" means the Amended and Restated Credit Agreement
among the Company, the Guarantors, the lenders listed therein and BankBoston, as
agent, together with the documents related thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
"Significant Restricted Subsidiary" means any Restricted Subsidiary of the
Company that satisfies the criteria for a "significant subsidiary" set forth in
Rule 1.02(v) of Regulation S-X under the Securities Act.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the first-named Person for
financial statement purposes.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits at the time of investment totaling more than $500,000,000 and
rated at the time of investment at least A by Standard & Poor's Corporation and
A-2 by Moody's Investors Service, Inc., maturing within 365 days of purchase; or
(iii) Investments not exceeding 365 days in duration in money market funds that
invest substantially all of such funds' assets in the Investments described in
the preceding clauses (i) and (ii).
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified as an
Unrestricted Subsidiary by a resolution adopted by the Board of Directors of the
Company; provided that a Subsidiary organized or acquired after the Issue Date
may be so classified as an Unrestricted Subsidiary only if such classification
is in compliance with the covenant set forth under "Limitation on Restricted
Payments." The Trustee shall be given prompt notice by the Company
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of each resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof to vote
under ordinary circumstances in the election of members of the board of
directors or other governing body of such Person.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes initially will be represented by one or more Notes in
registered, global form without interest coupons (collectively, the "Global
Note"). The Global Note will be deposited upon issuance with the Trustee, as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes."
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar of the Notes.
Depository Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of the Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and the Indirect Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Exchange Agent with portions of the principal
amount of the Global Note and (ii) ownership of such interests in the Global
Note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in the Global Note to such persons may be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in the Global Note to pledge such interests
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Notes, see "-- Exchange of Book-Entry Notes for
Certificated Notes."
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EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of (and premium, if any) and interest
on the Global Note registered in the name of DTC or its nominee will be payable
to DTC or its nominee in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company,
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect or accuracy of DTC's records or
any Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Note, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Note, or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Note as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of the Participants
in identifying the beneficial owners of the Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Notes for
all purposes.
Interest in the Global Note will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants to
whose account will DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if any of the events described under "-- Exchange of Book Entry Notes
for Certificated Notes" occur, DTC reserves the right to exchange the Global
Note for Notes in certificated form, and to distribute such Notes to the
relevant Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Note among accountholders in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company, the Trustee nor
any agent of the Company or Trustee will have any responsibility for the
performance of DTC, or its respective accountholders, indirect participants or
accountholders of their respective obligations under the rules and procedures
governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
The Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (x) notifies the Company that is it unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act; (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause
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the issuance of the Notes in certificated form or (iii) there shall have
occurred and be continuing a Default or an Event of Default with respect to the
Notes. In all cases, certificated Notes delivered in exchange for the Global
Note or beneficial interests therein will be registered in the names, and issued
in any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below.
THE COMPANY IS NOT PROVIDING AN OPINION TO HOLDERS OF THE NOTES AND
RECOMMENDS THAT EACH HOLDER CONSULT SUCH HOLDER'S OWN TAX ADVISER AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S OLD NOTES FOR NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The Company believes that the exchange of Old Notes for New Notes pursuant
to the Exchange Offer will not be treated as an "exchange" for federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the New Notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the New Notes
by Participating Broker Dealers. New Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such New Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a
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Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Notes will be passed upon for the
Company and the Guarantors by Winston & Strawn, New York, New York.
EXPERTS
The balance sheet of the Company as of October 31, 1996, the financial
statements of the Company for the year ended October 31, 1997, the financial
statements of Waterville Valley Ski Area Ltd., a subsidiary of S-K-I Limited,
for the year ended October 29, 1995 and the period from October 30, 1995 to June
30, 1996, the financial statements of Waterville Valley Ski Area Ltd., a
subsidiary of American Skiing Company, for the period from July 1, 1996 to
October 27, 1996 and the period from October 28, 1996 to November 26, 1996, the
financial statements of Ski Lifts, Inc. for the period from October 1, 1996 to
January 15, 1997 and the financial statements of Grand Targhee Incorporated for
the period from June 1, 1996 to March 18, 1997 appearing in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports appearing herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The combined balance sheets of the Resort Group of Fibreboard Corporation
as of October 31, 1996, December 31, 1995, and 1994, and the related combined
statements of income and cash flows for the ten months ended October 31, 1996,
and each of the three years in the period ended December 31, 1995, included in
this Prospectus and elsewhere in the registration statement of which this
Prospectus is a part, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
The financial statements of Ski Lifts, Inc. as of September 30, 1996 and
1995 and for each of the three years in the period ended September 30, 1996
included in this Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon, which includes an
explanatory paragraph describing Ski Lifts, Inc.'s change in method of
accounting for income taxes and an emphasis of a matter paragraph describing an
agreement in principle to sell the stock of Ski Lifts, Inc., and are included
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Grand Targhee Incorporated as of May 31, 1996
and 1995 and for each of the three years in the period ended May 31, 1996
included in this Prospectus have been audited by Feldhake & Associates, P.C.,
independent auditors as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Loon Mountain Recreation Corporation as of
April 30, 1997 and 1996 and for each of the two years in the period ended April
30, 1997 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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<PAGE> 141
BOOTH CREEK SKI HOLDINGS, INC.
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BOOTH CREEK SKI HOLDINGS, INC.
Financial Statements -- May 1, 1998 and May 2, 1997
(unaudited) and October 31, 1997
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholder's Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
Financial Statements -- October 31, 1997 and 1996
Report of Independent Auditors.............................. F-11
Consolidated Balance Sheets................................. F-12
Consolidated Statement of Operations........................ F-13
Consolidated Statement of Shareholder's Equity.............. F-14
Consolidated Statement of Cash Flows........................ F-15
Notes to Consolidated Financial Statements.................. F-16
THE RESORT GROUP OF FIBREBOARD CORPORATION
Combined Financial Statements -- December 2, 1996
Report of Independent Auditors.............................. F-27
Combined Balance Sheet...................................... F-28
Combined Statement of Operations............................ F-29
Combined Statement of Cash Flows............................ F-30
Notes to Combined Financial Statements...................... F-31
Combined Financial Statements -- October 31, 1996 and
October 31, 1995 (unaudited) and December 31, 1995, 1994
and 1993
Report of Independent Public Accountants.................... F-36
Combined Balance Sheets..................................... F-37
Combined Statements of Operations........................... F-38
Combined Statements of Cash Flows........................... F-39
Notes to Financial Statements............................... F-40
WATERVILLE VALLEY SKI AREA LTD. (A SUBSIDIARY OF AMERICAN
SKIING COMPANY)
Financial Statements -- November 26, 1996 and October 27,
1996
Report of Independent Auditors.............................. F-48
Balance Sheets.............................................. F-49
Statements of Operations and Accumulated Deficit............ F-50
Statements of Cash Flows.................................... F-51
Notes to Financial Statements............................... F-52
WATERVILLE VALLEY SKI AREA LTD. (A SUBSIDIARY OF S-K-I
LIMITED)
Financial Statements -- June 30, 1996 and October 29, 1995
Report of Independent Auditors.............................. F-58
Balance Sheets.............................................. F-59
Statements of Operations and Retained Earnings (Accumulated
Deficit).................................................. F-60
Statements of Cash Flows.................................... F-61
Notes to Financial Statements............................... F-62
</TABLE>
F-1
<PAGE> 142
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SKI LIFTS, INC.
Financial Statements -- January 15, 1997
Report of Independent Auditors.............................. F-67
Balance Sheet............................................... F-68
Statement of Operations and Retained Earnings............... F-69
Statement of Cash Flows..................................... F-70
Notes to Financial Statements............................... F-71
Financial Statements -- September 30, 1996, 1995 and 1994
Report of Independent Accountants........................... F-76
Balance Sheets.............................................. F-77
Statements of Operations and Retained Earnings.............. F-78
Statements of Cash Flows.................................... F-79
Notes to Financial Statements............................... F-80
GRAND TARGHEE INCORPORATED
Financial Statements -- March 18, 1997
Report of Independent Auditors.............................. F-86
Balance Sheet............................................... F-87
Statement of Operations and Retained Earnings............... F-88
Statement of Cash Flows..................................... F-89
Notes to Financial Statements............................... F-90
Financial Statements -- May 31, 1996, 1995 and 1994
Independent Auditors' Report................................ F-95
Balance Sheets.............................................. F-96
Statements of Operations.................................... F-97
Statements of Changes in Stockholder's Equity............... F-98
Statements of Cash Flows.................................... F-99
Notes to Financial Statements............................... F-100
LOON MOUNTAIN RECREATION CORPORATION
Financial Statements -- January 30, 1998 and January 26,
1997 (unaudited)
Consolidated Balance Sheets................................. F-107
Consolidated Statements of Operations and Retained
Earnings.................................................. F-108
Consolidated Statements of Cash Flows....................... F-109
Notes to Consolidated Financial Statements.................. F-110
Financial Statements -- April 30, 1997 and 1996
Report of Independent Accountants........................... F-111
Consolidated Balance Sheets................................. F-112
Consolidated Statement of Operations and Retained
Earnings.................................................. F-113
Consolidated Statement of Cash Flows........................ F-114
Notes to Consolidated Financial Statements.................. F-115
</TABLE>
F-2
<PAGE> 143
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MAY 1, OCTOBER 31,
1998 1997
------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,251 $ 462
Accounts receivable, net of allowances of $65 and $35,
respectively........................................... 1,517 1,528
Inventories............................................... 2,438 3,059
Prepaid expenses and other current assets................. 1,333 1,396
-------- --------
Total current assets................................... 7,539 6,445
Property and equipment, net................................. 155,488 123,154
Real estate held for development and sale................... 12,342 11,335
Deferred financing costs, net of accumulated amortization of
$1,393 and $782, respectively............................. 7,034 6,229
Timber rights and other assets.............................. 6,732 7,402
Goodwill, net of accumulated amortization of $3,069 and
$1,953, respectively...................................... 30,735 31,851
-------- --------
Total assets........................................... $219,870 $186,416
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Senior credit facility.................................... $ 6,419 $ 15,000
Current portion of long-term debt......................... 1,920 947
Accounts payable and accrued liabilities.................. 19,126 17,132
-------- --------
Total current liabilities.............................. 27,465 33,079
Long-term debt.............................................. 137,249 120,380
Other long-term liabilities................................. 184 196
Commitments and contingencies
Preferred stock of subsidiary; 28,000 shares authorized,
23,000 shares issued and outstanding at May 1, 1998
(25,000 shares at October 31, 1997); liquidation
preference and redemption value of $2,889 at May 1,
1998...................................................... 2,889 3,354
Shareholder's equity:
Common stock, $.01 par value; 1,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in capital................................ 57,000 46,500
Accumulated deficit....................................... (4,917) (17,093)
-------- --------
Total shareholder's equity............................. 52,083 29,407
-------- --------
Total liabilities and shareholder's equity.................. $219,870 $186,416
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 144
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
----------------- -------------------
MAY 1, MAY 2, MAY 1, MAY 2,
1998 1997 1998 1997
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Resort operations..................................... $87,848 $60,469 $48,832 $36,685
Real estate and other................................. -- 450 -- 310
------- ------- ------- -------
Total revenue........................................... 87,848 60,919 48,832 36,995
Operating expenses:
Cost of sales -- resort operations.................... 48,571 36,105 25,718 20,735
Cost of sales -- real estate and other................ -- 378 -- 255
Depreciation and depletion............................ 6,642 4,427 3,613 2,924
Amortization of goodwill.............................. 1,116 697 552 429
Selling, general and administrative expense........... 8,490 6,518 5,053 4,291
Management fees and corporate expenses................ 1,764 827 1,252 521
------- ------- ------- -------
Total operating expenses................................ 66,583 48,952 36,188 29,155
------- ------- ------- -------
Operating income........................................ 21,265 11,967 12,644 7,840
Other income (expense):
Interest expense...................................... (8,347) (5,163) (4,260) (3,202)
Amortization of deferred financing costs.............. (611) (1,196) (332) (594)
Interest and other income............................. 7 55 7 41
------- ------- ------- -------
Other income (expense), net........................... (8,951) (6,304) (4,585) (3,755)
------- ------- ------- -------
Income before income taxes.............................. 12,314 5,663 8,059 4,085
Income tax expense...................................... -- (1,416) -- (942)
------- ------- ------- -------
Income before minority interest and extraordinary
item.................................................. 12,314 4,247 8,059 3,143
Minority interest....................................... (138) (87) (68) (72)
------- ------- ------- -------
Income before extraordinary item........................ 12,176 4,160 7,991 3,071
Extraordinary loss on early retirement of debt (net of
applicable income taxes of $666)...................... -- (1,998) -- (1,998)
------- ------- ------- -------
Net income.............................................. $12,176 $ 2,162 $ 7,991 $ 1,073
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 145
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
SIX MONTHS ENDED MAY 1, 1998 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE
---------------- PAID-IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT TOTAL
------ ------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization and balance
at October 31, 1996............... 1,000 $-- $ 2 $(2) $ -- $ --
Payment received on shareholder note
receivable........................ -- -- -- 2 -- 2
Capital contributions............... -- -- 46,498 -- -- 46,498
Net loss............................ -- -- -- -- (17,093) (17,093)
----- -- ------- --- -------- --------
Balance at October 31, 1997......... 1,000 -- 46,500 -- (17,093) 29,407
Capital contributions............... -- -- 10,500 -- -- 10,500
Net income.......................... -- -- -- -- 12,176 12,176
----- -- ------- --- -------- --------
Balance at May 1, 1998.............. 1,000 $-- $57,000 $-- $ (4,917) $ 52,083
===== == ======= === ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 146
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
MAY 1, 1998 MAY 2, 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 12,176 $ 2,162
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and depletion................................ 6,642 4,427
Amortization of goodwill.................................. 1,116 697
Noncash cost of real estate sales......................... -- 349
Amortization of deferred financing costs.................. 611 1,196
Deferred income tax expense............................... -- 1,416
Minority interest......................................... 138 87
Extraordinary loss on early retirement of debt............ -- 1,998
Changes in operating assets and liabilities:
Accounts receivable.................................... 335 (426)
Inventories............................................ 1,146 1,020
Prepaid expenses and other current assets.............. 176 900
Accounts payable and accrued liabilities............... 56 (205)
Other long-term liabilities............................ (12) --
-------- ---------
Net cash provided by operating activities................... 22,384 13,621
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of ski resorts, net of cash acquired............ (29,944) (142,062)
Capital expenditures for property and equipment............. (6,438) (2,416)
Expenditures for real estate and other assets............... 572 (142)
-------- ---------
Net cash used in investing activities....................... (35,810) (144,620)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of senior credit facility........................ (8,581) --
Proceeds of long-term debt.................................. 17,500 216,000
Principal payments of long-term debt........................ (2,185) (112,980)
Deferred financing costs.................................... (1,416) (9,805)
Purchase of preferred stock of subsidiary and payment of
dividends................................................. (603) --
Payment received on shareholder note receivable............. -- 2
Capital contributions....................................... 10,500 46,498
-------- ---------
Net cash provided by financing activities................... 15,215 139,715
-------- ---------
Increase in cash............................................ 1,789 8,716
Cash at beginning of period................................. 462 --
-------- ---------
Cash at end of period....................................... $ 2,251 $ 8,716
======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 147
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 1, 1998
1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Booth Creek Ski Holdings, Inc. ("Booth Creek") was organized on October 8,
1996 in the State of Delaware for the purpose of acquiring and operating various
ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe
("Sierra"), Bear Mountain, Waterville Valley, Mt. Cranmore, the Summit at
Snoqualmie Pass (the "Summit" -- formerly Snoqualmie Pass), Grand Targhee and
Loon Mountain.
The consolidated financial statements include the accounts of Booth Creek
and its subsidiaries (collectively referred to as the "Company"), all of which
are wholly-owned except for Ski Lifts, Inc. (the owner and operator of the
Summit), which has shares of preferred stock owned by a third party. All
significant intercompany transactions and balances have been eliminated.
Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
("Parent").
The accompanying consolidated financial statements as of May 1, 1998 and
for the three and six month periods ended May 1, 1998 and May 2, 1997 are
unaudited, but include all adjustments (consisting only of normal, recurring
adjustments) which, in the opinion of management of the Company, are considered
necessary for a fair presentation of the Company's financial position at May 1,
1998, and its operating results and cash flows for the three and six month
periods ended May 1, 1998 and May 2, 1997. Due to the highly seasonal nature of
the Company's business and the effect of acquisitions (Note 2), the results for
the interim periods are not necessarily indicative of results for the entire
year. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles ("GAAP") have been omitted pursuant to GAAP applicable for interim
periods. Management believes that the disclosures made are adequate to make the
information presented not misleading.
REPORTING PERIODS
The Company's reporting periods end on the Friday closest to the end of
each month.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those results.
2. ACQUISITIONS
1997 ACQUISITIONS
During the year ended October 31, 1997, the Company made the following
acquisitions (the "1997 Acquisitions"), which have been included in the
accompanying statements of operations since the effective dates of such
acquisitions, and accounted for using the purchase method.
<TABLE>
<CAPTION>
RESORT ACQUISITION DATE
------ ----------------
<S> <C>
Waterville Valley......................................... November 27, 1996
Mt. Cranmore.............................................. November 27, 1996
Northstar................................................. December 3, 1996
Sierra.................................................... December 3, 1996
Bear Mountain............................................. December 3, 1996
The Summit................................................ January 15, 1997
Grand Targhee............................................. March 18, 1997
</TABLE>
F-7
<PAGE> 148
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
LOON MOUNTAIN ACQUISITION
On February 26, 1998, the Company acquired Loon Mountain Recreation
Corporation ("LMRC"), the owner and operator of the Loon Mountain ski resort
located in New Hampshire. The acquisition of LMRC (the "Loon Mountain
Acquisition") was effected pursuant to an Agreement and Plan of Merger, dated
September 18, 1997, as amended as of December 22, 1997, by and among the
Company, as assignee of Parent, LMRC Acquisition Corp. and LMRC.
The aggregate net purchase price for the Loon Mountain Acquisition,
determined through negotiations between the Company and LMRC, was approximately
$29.9 million (including the assumption of debt which was repaid in connection
with the acquisition and acquisition costs). The Loon Mountain Acquisition was
financed through (i) proceeds from the offering at par of $17,500,000 aggregate
principal amount of the Company's 12.5% Series C Senior Notes due 2007 (see Note
4), issued under the Indenture, dated as of March 18, 1997, as amended and
supplemented among the Company, the Guarantors named therein, and the trustee,
(ii) a capital contribution of $10.5 million to the Company by Parent (the
"Equity Financing"), and (iii) available cash on hand and borrowings under the
Company's Amended and Restated Credit Agreement dated March 18, 1997, as amended
(the "Senior Credit Facility").
PRO FORMA FINANCIAL INFORMATION
The following table represents unaudited pro forma financial information
which presents the Company's consolidated results of operations for the six
month periods ended May 1, 1998 and May 2, 1997 as if the 1997 Acquisitions,
Loon Mountain Acquisition and related financing transactions occurred on
November 1, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
MAY 1, 1998 MAY 2, 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Statement of operations data:
Revenue............................................. $98,487 $84,713
Operating income.................................... $24,917 $12,077
Net income.......................................... $15,023 $ 3,041
Other data:
EBITDA.............................................. $33,469 $20,606
Noncash cost of real estate and other............... $ -- $ 482
</TABLE>
EBITDA represents income from operations before depreciation, depletion and
amortization expense and the noncash cost of real estate sales.
The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisitions been made on the dates
indicated or of results which may occur in the future.
F-8
<PAGE> 149
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at May 1,
1998 and October 31, 1997:
<TABLE>
<CAPTION>
MAY 1, OCTOBER 31,
1998 1997
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable.......................................... $10,079 $ 7,618
Accrued compensation and benefits......................... 2,695 1,575
Taxes other than income................................... 903 545
Unearned income and deposits.............................. 906 3,341
Interest.................................................. 2,184 2,027
Other..................................................... 2,359 2,026
------- -------
$19,126 $17,132
======= =======
</TABLE>
4. FINANCING ARRANGEMENTS
SENIOR CREDIT FACILITY
Effective February 26, 1998, the borrowing availability under the Senior
Credit Facility was increased to $25 million (the "Senior Credit Facility
Amendment"). The Senior Credit Facility requires that the Company not have
borrowings thereunder in excess of $6.0 million between February 15 and two
business days preceding March 15 of each year, have no borrowings on the
business day preceding March 15 of each year and cannot have borrowings in
excess of $6.0 million between March 15 and April 15 of each year ($7.5 million
between March 15, 1998 and April 15, 1998). Total borrowings outstanding under
the Senior Credit Facility at May 1, 1998 were approximately $6.4 million, which
bore interest at 8.5%.
LONG-TERM DEBT
At May 1, 1998, $116 million of the Company's 12.5% Series B Senior Notes
due 2007 (the "Series B Notes") were outstanding. The Series B Notes mature on
March 15, 2007, and bear interest at 12.5% payable semiannually on each March 15
and September 15.
On February 26, 1998, the Company consummated an offering (the "Offering")
of $17.5 million of its 12.5% Series C Senior Notes (the "Series C Notes" and
together with the Series B Notes, the "Notes"). The net proceeds of the
Offering, the $10.5 million Equity Financing, and available cash on hand and
borrowings under the Senior Credit Facility, were used to finance the Loon
Mountain Acquisition (Note 2). The Series B Notes and Series C Notes are
identical in all respects other than issue dates and the date from which
interest accrues and except that the Series C Notes are subject to certain
transfer restrictions.
Prior to the consummation of the Loon Mountain Acquisition, the Company
solicited consents from the holders of its Series B Notes to, among other
things, (i) permit the Offering, (ii) permit the consummation of the Senior
Credit Facility Amendment, (iii) modify the definitions of "Change of Control"
and "Restricted Subsidiary" in the Indenture, and (iv) make minor modifications
to certain other Indenture provisions. On February 20, 1998, the Company
received sufficient consents to effect such actions and entered into a
supplemental indenture modifying the Indenture, which became effective on
February 26, 1998, upon the consummation of the Loon Mountain Acquisition and
Equity Financing.
The Notes are unconditionally guaranteed, on an unsecured senior basis, as
to the payment of principal, premium, if any, and interest, jointly and
severally (the "Guarantees"), by all Restricted Subsidiaries of the Company (as
defined in the Indenture) having either assets or shareholders' equity in excess
of $20,000 (the "Guarantors"). All of the Company's direct and indirect
subsidiaries are Restricted Subsidiaries, except the Real Estate LLC. Each
Guarantee is effectively subordinated to all secured indebtedness of such
Guarantor.
F-9
<PAGE> 150
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FINANCING ARRANGEMENTS (CONTINUED)
The Notes are general senior unsecured obligations of the Company ranking
equally in right of payment with all other existing and future senior
indebtedness of the Company and senior in right of payment to any subordinated
indebtedness of the Company. The Notes are effectively subordinated in right of
payment to all secured indebtedness of the Company and the Guarantors, including
indebtedness under the Senior Credit Facility. In addition, the Notes are
structurally subordinated to any indebtedness of the Company's subsidiaries that
are not Guarantors. The Guarantors are wholly-owned subsidiaries of Booth Creek
and have fully and unconditionally guaranteed the Notes on a joint and several
basis. Booth Creek is a holding company and has no operations, assets or cash
flows separate from its investments in its subsidiaries. In addition, the
assets, equity, income and cash flow of the Real Estate LLC, Booth Creek's only
non-guarantor subsidiary, are inconsequential and the common stock of the Real
Estate LLC is entirely owned by Booth Creek. Accordingly, Booth Creek has not
presented separate financial statements and other disclosures concerning the
Guarantors or its non-guarantor subsidiary because management has determined
that such information is not material to investors.
For the six months ended May 1, 1998 the Company entered into long-term
debt and capital lease obligations of approximately $2.5 million for the
purchase of equipment.
5. INCOME TAXES
During the year ended October 31, 1997, the Company recorded tax benefits
for current operating losses to the extent of recorded deferred tax liabilities.
Due to the Company's lack of profitable history, the tax benefits of excess
operating losses were fully offset by a valuation reserve. Similarly, no federal
income tax provision is expected for the year ended October 30, 1998 due to
continued operating losses. Accordingly, during the three and six month periods
ended May 1, 1998, no federal income tax provision has been provided.
Based on preliminary purchase price allocations for the 1997 Acquisitions
as described in Note 2, deferred tax liabilities of approximately $4.4 million
were recorded in the preliminary opening balance sheets. This resulted in an
expected effective income tax rate of approximately 25%, which was used by the
Company in preparing its consolidated financial statements for the three and six
month periods ended May 2, 1997. Final purchase price allocations, primarily for
the Summit acquisition, resulted in less value being assigned to property and
equipment, more to goodwill and a corresponding reduction in the original
deferred tax liabilities. Accordingly, the actual income tax rate for the year
ended October 31, 1997 was 10.8%, and was adjusted for in the fourth quarter of
1997 on a catch-up basis as a change in estimate.
F-10
<PAGE> 151
REPORT OF INDEPENDENT AUDITORS
Booth Creek Ski Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Booth Creek
Ski Holdings, Inc. as of October 31, 1997 and 1996, and the related consolidated
statements of operations, shareholder's equity, and cash flows for the year
ended October 31, 1997. 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 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 consolidated financial position of Booth Creek Ski
Holdings, Inc. at October 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for the year ended October 31, 1997 in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
January 16, 1998
F-11
<PAGE> 152
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 462 $--
Accounts receivable, net of allowance of $35.............. 1,528 --
Inventories............................................... 3,059 --
Prepaid expenses and other current assets................. 1,396 --
-------- ---
Total current assets........................................ 6,445 --
Property and equipment, net................................. 123,154 --
Real estate held for development and sale................... 11,335 --
Deferred financing costs, net of accumulated amortization of
$782...................................................... 6,229 --
Timber rights and other assets.............................. 7,402 --
Goodwill, net of accumulated amortization of $1,953......... 31,851 --
-------- ---
Total assets................................................ $186,416 $--
======== ===
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Senior credit facility.................................... $ 15,000 $--
Current portion of long-term debt......................... 947 --
Accounts payable and accrued liabilities.................. 17,132 --
-------- ---
Total current liabilities................................... 33,079 --
Long-term debt.............................................. 120,380 --
Other long-term liabilities................................. 425 --
Commitments and contingencies
Preferred stock of subsidiary; 28,000 shares authorized,
25,000 shares issued and outstanding; liquidation
preference and redemption value of $3,354 at
October 31, 1997.......................................... 3,125 --
Shareholder's equity:
Common stock, $.01 par value; 1,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in capital................................ 46,500 2
Note receivable from shareholder.......................... -- (2)
Accumulated deficit....................................... (17,093) --
-------- ---
Total shareholder's equity.................................. 29,407 --
-------- ---
Total liabilities and shareholder's equity.................. $186,416 $--
======== ===
</TABLE>
See accompanying notes.
F-12
<PAGE> 153
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenue:
Resort operations......................................... $ 68,136
Real estate and other..................................... 3,671
--------
Total revenue............................................... 71,807
Operating expenses:
Cost of sales -- resort operations........................ 44,624
Cost of sales -- real estate and other.................... 2,799
Depreciation and depletion................................ 9,728
Amortization of goodwill.................................. 1,953
Selling, general and administrative expense............... 11,048
Management fees and corporate expenses.................... 2,671
--------
Total operating expenses.................................... 72,823
--------
Operating loss.............................................. (1,016)
Other income (expense):
Interest expense.......................................... (13,269)
Amortization of deferred financing costs.................. (1,809)
Interest and other income................................. 166
--------
Other income (expense), net............................... (14,912)
--------
Loss before income taxes, minority interest and
extraordinary item........................................ (15,928)
Income tax benefit.......................................... 1,728
--------
Loss before minority interest and extraordinary item........ (14,200)
Minority interest........................................... (229)
--------
Loss before extraordinary item.............................. (14,429)
Extraordinary loss on early retirement of debt.............. (2,664)
--------
Net loss.................................................... $(17,093)
========
</TABLE>
See accompanying notes.
F-13
<PAGE> 154
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE
---------------- PAID-IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT TOTAL
------ ------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization and balance
at October 31, 1996............... 1,000 $ -- $ 2 $(2) $ -- $ --
Payment received on shareholder note
receivable........................ -- -- -- 2 -- 2
Capital contributions............... -- -- 46,498 -- -- 46,498
Net loss............................ -- -- -- -- (17,093) (17,093)
----- ---- ------- --- -------- --------
Balance at October 31, 1997......... 1,000 $ -- $46,500 $-- $(17,093) $ 29,407
===== ==== ======= === ======== ========
</TABLE>
See accompanying notes.
F-14
<PAGE> 155
BOOTH CREEK SKI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................... $ (17,093)
Adjustment to reconcile net loss to net cash provided by
operating activities:
Depreciation and depletion................................ 9,728
Amortization of goodwill.................................. 1,953
Noncash cost of real estate sales......................... 2,237
Amortization of deferred financing costs.................. 1,809
Deferred income tax benefit............................... (1,548)
Minority interest......................................... 229
Extraordinary loss on early retirement of debt............ 2,664
Changes in operating assets and liabilities:
Accounts receivable.................................... (914)
Inventories............................................ 1,115
Prepaid expenses and other current assets.............. 303
Accounts payable and accrued liabilities............... 1,003
Other long-term liabilities............................ 66
---------
Net cash provided by operating activities................... 1,552
Cash flows from investing activities:
Acquisition of ski resorts, net of cash acquired.......... (142,028)
Capital expenditures for property and equipment........... (9,459)
Capital expenditures for real estate held for development
and sale............................................... (72)
Other assets.............................................. (1,126)
---------
Net cash used in investing activities....................... (152,685)
Cash flows from financing activities:
Borrowings under senior credit facility................... 15,000
Proceeds of long-term debt................................ 216,000
Principal payments of long-term debt...................... (114,827)
Deferred financing costs.................................. (10,703)
Purchase of preferred stock of subsidiary................. (375)
Payment received on shareholder note receivable........... 2
Capital contributions..................................... 46,498
---------
Net cash provided by financing activities................... 151,595
---------
Increase in cash............................................ 462
Cash at beginning of period................................. --
---------
Cash at end of period....................................... $ 462
=========
</TABLE>
See accompanying notes.
F-15
<PAGE> 156
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Booth Creek Ski Holdings, Inc. ("Booth Creek") was organized on October 8,
1996 in the State of Delaware for the purpose of acquiring and operating various
ski resorts, including Northstar-at-Tahoe ("Northstar"), Sierra-at-Tahoe
("Sierra"), Bear Mountain, Waterville Valley, Mt. Cranmore, the Summit at
Snoqualmie Pass (the "Summit" -- formerly Snoqualmie Pass) and Grand Targhee, as
described more fully in Note 2.
The consolidated financial statements include the accounts of Booth Creek
and its subsidiaries (collectively referred to as the "Company"), all of which
are wholly-owned except for Ski Lifts, Inc. (the owner and operator of the
Summit) as discussed in Note 2. All significant intercompany transactions and
balances have been eliminated.
Booth Creek is a wholly-owned subsidiary of Booth Creek Ski Group, Inc.
("Parent").
REPORTING PERIODS
The Company's reporting periods end on the Friday closest to the end of
each month.
BUSINESS AND PRINCIPAL MARKETS
Northstar is a year-round destination resort including ski and golf
facilities. Sierra is a day ski area. Both Northstar and Sierra are located near
Lake Tahoe, California. Bear Mountain is a day ski area located approximately
two hours from Los Angeles, California. Waterville Valley, a destination resort,
and Mt. Cranmore, a day ski area, are located in New Hampshire. The Summit is
located in Northwest Washington and is a day ski area. Grand Targhee is a
destination ski resort located in Wyoming.
Operations are highly seasonal at all locations with the majority of
revenues realized during the ski season from late November through early April.
The length of the ski season and the profitability of operations are
significantly impacted by weather conditions. Although Northstar, Bear Mountain,
Waterville Valley and Mt. Cranmore have snowmaking capacity to mitigate some of
the effects of adverse weather conditions, abnormally warm weather or lack of
adequate snowfall can materially affect revenues. Sierra, the Summit and Grand
Targhee lack significant snowmaking capability but generally benefit from higher
annual snowfall.
Other operational risks and uncertainties that face the Company include
competitive pressures affecting the number of skier visits and ticket prices;
the success of marketing efforts to maintain and increase skier visits; the
possibility of equipment failure; and continued access to water supplies for
snowmaking.
CASH
Included in cash at October 31, 1997 is restricted cash of $344,000
relating to advance deposits and rental fees due to property owners for lodging
and property rentals.
F-16
<PAGE> 157
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. The components of inventories at October 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Retail products............................................. $2,560
Supplies.................................................... 314
Food and beverage........................................... 185
------
$3,059
======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based upon the estimated service lives, which are as
follows:
<TABLE>
<S> <C>
Land improvements........................................... 20 years
Buildings and improvements.................................. 20 years
Lift equipment.............................................. 15 years
Other machinery and equipment............................... 3 to 15 years
</TABLE>
REAL ESTATE ACTIVITIES
The Company capitalizes as real estate held for development and sale the
original acquisition cost (or appraised value in connection with purchase
business combinations), direct construction and development costs, and other
related costs. Property taxes, insurance and interest incurred on costs related
to real estate under development are capitalized during periods in which
activities necessary to get the property ready for its intended use are in
progress. Land costs and other common costs incurred prior to construction are
allocated to each land parcel benefited. Construction related costs are
allocated to individual units in each development phase using the relative sales
value method. Selling expenses are charged against income in the period
incurred.
Sales and profits on real estate sales are recognized using the full
accrual method at the point that the Company's receivables from land sales are
deemed collectible and the Company has no significant remaining obligations for
construction or development, which typically occurs upon transfer of title. If
such conditions are not met, the recognition of all or part of the sales and
profit is postponed.
LONG-LIVED ASSETS
The Company evaluates potential impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No.
121 establishes procedures for review of recoverability, and measurement of
impairment if necessary, of long-lived assets, goodwill and certain identifiable
intangibles held and used by an entity. SFAS No. 121 requires that those assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. SFAS No. 121
also requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less
estimated selling costs. As of October 31, 1997, management believes that there
has not been any impairment of the Company's long-lived assets or goodwill.
F-17
<PAGE> 158
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of amounts outstanding under the Company's Senior Credit
Facility approximates book value, as the interest rate on such debt generally
varies with changes in market interest rates. The fair value of the Company's
Senior Notes was approximately $114 million at October 31, 1997, which is based
on the market price of such debt.
REVENUE RECOGNITION
Revenues are recognized as services are provided and products are sold.
Sales of season passes are initially deferred in unearned income and recognized
ratably over the ski season.
AMORTIZATION
The excess of the purchase price over the fair values of the net assets
acquired (goodwill) is being amortized using the straight-line method over a
period of 15 years.
Deferred financing costs are being amortized over the lives of the related
obligations.
ADVERTISING COSTS
The cost of advertisements is expensed when the advertisement is initially
released. The cost of professional services for advertisements, sales campaigns,
promotion, and public relations is expensed when the services are rendered. The
cost of brochures is expensed over the ski season. Advertising expenses for the
year ended October 31, 1997 were $1,983,000.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
The Company is included in the federal and state tax returns of Parent. The
provision for federal and state income tax is computed as if the Company filed
separate consolidated tax returns.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. ACQUISITIONS
As described below, Booth Creek consummated the New Hampshire, California,
Summit and Grand Targhee acquisitions prior to October 31, 1997. These
acquisitions have been accounted for using the purchase method of accounting.
The results of operations of the Waterville Valley, Mt. Cranmore, Northstar,
Sierra, Bear Mountain, Summit and Grand Targhee resorts have been included in
the accompanying statement of operations since the effective dates of such
acquisitions.
THE NEW HAMPSHIRE ACQUISITIONS
On November 27, 1996, Booth Creek Ski Acquisition Corp., a wholly-owned
subsidiary of Booth Creek, purchased the assets of the Waterville Valley and Mt.
Cranmore resorts from subsidiaries of American Skiing Company ("ASC") for an
aggregate purchase price of $17.5 million. The purchase price was paid with
$14.75
F-18
<PAGE> 159
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
million in cash, before giving effect to normal working capital adjustments for
current assets acquired and current liabilities assumed, and the $2.75 million
ASC Seller Note (Note 5).
THE CALIFORNIA ACQUISITIONS
On December 3, 1996, Booth Creek purchased from Fibreboard Corporation all
of the issued and outstanding capital stock of Trimont Land Company, which
operates Northstar, Sierra-at-Tahoe, Inc., which operates Sierra, and Bear
Mountain, Inc., which operates Bear Mountain. The aggregate purchase price was
$121.5 million in cash, before giving effect to normal working capital
adjustments for current assets acquired and current liabilities assumed.
THE SUMMIT ACQUISITION
Effective January 15, 1997, Booth Creek purchased all of the issued and
outstanding common stock of Ski Lifts, Inc. ("Ski Lifts"), the owner and
operator of the ski resort assets of the Summit (formerly Snoqualmie Pass), for
an aggregate purchase price of approximately $14 million, which included the
assumption of approximately $3.6 million of indebtedness, the issuance by Ski
Lifts of the approximately $9.8 million Snoqualmie Seller Note (Note 5), and
other obligations to the selling shareholders of approximately $600,000.
In connection with the consummation of the Snoqualmie acquisition, Ski
Lifts transferred approximately 71 acres of owned real estate held for
development purposes and related buildings into a Delaware limited liability
company (the "Real Estate LLC"), of which Ski Lifts is a member and 99% equity
interest holder and Booth Creek is the other member and 1% equity interest
holder. In addition, Ski Lifts granted the Real Estate LLC an option (the "Real
Estate Option") to purchase an additional 14 acres of developmental real estate
for nominal consideration. Ski Lifts also issued 28,000 shares of non-voting
preferred stock (the "Ski Lifts Preferred Stock") to its prior owners having an
aggregate liquidation preference equal to $3.5 million, the aggregate estimated
fair market value of the real estate transferred to the Real Estate LLC and the
real estate subject to the Real Estate Option. Concurrently with these
transactions, the Real Estate LLC entered into an agreement to purchase (the
"Preferred Stock Purchase Agreement") the Ski Lifts Preferred Stock, on a
quarterly basis over the five years following the date of the Summit
Acquisition, at a purchase price equal to the liquidation preference thereof
plus accrued dividends to the date of purchase. Through October 31, 1997, the
Company has paid the first three quarterly payments under the Preferred Stock
Purchase Agreement aggregating $375,000. The Real Estate LLC's obligations under
the Preferred Stock Purchase Agreement are secured by a first priority lien on
the developmental real estate held by the Real Estate LLC and substantially all
of its other assets. The Ski Lifts Preferred Stock provides for a 9% cumulative
dividend and is redeemable at the option of Ski Lifts without premium. In
addition, pursuant to the terms of the Ski Lifts Preferred Stock, the holders
thereof have no redemption rights and are entitled to receive dividend payments
only when and if declared by the board of directors of Ski Lifts. The amount of
cumulative preferred dividends in arrears at October 31, 1997 was $229,000 and
is included in other long-term liabilities in the accompanying consolidated
balance sheet.
THE GRAND TARGHEE ACQUISITION
On March 18, 1997, Booth Creek acquired all the issued and outstanding
capital stock of Grand Targhee Incorporated, the owner of the ski resort assets
of Grand Targhee, for an aggregate purchase price of approximately $7.9 million
plus contingent payments of up to $2 million based on the performance of Grand
Targhee through the 1998/99 ski season and additional commissions based on the
number of dwelling units developed at the resort through 2012.
F-19
<PAGE> 160
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
SUMMARY OF PURCHASE PRICE ALLOCATIONS
Summary information regarding the purchase price allocations to the assets
acquired and liabilities assumed in each of the acquisitions described above is
as follows:
<TABLE>
<CAPTION>
NEW HAMPSHIRE CALIFORNIA SUMMIT GRAND TARGHEE
ACQUISITIONS ACQUISITIONS ACQUISITION ACQUISITION
------------- ------------ ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net working capital........... $ (714) $ (5,206) $(5,822) $ (752)
Property and equipment........ 17,500 86,078 9,148 8,837
Real estate and other
long-term assets............ -- 15,608 4,189 26
Goodwill...................... 1,931 22,318 9,555 --
Long-term debt................ (3,172) (796) (9,880) (80)
Deferred income taxes and
other long-term
liabilities................. -- -- (6,682) (58)
------- -------- ------- ------
$15,545 $118,002 $ 508 $7,973
======= ======== ======= ======
</TABLE>
PRO FORMA FINANCIAL INFORMATION
The following table represents unaudited pro forma financial information
which presents the Company's consolidated results of operations for the years
ended October 31, 1997 and 1996 as if the acquisitions occurred on November 1,
1995.
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Statement of operations data:
Revenues............................................... $ 82,074 $ 82,128
Income (loss) from operations.......................... $ (5,282) $ 3,105
Net loss............................................... $(21,753) $(11,314)
Other data:
EBITDA................................................. $ 10,501 $ 17,909
Noncash cost of real estate and other.................. $ 2,370 $ 1,607
</TABLE>
EBITDA represents income from operations before depreciation and
amortization expense and the noncash cost of real estate sales.
The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisitions been made on the date
indicated or of results which may occur in the future.
F-20
<PAGE> 161
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at October 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Land and improvements....................................... $ 28,746
Buildings and improvements.................................. 34,184
Lift equipment.............................................. 32,998
Other machinery and equipment............................... 29,008
Construction in progress.................................... 7,491
--------
132,427
Less accumulated depreciation............................... 9,273
--------
$123,154
========
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at
October 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accounts payable............................................ $ 7,618
Accrued compensation and benefits........................... 1,575
Taxes other than income..................................... 545
Unearned income and deposits................................ 3,341
Interest.................................................... 2,027
Other....................................................... 2,026
-------
$17,132
=======
</TABLE>
5. FINANCING ARRANGEMENTS
SENIOR CREDIT FACILITY
The following is a summary of certain provisions of the amended and
restated Credit Agreement (the Senior Credit Facility) dated as of March 18,
1997 and amended on various dates, among Booth Creek, its subsidiaries, the
financial institutions party thereto and BankBoston, N.A., as administrative
agent (Agent).
General -- The Senior Credit Facility provides for borrowing
availability of up to $20 million. The Company is required to repay all
borrowings under the Senior Credit Facility on or before March 1 of each
year and have no outstanding indebtedness thereunder during the two months
thereafter. Borrowings under the Senior Credit Facility are collectively
referred to herein as the Loans. Total borrowings outstanding under the
Senior Credit Facility at October 31, 1997 were $15 million.
Interest -- For purposes of calculating interest, the Loans can be, at
the election of the Company, Base Rate Loans or LIBOR Rate Loans or a
combination thereof. Base Rate Loans bear interest at the sum of (a) a
margin of between 0% and .5%, depending on the level of consolidated EBITDA
of the Company and its subsidiaries (as determined pursuant to the Senior
Credit Facility), plus (b) the higher of (i) the Agent's base rate or (ii)
the federal funds rate plus .5%. LIBOR Rate Loans bear interest at the
LIBOR rate plus a margin of between 2% and 3%, depending on the level of
consolidated EBITDA. The Senior Credit Facility also requires a commitment
fee of .5% based on the unused borrowing base. As of October 31, 1997, the
borrowings outstanding bear interest at 9% pursuant to the Base Rate Loans
option.
F-21
<PAGE> 162
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. FINANCING ARRANGEMENTS -- (CONTINUED)
Repayment -- Subject to the provisions of the Senior Credit Facility,
the Company may, from time to time, borrow, repay and reborrow under the
Senior Credit Facility. The entire unpaid balance under the Senior Credit
Facility is due and payable on March 31, 1999.
Security -- Borrowings under the Senior Credit Facility are secured by
(i) a pledge of the Agent for the ratable benefit of the financial
institutions party to the Senior Credit Facility of all of the capital
stock of Booth Creek's principal subsidiaries and (ii) a grant of a
security interest in substantially all of the consolidated assets of Booth
Creek and its subsidiaries (excluding the Real Estate LLC).
Covenants -- The Senior Credit Facility contains financial covenants
relating to the maintenance of (i) ratios of (a) financing debt to
consolidated cash flow, (b) adjusted consolidated cash flow to consolidated
debt service and (c) consolidated cash flow to consolidated interest
expense, (ii) consolidated net worth, and (iii) consolidated cash flow. The
Senior Credit Facility also contains restrictive covenants pertaining to
the management and operation of Booth Creek and its subsidiaries. The
covenants include, among others, significant limitations on indebtedness,
guarantees, mergers, acquisitions, fundamental corporate changes, capital
expenditures, asset sales, leases, investments, loans and advances, liens,
dividends and other stock payments, transactions with affiliates, optional
payments and modification of debt instruments and issuances of stock.
LONG-TERM DEBT
Long-term debt consists of the following instruments at October 31, 1997,
which are described below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Senior Notes................................................ $116,000
ASC Seller Note............................................. 2,500
Other debt.................................................. 2,827
--------
121,327
Less current portion........................................ 947
--------
$120,380
========
</TABLE>
Senior Notes
On March 18, 1997, the Company consummated an offering (the Offering) of
$110 million in senior debt securities (the Senior Notes). An additional $6
million aggregate principal amount of Senior Notes were sold by the Company on
April 25, 1997. The proceeds of the Offering, along with $6.5 million in
additional equity contributions of Parent and available cash on hand, were used
to i) repay $90 million in bridge notes bearing interest at approximately 11%,
ii) repay the $9.8 million Snoqualmie Seller Note bearing interest at 5% per
annum and certain other debt assumed in connection with the Summit acquisition,
iii) repay obligations relating to a $10 million intercompany note payable to
Parent, iv) acquire Grand Targhee and repay certain debt assumed in connection
therewith, and v) pay certain fees and expenses associated with the Offering and
the Senior Credit Facility. Existing deferred financing costs at March 18, 1997
of $2,664,000 relating principally to the bridge notes repaid, were charged off
in connection with the early extinguishment of debt, and have been reflected as
an extraordinary item in the accompanying statement of operations.
The Senior Notes mature on March 15, 2007, and bear interest at 12.5%
payable semiannually on each March 15 and September 15. The Senior Notes are
unconditionally guaranteed, on an unsecured senior basis, as to the payment of
principal, premium, if any, and interest, jointly and severally (the
Guarantees), by all Restricted Subsidiaries of the Company having either assets
or shareholders equity in excess of $20,000 (the
F-22
<PAGE> 163
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. FINANCING ARRANGEMENTS -- (CONTINUED)
Guarantors). All of the Company's direct and indirect subsidiaries are
Restricted Subsidiaries, except the Real Estate LLC. Each Guarantee is
effectively subordinated to all secured indebtedness of such Guarantor. The
Senior Notes are general senior unsecured obligations of the Company ranking
equally in right of payment with all other existing and future senior
indebtedness of the Company and senior in right of payment to any subordinated
indebtedness of the Company. The Senior Notes are effectively subordinated in
right of payment to all secured indebtedness of the Company and the Guarantors,
including indebtedness under the Senior Credit Facility. In addition, the Senior
Notes are structurally subordinated to any indebtedness of the Company's
subsidiaries that are not Guarantors. The indenture for the Senior Notes (the
Indenture) contains covenants for the benefit of the holders of the Senior Notes
that, among other things, restrict the ability of the Company and any Restricted
Subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends and make
distributions; (iii) issue stock of subsidiaries; (iv) make certain investments;
(v) repurchase stock; (vi) create liens; (vii) enter into transactions with
affiliates, (viii) enter into sale and leaseback transactions, (ix) create
dividend or other payment restrictions affecting Restricted Subsidiaries; (x)
merge or consolidate the Company or any Guarantors; and (xi) transfer and sell
assets.
The Guarantors are wholly-owned subsidiaries of Booth Creek and have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis.
Booth Creek is a holding company and has no operations, assets or cash flows
separate from its investments in its subsidiaries. In addition, the assets,
equity, income and cash flow of the Real Estate LLC, Booth Creeks only
non-guarantor subsidiary described in Note 2, are inconsequential and the common
stock of the Real Estate LLC is entirely owned by Booth Creek. Accordingly,
Booth Creek has not presented separate financial statements and other
disclosures concerning the Guarantors or non-guarantor subsidiary because
management has determined that such information is not material to investors.
On August 14, 1997, Booth Creek consummated its offer to exchange (the
"Exchange Offer") up to $116 million aggregate principal amount of its Series B
12.5% Senior Notes due 2007, which have been registered under the Securities Act
of 1933, as amended, for a like principal amount of its previously outstanding,
unregistered 12.5% Senior Notes due 2007 (the "Rule 144A Notes"). The Exchange
Offer expired on August 13, 1997, on which date 100% of the outstanding Rule
144A Notes had been received by the exchange agent for the Exchange Offer.
ASC Seller Note
As part of the purchase price for the acquisitions of Waterville Valley and
Mt. Cranmore, Booth Creek Ski Acquisition Corp., a wholly-owned subsidiary of
Booth Creek, and Waterville Valley Ski Resort, Inc. and Mount Cranmore Ski
Resort, Inc., wholly-owned subsidiaries of Booth Creek Ski Acquisition Corp. and
the respective owners of the assets of the Waterville Valley and Mt. Cranmore
resorts, jointly and severally issued a promissory note to American Skiing
Company in the aggregate principal amount of $2.75 million, of which $2.5
million was outstanding at October 31, 1997. The ASC Seller Note requires annual
principal payments at an initial level of $100,000 per year beginning January
31, 1998 and increasing to $350,000 by January 31, 2003, with the remaining
principal balance of $1,150,000 due on June 30, 2004. The ASC Seller Note bears
interest at 12% per annum payable semi-annually on each June 30 and December 31.
Other Debt
Other debt of $2,827,000 at October 31, 1997 consists of various capital
lease obligations, notes payables and improvement bond obligations.
During the year ended October 31, 1997, the Company paid cash for interest
costs of $11,243,000.
F-23
<PAGE> 164
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain machinery, equipment and facilities under
operating leases. Aggregate future minimum lease payments as of October 31, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR
ENDING
OCTOBER 31
- ---------- (IN THOUSANDS)
<S> <C>
1998........................................................ $2,036
1999........................................................ 1,201
2000........................................................ 429
2001........................................................ 326
2002........................................................ 162
Thereafter.................................................. 425
------
$4,579
======
</TABLE>
Total rent expense for all operating leases amounted to $2,882,000 for the
year ended October 31, 1997.
In addition, the Company leases property from the U.S. Forest Service under
Special Use Permits for all or certain portions of the operations of Sierra,
Bear Mountain, Waterville Valley, the Summit and Grand Targhee. These leases are
effective through 2008, 2020, 2034, 2032 and 2034, respectively. Lease payments
are based on a percentage of revenues, and were $665,000 for the year ended
October 31, 1997.
OTHER COMMITMENTS
Commitments for future capital expenditures through 1999 totaled
approximately $3.5 million at October 31, 1997.
In September 1997, the Company acquired a two year land purchase option for
$500,000. The land purchase option permits the Company to acquire certain land
for additional consideration of approximately $3.2 million. If the land purchase
option is not exercised due to certain events, $250,000 of the option price is
refundable.
LITIGATION
The nature of the ski industry includes the risk of skier injuries.
Generally, the Company has insurance to cover potential claims; in some cases
the amounts of the claims may be substantial. The Company is also involved in a
number of other claims arising from its operations.
Management, in consultation with legal counsel, believes resolution of
these claims will not have a material adverse impact on the Company's
consolidated financial condition or results of operations.
PLEDGE OF STOCK
The stock of the Company is pledged to secure $30 million of indebtedness
of the Parent.
F-24
<PAGE> 165
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The income tax benefit (provision) for the year ended October 31, 1997
consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current:
Federal................................................... $ 200
State..................................................... (20)
------
180
------
Deferred:
Federal................................................... 1,442
State..................................................... 106
------
1,548
------
$1,728
======
</TABLE>
The difference between the statutory federal income tax rate and the
effective tax rate for the year ended October 31, 1997 is attributable to the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Tax benefit computed at federal statutory rate of 35% of
pre-tax loss.............................................. $ 5,575
Change in valuation allowance............................... (3,691)
Other, net.................................................. (156)
-------
$ 1,728
=======
</TABLE>
As all of the income tax benefit for the year ended October 31, 1997 was
attributable to the losses from continuing operations, none of the benefit was
allocated to the extraordinary loss on early retirement of debt (Note 5).
Accordingly, the extraordinary loss increased the Company's net operating losses
by $2,664,000 and the valuation allowance by $972,000. At October 31, 1997, the
Company has a net operating loss carryforward of approximately $16 million for
federal income tax reporting purposes, which expires in 2012.
Significant components of the Company's deferred tax assets and liabilities
as of October 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Accruals and reserves..................................... $ 754
Alternative minimum tax credit carryforwards.............. 130
Net operating loss carryforwards.......................... 5,909
-------
Total deferred tax assets.............................. 6,793
Deferred tax liabilities:
Property and equipment.................................... (2,000)
-------
Total deferred tax liabilities............................ (2,000)
-------
Net deferred tax assets..................................... 4,793
Valuation allowance......................................... (4,793)
-------
Net deferred tax assets reflected in the accompanying
consolidated balance sheet................................ $ --
=======
</TABLE>
Based on preliminary purchase price allocations for the Company's
acquisitions of the resorts as described in Note 2, deferred tax liabilities of
approximately $4.4 million were recorded in the opening balance sheets.
F-25
<PAGE> 166
BOOTH CREEK SKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
This resulted in an expected income tax benefit rate of approximately 25%, which
was used by the Company in preparing its financial statements through the third
quarter of 1997. Final purchase allocations, primarily for the Summit
acquisition, resulted in less value being assigned to fixed assets, more to
goodwill and a corresponding reduction in the original deferred tax liabilities.
Accordingly, the actual income tax benefit rate for the year ended October 31,
1997 was 10.8%, and was adjusted for in the fourth quarter on a catch-up basis
as a change in estimate.
8. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS
Booth Creek, Inc. (the "Management Company") provides management services
to Booth Creek, the Parent and Booth Creek's subsidiaries pursuant to the
Management Agreement dated November 27, 1996 (the "Management Agreement")
between Booth Creek and the Management Company. The Management Company provides
Booth Creek, the Parent and Booth Creeks subsidiaries with financial advice with
respect to, among other matters, cash management, accounting and data processing
systems and procedures, budgeting, equipment purchases, business forecasts,
treasury functions and investor relations. The Management Company also provides
general supervision and management advice concerning tax, legal and corporate
finance matters, administration and operation, personnel matters, business
insurance and the employment of consultants, contractors and agents. Under the
terms of the Management Agreement, the Company provides customary
indemnification, reimburses certain costs and pays the Management Company an
annual management fee of $350,000 plus an operating bonus, not to exceed
$400,000, equal to 2.5% of the excess of consolidated EBITDA (as defined in the
Indenture) for such year over $25 million. The obligation of the Company to make
payments under the Management Agreement is subject to restrictions under the
Indenture and the Senior Credit Facility. Management fees during the year ended
October 31, 1997 were $350,000.
Since the formation of the Company, the Management Company and certain of
its affiliates have made advances and deposits of approximately $1,400,000
through October 31, 1997, and have incurred expenses of approximately $1,000,000
through October 31, 1997, in connection with certain of the acquisitions. All of
these costs were later reimbursed by the Company pursuant to the Management
Agreement.
At October 31, 1997, the Company had a receivable of $331,000 from Parent,
which is included in other current assets in the accompanying consolidated
balance sheet.
9. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution retirement plan (the Plan),
qualified under Section 401 (k) of the Internal Revenue Code, for certain
eligible employees. Pursuant to the Plan, eligible employees may contribute a
portion of their compensation, subject to a maximum amount per year as specified
by law. The Company provides a matching contribution based on specified
percentages of amounts contributed by participants. The Company's contribution
expense for the year ended October 31, 1997 was $215,000.
F-26
<PAGE> 167
REPORT OF INDEPENDENT AUDITORS
Fibreboard Corporation
We have audited the accompanying combined balance sheet of The Resort Group
of Fibreboard Corporation (wholly-owned subsidiaries of Fibreboard Corporation)
as of December 2, 1996, and the related combined statements of operations and
cash flows for the period from November 1, 1996 to December 2, 1996. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Resort Group of
Fibreboard Corporation at December 2, 1996, and the results of its operations
and its cash flows for the period from November 1, 1996 to December 2, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
September 30, 1997
F-27
<PAGE> 168
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
COMBINED BALANCE SHEET
DECEMBER 2, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,232
Accounts receivable, net of allowance for doubtful
accounts of $10........................................ 661
Current portion of notes receivable....................... 343
Inventories............................................... 2,910
Prepaid expenses.......................................... 987
Current portion of real estate held for resale............ 1,554
-------
Total current assets........................................ 8,687
Property and equipment:
Land and improvements..................................... 26,491
Buildings................................................. 15,479
Machinery and equipment................................... 44,838
Construction in progress.................................. 3,557
-------
90,365
Less accumulated depreciation............................. 26,461
-------
Property and equipment, net............................... 63,904
Timber rights, net of accumulated depletion of $16.......... 1,484
Notes receivable, net of current portion.................... 1,260
Real estate held for resale, net of current portion......... 726
Other assets................................................ 1,258
-------
Total assets................................................ $77,319
=======
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued liabilities.................. $12,962
Intercompany payable to Fibreboard Corporation............ 39,829
-------
Total current liabilities................................... 52,791
Commitments and contingencies (Notes 8 and 9)
Net assets.................................................. 24,528
-------
Total liabilities and net assets............................ $77,319
=======
</TABLE>
See accompanying notes.
F-28
<PAGE> 169
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 1, 1996 TO DECEMBER 2, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Revenue:
Resort operations......................................... $ 1,395
Real estate and other..................................... 304
-------
Total revenue............................................... 1,699
Cost of sales:
Resort operations......................................... 2,890
Real estate and other..................................... 161
-------
Total cost of sales......................................... 3,051
-------
Gross margin................................................ (1,352)
Sales, general and administrative expense................... 1,766
Management fee.............................................. 70
-------
Operating loss.............................................. (3,188)
Interest expense............................................ (3)
Interest and other income................................... 14
Intercompany interest expense, net.......................... (217)
-------
Loss before income taxes.................................... (3,394)
Income tax benefit.......................................... 1,358
-------
Net loss.................................................... $(2,036)
=======
</TABLE>
See accompanying notes.
F-29
<PAGE> 170
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 1, 1996 TO DECEMBER 2, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,036)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 6
Noncash cost of real estate sales...................... 133
Net changes in operating assets and liabilities:
Accounts receivable.................................. 138
Inventories.......................................... (804)
Prepaid expenses..................................... (306)
Accounts payable and accrued liabilities............. 8,638
-------
Net cash provided by operating activities................. 5,769
Cash flows from investing activities:
Purchase of other assets.................................. (488)
Capital expenditures -- property and equipment............ (5,587)
Development expenditures -- real estate held for resale... (191)
Principal payments received on notes receivable........... 115
-------
Net cash used in investing activities..................... (6,151)
Cash flows from financing activities:
Increase in intercompany payable to Fibreboard
Corporation............................................ 1,115
-------
Net cash provided by financing activities................. 1,115
-------
Net increase in cash and cash equivalents................. 733
Cash and cash equivalents, beginning of period............ 1,499
-------
Cash and cash equivalents, end of period.................. $ 2,232
=======
Supplemental cash flow information:
Cash paid for interest to third parties................ $ 53
=======
Noncash investing and financing activities:
Exchange of old lift for new lift...................... $ 2,000
=======
</TABLE>
See accompanying notes.
F-30
<PAGE> 171
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 2, 1996
1. ORGANIZATION
BASIS OF PRESENTATION
The Resort Group of Fibreboard Corporation (the "Resort Group") includes
the following wholly-owned subsidiaries of Fibreboard Corporation, a Delaware
corporation ("Fibreboard"): Trimont Land Company, d.b.a., Northstar-at-Tahoe
("Northstar"), Sierra-at-Tahoe, Inc. ("Sierra"), and Bear Mountain, Inc.
("Bear").
BUSINESS
Northstar is a year-round destination resort including ski and golf
facilities. Northstar also has real estate operations. Sierra is a day ski area.
Both Northstar and Sierra are located near Lake Tahoe, California. Bear is a day
ski area located approximately two hours from Los Angeles, California.
Operations are highly seasonal at all locations with the majority of
revenues realized during the ski season from late November through early April.
The length of the ski season and the profitability of operations are
significantly impacted by weather conditions. Although Northstar and Bear have
snowmaking capacity to mitigate some of the effects of adverse weather
conditions, abnormally warm weather or lack of adequate snowfall can materially
affect revenues. Sierra lacks significant snowmaking capability but generally
benefits from higher annual snowfall.
Other operational risks and uncertainties that face the Resort Group
include competitive pressures affecting the number of skier visits and ticket
prices; the success of marketing efforts to maintain and increase skier visits;
the possibility of equipment failure; and continued access to water supplies for
snowmaking.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Resort Group participates in Fibreboard's centralized cash management
system to minimize the amount of cash on deposit with banks and to maximize
interest income. Cash includes cash on hand or in banks available for immediate
disbursal. The Resort Group considers all highly-liquid investments with an
original maturity of three months or less to be cash equivalents.
Included in cash at December 2, 1996 is restricted cash of $526,000
relating to advance deposits and rental fees due to property owners for lodging
and property rentals.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventories at December 2, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
Retail products............................................. $1,732
Supplies.................................................... 1,003
Food and beverage........................................... 175
------
Total inventories........................................... $2,910
======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based upon the estimated service lives of the property,
ranging from 3 to 20 years. The Resort Group recognizes depreciation expense on
substantially all resort related assets over the operating ski season, which is
presumed
F-31
<PAGE> 172
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
to be the months of December through March. Accordingly, depreciation expense of
approximately $6,000 was recorded in the period from November 1, 1996 to
December 2, 1996 and is not reflective of the Resort Group's annual depreciation
charges.
The Resort Group capitalizes interest on borrowed funds during construction
periods. Capitalized interest is amortized over the lives of the related assets.
Interest capitalized for the period from November 1, 1996 to December 2, 1996
was $80,000.
ADVERTISING COSTS
The cost of advertising is expensed when the advertisement is released. The
cost of professional services for advertising, sales campaigns, promotions, and
public relations is expensed when the services are rendered. The cost of
brochures is expensed over the ski season. Advertising expenses were
approximately $259,000 for the period from November 1, 1996 to December 2, 1996.
INCOME TAXES
The Resort Group accounts for income taxes under the liability method.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. Deferred taxes
primarily consist of the basis differences associated with property and
equipment and certain liabilities as of December 2, 1996.
The Resort Group is included in the federal and state consolidated tax
returns of Fibreboard. The Resort Group computes its tax liability as if it had
filed a separate tax return and accrues such amount to Fibreboard. Accordingly,
all current and deferred tax balances, which are provided for in total at the
statutory rate, are included in the intercompany payable to Fibreboard
Corporation.
The following table summarizes the differences between the statutory
federal and the effective rate at December 2, 1996 (in thousands):
<TABLE>
<S> <C>
Income taxes at statutory federal rate...................... $1,188
State taxes, net of federal tax benefit..................... 170
------
Income tax benefit.......................................... $1,358
======
</TABLE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
3. REAL ESTATE OPERATIONS
Revenues and profits on real estate sales at Northstar are recognized using
the full accrual method at the point that the Resort Group's receivables from
land sales are deemed collectible and the Resort Group has no significant
remaining obligations for construction or development. If such conditions are
not met, the recognition of all or part of the revenues and profit is postponed.
Real estate held for resale includes the initial development expenditures
(e.g., roads, sewage systems, engineering fees, and capitalized interest) for a
new residential development at Northstar. The costs have been allocated to the
individual lots based on the development phase in which the lot is located. The
current portion
F-32
<PAGE> 173
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. REAL ESTATE OPERATIONS -- (CONTINUED)
of these costs relates to lots which the Resort Group expects to sell within one
year. These costs are recognized as noncash cost of real estate sales upon the
sale of the lot.
Notes receivable relate to these real estate sales and equipment sales and
consist of the following as of December 2, 1996 (in thousands):
<TABLE>
<S> <C>
Secured notes receivable bearing interest at 9% to 10.5%;
payments of interest and principal are due monthly and the
notes mature between 1997 and 2011........................ $1,469
Notes receivable for sale of equipment; payable in full in
April 1997................................................ 134
------
1,603
Less current portion........................................ 343
------
Long-term notes receivable.................................. $1,260
======
</TABLE>
Future maturities of these notes are as follows (in thousands):
<TABLE>
<S> <C>
1996 (one month)............................................ $ 5
1997........................................................ 343
1998........................................................ 782
1999........................................................ 26
2000........................................................ 28
2001........................................................ 30
Thereafter.................................................. 389
------
$1,603
======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at
December 2, 1996 (in thousands):
<TABLE>
<S> <C>
Accounts payable............................................ $ 8,585
Unearned income............................................. 2,020
Payroll related............................................. 1,501
Taxes other than income..................................... 622
Other....................................................... 234
-------
$12,962
=======
</TABLE>
Unearned income relates primarily to season ski passes, coupon and ticket
voucher sales and customer deposits. Revenue from season passes is recognized
ratably over the ski season.
5. EMPLOYEE BENEFIT PLANS
The Resort Group's employees are eligible to participate in a 401(k) plan
sponsored by Fibreboard. The Resort Group contributed $35,000 as a result of
these plans in the period from November 1, 1996 to December 2, 1996. Certain
current and former Resort Group employees have vested benefits in Fibreboard's
defined benefit pension plan, which was frozen in 1993. All pension liabilities
and expenses are funded directly by Fibreboard.
F-33
<PAGE> 174
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. CREDIT FACILITY
The Resort Group has a reducing revolving credit facility which provided
for maximum borrowing of $34,043,940 at December 2, 1996. At December 2, 1996,
no amounts were outstanding under the credit facility, which was subsequently
terminated as a result of the sale of the Resort Group (Note 10).
7. INTERCOMPANY TRANSACTIONS
The Resort Group is charged a management fee by Fibreboard based on
services rendered by Fibreboard for the benefit of the Resort Group. These
services primarily relate to legal, accounting, cash management, human
resources, tax consultation and filings, management information systems (MIS),
and overall corporate strategy and direction. The fee for the above services and
others is based on a percentage of income, headcount, and estimated time spent
by the legal and MIS staff on the Group's behalf. This fee was $70,000 for the
period from November 1, 1996 to December 2, 1996.
The Resort Group was charged interest of approximately $297,000, including
$80,000 which was capitalized by the Resort Group (Note 2), by Fibreboard for
the period from November 1, 1996 to December 2, 1996, based on outstanding
intercompany amounts.
All of the above transactions are accounted for through the intercompany
payable to Fibreboard Corporation account, which totaled $39,829,335 at December
2, 1996. In addition, all excess cash is remitted to and checks are covered by
Fibreboard. Allocations for payroll and related taxes, workers' compensation and
income taxes are also accounted for through this account.
8. LITIGATION
The nature of the ski industry includes the risk of skier injuries. The
Resort Group is involved in a number of claims arising from its operations.
Generally, the Resort Group has insurance to cover potential claims; in some
cases the amounts of the claims may be substantial.
Management, in consultation with legal counsel, believes resolution of
these claims will not have a material adverse impact on the Resort Group's
combined financial condition or results of operations.
9. COMMITMENTS
The Resort Group leases certain machinery and equipment under operating
leases. Remaining minimum lease payments for the balance of 1996 and the
calendar years following are as follows (in thousands):
<TABLE>
<S> <C>
1996 (one month)............................................ $ 154
1997........................................................ 973
1998........................................................ 504
1999........................................................ 224
2000........................................................ 84
------
$1,939
======
</TABLE>
In addition, the Resort Group leases property from the U.S. Forest Service
for Sierra and Bear. These leases are effective through 2008 and 2020,
respectively. Lease payments are based on a percentage of revenues. Total rent
expense for all operating leases amounted to $103,000 for the period from
November 1, 1996 to December 2, 1996.
F-34
<PAGE> 175
THE RESORT GROUP OF FIBREBOARD CORPORATION
(WHOLLY-OWNED SUBSIDIARIES OF FIBREBOARD CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT
On December 3, 1996, Booth Creek Ski Holdings, Inc. purchased from
Fibreboard all of the issued and outstanding capital stock of the companies
comprising the Resort Group. The aggregate purchase price was $121.5 million in
cash, before giving effect to normal working capital adjustments for current
assets acquired and current liabilities assumed.
F-35
<PAGE> 176
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fibreboard Corporation and Mr. George N. Gillett, Jr.:
We have audited the accompanying combined balance sheets of The Resort
Group of Fibreboard Corporation (wholly-owned subsidiaries of Fibreboard
Corporation, a Delaware corporation) as of October 31, 1996, December 31, 1995,
and 1994, and the related combined statements of income, and cash flows for the
ten months ended October 31, 1996, and each of the three years ended December
31, 1995. 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 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of The Resort Group of
Fibreboard Corporation as of October 31, 1996, December 31, 1995, and 1994, and
the results of its operations and its cash flows for the ten months ended
October 31, 1996, and each of the three years ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
November 22, 1996
F-36
<PAGE> 177
THE RESORT GROUP OF FIBREBOARD CORPORATION
COMBINED BALANCE SHEETS
AS OF OCTOBER 31, 1996, DECEMBER 31, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, --------------------
1996 1995 1994
----------- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,499 $ 7,821 $ 3,319
Accounts receivable, net of allowance for doubtful
accounts of $10, $12, and $11, respectively............ 799 853 537
Current portion of notes receivable....................... 350 78 24
Inventories............................................... 2,106 3,267 1,468
Prepaid expenses.......................................... 681 545 502
Current portion of real estate held for resale............ 1,416 1,105 208
-------- -------- --------
Total current assets................................... 6,851 13,669 6,058
-------- -------- --------
Property and equipment, at cost:
Land and improvements..................................... 26,500 26,500 12,469
Buildings................................................. 15,309 14,914 10,907
Machinery and equipment................................... 38,415 38,923 31,820
Construction in progress.................................. 5,384 -- --
-------- -------- --------
85,608 80,337 55,196
Less: Accumulated depreciation............................ (27,285) (23,261) (19,447)
-------- -------- --------
Net property and equipment............................. 58,323 57,076 35,749
Timber rights, net of accumulated depletion of $16.......... 1,484 -- --
Notes receivable, net of current portion.................... 1,368 752 554
Real estate held for resale, net of current portion......... 806 1,162 303
Other assets................................................ 770 657 401
-------- -------- --------
Total assets........................................... $ 69,602 $ 73,316 $ 43,065
======== ======== ========
LIABILITIES AND NET ASSETS
Current liabilities:
Current portion of long-term debt......................... $ -- $ -- $ 1,000
Accounts payable and accrued liabilities.................. 4,323 8,156 7,391
Intercompany payable to Fibreboard Corporation............ 38,715 41,493 4,222
-------- -------- --------
Total current liabilities.............................. 43,038 49,649 12,613
Long-term debt.............................................. -- -- 10,200
Other long-term liabilities................................. -- -- 500
-------- -------- --------
Total liabilities...................................... 43,038 49,649 23,313
Commitments (Note 11)
Net assets................................................ 26,564 23,667 19,752
-------- -------- --------
Total liabilities and net assets.......................... $ 69,602 $ 73,316 $ 43,065
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 178
THE RESORT GROUP OF FIBREBOARD CORPORATION
COMBINED STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1996 AND 1995 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, OCTOBER 31, ---------------------------
1996 1995 1995 1994 1993
----------- ----------- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Resort.................................... $36,829 $32,072 $39,823 $40,810 $25,528
Real estate............................... 3,595 4,659 5,028 610 --
Timber.................................... 693 -- 185 -- --
------- ------- ------- ------- -------
Total revenue........................ 41,117 36,731 45,036 41,420 25,528
------- ------- ------- ------- -------
Cost of Sales:
Resort.................................... 26,950 21,536 28,569 26,920 18,117
Real estate (including $1,461, $1,488,
$1,618, $0, and $0, respectively, of
non-cash cost of sales) (Note 3)....... 1,739 1,780 1,928 280 --
Timber.................................... 403 -- 61 -- --
------- ------- ------- ------- -------
Total cost of sales.................. 29,092 23,316 30,558 27,200 18,117
------- ------- ------- ------- -------
Gross margin......................... 12,025 13,415 14,478 14,220 7,411
Sales, General, and Administrative
Expense................................... 5,220 4,399 5,871 5,545 4,579
Management Fee (Note 8)..................... 701 513 1,247 655 507
------- ------- ------- ------- -------
Operating income..................... 6,104 8,503 7,360 8,020 2,325
Interest expense............................ 100 418 439 741 326
Interest and other income................... (350) (84) (106) (75) (140)
Intercompany interest expense, net.......... 1,439 -- 488 -- --
------- ------- ------- ------- -------
Income before income taxes........... 4,915 8,169 6,539 7,354 2,139
Provision for Income Taxes.................. 2,018 3,308 2,624 2,979 876
------- ------- ------- ------- -------
Net income.................................. $ 2,897 $ 4,861 $ 3,915 $ 4,375 $ 1,263
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 179
THE RESORT GROUP OF FIBREBOARD CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1996 AND 1995 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, OCTOBER 31, -------------------------------
1996 1995 1995 1994 1993
----------- ----------- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 2,897 $ 4,861 $ 3,915 $ 4,375 $ 1,263
Adjustments to reconcile to cash
provided by operating activities --
Depreciation, amortization, and
depletion.......................... 4,354 2,989 4,024 3,449 2,514
Non-cash cost of real estate sales
(Note 3)........................... 1,461 1,488 1,618 -- --
Gain on sale of assets............... (147) (20) (342) (326) --
Changes in assets and liabilities --
Decrease (increase) in accounts
receivable......................... 54 242 (286) (107) (161)
Decrease (increase) in inventories... 1,161 (427) (1,427) (9) (308)
(Increase) decrease in prepaid
expenses........................... (136) (116) 56 106 (479)
(Increase) decrease in notes
receivable......................... (888) (150) (252) 116 66
(Decrease) increase in accounts
payable and accrued liabilities.... (3,833) (1,361) 555 1,878 1,317
------- -------- -------- ------- --------
Net cash provided by operating
activities...................... 4,923 7,506 7,861 9,482 4,212
------- -------- -------- ------- --------
Cash flows from investing activities:
Non-cash assets of acquired
operations........................... -- (20,604) (20,604) -- (13,054)
Proceeds from property and equipment
sales................................ 361 -- -- -- --
Development expenditures -- real estate
held for resale...................... (1,297) (3,443) (3,374) (198) --
Capital expenditures -- property and
equipment............................ (5,761) (3,786) (5,226) (6,199) (4,619)
Capitalized interest.................... (157) -- -- -- (183)
Acquisition of timber rights............ (1,500) -- -- -- --
(Increase) decrease in other assets..... (113) (488) (226) 110 (480)
------- -------- -------- ------- --------
Net cash used by investing
activities...................... (8,467) (28,321) (29,430) (6,287) (18,336)
------- -------- -------- ------- --------
Cash flows from financing activities:
New borrowings.......................... -- -- -- -- 15,000
Repayment of long-term debt............. -- (11,200) (11,200) (3,798) (24)
(Decrease) increase in intercompany
payable to Fibreboard Corporation.... (2,778) 29,259 37,271 1,134 (5,949)
------- -------- -------- ------- --------
Net cash (used) provided by
financing activities............ (2,778) 18,059 26,071 (2,664) 9,027
------- -------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents............................. (6,322) (2,756) 4,502 531 (5,097)
Cash and cash equivalents, beginning of
year.................................... 7,821 3,319 3,319 2,788 7,885
------- -------- -------- ------- --------
Cash and cash equivalents, end of year.... $ 1,499 $ 563 $ 7,821 $ 3,319 $ 2,788
======= ======== ======== ======= ========
Supplemental cash flow information:
Cash paid for interest to third
parties.............................. $ 55 $ 590 $ 590 $ 810 $ 186
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 180
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION
BASIS OF PRESENTATION
The Resort Group of Fibreboard Corporation (the Group) includes the
following wholly-owned subsidiaries of Fibreboard Corporation, a Delaware
corporation (Fibreboard): Trimont Land Company, d.b.a. Northstar-at-Tahoe
(Northstar), Sierra-at-Tahoe, Inc. (Sierra), and Bear Mountain, Inc. (Bear),
from the date of acquisition by Fibreboard.
Although for presentation purposes the Group's fiscal years and months are
on a calendar basis, these fiscal periods actually end on the last Saturday of
the period. Fiscal year 1995 and 1993 each contained 52 weeks; fiscal year 1994
contained 53 weeks. The impact of the additional week in 1994 resulted in
increased revenue and income as the additional week was a peak holiday week.
BUSINESS
Northstar is a year-round destination resort including ski and golf
facilities. Northstar also has real estate operations. Sierra is a day ski area.
Both Northstar and Sierra are located near Lake Tahoe, California. Bear is a day
ski area located approximately two hours from Los Angeles, California.
Operations are highly seasonal at all locations with more than 75% of
revenues realized during the ski season from late November through early April.
The length of the ski season and the profitability of operations are impacted by
weather. Although Northstar and Bear have snowmaking capacity to mitigate some
of the effects of adverse weather conditions, abnormally warm weather or lack of
adequate snowfall can materially affect revenues. Sierra lacks significant
snowmaking capability but generally benefits from higher annual snowfall.
Depending on the weather and other factors, annual skier visits have varied from
300,000 to 500,000 at Northstar, 230,000 to 350,000 at Sierra and 230,000 to
360,000 at Bear over the last decade.
In 1993 and 1994, Northstar's real estate activities consisted primarily of
property management services for the homeowners at the resort. Beginning in
1995, the Group began also developing and selling residential lots.
Other risks and uncertainties that face the resort group include
competitive pressures affecting the number of skier visits and ticket prices;
the success of marketing efforts to maintain and increase skier visits; the
possibility of equipment failure; and continued access to water for snowmaking.
On August 29, 1996, Fibreboard entered into a letter of intent to sell the
assets of the Group to Booth Creek, Inc., for $121.5 million in cash. The
transaction is expected to close in December 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Group participates in Fibreboard's centralized cash management system
to minimize the amount of cash on deposit with banks and to maximize interest
income. Cash includes cash on hand or in banks available for immediate
disbursal. The Group considers all highly-liquid investments with an original
maturity of three months or less to be cash equivalents.
F-40
<PAGE> 181
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, ---------------
1996 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Retail Products.................................... $1,186 $1,851 $ 756
Supplies........................................... 805 1,141 424
Food and Beverage.................................. 115 275 288
------ ------ ------
Total inventories............................. $2,106 $3,267 $1,468
====== ====== ======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method based upon the estimated service lives of the property,
ranging from 3 to 20 years. Annual depreciation on most property and equipment
is recognized from December 1 to March 31, consistent with the ski season.
Therefore, the accompanying statement of operations for the ten month period
ended October 31, 1996 includes 75% of annual depreciation. Depreciation expense
for the ten month period ended October 31, 1996 and the years ended December 31,
1995, 1994, and 1993 was $4,338, $4,024, $3,449, and $2,514, respectively.
The Group capitalizes interest on borrowed funds during construction
periods. Capitalized interest is amortized over the lives of the related assets.
Interest capitalized in the ten month period ended October 31, 1996 and the
years ended December 31, 1995, 1994, and 1993 was $64, $0, $0, and $183,
respectively.
ADVERTISING COSTS
The cost of advertising is expensed when the advertisement is released. The
cost of professional services for advertising, sales campaigns, promotion, and
public relations is expensed when the services are rendered. The cost of
brochures is expensed over the ski season.
INCOME TAXES
The Group accounts for income taxes according to the provisions of
Statement of Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 utilizes the liability method and deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the provisions of the
enacted tax laws. Deferred taxes primarily consist of the basis differences
associated with property and equipment and certain liabilities as of October 31,
1996 and December 31, 1995 and 1994.
The Group is included in the federal and state consolidated tax returns of
Fibreboard. The Group computes its tax liability as if it had filed a separate
tax return and accrues such amount to Fibreboard. Accordingly, all current and
deferred taxes, which are provided for in total at the statutory rate, are
included in the intercompany payable to Fibreboard Corporation.
F-41
<PAGE> 182
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The following table summarizes the differences between the statutory
federal and the effective rate:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, ----------------------
1996 1995 1994 1993
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Tax at statutory federal rate................ $1,721 $2,289 $2,574 $749
State taxes, net of federal tax benefit...... 297 395 445 129
Other........................................ -- (60) (40) (2)
------ ------ ------ ----
Tax provision................................ $2,018 $2,624 $2,979 $876
====== ====== ====== ====
</TABLE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements to be consistent with the current year presentation.
3. REAL ESTATE OPERATIONS:
Revenues and profits on the sales of real estate at Northstar are
recognized in accordance with SFAS No. 66, "Accounting for the Sales of Real
Estate."
Real estate held for resale includes the initial development expenditures
(e.g., roads, sewage systems, engineering fees, and capitalized interest) for a
new residential development at Northstar. The costs have been allocated to the
individual lots based on the development phase in which the lot is located. The
current portion of these costs relates to lots which the Group expects to sell
within one year. These costs are recognized as non-cash cost of sales upon the
sale of the lot.
Effective January 1, 1996, the Group capitalized interest applicable to
real estate development. In the ten months ended October 31, 1996, approximately
$119 was capitalized. Of that amount, $26 was applicable to lots sold in 1996.
Such amount is reflected in cost of sales in the accompanying statement of
operations.
F-42
<PAGE> 183
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. REAL ESTATE OPERATIONS -- (CONTINUED)
Notes receivable relate to these real estate sales and equipment sales and
consist of the following as of October 31, 1996 and December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, ------------
1996 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Secured notes receivable bearing interest at 7.75% to
10.5%; payments of interest and principal are due
monthly and the notes mature between 1997 and
2011................................................ $1,584 $830 $578
Notes receivable for sale of equipment; payable in
full in April 1997.................................. 134 -- --
------ ---- ----
1,718 830 578
Less: current portion................................. (350) (78) (24)
------ ---- ----
Long-term notes receivable............................ $1,368 $752 $554
====== ==== ====
</TABLE>
Future maturities of these notes are as follows:
<TABLE>
<S> <C>
1996 (two months)........................................... $ 11
1997........................................................ 454
1998........................................................ 784
1999........................................................ 29
2000........................................................ 32
2001........................................................ 34
Thereafter.................................................. 374
------
$1,718
======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, ---------------
1996 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Accounts payable.................................... $1,176 $3,396 $2,885
Payroll related..................................... 1,076 1,640 1,362
Taxes other than income............................. 945 647 541
Unearned income..................................... 880 2,177 2,153
Interest............................................ 50 5 155
Other............................................... 196 291 295
------ ------ ------
$4,323 $8,156 $7,391
====== ====== ======
</TABLE>
Unearned income relates primarily to season ski passes and customer
deposits. Revenue from season passes is recognized ratably over the ski season.
5. EMPLOYEE BENEFIT PLANS
The Group's employees are eligible to participate in a 401(k) plan. The
Group contributed $226, $288, $246, and $207 as a result of these plans in the
ten month period ended October 31, 1996 and the years ended December 31, 1995,
1994, and 1993, respectively. Certain current and former group employees have
vested benefits in Fibreboard's defined benefit plan which was frozen in 1993.
All pension liabilities and expenses are funded directly by Fibreboard.
F-43
<PAGE> 184
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Certain Group officers and key employees participate in the Fibreboard
stock option, rights, and long-term equity incentive plans. Stock options are
generally granted at the then market value of Fibreboard stock. If the option
price is less than the market price, compensation expense is recognized over the
vesting period. Compensation related to restricted stock awards, rights, and
incentive compensation is recognized over the related term of the award.
6. CREDIT FACILITY
The Group's long-term debt consisted of the following as of December 31,
1994:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Reducing revolving credit facility, interest at LIBOR plus
1.0% to 1.375%, secured by the assets of the Group........ $ 6,700
Term loan, interest at prime plus 0.5%, secured by the
assets of Northstar....................................... 4,500
-------
11,200
Less current portion........................................ (1,000)
-------
$10,200
=======
</TABLE>
The group has a reducing revolving credit facility which provides for
maximum borrowings of $34,686. Maximum availability reduces to $28,657 on April
30, 1997, $22,628 on April 30, 1998, and $16,600 on April 30, 1999, with any
remaining outstanding amounts due on May 31, 2000. Borrowings against the line
are secured by all of the stock and assets of the Group. As of October 31, 1996,
no amounts were borrowed against this facility. The Company pays a fee of 0.375%
of the unused amount; such fees were $81, $85, $33, and $9 for the ten months
ended October 31, 1996, and each of the years ended December 31, 1995, 1994, and
1993, respectively, and are included in interest expense. The amount of credit
available to the Group is reduced by $1,207 of letters of credit outstanding as
of October 31, 1996.
The Group's loan agreements contain various financial covenants, the most
restrictive of which impose limitations on dividends and other distributions and
require the maintenance of minimum levels of net worth and certain coverage
ratios. As of September 30, 1996, the most recent reporting date for the bank,
the Group was not in compliance with certain covenants. The Group obtained a
waiver from the bank and was therefore able to draw on the line of credit
through the next reporting date for the bank, December 31, 1996. At that time,
the compliance with covenants will again be reviewed.
7. ACQUISITIONS
SIERRA-AT-TAHOE
In July 1993, the Group acquired the net assets of Sierra Ski Ranch for
$13,054 in cash. The acquisition was accounted for as a purchase of assets. The
ski area was subsequently renamed Sierra-at-Tahoe.
BEAR MOUNTAIN
In October 1995, the Group acquired the net assets of Bear for $20,604 in
cash. The acquisition was accounted for as a purchase of assets. The Group's
acquisition of Bear was financed by a loan from Fibreboard, which has been
recorded at the Group level and is included in the intercompany payable balance
as of October 31, 1996 and December 31, 1995.
F-44
<PAGE> 185
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. ACQUISITIONS -- (CONTINUED)
The table below presents the unaudited revenues and net income of the Group
as if Sierra and Bear had been a member of the Group since January 1, 1994, and
had been charged intercompany interest from that date.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Resort........................................... $48,304 $56,891 $44,302
Real estate...................................... 5,028 610 --
Timber........................................... 185 -- --
------- ------- -------
53,517 57,501 44,302
======= ======= =======
Net Income......................................... $ 3,672 $ 5,065 $ 1,737
======= ======= =======
</TABLE>
The pro forma information does not purport to be indicative of results that
actually would have occurred had the acquisitions been made on the dates
indicated or of results which may occur in the future.
8. INTERCOMPANY TRANSACTIONS:
The Group is charged a management fee by Fibreboard based on services
rendered at Fibreboard for the benefit of the Group. These services primarily
relate to legal, accounting, cash management, human resources, tax consultation
and filings, management information systems (MIS), and overall corporate
strategy and direction. The fee for the above services and others is based on a
percentage of income, headcount, and estimated time spent by the legal and MIS
staff on the Group's behalf.
This fee was $701, $1,247, $655, and $507, for the ten month period ended
October 31, 1996 and the years ended December 31, 1995, 1994, and 1993,
respectively.
The Group was charged interest of $1,622, including $183 which was
capitalized by the Group (Notes 2 and 3), and $488 by Fibreboard for the ten
months ended October 31, 1996, and for the year ended December 31, 1995,
respectively, based on outstanding intercompany amounts.
In 1996, Fibreboard transferred timber rights of $1.5 million to the Group.
All of the above transactions are accounted for through the Intercompany
payable to Fibreboard Corporation account. In addition, all excess cash is
remitted to and checks are covered by Fibreboard. Allocations for payroll,
taxes, workers' compensation and income taxes are also accounted for through
this account. The most significant activity, which occurred during 1995, related
to the acquisition of Bear Mountain ($20,604) which was funded by Fibreboard and
the refinancing of separate Group debt ($11,200) by Fibreboard.
<TABLE>
<S> <C>
Intercompany payable to Fibreboard Corporation
Balance, December 31, 1994................................ $ 4,222
Bear Mountain Acquisition................................. 20,604
Debt Refinancing.......................................... 11,200
Other, net................................................ 5,467
-------
Balance, December 31, 1995................................ 41,493
Other, net................................................ (2,778)
-------
Balance, October 31, 1996................................. $38,715
=======
</TABLE>
F-45
<PAGE> 186
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. LITIGATION:
The nature of the ski industry includes the risk of skier injuries.
Generally, the Group has insurance to cover potential claims; in some cases the
amounts of the claims are very substantial. Also, a case involving a fatality in
1994 may subject the Group to punitive damages which are not included in the
Group's insurance coverage. The Group is also involved in a number of other
claims arising from its operations.
Management, in consultation with legal counsel, believes resolution of
these claims will not have a material adverse impact on its financial condition
or results of operations.
10. BUSINESS SEGMENTS
The Company operates is three business segments -- resorts, real estate,
and timber. Data by segment is as follows:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
----------- ---------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Resort................................ $36,829 $39,823 $40,810 $25,528
Real estate........................... 3,595 5,028 610 --
Timber................................ 693 185 -- --
------- ------- ------- -------
41,117 45,036 41,420 25,528
======= ======= ======= =======
Operating income:
Resort................................ 5,014 5,721 7,834 2,325
Real estate........................... 943 1,576 186 --
Timber................................ 147 63 -- --
------- ------- ------- -------
6,104 7,360 8,020 2,325
======= ======= ======= =======
Depreciation, amortization, and
depletion:
Resort................................ 4,338 4,024 3,449 2,514
Real estate........................... -- -- -- --
Timber................................ 16 -- -- --
------- ------- ------- -------
4,354 4,024 3,449 2,514
======= ======= ======= =======
Capital expenditures, exclusive of
acquisitions:
Resort................................ 5,761 5,226 6,199 4,619
Real estate........................... 1,297 3,374 198 --
Timber................................ 1,500 -- -- --
------- ------- ------- -------
8,558 8,600 6,397 4,619
======= ======= ======= =======
Identifiable assets:
Resorts............................... 58,323 57,076 35,749
Real estate........................... 3,806 3,097 1,089
Timber................................ 1,484 -- --
Corporate............................. 5,989 13,143 6,227
------- ------- -------
$69,602 $73,316 $43,065
======= ======= =======
</TABLE>
F-46
<PAGE> 187
THE RESORT GROUP OF FIBREBOARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS:
The Group leases certain machinery and equipment under operating leases.
Minimum lease payments for the remainder of 1996 and the next five years are as
follows:
<TABLE>
<S> <C>
1996 (two months)........................................... $ 307
1997........................................................ 973
1998........................................................ 504
1999........................................................ 224
2000........................................................ 84
2001........................................................ --
------
$2,092
======
</TABLE>
In addition, the Group leases property from the U.S. Forest Service for
Sierra and Bear. These leases are effective through 2008 and 2020, respectively.
Lease payments are based on a percentage of revenues. Total rent expense for all
operating leases amounted to $1,842, $1,411, $1,216, and $550, in the ten months
ended October 31, 1996 and the years ended December 31, 1995, 1994, and 1993,
respectively.
During 1996, the Group entered into a contract to replace certain lift
equipment at Sierra. The total cost of the new equipment is approximately $8.4
million of which the Group will receive a vendor's credit for $2 million related
to the equipment being replaced. As of October 31, 1996, the Group had incurred
approximately $2.3 million toward this commitment.
F-47
<PAGE> 188
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Waterville Valley Ski Area Ltd.
We have audited the accompanying balance sheets of Waterville Valley Ski
Area Ltd. (the Company) as of November 26, 1996 and October 27, 1996, and the
related statements of operations and accumulated deficit, and cash flows for the
period from October 28, 1996 to November 26, 1996 and from July 1, 1996 to
October 27, 1996. 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 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 financial position of Waterville Valley Ski Area
Ltd. as of November 26, 1996 and October 27, 1996, and the results of its
operations and its cash flows for the period from October 28, 1996 to November
26, 1996 and from July 1, 1996 to October 27, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
September 30, 1997
F-48
<PAGE> 189
WATERVILLE VALLEY SKI AREA LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 26, OCTOBER 27,
1996 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 173,974 $ 116,115
Accounts receivable, net of allowances of $43,811 at
November 26, 1996 and $37,236 at October 27, 1996...... 367,725 320,972
Inventories............................................... 572,303 223,721
Prepaid expenses and other current assets................. 223,594 217,044
----------- -----------
Total current assets........................................ 1,337,596 877,852
Property, plant and equipment, net.......................... 13,125,977 13,066,931
Goodwill, net............................................... 1,267,232 1,272,650
----------- -----------
Total assets................................................ $15,730,805 $15,217,433
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 968,863 $ 432,180
Accrued expenses.......................................... 835,614 878,581
Advance ticket revenue.................................... 520,879 454,946
Due to affiliate.......................................... 989,610 557,220
Current portion of notes payable.......................... 21,300 21,300
Capital lease obligations................................. 106,256 106,256
----------- -----------
Total current liabilities................................... 3,442,522 2,450,483
Notes payable, net of current portion....................... 150,235 150,754
Deferred income taxes....................................... 875,000 875,000
Stockholder's equity:
Common stock, no par, 100 shares authorized, issued and
outstanding............................................ 12,940,000 12,940,000
Accumulated deficit....................................... (1,676,952) (1,198,804)
----------- -----------
Total stockholder's equity.................................. 11,263,048 11,741,196
----------- -----------
Total liabilities and stockholder's equity.................. $15,730,805 $15,217,433
=========== ===========
</TABLE>
See accompanying notes.
F-49
<PAGE> 190
WATERVILLE VALLEY SKI AREA LTD.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
OCTOBER 28, 1996 JULY 1, 1996
TO NOVEMBER 26, TO OCTOBER 27,
1996 1996
---------------- --------------
<S> <C> <C>
Revenue:
Resort services........................................... $ 69,764 $ 116,506
Consumer products......................................... 95,941 76,693
Rental and other income................................... 35,076 244,789
Conference center......................................... 150,951 516,716
----------- -----------
351,732 954,704
Cost of sales:
Resort services........................................... 115,044 238,470
Consumer products......................................... 116,428 106,080
Rental and other expenses................................. 91,971 243,639
Conference center......................................... 82,291 344,559
----------- -----------
405,734 932,748
----------- -----------
(54,002) 21,956
Expenses:
Selling, general and administrative....................... 183,969 735,320
Utilities................................................. 124,696 216,090
Depreciation and amortization............................. 102,981 329,350
----------- -----------
411,646 1,280,760
----------- -----------
Loss from operations........................................ (465,648) (1,258,804)
Interest expense............................................ (12,500) (50,000)
----------- -----------
Loss before income tax benefit.............................. (478,148) (1,308,804)
Income tax benefit.......................................... -- 110,000
----------- -----------
Net loss.................................................... (478,148) (1,198,804)
Accumulated deficit at beginning of period.................. (1,198,804) --
----------- -----------
Accumulated deficit at end of period........................ $(1,676,952) $(1,198,804)
=========== ===========
</TABLE>
See accompanying notes.
F-50
<PAGE> 191
WATERVILLE VALLEY SKI AREA LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
OCTOBER 28, 1996 JULY 1, 1996
TO NOVEMBER 26, TO OCTOBER 27,
1996 1996
---------------- --------------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(478,148) $(1,198,804)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 102,981 329,350
Changes in operating assets and liabilities:
Accounts receivable............................... (46,753) 27,380
Inventories....................................... (348,582) 33,507
Prepaid expenses and other current assets......... (6,550) (169,952)
Accounts payable, accrued liabilities and advance
revenue......................................... 559,649 900,507
--------- -----------
Net cash used in operating activities..................... (217,403) (78,012)
Investing activity:
Purchase of property, plant and equipment................. (156,609) (366,931)
--------- -----------
Net cash used in investing activity....................... (156,609) (366,931)
Financing activities:
Due to affiliate.......................................... 432,390 407,314
Principal payments on long-term debt...................... (519) (5,379)
--------- -----------
Net cash provided by financing activities................. 431,871 401,935
--------- -----------
Net increase (decrease) in cash........................... 57,859 (43,008)
Cash at beginning of period............................... 116,115 159,123
--------- -----------
Cash at end of period..................................... $ 173,974 $ 116,115
========= ===========
State income taxes paid................................... $ -- $ 15,000
========= ===========
</TABLE>
See accompanying notes.
F-51
<PAGE> 192
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 26, 1996
1. BUSINESS ORGANIZATION
Waterville Valley Ski Area Ltd. (the Company) is a wholly-owned subsidiary
of S-K-I, which was acquired by American Skiing Company on June 30, 1996 (see
Note 3). The Company owns and operates the Waterville Valley ski resort and
conference center located in Waterville Valley, New Hampshire. The Company also
operates a year-round base camp adventure center offering mountain bikers, cross
country skiers and hikers access to 100 kilometers of trails in the White
Mountains National Forest.
Due to the seasonality of the Company's business and the nature of its
operations, which require a significant level of fixed operating costs,
operating results may be significantly affected by the level of revenues, which
depend on, among other things, weather conditions. The seasonality also has a
significant effect on the Company's working capital requirements during the year
since operating losses are generally incurred from May through November. To the
extent that cash flows from operations are not sufficient to meet its working
capital requirements, the Company has been dependent on borrowings from its
affiliates, principally S-K-I. As discussed in Note 12, Booth Creek Ski
Holdings, Inc. purchased the business and net assets of the Waterville Valley
ski resort and conference center effective November 27, 1996 and has represented
that it has the ability and intent to fund operations for the foreseeable future
until the Company is able to support its own operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
Revenues from the sale of lift tickets, operation of the Resort's ski
schools and repair shop and base camp adventure center have been included in the
statements of operations in the caption Resort Services. Revenues from
restaurants and retail shop sales have been included in the caption Consumer
Products. Revenues from ski, locker and real estate rentals have been included
in the caption Rental and Other Income. Revenues from use of the Company's
conference center have been included in the caption Conference Center.
Revenue is recognized at the time services are provided or products are
sold. Sales of season and advance lift tickets prior to the beginning of the
skiing season (approximately November 1) are deferred and recognized in Resort
Services during the ski season, which generally commences in November and
extends through April 1.
INVENTORIES
Inventories, which consist principally of food, beverage and retail
merchandise, are valued at the lower of cost (first-in, first-out) or market.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The Company is a wholly-owned subsidiary of S-K-I, which files its federal
tax return on a consolidated basis. However, the Company, for purposes of the
accompanying financial statements, has recorded its tax benefit on a separate
return basis.
F-52
<PAGE> 193
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost with depreciation being
computed ratably on a monthly basis using the straight-line method over the
useful lives of the related assets:
<TABLE>
<S> <C>
Land and trail improvements................................. 20 years
Buildings and improvements.................................. 20 years
Machinery, snow making and other equipment.................. 3-6 years
Lifts and lines............................................. 10-20 years
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable, accrued expenses and notes payable approximate
their fair values.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for impairment of long-lived assets based on Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of," which provides
criteria for the recognition and measurement of impairment loss associated with
long-lived assets. This standard has had no material impact on the Company's
financial position or results of operations.
GOODWILL
Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired, which is amortized over 20 years. Accumulated amortization
was $34,768 and $29,350 at November 26, 1996 and October 27, 1996, respectively.
F-53
<PAGE> 194
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS
On June 30, 1996, the capital stock of S-K-I was acquired by American
Skiing Company, with S-K-I becoming the surviving company. The acquisition was
accounted for under the purchase method of accounting. The allocated purchase
price of the Company was as follows:
<TABLE>
<S> <C>
ASSETS
Current assets.............................................. $ 812,000
Property, plant and equipment............................... 13,000,000
Goodwill.................................................... 1,302,000
-----------
15,114,000
LIABILITIES
Current liabilities......................................... 1,143,000
Notes payable............................................... 156,000
Deferred income taxes....................................... 875,000
-----------
2,174,000
-----------
$12,940,000
===========
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 26, 1996 OCTOBER 27, 1996
----------------- ----------------
<S> <C> <C>
Retail merchandise.............................. $487,540 $192,241
Food and beverage............................... 84,763 31,480
-------- --------
$572,303 $223,721
======== ========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 26, 1996 OCTOBER 27, 1996
----------------- ----------------
<S> <C> <C>
Land............................................ $ 610,000 $ 610,000
Land and trail improvements..................... 2,151,878 2,151,878
Buildings and improvements...................... 4,620,572 4,620,572
Machinery, snow making and other equipment...... 3,654,018 3,654,018
Lifts and lines................................. 1,630,000 1,630,000
Construction in progress........................ 857,072 700,463
----------- -----------
13,523,540 13,366,931
Less accumulated depreciation and
amortization.................................. (397,563) (300,000)
----------- -----------
$13,125,977 $13,066,931
=========== ===========
</TABLE>
F-54
<PAGE> 195
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 26, 1996 OCTOBER 27, 1996
----------------- ----------------
<S> <C> <C>
Accrued costs in connection with acquired
business...................................... $200,000 $200,000
Accrued compensation............................ 4,274 55,135
Deposits........................................ 47,837 50,527
Accrued rentals................................. 95,772 90,082
Accrued utilities and other operating
expenses...................................... 316,067 322,074
Unearned advertising revenue.................... 58,667 64,000
Accrued insurance............................... 112,997 96,763
-------- --------
$835,614 $878,581
======== ========
</TABLE>
For the one-month period ending November 26, 1996, no additional
expenditures were paid by Waterville Valley Ski Area Ltd. in connection with the
sale discussed in Note 12.
7. TRANSACTIONS WITH AFFILIATE
S-K-I provides all cash management and working capital financing to the
Company. S-K-I also provides certain insurance coverages and management services
for which a corporate charge is allocated to the Company. The corporate charge
covering management services, including staff salaries, payroll taxes, employee
benefits and officers life insurance amounted to $41,668 for the period from
October 28, 1996 to November 26, 1996, and $32,096 for the period from July 1,
1996 to October 27, 1996. The corporate charge included in insurance expense for
insurance coverages, including liability and workers compensation amounted to
$23,365 for the period from October 28, 1996 to November 26, 1996, and $25,333
for the period from July 1, 1996 to October 27, 1996. The corporate charge, due
to the seasonality of the Company's business, fluctuates significantly on a
month-to-month basis.
Interest expense of $10,000 and $36,000 for the period from October 28,
1996 to November 26, 1996 and July 1, 1996 to October 27, 1996, respectively, of
interest cost, net of interest income, charged to the Company from S-K-I related
to the net amounts due to and from S-K-I based on average monthly balances.
These amounts are included in interest expense.
8. NOTES PAYABLE
Notes payable consists of the following
<TABLE>
<CAPTION>
NOVEMBER 26, 1996 OCTOBER 27, 1996
----------------- ----------------
<S> <C> <C>
Note payable -- Town of Waterville.............. $162,271 $162,271
Other notes payable............................. 9,264 9,783
-------- --------
171,535 172,054
Less current portion............................ 21,300 21,300
-------- --------
$150,235 $150,754
======== ========
</TABLE>
These notes are unsecured and interest rates range from 7% to 14%. Interest
paid on these notes approximated interest expense of $2,500 and $14,000 for the
period from October 28, 1996 to November 26, 1996 and from July 1, 1996 to
October 27, 1996, respectively.
F-55
<PAGE> 196
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. NOTES PAYABLE -- (CONTINUED)
Aggregate annual maturities of long-term debt obligations as of November
26, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 21,300
1998........................................................ 15,615
1999........................................................ 15,615
2000........................................................ 15,615
2001........................................................ 15,615
Thereafter.................................................. 87,775
--------
$171,535
========
</TABLE>
9. LEASES AND PERMITS
The Company operates certain portions of its skiing terrain under special
use permits granted by the U.S. Forest Service. Amounts payable under these
permits are measured based on percentages of revenues from certain activities.
No fees were incurred under these permits for the period from October 28, 1996
to November 26, 1996 and for the period from July 1, 1996 to October 27, 1996.
The Company is committed under operating leases for certain machinery and
equipment which expire at various dates through 2001. Total rent expense under
operating leases amounted to approximately $23,000 for the period from October
28, 1996 to November 26, 1996 and $86,000 for the period from July 1, 1996 to
October 27, 1996.
Future minimum rental payments under theses leases as of November 26, 1996
are as follows:
<TABLE>
<S> <C>
Period ending October 31, 1997.............................. $244,838
1998.............................. 192,701
1999.............................. 178,859
2000.............................. 173,501
2001.............................. 78,000
--------
$867,899
========
</TABLE>
The Company leases certain machinery and equipment under agreements
classified as capital leases. Assets capitalized under capital leases had a cost
of $200,000 and accumulated amortization of $68,000 at November 26, 1996. Future
minimum lease payments under capital leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $185,652
Less amounts representing interest.......................... 79,396
--------
$106,256
========
</TABLE>
10. INCOME TAXES
The income tax benefit of $110,000 for the period from July 1, 1996 to
October 27, 1996 is based on the Company's recovery of its previously provided
current federal taxes payable in 1995 and 1996. The Company includes currently
payable and refundable income taxes in amounts due to an affiliate.
The deferred tax liability of $875,000 is based on the excess of the
financial statement basis of property, plant and equipment over the tax basis
principally related to the difference between the fair market value of property,
plant and equipment at June 30, 1996, the acquisition date described in Note 3,
and the carryover tax basis. At November 26, 1996, the Company had approximately
$1.7 million of net operating loss carryforwards which, due to the separate
return basis of presentation and the sale of the net assets of the
F-56
<PAGE> 197
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES -- (CONTINUED)
Company described in Note 12, will not be realized. Accordingly, no benefit has
been recognized in the accompanying statements of operations.
11. MARKETING AGREEMENT
Effective September 1, 1996, the Company entered into a one-year
promotional program with Volvo Cars of North America (Volvo) to promote skiing
and snowboarding in New England.
The Company was provided the use of four Volvo station wagons and $40,000
in cash in exchange for designating Volvo as the official automobile of the
Waterville ski area. The Company accounted for the transaction based upon the
estimated fair value of the services and cash received of $64,000. This amount
has been included as prepaid advertising in prepaid assets and as unearned
advertising revenue included in accrued expenses. These amounts will be
amortized to advertising expense and income, respectively, during the 1997 ski
season.
12. SUBSEQUENT EVENT
On November 27, 1996, the Company, along with another affiliated entity,
was acquired by Booth Creek Ski Holdings, Inc. for $17,500,000, before giving
effect to certain working capital adjustments.
F-57
<PAGE> 198
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Waterville Valley Ski Area Ltd.
We have audited the accompanying balance sheets of Waterville Valley Ski
Area Ltd. as of October 29, 1995 and June 30, 1996, and the related statements
of operations and retained earnings (accumulated deficit), and cash flows for
the year ended October 29, 1995 and the period from October 30, 1995 to June 30,
1996. 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.
Except as discussed in the following paragraph, 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 financial position of Waterville Valley Ski Area
Ltd. as of October 29, 1995 and June 30, 1996, and the results of its operations
and its cash flows for the year ended October 29, 1995 and the period from
October 30, 1995 to June 30, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
January 25, 1997
F-58
<PAGE> 199
WATERVILLE VALLEY SKI AREA LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 29, JUNE 30,
1995 1996
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 237,160 $ 159,123
Accounts receivable, net of allowance of $11,678 in 1995
and $9,352 in 1996 for doubtful accounts............... 544,767 348,352
Inventories............................................... 272,582 257,228
Prepaid expenses.......................................... 103,585 47,092
----------- -----------
Total current assets........................................ 1,158,094 811,795
Property, plant and equipment, net.......................... 11,660,674 11,903,703
Deferred taxes.............................................. 11,000 --
----------- -----------
Total assets................................................ $12,829,768 $12,715,498
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 607,172 $ 196,335
Accrued expenses.......................................... 262,393 467,946
Advance ticket revenue.................................... 484,605 919
Due to affiliate.......................................... 799,776 150,200
Current portion of notes payable.......................... 26,986 21,050
Capital lease obligations................................. -- 106,256
----------- -----------
Total current liabilities................................... 2,180,932 942,706
Notes payable, net of current portion....................... 173,349 156,383
Deferred taxes.............................................. -- 379,000
Commitments and contingencies
Stockholder's equity:
Common stock, no par, 100 shares authorized, issued and
outstanding............................................ 10,491,417 10,491,417
Retained earnings (accumulated deficit)................... (15,930) 745,992
----------- -----------
Total stockholder's equity.................................. 10,475,487 11,237,409
----------- -----------
Total liabilities and stockholder's equity.................. $12,829,768 $12,715,498
=========== ===========
</TABLE>
See accompanying notes.
F-59
<PAGE> 200
WATERVILLE VALLEY SKI AREA LTD.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 30,
OCTOBER 29, 1995 TO
1995 JUNE 30, 1996
----------- -------------
<S> <C> <C>
Revenue:
Resort services........................................... $5,528,249 $ 6,141,127
Consumer products......................................... 1,278,170 2,607,329
Rental and other income................................... 1,501,038 1,509,125
Conference center......................................... 1,345,349 521,146
---------- -----------
9,652,806 10,778,727
Cost of sales:
Resort services........................................... 2,140,755 2,006,867
Consumer products......................................... 720,780 1,854,198
Rental and other expenses................................. 945,950 491,251
Conference center......................................... 857,169 476,037
---------- -----------
4,664,654 4,828,353
---------- -----------
4,988,152 5,950,374
Expenses:
Selling, general and administrative....................... 2,754,344 2,329,963
Utilities................................................. 753,287 962,209
Insurance................................................. 321,459 297,357
Depreciation and amortization............................. 1,090,992 900,408
---------- -----------
4,920,082 4,489,937
---------- -----------
Income from operations...................................... 68,070 1,460,437
Interest expense............................................ (95,000) (50,000)
---------- -----------
Income (loss) before income taxes........................... (26,930) 1,410,437
Income taxes (benefit)...................................... (11,000) 565,000
---------- -----------
Net income (loss)........................................... (15,930) 845,437
Accumulated deficit, beginning of period.................... -- (15,930)
Dividends declared.......................................... -- (83,515)
---------- -----------
Retained earnings (accumulated deficit), end of period...... $ (15,930) $ 745,992
========== ===========
</TABLE>
See accompanying notes.
F-60
<PAGE> 201
WATERVILLE VALLEY SKI AREA LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 30,
OCTOBER 29, 1995 TO
1995 JUNE 30, 1996
----------- -------------
<S> <C> <C>
Operating activities
Net income (loss)......................................... $ (15,930) $ 845,437
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 1,090,992 900,408
Deferred taxes......................................... (11,000) 390,000
Changes in operating assets and liabilities:
Accounts receivable.................................. (544,767) 196,415
Inventories.......................................... (222,140) 15,354
Prepaid expenses..................................... (103,585) 56,493
Advance ticket revenue............................... (182,558) (483,686)
Accounts payable and accrued expenses................ 758,271 (205,284)
----------- ----------
Net cash provided by operating activities................. 769,283 1,715,137
Investing activities
Purchase of property, plant and equipment................. (1,248,814) (808,513)
----------- ----------
Net cash used in investing activities..................... (1,248,814) (808,513)
Financing activities
Principal payments on notes payable and capital leases.... (85,085) (251,570)
Due to affiliate.......................................... 799,776 (649,576)
Dividends paid............................................ -- (83,515)
----------- ----------
Net cash provided by (used in) financing activities....... 714,691 (984,661)
----------- ----------
Net increase (decrease) in cash............................. 235,160 (78,037)
Cash at beginning of period................................. 2,000 237,160
----------- ----------
Cash at end of period....................................... $ 237,160 $ 159,123
=========== ==========
State income taxes paid..................................... $ 35,000
==========
Non-cash investing activities:
Equipment acquired under lease obligations................ $ 334,924
==========
</TABLE>
See accompanying notes.
F-61
<PAGE> 202
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. BUSINESS
Waterville Valley Ski Area Ltd. (the Company), a wholly-owned subsidiary of
S-K-I Ltd., owns and operates the Waterville Valley ski resort and conference
center located in Waterville Valley, New Hampshire. The Company also operates a
year-round base camp adventure center offering mountain bikers, cross country
skiers and hikers access to 100 kilometers of trails in the White Mountains
National Forest.
Due to the seasonality of the Company's business and the nature of its
operations, which require a significant level of fixed operating costs,
operating results may be significantly affected by the level of revenues which
depend on, among other things, weather conditions. The seasonality also has a
significant effect on the Company's working capital requirements during the
year, since operating losses are generally incurred from May through October. To
the extent cash flows from operations are not sufficient to meet its working
capital requirements, the Company is dependent on borrowings from its
affiliates, principally S-K-I Ltd. and its successor (see Note 11), which have
represented that they have the ability and intent to fund the Company's
operations for the foreseeable future or until the Company is able to support
its own operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
Revenues from the sale of lift tickets, ski schools and repair shop have
been included in the statement of operations in the caption Resort Services.
Revenues from restaurants and retail shop sales have been included in the
caption Consumer Products. Revenues from ski, locker and real estate rentals
have been included in the caption Rental and Other Income. Revenues from use of
the Company's convention center have been included in the caption Convention
Center.
Revenue is recognized at the time services are provided or products are
sold. Sales of season and advance lift tickets prior to the beginning of the
skiing season (November 1) are deferred and recognized in Resort Services during
the skiing season, which generally commences in November and extends through
April.
INVENTORIES
Inventories, which consist principally of food, beverage and retail
merchandise, are valued at the lower of cost (first-in, first-out) or market.
INCOME TAXES
The Company determines its provision for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires that the liability method be used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
The Company is a wholly-owned subsidiary of S-K-I Ltd., which files its
federal return on a consolidated basis using a tax year end of July 31. However,
for purposes of the accompanying financial statements, the Company has recorded
its tax provision on a separate-return basis.
F-62
<PAGE> 203
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost with depreciation being
computed ratably on a monthly basis using the straight-line method over the
useful lives of the related assets:
<TABLE>
<S> <C>
Land and trail improvements................................. 20 years
Buildings and improvements.................................. 20 years
Machinery, snow making and other equipment.................. 3-6 years
Lifts and lines............................................. 10-20 years
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable and notes payable approximate their fair values.
ACCOUNTING PRONOUNCEMENT
In March 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of", which establishes
criteria for the recognition and measurement of impairment loss associated with
long-lived assets. The Company adopted this standard effective October 30, 1995
and its adoption did not have a material impact on the Company's financial
position or results of operations.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 29, JUNE 30,
1995 1996
----------- --------
<S> <C> <C>
Retail merchandise....................................... $241,102 $224,715
Food and beverage........................................ 31,480 32,513
-------- --------
$272,582 $257,228
======== ========
</TABLE>
F-63
<PAGE> 204
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 29, JUNE 30,
1995 1996
----------- --------
<S> <C> <C>
Land................................................ $ 576,719 $ 576,719
Land and trail improvements......................... 2,802,998 2,820,209
Buildings and improvements.......................... 3,742,613 3,895,776
Machinery, snow making and other equipment.......... 3,137,919 4,025,896
Lifts and lines..................................... 2,058,242 2,108,471
Construction in progress............................ 377,444 363,691
----------- -----------
12,695,935 13,790,762
Less accumulated depreciation and amortization...... 1,035,261 1,887,059
----------- -----------
$11,660,674 $11,903,703
=========== ===========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
OCTOBER 29, JUNE 30,
1995 1996
----------- --------
<S> <C> <C>
Accrued compensation................................ $ 44,531 $ 49,762
Deposits............................................ 54,627 52,532
Accrued rentals..................................... 31,826 95,864
Accrued utilities and other operating............... 66,683 78,486
Accrued insurance................................... 64,726 191,302
-------- --------
$262,393 $467,946
======== ========
</TABLE>
6. TRANSACTIONS WITH AFFILIATES
S-K-I Ltd. provides all cash management and working capital financing to
the Company. S-K-I Ltd. also provides certain insurance coverages and management
services for which a corporate charge is allocated to the Company. The corporate
charge covering management services, including staff salaries, payroll taxes,
employee benefits, officers life insurance and professional fees amounted to
$227,783 in fiscal 1995 and $554,892 for the period from October 30, 1995 to
June 30, 1996. The corporate charge included in insurance expense for insurance
coverages, including liability and workers compensation amounted to $226,357 in
fiscal 1995 and $261,459 for the period from October 30, 1995 to June 30, 1996.
Interest expense of $48,000 in fiscal 1995 and $31,000 for the period from
October 30, 1995 to June 30, 1996 represents interest cost, net of interest
income, charged to the Company related to the net amounts due to and from S-K-I
Ltd. based on average monthly balances. These amounts are included in interest
expense.
F-64
<PAGE> 205
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
OCTOBER 29, JUNE 30,
1995 1996
----------- --------
<S> <C> <C>
Note payable -- Town of Waterville..................... $176,145 $163,502
Other.................................................. 24,190 13,931
-------- --------
200,335 177,433
Less current portion................................... 26,986 21,050
-------- --------
$173,349 $156,383
======== ========
</TABLE>
These notes are unsecured and interest rates range from 7% to 14%. Interest
paid on these notes approximated interest expense of $47,000 and $19,000 in
fiscal 1995 and for the period from October 30, 1995 to June 30, 1996,
respectively.
Aggregate annual maturities of long-term debt obligations as of June 30,
1996 are as follows:
<TABLE>
<S> <C>
1997................................................... $ 21,050
1998................................................... 21,605
1999................................................... 15,615
2000................................................... 15,615
2001................................................... 15,615
Thereafter............................................. 87,933
--------
$177,433
========
</TABLE>
8. LEASES AND PERMITS
The Company operates certain portions of its skiing terrain under special
use permits granted by the U.S. Forest Service. Amounts payable under these
permits are measured based on percentages of revenues from certain activities.
Fees for these permits amounted to $145,422 in fiscal 1995 and $165,214 for the
period from October 30, 1995 to June 30, 1996 and are included in cost of resort
services.
The Company is committed under operating leases for certain machinery and
equipment which expire at various dates through 2001. Total rent expense under
operating leases for the year ended October 29, 1995 and the period from October
30, 1995 to June 30, 1996 were $235,000 and $213,000, respectively.
Future minimum rental payments under these leases as of June 30, 1996 are
as follows:
<TABLE>
<S> <C>
1997.................................................. $258,944
1998.................................................. 215,489
1999.................................................. 173,894
2000.................................................. 163,894
2001.................................................. 163,894
--------
$976,115
========
</TABLE>
The Company leases certain machinery and equipment under agreements
classified as capital leases. Assets capitalized under capital leases had a cost
of $334,924 and accumulated amortization of $136,184 at
F-65
<PAGE> 206
WATERVILLE VALLEY SKI AREA LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES AND PERMITS -- (CONTINUED)
June 30, 1996. Future minimum lease payments which are made in installments
during the ski season are as follows:
<TABLE>
<S> <C>
1997................................................................. $185,652
Less amounts representing interest................................... 79,396
--------
$106,256
========
</TABLE>
9. INCOME TAXES
The provisions (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 30,
OCTOBER 25, 1995 TO
1995 JUNE 30, 1996
----------- -------------
<S> <C> <C>
Current:
Federal.............................................. $110,000
State................................................ 65,000
--------
175,000
Deferred:
Federal.............................................. $ (9,000) 295,000
State................................................ (2,000) 95,000
-------- --------
(11,000) 390,000
-------- --------
$(11,000) $565,000
======== ========
</TABLE>
Income taxes currently payable are included in amounts due to an affiliate.
The tax effects of temporary differences that give rise to significant
portions of net deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
OCTOBER 29,
1995 JUNE 30, 1996
----------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward..................... $ 219,000
Deferred tax liabilities:
Depreciation........................................ (208,000) $(379,000)
--------- ---------
Net deferred tax assets (liabilities)................. $ 11,000 $(379,000)
========= =========
</TABLE>
At October 29, 1995, the Company had a federal net operating loss
carryforward of approximately $547,000, available to reduce future taxable
income, which was fully utilized in the period from October 30, 1995 to June 30,
1996.
10. SUBSEQUENT EVENT
On July 1, 1996, the capital stock of S-K-I Ltd. was acquired by American
Skiing Company with S-K-I Ltd. becoming the surviving company. S-K-I Ltd.
continued to own and operate Waterville Valley Ski Area Ltd. until November 27,
1996, at which date the business and net assets of the Waterville Valley ski
resort and conference center were acquired by Booth Creek Ski Holdings, Inc.
F-66
<PAGE> 207
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Ski Lifts, Inc.
We have audited the accompanying balance sheet of Ski Lifts, Inc. as of
January 15, 1997, and the related statements of operations and retained earnings
and cash flows for the period from October 1, 1996 to January 15, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ski Lifts, Inc. at January
15, 1997, and the results of its operations and its cash flows for the period
from October 1, 1996 to January 15, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
May 15, 1997
F-67
<PAGE> 208
SKI LIFTS, INC.
BALANCE SHEET
JANUARY 15, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 215,367
Accounts receivable....................................... 85,921
Inventories............................................... 278,134
----------
Total current assets........................................ 579,422
Property and equipment, net................................. 8,799,044
Other assets................................................ 570,726
----------
Total assets................................................ $9,949,192
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit........................... $2,095,000
Current portion of long-term debt......................... 109,593
Notes payable to affiliate................................ 1,305,205
Unearned revenue.......................................... 1,354,817
Accounts payable.......................................... 1,097,643
Accrued liabilities....................................... 582,650
Insurance claims.......................................... 248,137
----------
Total current liabilities................................... 6,793,045
Long-term debt.............................................. 59,581
Deferred income taxes....................................... 28,120
Commitments and contingencies
Shareholders' equity:
Common stock (1,000 shares authorized, issued and
outstanding, no par value)............................. 36,720
Retained earnings......................................... 3,031,726
----------
Total shareholders' equity.................................. 3,068,446
----------
Total liabilities and shareholders' equity.................. $9,949,192
==========
</TABLE>
See accompanying notes.
F-68
<PAGE> 209
SKI LIFTS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
PERIOD FROM OCTOBER 1, 1996 TO JANUARY 15, 1997
<TABLE>
<S> <C>
Revenues:
Lifts..................................................... $2,268,458
Ski rentals............................................... 322,580
Ski school lessons........................................ 66,518
Service and other sales................................... 123,489
Building lease income..................................... 38,488
Restaurant sales.......................................... 459,798
Beer, wine and liquor..................................... 126,862
Ski shop.................................................. 104,500
----------
Total revenues.............................................. 3,510,693
Costs and expenses:
Operating salaries, wages and other employee costs........ 1,799,765
General, administrative and other operating expenses...... 1,250,208
Depreciation and amortization............................. 277,478
Cost of restaurant, liquor and ski shop sales............. 263,900
----------
Total costs and expenses.................................... 3,591,351
----------
Operating loss.............................................. (80,658)
Other income (expense):
Interest income........................................... 5,917
Interest expense.......................................... (118,839)
Gain on sale of equipment................................. 8,165
Other..................................................... 4,927
----------
(99,830)
----------
Net loss.................................................... (180,488)
Retained earnings:
Beginning of period....................................... 3,267,355
Shareholder distributions................................. (55,141)
----------
End of period............................................. $3,031,726
==========
</TABLE>
See accompanying notes.
F-69
<PAGE> 210
SKI LIFTS, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM OCTOBER 1, 1996 TO JANUARY 15, 1997
<TABLE>
<S> <C>
Operating activities:
Net loss.................................................. $ (180,488)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 277,478
Other.................................................. 30,840
Changes in:
Accounts receivable.................................. (8,040)
Inventories.......................................... (69,514)
Prepaid expenses and other........................... 44,272
Unearned revenue..................................... 1,203,254
Accounts payable..................................... 789,043
Accrued liabilities.................................. 348,226
Insurance claims..................................... 56,511
-----------
Net cash provided by operating activities................. 2,491,582
Investing activities:
Purchases of property and equipment....................... (379,269)
Proceeds from sale of equipment........................... 8,001
-----------
Net cash used in investing activities..................... (371,268)
Financing activities:
Line of credit borrowings and repayments, net............. (1,405,000)
Additions to long-term debt............................... 150,000
Payments on long-term debt and capital leases............. (679,771)
Distributions to shareholders............................. (55,141)
-----------
Net cash used in financing activities..................... (1,989,912)
-----------
Net increase in cash...................................... 130,402
Cash at beginning of period............................... 84,965
-----------
Cash at end of period..................................... $ 215,367
===========
</TABLE>
See accompanying notes.
F-70
<PAGE> 211
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 15, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Ski Lifts, Inc. (the "Company") operates alpine and cross-country ski
resorts at Snoqualmie Summit, Ski Acres, Alpental and Hyak in the western
Cascade mountains of Washington State.
INVENTORIES
Inventories include ski accessories, food and liquor and are stated at the
lower of cost or market, determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over estimated useful lives as follows:
<TABLE>
<CAPTION>
CATEGORY YEARS
-------- -----
<S> <C>
Buildings and land improvements............................. 15 - 40
Lifts, tows and hill lighting............................... 5 - 30
Vehicles and equipment...................................... 4 - 15
</TABLE>
Gains or losses are recognized in the year of retirement or disposition.
Expenditures for additions and betterments are capitalized and expenditures for
maintenance are charged to expense as incurred.
LIFT REVENUE AND UNEARNED REVENUE
The Company records lift ticket revenue from season pass and scrip sales
during the ski season in which the passes and scrip are used. Unearned revenue
is recorded for unused season passes, coupons, scrip and other similar items.
INCOME TAXES
Effective October 1, 1994, the Company elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, the income tax
consequences of the Company's operations are the responsibility of the Company's
shareholders.
The S Corporation rules provide that a tax is payable by the Company if
assets acquired on or before September 30, 1994, are sold or disposed of prior
to October 1, 2004. This tax is payable on the resultant gains to the extent of
the excess of the fair market value of the assets over their tax bases on
September 30, 1994. Accordingly, the Company continues to record a deferred
income tax liability (approximately $28,000 at January 15, 1997) on its balance
sheet with respect to assets for which sale or disposition may result in
built-in gains taxes.
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. Accordingly, actual results could differ from those estimates
and assumptions.
F-71
<PAGE> 212
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 15, 1997:
<TABLE>
<S> <C>
Land and land improvements.................................. $ 2,913,165
Buildings................................................... 6,166,183
Lifts, tows and hill lighting............................... 4,244,025
Vehicles and equipment...................................... 5,330,429
Construction in process..................................... 719,917
-----------
19,373,719
Less accumulated depreciation and amortization.............. 10,574,675
-----------
Property and equipment, net................................. $ 8,799,044
===========
</TABLE>
3. SELF-INSURANCE DEPOSIT
The Company is self insured for workers' compensation injuries (see Note
10). Amounts required to be held in trust as a security deposit by the
Washington Department of Labor and Industries totaled $360,000 at January 15,
1997 (included in "Other Assets"). This deposit may be adjusted annually. The
deposit was invested in a certificate of deposit which bore interest at 5.42% at
January 15, 1997.
4. INVESTMENT IN REAL ESTATE PARTNERSHIP
On March 15, 1991, the Company formed a general partnership with certain
other partners (who are shareholders and officers of the Company) to purchase a
building. The Company paid $75,000 for its 25% share as a general partner. The
Company is allocated operating profits and losses in proportion to its
partnership interest, which were not significant for the period from October 1,
1996 to January 15, 1997. The Company's investment at January 15, 1997 totaled
$1,719. The Company and a stockholder of the Company have provided a $250,000
subordinated line of credit to the partnership with interest payable monthly at
9%. At January 15, 1997, there were no amounts outstanding under this agreement.
The Company leases a portion of the building for its headquarters under the
terms described in Note 8.
5. INVESTMENTS
The Company holds 15,880 shares of common stock of Arlberg Holding Company
("Arlberg"), with a carrying value of $75,327 at January 15, 1997. This
investment is carried at cost. In addition, the Company purchased $50,000 of
convertible debentures of Arlberg during 1993. These debentures, which bear
interest at 9%, mature on June 30, 2000, and are convertible, under certain
conditions, into common stock of Arlberg. A stockholder of the Company serves as
a director of Arlberg.
6. FINANCIAL ARRANGEMENTS
LINE OF CREDIT ARRANGEMENT
At January 15, 1997, the Company had a $3,500,000 revolving line of credit
agreement with a bank, which expires on April 1, 1998. Borrowings under the
agreement, which are payable on demand and are collateralized by substantially
all assets except real estate, bear interest at the bank's prime rate plus .75%
(9.0% at January 15, 1997). Amounts outstanding under this agreement were
$2,095,000 at January 15, 1997.
F-72
<PAGE> 213
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. FINANCIAL ARRANGEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following at January 15, 1997:
<TABLE>
<S> <C>
Note payable with monthly payments of $7,393 including
interest at 8.25%, collateralized by certain equipment,
due May 1998.............................................. $113,115
Capitalized lease obligation................................ 56,059
--------
169,174
Less current portion........................................ 109,593
--------
Long-term debt.............................................. $ 59,581
========
</TABLE>
The Company has a revolving term loan agreement which permitted borrowings
of up to $2,132,000 at January 15, 1997. No amounts were outstanding under this
arrangement at January 15, 1997.
Interest paid during the period from October 1, 1996 to January 15, 1997
was approximately $109,500.
7. RELATED PARTY TRANSACTIONS
The Company borrows money for operating purposes from W.W. Moffett, Inc.,
which is an affiliated company through common stockholders. The advances from
W.W. Moffett, Inc. totaled $1,305,205 at January 15, 1997, bear interest at
5.93%, are subordinated to the line of credit and long-term debt described in
Note 6, and are due on demand.
Interest expense on these advances for the period from October 1, 1996 to
January 15, 1997 was approximately $22,500.
8. SPECIAL USE PERMITS AND PROPERTY LEASES
The Company operates a portion of its business on land covered by a Special
Use Permit issued by the United States Forest Service. This permit expires
December 31, 2032 and is generally renewable. Special Use Permit fees are based
on a percentage revenues. Total Special Use Permit fees for the period from
October 1, 1996 to January 15, 1997 were approximately $84,000.
The Company also leases property from a private company. The lease payments
are based primarily on skier visits. Total lease expense for the period from
October 1, 1996 through January 15, 1997 was $3,500.
The Company leases its office space from a partnership in which the Company
is a general partner (see Note 4). This lease expires on March 31, 2006. Rental
expense relating to this agreement was approximately $31,000 for the period from
October 1, 1996 to January 15, 1997.
F-73
<PAGE> 214
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SPECIAL USE PERMITS AND PROPERTY LEASES -- (CONTINUED)
At January 15, 1997, future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 15,
- -----------
<S> <C>
1998...................................................... $109,000
1999...................................................... 109,000
2000...................................................... 109,000
2001...................................................... 109,000
2002...................................................... 109,000
Thereafter................................................ 454,000
--------
$999,000
========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
The Ski Lifts, Inc. Profit Sharing Retirement Plan (the "Plan") provides
for both a 401(k) defined contribution plan and a unilateral profit sharing plan
for all employees who have worked over 1,000 hours, are over 21 years of age and
met certain other requirements. For the period from October 1, 1996 to January
15, 1997, the Company contributed approximately $20,000 under the defined
contribution provisions of the Plan. No contributions were accrued under the
unilateral profit sharing plan for the period from October 1, 1996 to January
15, 1997.
10. CONTINGENCIES
The Company is party to various claims arising in the normal course of
business related to alleged injuries which, in the opinion of management, will
not have a material effect on the Company's business. The Company's insurance
limits its risk of loss on such claims to the amounts of the deductible under
the related insurance policies. At January 15, 1997, approximately $164,500 was
accrued related to such claims (primarily deductible amounts).
The Company is self-insured with the State of Washington for workers'
compensation (see Note 3). Provision is made in the financial statements for the
estimated cost of claims. The accrued liability at January 15, 1997 was
approximately $83,600.
11. SUBSEQUENT EVENTS
Effective January 15, 1997, Booth Creek Ski Holdings, Inc. ("Booth Creek")
purchased all of the issued and outstanding common stock of the Company for an
aggregate purchase price of approximately $14.0 million, which included the
assumption of approximately $3.6 million of indebtedness, the issuance by the
Company of a note in the amount of approximately $9.8 million to the selling
shareholders, and other obligations to the selling shareholders of approximately
$600,000.
In connection with the consummation of the acquisition, the Company
transferred approximately 71 acres of owned real estate held for development
purposes into a Delaware limited liability company (the "Real Estate LLC"), of
which the Company is a member and 99% equity interest holder and Booth Creek is
the other member and 1% equity interest holder. In addition, the Company granted
the Real Estate LLC an option (the "Real Estate Option") to purchase an
additional 14 acres of developmental real estate for nominal consideration. The
Company also issued 28,000 shares of non-voting preferred stock (the "Preferred
Stock") to its prior owners having an aggregate liquidation preference equal to
$3.5 million, the aggregate estimated fair market value of the real estate
transferred to the Real Estate LLC and the real estate subject to the Real
F-74
<PAGE> 215
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS -- (CONTINUED)
Estate Option. Concurrently with these transactions, the Real Estate LLC entered
into an agreement to purchase (the "Preferred Stock Purchase Agreement") the
Preferred Stock, on a quarterly basis over the five years following the date of
the acquisition, at a purchase price equal to the liquidation preference thereof
plus accrued dividends to the date of purchase. Booth Creek advanced the first
three quarterly installments under the Preferred Stock Purchase Agreement at or
prior to March 18, 1997. The Real Estate LLC's obligations under the Preferred
Stock Purchase Agreement are secured by a first priority lien on the
developmental real estate held by the Real Estate LLC and substantially all of
its other assets. The Preferred Stock provides for a 9% cumulative dividend and
is redeemable at the option of the Company without premium. In addition,
pursuant to the terms of the Preferred Stock, the holders thereof have no
redemption rights and are entitled to receive dividend payments only when and if
declared by the board of directors of the Company.
On February 21, 1997, the Company retired the then-existing balance under
its $3,500,000 revolving line of credit agreement (Note 6) using funds provided
by Booth Creek. Concurrently therewith, the Company also terminated its
$3,500,000 revolving line of credit agreement and $2,132,000 revolving term loan
agreement. On March 18, 1997, the Company retired the balance outstanding
pursuant to the W.W. Moffett, Inc. note payable (Note 7) using funds provided by
Booth Creek.
F-75
<PAGE> 216
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Ski Lifts, Inc.
We have audited the accompanying balance sheets of Ski Lifts, Inc. as of
September 30, 1996 and 1995, and the related statements of operations and
retained earnings and cash flows for each of the three years in the period ended
September 30, 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Ski Lifts, Inc. as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 13 to the financial statements, in December 1996, the
stockholders of the Company reached an agreement in principle to sell the stock
of the Company to a third party.
As reported in Note 8 to the financial statements, Ski Lifts, Inc. changed
its method of accounting for income taxes effective October 1, 1993.
COOPERS & LYBRAND L.L.P.
Seattle, Washington
December 9, 1996, except for Note 13 to the
financial statements as to which the date is
December 19, 1996
F-76
<PAGE> 217
SKI LIFTS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 84,965 $ 92,607
Receivables............................................... 77,881 170,596
Inventories............................................... 208,620 211,401
Prepaid expenses and other................................ 44,272 42,832
---------- ----------
Total current assets................................... 415,738 517,436
---------- ----------
Property and equipment, net................................. 8,697,089 8,278,770
---------- ----------
Other assets:
Self insurance deposit.................................... 360,000 360,000
Investments, at cost...................................... 125,327 243,685
Equity in real estate partnership......................... 3,771 5,674
Other..................................................... 120,633 128,898
---------- ----------
609,731 738,257
---------- ----------
Total assets........................................... $9,722,558 $9,534,463
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit........................... $3,500,000 $3,395,000
Current portion of long-term debt......................... 80,115 73,708
Obligation under capital lease............................ 27,215 25,038
Notes payable to affiliate................................ 1,305,205 1,313,178
Unearned revenue.......................................... 151,563 121,212
Accounts payable and other................................ 308,600 490,048
Accrued interest, wages and business taxes................ 234,424 77,510
Insurance claims.......................................... 191,626 284,351
---------- ----------
Total current liabilities.............................. 5,798,748 5,780,045
Long-term debt, less current portion........................ 553,956 139,071
Obligation under capital lease, less current portion........ 37,659 64,873
Deferred income taxes....................................... 28,120 28,120
---------- ----------
Total liabilities...................................... 6,418,483 6,012,109
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock (1,000 shares authorized and outstanding, no
par value)............................................. 36,720 36,720
Retained earnings......................................... 3,267,355 3,485,634
---------- ----------
Total stockholders' equity............................. 3,304,075 3,522,354
---------- ----------
Total liabilities and stockholders' equity............. $9,722,558 $9,534,463
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-77
<PAGE> 218
SKI LIFTS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Lifts.............................................. $6,155,890 $ 7,077,779 $ 6,606,408
Ski rentals........................................ 934,708 1,057,518 1,094,285
Ski school lessons................................. 250,345 246,040 223,575
Service and other sales............................ 230,042 250,867 229,980
Building lease income.............................. 173,727 202,733 210,412
Restaurant sales................................... 1,117,254 1,216,973 1,210,660
Beer, wine and liquor.............................. 349,605 380,214 404,313
Ski shop........................................... 239,521 237,587 261,024
---------- ----------- -----------
Total revenues.................................. 9,451,092 10,669,711 10,240,657
---------- ----------- -----------
Costs and expenses:
Operating salaries, wages and other employee
costs........................................... 4,594,629 5,119,558 4,803,428
General, administrative and other operating
expenses........................................ 3,035,147 3,252,677 3,007,780
Depreciation and amortization...................... 976,578 1,032,579 963,843
Cost of restaurant, liquor and ski shop sales...... 570,138 668,278 652,289
---------- ----------- -----------
Total costs and expenses........................ 9,176,492 10,073,092 9,427,340
---------- ----------- -----------
Operating income................................ 274,600 596,619 813,317
---------- ----------- -----------
Other income (expense):
Interest income.................................... 30,732 22,348 19,591
Interest expense................................... (327,178) (289,657) (304,428)
Loss on abandonment of capitalized construction
costs........................................... -- (107,155) --
Gain (loss) on sales of equipment.................. (48,268) 928 21,957
Miscellaneous, net................................. 58,301 31,099 29,821
---------- ----------- -----------
(286,413) (342,437) (233,059)
---------- ----------- -----------
Income (loss) before income taxes and cumulative
effect of accounting change................... (11,813) 254,182 580,258
---------- ----------- -----------
Income taxes:
Current............................................ -- (10,551) (161,726)
Deferred........................................... -- 408,285 (35,718)
---------- ----------- -----------
Total income tax expense (benefit).............. -- 397,734 (197,444)
---------- ----------- -----------
Net income (loss) before cumulative effect of
accounting change.................................. (11,813) 651,916 382,814
Cumulative effect of change in method of accounting
for income taxes................................... -- -- (171,023)
---------- ----------- -----------
Net income (loss).................................. (11,813) 651,916 211,791
Retained earnings:
Beginning of year.................................. 3,485,634 2,833,718 2,621,927
Stockholder distributions.......................... (206,466) -- --
---------- ----------- -----------
End of year........................................ $3,267,355 $ 3,485,634 $ 2,833,718
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-78
<PAGE> 219
SKI LIFTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss).................................... $ (11,813) $ 651,916 $ 211,791
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 976,578 1,032,579 963,843
Deferred Federal income taxes................... -- (408,285) 206,741
(Gain) loss on sale of equipment................ 48,268 2,209 (12,778)
Loss on abandonment of capitalized construction
costs........................................ -- 107,155 --
Gain on sale of investment...................... (18,890) -- --
Other........................................... 10,168 (22,629) 10,276
Changes in:
Receivables.................................. 92,715 (98,163) 46,481
Inventories.................................. 2,781 (101,398) (28,708)
Prepaid expenses and other................... (1,440) (104,785) (570)
Income taxes receivable...................... -- 23,042 197,388
Self-insurance deposit....................... -- (35,000) --
Unearned revenue............................. 30,351 (34,764) (58,640)
Accounts payable and other................... (181,448) 194,743 (51,730)
Accrued interest, wages and taxes............ 156,914 (9,008) (270,500)
Insurance claims............................. (92,725) (11,869) 44,851
----------- ----------- ----------
Net cash provided by operating
activities.............................. 1,011,459 1,185,743 1,258,445
----------- ----------- ----------
Investing activities:
Purchases of property and equipment.................. (1,465,647) (1,158,802) (346,290)
Proceeds from sale of equipment...................... 22,482 7,711 12,778
Proceeds from sale of investment..................... 137,248 -- --
Purchases of investment.............................. -- (84,096) (13,386)
Other................................................ -- -- 17,957
----------- ----------- ----------
Net cash used in investing activities...... (1,305,917) (1,235,187) (328,941)
----------- ----------- ----------
Financing activities:
Line of credit borrowings and repayments, net........ 105,000 1,113,624 (374,924)
Additions to long-term debt.......................... 2,650,000 410,000 86,053
Payments on long-term debt and capital leases........ (2,253,745) (1,457,704) (556,886)
Payments on notes payable to affiliate............... (7,973) (14,465) (11,236)
Distributions to stockholders........................ (206,466) -- --
----------- ----------- ----------
Net cash provided by (used in) financing
activities.............................. 286,816 51,455 (856,993)
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents... (7,642) 2,011 72,511
Cash and cash equivalents:
Beginning of year.................................... 92,607 90,596 18,085
----------- ----------- ----------
End of year.......................................... $ 84,965 $ 92,607 $ 90,596
=========== =========== ==========
- ---------------------------------------------------------------------------------------------------
Supplemental information:
Cash paid for:
Interest, net of amounts capitalized.............. $ 301,359 $ 299,196 $ 383,402
Income taxes...................................... $ -- $ 74,723 $ 114,538
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-79
<PAGE> 220
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Ski Lifts, Inc. (the "Company"), operates alpine and cross-country ski
resorts at Snoqualmie Summit, Ski Acres, Alpental and Hyak in the western
Cascade mountains of Washington State.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Construction in progress
consists of costs incurred related to the construction of various buildings at
the ski resorts including interest costs of $30,000 in 1996. Depreciation is
computed using the straight-line method over estimated useful lives as follows:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
----------- -----
<S> <C>
Buildings and land improvements............................. 15 - 40
Lifts, tows and hill lighting............................... 5 - 30
Vehicles and equipment...................................... 4 - 15
</TABLE>
Gains or losses are recognized in the year of retirement or disposition.
Expenditures for additions and betterments are capitalized and expenditures for
maintenance are charged to expense as incurred.
INVENTORIES
Inventories include ski accessories, food and liquor and are stated at the
lower of first-in, first-out cost or market.
EQUITY IN REAL ESTATE PARTNERSHIP
The investment in real estate partnership is accounted for using the equity
method.
LIFT REVENUE AND UNEARNED REVENUE
The Company records lift ticket revenue from season pass and scrip sales
during the ski season in which passes and scrip are used. Unearned revenue is
recorded for unused season passes, coupons, scrip and other items.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
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. Accordingly, actual results could differ from those estimates
and assumptions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of the Company's line of credit and long-term
debt. Information about the fair value of these financial instruments is
included in Note 6.
F-80
<PAGE> 221
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment at September 30 consists of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and land improvements........................ $ 2,913,165 $ 2,893,603
Buildings......................................... 6,166,183 5,267,535
Lifts, tows and hill lighting..................... 4,244,025 4,262,588
Vehicles and equipment............................ 6,192,877 6,036,959
Construction in process........................... 626,788 652,092
------------ ------------
20,143,038 19,112,777
Less accumulated depreciation and amortization.... (11,445,949) (10,834,007)
------------ ------------
Property and equipment, net..................... $ 8,697,089 $ 8,278,770
============ ============
</TABLE>
During 1994, equipment with a cost of $129,000 was acquired pursuant to a
capital lease. Accumulated amortization on this equipment totaled $73,100 and
$47,300 at September 30, 1996 and 1995, respectively.
3. SELF-INSURANCE DEPOSIT:
The Company is self insured for worker's compensation (see Note 12).
Amounts required to be held in trust as a security deposit by the Department of
Labor and Industries totaled $360,000 at September 30, 1996 and 1995. This
deposit may be adjusted annually. The deposit was invested in a certificate of
deposit which bore interest at 5.42% and 6.00% at September 30, 1996 and 1995,
respectively.
4. EQUITY IN REAL ESTATE PARTNERSHIP:
On March 15, 1991, the Company formed a general partnership with certain
other partners (who are stockholders and officers of the Company) to purchase a
building. The Company paid $75,000 for its 25% general partner's interest. The
Company is allocated operating profits and losses in proportion to its
partnership interest (profits of $5,598, $5,720 and $8,030 in 1996, 1995 and
1994, respectively, are included in miscellaneous income in the Statements of
Operations). The Company and a stockholder of the Company have provided a
$250,000 subordinated line of credit to the partnership with interest payable
monthly at 9%. At September 30, 1996 and 1995 the Company had no amount
outstanding under this agreement. The Company leases a portion of the building
for its headquarters under the terms described in Note 11.
5. INVESTMENTS:
During 1990, the Company paid $100,000 for an investment in 2,223 shares of
Class E preferred stock of Arlberg Holding Company, ("Arlberg") an insurance
corporation owned by various ski resorts. In December, 1995 these shares were
redeemed by Arlberg resulting in a gain of $18,890 for the year ended September
30, 1996. The Company also holds 17,033 shares of common stock of Arlberg with a
cost of $75,327 and $50,000 of convertible debentures of Arlberg at September
30, 1996 and 1995. These debentures, which bear interest at 9%, mature on June
30, 2000, and are convertible, under certain conditions, into common stock. A
stockholder of the Company serves as a director of Arlberg.
F-81
<PAGE> 222
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LINE OF CREDIT AND LONG-TERM DEBT:
At September 30, 1996, the Company had a $3,500,000 revolving line of
credit agreement with a bank expiring on April 1, 1998. Borrowings under the
agreement, which are payable on demand and are collateralized by substantially
all assets except real estate, bear interest at the bank's prime rate plus .75%
(9.0% and 9.5% at September 30, 1996 and 1995, respectively).
Long-term debt consists of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable with monthly payments of $7,393 including
interest at 8.25%, collateralized by certain equipment,
due May, 1998............................................. $139,071 $212,779
Revolving loan facility with maximum borrowings of
$2,132,000; maximum borrowings reduced by $164,000
annually; interest payable monthly at prime plus 1.15%,
(9.4% and 9.9% at September 30, 1996 and 1995,
respectively), collateralized by personal and real
property; total unpaid principal and interest is due
September, 2004........................................... 495,000 --
-------- --------
634,071 212,779
Less current portion........................................ (80,115) (73,708)
-------- --------
$553,956 $139,071
======== ========
</TABLE>
The aggregate amount of scheduled principal payments on the above notes as
of September 30 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 80,115
1998........................................................ 58,956
Thereafter (2004)........................................... 495,000
--------
$634,071
========
</TABLE>
The carrying amounts reported in the balance sheet approximate fair values
based upon interest rates that are currently available to the Company for
issuance of similar debt with similar terms and maturities.
The Company's debt agreements limit capital expenditures, and require that
the Company meet certain financial ratios including maintenance of minimum
tangible net worth and a minimum debt to net worth ratio. As of September 30,
1996 and 1995, the Company had obtained a waiver of rights from creditors with
respect to occurrences of noncompliance with these provisions.
7. RELATED PARTY TRANSACTIONS:
The Company borrows money for operating purposes from W. W. Moffett, Inc.,
which is an affiliated company through common stockholders. The notes payable
from W. W. Moffett, Inc. totaled $1,305,205 and $1,313,178 at September 30, 1996
and 1995, respectively, bear interest at 5.93% and 5.84%, respectively, are
subordinated to the line of credit and long-term debt, and are due on demand.
Interest expense on these notes payable for 1996, 1995 and 1994 was
approximately $76,000, $77,000 and $48,000, respectively.
F-82
<PAGE> 223
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
As of October 1, 1994, an election to be taxed as an S Corporation under
Section 1362 of the Internal Revenue Code became effective. This Section
provides that, in lieu of corporate income taxes, the stockholders pay taxes on
the Company's taxable income.
Effective October 1, 1993, the Company adopted the liability method of
accounting for income taxes under Financial Accounting Standards Board Statement
No. 109, Accounting for Income Taxes ("Statement No. 109"), and the cumulative
effect of this change is reported in the 1994 statement of operations. Under
Statement No. 109, the differences between the tax bases of assets and
liabilities and their financial statement amounts are reflected as deferred
income taxes using enacted tax rates. Deferred Federal income taxes are provided
for temporary differences which result principally from use of accelerated
depreciation methods for certain assets, and from reporting certain other items
in different periods for financial reporting and Federal income tax purposes.
In addition, the S Corporation rules provide that a tax be payable by the
Company if assets acquired on or before September 30, 1994, are sold or disposed
of prior to October 1, 2004. This tax is payable on the resultant gains to the
extent of the excess of the fair market value of the assets over their tax bases
on September 30, 1994. Accordingly, the Company continues to record deferred
taxes on its balance sheet with respect to assets for which sale or disposition
may result in built-in gain taxes.
The S Corporation election resulted in recognition of a deferred tax
benefit of $408,285 in the 1995 statements of operations and retained earnings.
Total gross deferred tax liabilities at September 30, 1996 and 1995 were
approximately $28,000.
At September 30, 1996 and 1995, the Company has alternative minimum tax
credits of approximately $150,000 which can be utilized against regular taxes.
9. SPECIAL USE PERMITS AND PROPERTY LEASES:
The Company operates a portion of its business on land covered by a Special
Use Permit issued by the United States Department of Agriculture's Forest
Service (the "Forest Service"). This permit expires December 31, 2032 and is
generally renewable. Special Use Permit fees are based on revenues for 1996 and
are based on fixed assets and revenues for 1995 and 1994. Total Special Use
Permit fees for 1996, 1995 and 1994 were approximately $120,000, $188,600 and
$180,300, respectively.
The Company also leases property from a private company. The lease payments
are based primarily on skier visits. Total lease expense for 1996, 1995 and 1994
was $8,810, $7,096 and $10,316, respectively.
10. EMPLOYEE BENEFIT PLANS:
The Ski Lifts, Inc. Profit Sharing Retirement Plan (the "Plan") provides
for both a 401(k) defined contribution plan and a unilateral profit sharing plan
for all employees who have worked over 1,000 hours and are over 21 years of age.
During 1996, 1995 and 1994, the Company contributed $56,887, $55,810 and
$51,499, respectively, under the defined contribution provisions of the Plan.
The Company has accrued discretionary contributions as of September 30, 1996 of
approximately $162,000 under the unilateral profit sharing provisions of the
Plan.
11. LEASE COMMITMENTS AND SUBLEASE AGREEMENTS:
The Company leases its office space from a partnership in which the Company
is a general partner (see Note 4). On November 1, 1995, this lease was amended
to extend the expiration date to March 31, 2006. Rental expense approximated
$105,000, $90,000 and $90,000 in 1996, 1995 and 1994, respectively.
F-83
<PAGE> 224
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. LEASE COMMITMENTS AND SUBLEASE AGREEMENTS -- (CONTINUED):
A portion of the office space is subleased to third parties under six to
thirty-six month noncancelable operating leases. Sublease income received in
1996, 1995 and 1994 was $68,210, $59,667 and $55,913, respectively.
At September 30, 1996, future minimum lease payments and income under
noncancelable operating subleases are as follows:
<TABLE>
<CAPTION>
RENT SUBLEASE NET
PAYMENTS PAYMENTS PAYMENTS
-------- -------- --------
<S> <C> <C> <C>
1997.......................................... $ 108,908 $14,375 $ 94,533
1998.......................................... 108,908 -- 108,908
1999.......................................... 108,908 -- 108,908
2000.......................................... 108,908 -- 108,908
2001.......................................... 108,908 -- 108,908
2002 and thereafter........................... 490,084 -- 490,084
---------- ------- ----------
$1,034,624 $14,375 $1,020,249
========== ======= ==========
</TABLE>
In addition, the Company leases snow grooming and maintenance equipment
under a capital lease. The following is a schedule of future minimum lease
payments under capital leases together with the present value of net minimum
lease payments as of September 30, 1996:
<TABLE>
<S> <C>
FOR THE FISCAL YEARS:
1997...................................................... $ 31,610
1998...................................................... 31,610
1999...................................................... 7,903
----------
Net minimum lease payments................................ 71,123
Less amount representing interest......................... (6,249)
----------
Present value of net minimum lease payments............... 64,874
Less current portion...................................... (27,215)
----------
Long-term obligation...................................... $ 37,659
==========
</TABLE>
12. CONTINGENCIES:
The Company is party to various claims arising in the normal course of
business related to alleged injuries which, in the opinion of management, will
not have a material effect on the Company's business. The Company's insurance
limits its risk of loss on such claims to the amounts of the deductible under
the related insurance policies. At September 30, 1996 and 1995, $142,124 and
$240,240, respectively, were accrued related to such claims (primarily
deductible amounts).
The Company is self-insured with the State of Washington for workers'
compensation (see Note 3). Provision is made in the financial statements for the
estimated cost of claims. The accrued liability at September 30, 1996 and 1995
was $49,502 and $44,111, respectively.
The Company is currently undergoing an examination by the Forest Service
for fiscal years 1991 through 1995 in connection with the Company's use of land
under a special use permit. Although the Company has not yet received the final
report, the Forest Service has indicated that the assessment will be
approximately $100,000. This amount has been accrued for at September 30, 1996,
however, the Company intends to vigorously challenge the proposed assessment of
additional use fees.
F-84
<PAGE> 225
SKI LIFTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENT:
In December 1996, the stockholders of the Company reached an agreement in
principle to sell the stock of the Company to a third party. The proposed
transaction is expected to be completed in January 1997.
F-85
<PAGE> 226
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Grand Targhee Incorporated
We have audited the accompanying balance sheet of Grand Targhee
Incorporated as of March 18, 1997, and the related statements of operations and
retained earnings and cash flows for the period from June 1, 1996 to March 18,
1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Grand Targhee Incorporated
at March 18, 1997, and the results of its operations and its cash flows for the
period from June 1, 1996 to March 18, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
June 27, 1997
F-86
<PAGE> 227
GRAND TARGHEE INCORPORATED
BALANCE SHEET
MARCH 18, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 256,109
Receivables from related parties.......................... 84,010
Accounts receivable....................................... 97,276
Inventories............................................... 382,700
Refundable income taxes................................... 122,472
Prepaid expenses and other current assets................. 125,667
-----------
Total current assets................................... 1,068,234
Property and equipment:
Buildings and land improvements........................... 5,343,463
Ski lifts................................................. 3,549,776
Furniture, fixtures and equipment......................... 2,210,888
Machinery................................................. 1,145,924
Construction in progress.................................. 68,188
-----------
12,318,239
Less accumulated depreciation and amortization............ 4,567,811
-----------
7,750,428
Other assets................................................ 25,610
-----------
Total assets........................................... $ 8,844,272
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 394,160
Accrued liabilities....................................... 711,538
Advanced deposits and unearned revenue.................... 293,545
Line of credit............................................ 450,000
Lift construction obligations............................. 1,695,626
Current portion of long-term debt......................... 913,580
-----------
Total current liabilities.............................. 4,458,449
Long-term debt.............................................. 1,467,011
Deferred income taxes....................................... 113,661
Commitments
Shareholder's equity:
Common stock, $.01 par value; 600,000 shares authorized,
450,000 shares issued and outstanding.................. 4,500
Capital in excess of par value............................ 1,887,942
Retained earnings......................................... 912,709
-----------
Total shareholder's equity............................. 2,805,151
-----------
Total liabilities and shareholder's equity............. $ 8,844,272
===========
</TABLE>
See accompanying notes.
F-87
<PAGE> 228
GRAND TARGHEE INCORPORATED
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
PERIOD FROM JUNE 1, 1996 TO MARCH 18, 1997
<TABLE>
<S> <C>
Revenue..................................................... $5,639,224
Direct expenses:
Labor, taxes and benefits................................. 1,945,416
Cost of goods sold........................................ 685,613
Other direct costs........................................ 1,074,616
----------
3,705,645
----------
Gross margin................................................ 1,933,579
----------
Operating costs and expenses:
General and administrative................................ 726,808
Marketing................................................. 477,636
Insurance................................................. 189,769
Forest service lease and other leased property............ 82,551
Property maintenance...................................... 294,222
Loss on disposal of ski lifts............................. 217,488
Depreciation and amortization............................. 533,954
----------
2,522,428
----------
Loss from operations........................................ (588,849)
Other expense:
Interest expense.......................................... 92,439
Abandonment of land swap costs............................ 53,669
----------
Loss before income tax benefit.............................. (734,957)
Income tax benefit.......................................... 138,811
----------
Net loss.................................................... (596,146)
Retained earnings:
Beginning of period....................................... 1,508,855
----------
End of period............................................. $ 912,709
==========
</TABLE>
See accompanying notes.
F-88
<PAGE> 229
GRAND TARGHEE INCORPORATED
STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 1, 1996 TO MARCH 18, 1997
<TABLE>
<S> <C>
Cash flows from operations:
Net loss.................................................. $ (596,146)
Adjustment from net loss to net cash provided by operating
activities:
Depreciation and amortization.......................... 533,954
Loss on disposal of ski lifts.......................... 217,488
Deferred income tax benefit............................ (16,339)
Changes in operating assets and liabilities:
Receivables from related parties..................... (39,965)
Accounts receivable.................................. (72,234)
Inventories.......................................... (84,180)
Income taxes......................................... (141,472)
Prepaid expenses and other current assets............ 9,641
Accounts payable..................................... 228,331
Accrued liabilities.................................. 441,133
Advanced deposits and unearned revenue............... 145,678
-----------
Net cash provided by operating activities................. 625,889
-----------
Cash flows from investing activities:
Purchase of property and equipment........................ (1,430,048)
-----------
Net cash used in investing activities..................... (1,430,048)
-----------
Cash flows from financing activities:
Proceeds from line of credit.............................. 515,500
Payments on line of credit................................ (400,000)
Proceeds from long-term borrowings........................ 1,397,966
Principal payments on long-term borrowings................ (494,409)
-----------
Net cash provided by financing activities................. 1,019,057
-----------
Net increase in cash...................................... 214,898
Cash at beginning of period............................... 41,211
-----------
Cash at end of period..................................... $ 256,109
===========
</TABLE>
See accompanying notes.
F-89
<PAGE> 230
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
MARCH 18, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY OF ORGANIZATION
In October 1992, in connection with a tax-free reorganization pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, Big
Valley Corporation, a Wyoming corporation, merged with Grand Targhee
Incorporated (the "Company"), a Delaware corporation. The Company was formed
just prior to the merger and had no prior operations. Prior to this merger, Big
Valley Corporation operated the Grand Targhee Ski and Summer Resort (the
"Resort"). As part of the merger agreement, the outstanding stock of Big Valley
Corporation was exchanged for 450,000 shares of common stock of the Company. The
purpose of this merger was to establish Delaware as the State of domicile and to
change the name of the corporation.
BUSINESS ACTIVITIES
The Company operates the Resort, which is located in Alta, Wyoming. The
Resort offers downhill skiing and related activities such as cross-country
skiing, ski lessons and other winter and summer activities. In addition, the
Company operates lodging facilities, restaurants and retail shops.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The cost of buildings,
improvements and equipment is depreciated on the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and land improvements............................. 3 - 30
Ski lifts................................................... 11 - 30
Furniture, fixtures and equipment........................... 3 - 10
Machinery................................................... 3 - 10
</TABLE>
REVENUE RECOGNITION
Revenues are generally recognized as services are provided and products are
sold. Sales of season passes are initially deferred in unearned revenue and
recognized over the ski season.
INCOME TAXES
The liability method is used to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-90
<PAGE> 231
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
Inventories at March 18, 1997 are as follows:
<TABLE>
<S> <C>
Retail goods................................................ $ 312,859
Restaurant -- food and supplies............................. 17,086
Operating supplies.......................................... 52,755
----------
$ 382,700
==========
</TABLE>
3. LINE OF CREDIT
The Company has a line of credit in the amount of $850,000 with a bank
which is subject to renewal annually in April. As of March 18, 1997, $450,000
was outstanding under this agreement. The line of credit is secured under a
general blanket collateral agreement which includes a security interest in the
Company's stock, buildings, inventories, equipment, furnishings, the Forest
Service lease and receivables. Additionally, the line of credit is personally
guaranteed by the shareholder and an officer of the Company. Interest is at 2%
above a bank's prime rate (10.25% at March 18, 1997). Interest payments are due
monthly. The outstanding balance is due on April 30, 1997.
4. LONG-TERM DEBT
Long-term debt at March 18, 1997 consists of the following:
<TABLE>
<S> <C>
Notes payable to the Farmers Home Administration, payable in
annual installments of $53,214 including interest at 5%,
with the unpaid balance due August 1999; collateralized by
buildings and equipment................................... $ 161,438
Note payable to a bank, due in monthly installments of
$18,571 in the months of December through April of each
fiscal year through April 30, 2003; interest payments are
due monthly at a bank's prime rate plus 2% (10.25% at
March 18, 1997); collateralized by substantially all of
the Company's assets...................................... 599,515
Unsecured non-interest bearing obligation to a related
party..................................................... 400,000
Notes payable (including accrued interest) and lease
obligations to a related party............................ 412,652
Unsecured non-interest bearing obligation to a third
party..................................................... 655,000
Other notes payable and capital lease obligations........... 151,986
----------
2,380,591
Less current portion........................................ 913,580
----------
$1,467,011
==========
</TABLE>
F-91
<PAGE> 232
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT -- (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 18,
------------
<S> <C>
1998...................................................... $ 913,580
1999...................................................... 161,679
2000...................................................... 171,741
2001...................................................... 92,857
2002...................................................... 92,857
Thereafter................................................ 135,225
Obligations to related parties with no stated maturity
dates.................................................. 812,652
----------
$2,380,591
==========
</TABLE>
Interest paid for the period ended March 18, 1997 was approximately
$154,000.
5. RELATED PARTY TRANSACTIONS
Transactions with related parties not disclosed elsewhere herein are as
follows:
<TABLE>
<CAPTION>
MARCH 18,
1997
---------
<S> <C>
Accounts receivable:
Moritz Bergmeyer -- shareholder........................... $35,822
Targhee Institute......................................... 27,615
High Mountain Travel...................................... 10,998
Other..................................................... 9,575
-------
$84,010
=======
</TABLE>
The receivable from Moritz Bergmeyer is non-interest bearing and is due on
demand. The remaining related party accounts are non-interest bearing and result
from operating activities.
Targhee Institute was formed with the assistance of the Company as a
not-for-profit entity. Targhee Institute's purpose is to provide educational
programs on science, nature, and cultural related topics. The Company received
approximately $107,000 during the period ended March 18, 1997 from Targhee
Institute for room, board, and site fees related to its educational and cultural
programs. High Mountain Travel is a for-profit travel agency formed by the
shareholder to provide bus transportation to the ski resort area. The Company
accrued commissions totaling approximately $29,000 to High Mountain Travel for
the period ended March 18, 1997.
6. INCOME TAXES
The income tax benefit for the period from June 1, 1996 to March 18, 1997
consists of a federal current benefit of $122,472 and a federal deferred benefit
of $16,339.
At March 18, 1997, the Company's deferred tax balances relate principally
to differences in the book and tax bases of property and equipment. In addition,
the Company has Alternative Minimum Tax ("AMT") credits of approximately
$138,000 at March 18, 1997, which have been fully offset by a valuation reserve.
The amount of unused AMT credits increased by $83,000 during the period ended
March 18, 1997 due to the effects of carrying back current period tax losses to
prior tax return periods in which AMT credits had been previously utilized. The
effects of reserving for these arising AMT credits is the principal difference
between
F-92
<PAGE> 233
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
the income tax benefit of $138,811 for the period ended March 18, 1997 and the
amount that would be derived by applying the statutory federal income tax rate
to the Company's loss before income taxes.
7. COMMITMENTS AND CONTINGENCIES
FOREST SERVICE LEASE
The Company has an agreement with the United States Department of
Agriculture whereby the Forest Service has granted the Company a permit for use
at the Resort. The special use permit, which expires on December 31, 2034,
covers approximately 2,400 acres for the purposes of constructing, operating and
maintaining a ski and summer resort including food service, retail sales and
other facilities.
A further reissuance of the National Forest special use permit may be
granted provided the holder shall comply with the then existing laws and
regulations governing the occupancy and use of National Forest lands.
The fee for this use is based on a graduated fee rate system based
generally on the level of sales. This fee was approximately $83,000 for the
period from June 1, 1996 to March 18, 1997. The Company is required to have
minimum public liability and bodily injury insurance in force. All installations
and improvements made on the property must be in compliance with the terms of
the permit. The Resort is subject to inspection by the Forest Service and must
be maintained to meet applicable safety standards. The Company may sublease the
use of land and improvements covered under the permit and the operation of
concessions and facilities upon prior written notice to the Forest Service.
LEASE WITH RELATED PARTY
The Company has a sublease with its shareholder extending through May 2000,
allowing the shareholder the right to use and occupy a portion of the Forest
Service lease. The lease agreement requires lease payments of $1,000 per year.
The Company has a five year lease with the stockholder extending through
May 2000, allowing the Company the use of the Teewinot Lodge, located on the
subleased property described above. The lease agreement calls for annual
payments of $60,000 payable in equal monthly installments of $5,000. The Company
is to maintain the premises and pay insurance and taxes thereon. During the
period from June 1, 1996 to March 18, 1997, rent expense under this lease was
$47,500.
8. LIFT CONSTRUCTION ACTIVITIES
During the period ended March 18, 1997, the Company constructed two new ski
lifts at a cost of approximately $3,313,000 and placed them in operation for the
1996-1997 ski season. As a result, two existing lifts were removed from
operations and are expected to be disposed of. During the period from June 1,
1996 to March 18, 1997, the Company has recorded a loss of $217,488 for the
remaining net book value and expected disposal costs of the old lifts.
Interest capitalized related to the construction of these lifts totaled
$62,000 for the period ended March 18, 1997. The Company financed approximately
$1,696,000 of the lift construction using vendor financing.
F-93
<PAGE> 234
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENT
On March 18, 1997, Booth Creek Ski Holdings, Inc. acquired all the issued
and outstanding capital stock of the Company for an aggregate purchase price of
approximately $8.1 million plus contingent payments of up to $2.0 million based
on the performance of Grand Targhee through the 1998-1999 ski season and
additional commissions based on the number of dwelling units developed at the
resort through 2012.
F-94
<PAGE> 235
INDEPENDENT AUDITORS' REPORT
Board of Directors
Grand Targhee Incorporated
Alta, Wyoming
We have audited the accompanying balance sheets of Grand Targhee
Incorporated as of May 31, 1996 and 1995 and the related statements of
operations, changes in stockholder's equity and cash flows for the years ended
May 31, 1996, 1995 and 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
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 statements 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 financial position of Grand Targhee Incorporated
as of May 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended May 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
FELDHAKE & ASSOCIATES, P.C.
Englewood, Colorado
June 20, 1996, except for Note 11 for
which the date is January 27, 1997
F-95
<PAGE> 236
GRAND TARGHEE INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 41,211 $ 63,677
Receivables from related parties.......................... 44,045 23,923
Trade accounts receivable................................. 25,042 21,863
Inventories............................................... 298,520 276,963
Prepaid expenses.......................................... 135,308 100,705
---------- ----------
Total current assets................................... 544,126 487,131
---------- ----------
Property and equipment, at cost:
Buildings and improvements................................ 5,119,403 5,067,537
Ski lift facilities....................................... 927,851 949,120
Snow cats and hill grooming equipment..................... 574,361 573,423
Furniture and fixtures.................................... 959,008 888,465
Land improvements......................................... 222,021 222,021
Other equipment........................................... 1,312,395 1,219,995
Transportation equipment.................................. 183,454 160,454
Construction in process................................... 67,439 64,037
---------- ----------
9,365,932 9,145,052
Less accumulated depreciation and amortization............ 4,674,236 4,125,060
---------- ----------
4,691,696 5,019,992
---------- ----------
Other assets:
Deposits -- ski lifts..................................... 684,500 100,000
Other..................................................... 25,610 63,482
---------- ----------
710,110 163,482
---------- ----------
Total assets........................................... $5,945,932 $5,670,605
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 165,829 $ 111,470
Accrued liabilities....................................... 270,405 411,104
Advanced deposits......................................... 147,867 179,956
Income taxes currently payable............................ 19,000 107,000
Line of credit with bank.................................. 334,500 300,000
Current portion of notes payable.......................... 219,274 288,906
Current portion of obligations under capital leases....... 59,821 69,571
---------- ----------
Total current liabilities.............................. 1,216,696 1,468,007
---------- ----------
Long term debt:
Notes payable............................................. 725,439 358,388
Obligations under capital leases.......................... 56,284 26,747
Due to related parties.................................... 416,216 460,618
---------- ----------
1,197,939 845,753
---------- ----------
Deferred income taxes....................................... 130,000 182,000
---------- ----------
Stockholder's equity:
Common stock, $.01 par value
Authorized -- 600,000 shares
Issued and outstanding -- 450,000 shares............... 4,500 4,500
Capital in excess of par value............................ 1,887,942 1,887,942
Retained earnings......................................... 1,508,855 1,282,403
---------- ----------
Total stockholder's equity............................. 3,401,297 3,174,845
---------- ----------
Total liabilities and stockholder's equity............. $5,945,932 $5,670,605
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-96
<PAGE> 237
GRAND TARGHEE INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Sales.................................................. $7,364,363 $6,736,459 $6,241,285
Concessions............................................ 11,896 25,350 44,089
---------- ---------- ----------
7,376,259 6,761,809 6,285,374
---------- ---------- ----------
Direct expenses:
Labor, taxes and benefits.............................. 2,245,472 1,915,790 1,764,753
Cost of goods sold..................................... 982,957 912,930 843,431
Other direct costs..................................... 930,238 899,083 852,193
---------- ---------- ----------
4,158,667 3,727,803 3,460,377
---------- ---------- ----------
Gross margin............................................. 3,217,592 3,034,006 2,824,997
---------- ---------- ----------
Operating costs and expenses:
General and administrative............................. 892,745 876,697 801,207
Marketing.............................................. 482,854 475,848 342,266
Insurance.............................................. 218,362 198,424 199,987
Forest service lease................................... 171,436 164,015 154,194
Other leased property.................................. 66,100 104,750 102,000
Property maintenance................................... 210,415 194,653 179,382
Depreciation and amortization.......................... 583,282 576,802 566,397
Impairment of long-lived assets........................ 42,619 -- --
---------- ---------- ----------
2,667,813 2,591,189 2,345,433
---------- ---------- ----------
Income from operations................................... 549,779 442,817 479,564
---------- ---------- ----------
Other income (expenses):
Abandonment of land exchange costs..................... (99,259) -- --
Gain (loss) on disposition of assets................... (42,799) 9,732 (1,000)
Interest income........................................ 9,595 2,206 1,872
Interest expense....................................... (117,864) (171,812) (204,604)
---------- ---------- ----------
(250,327) (159,874) (203,732)
---------- ---------- ----------
Income before income taxes............................... 299,452 282,943 275,832
Income tax expense....................................... 73,000 79,098 113,371
---------- ---------- ----------
Net income............................................... $ 226,452 $ 203,845 $ 162,461
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-97
<PAGE> 238
GRAND TARGHEE INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED MAY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CAPITAL
IN EXCESS TOTAL
COMMON OF PAR RETAINED STOCKHOLDER'S
STOCK VALUE EARNINGS EQUITY
------ --------- -------- -------------
<S> <C> <C> <C> <C>
Balance at
June 1, 1993................................... $4,500 $1,887,942 $ 916,097 $2,808,539
Net income....................................... -- -- 162,461 162,461
------ ---------- ---------- ----------
Balance at
May 31, 1994................................... 4,500 1,887,942 1,078,558 2,971,000
Net income....................................... -- -- 203,845 203,845
------ ---------- ---------- ----------
Balance at
May 31, 1995................................... 4,500 1,887,942 1,282,403 3,174,845
Net income....................................... -- -- 226,452 226,452
------ ---------- ---------- ----------
Balance at
May 31, 1996................................... $4,500 $1,887,942 $1,508,855 $3,401,297
====== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-98
<PAGE> 239
GRAND TARGHEE INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 226,452 $ 203,845 $ 162,461
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 632,935 622,739 618,597
Impairment of long-lived asset....................... 42,619 -- --
Loss (gain) on disposal of assets.................... 42,799 (9,732) 1,000
Changes in assets and liabilities:
Trade receivables.................................. (3,179) 17,900 (31,264)
Inventory.......................................... (21,557) (5,295) (34,535)
Prepaid expenses................................... (34,603) (10,442) (20,213)
Net deferred taxes................................. (52,000) (28,000) 17,373
Accounts payable and accrued liabilities........... (189,428) 252,326 (82,766)
Due to/from related parties........................ 23,003 (27,112) 9,776
--------- ---------- ---------
667,041 1,016,229 640,429
--------- ---------- ---------
Cash flows from investing activities:
Proceeds from sale of fixed assets...................... 1,000 20,650 --
Purchase of property and equipment...................... (236,454) (472,527) (169,665)
Deposits and other assets............................... 2,002 (10,944) (22,463)
Related party receivable................................ (30,000) -- --
--------- ---------- ---------
(263,452) (462,821) (192,128)
--------- ---------- ---------
Cash flows from financing activities:
Borrowing on new notes.................................. 400,000 276,537 4,590
Borrowings from related parties......................... -- -- 188,100
Payments on debt to related parties..................... (77,915) -- --
Net borrowing on line of credit......................... (300,000) (152,547) (199,955)
Payments on long-term debt and capital lease
obligations.......................................... (448,140) (650,790) (662,255)
--------- ---------- ---------
(426,055) (526,800) (669,520)
--------- ---------- ---------
Net increase (decrease) in cash........................... (22,466) 26,608 (221,219)
Cash at beginning year.................................... 63,677 37,069 258,288
--------- ---------- ---------
Cash at end of year....................................... $ 41,211 $ 63,677 $ 37,069
========= ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-99
<PAGE> 240
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Grand Targhee
Incorporated (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted accounting
principles and have been consistently applied.
HISTORY OF ORGANIZATION
In October 1992, in connection with a tax-free reorganization pursuant to
Section 368 (a)(1)(F) of the Internal Revenue Code of 1986, as amended, Big
Valley Corporation, a Wyoming corporation, merged with Grand Targhee
Incorporated, a Delaware corporation. Grand Targhee Incorporated was formed just
prior to the merger and had no prior operations. Prior to this merger, Big
Valley Corporation operated the Grand Targhee Resort. As part of the merger
agreement, the outstanding stock of Big Valley Corporation common stock was
exchanged for 450,000 shares of common stock of Grand Targhee Incorporated. The
purpose of this merger was to establish Delaware as the State of domicile and
change the name of the corporation.
BUSINESS ACTIVITIES
The Company operates the Grand Targhee Ski and Summer Resort (the Resort).
The Resort offers downhill skiing and related activities such as cross-country
skiing, ski lessons and other winter and summer activities. In addition, the
Company operates lodging facilities, restaurants and retail shops.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.
DEPRECIATION
The cost of buildings, improvements and equipment is depreciated over the
lesser of the length of the lease with the Forest Service or the estimated
useful lives of the assets. Depreciation is computed on the straight-line method
over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 12 - 30
Ski lift facilities......................................... 11 - 30
Snow cats and hill grooming equipment....................... 5
Furniture and fixtures...................................... 5 - 7
Land improvements........................................... 3 - 30
Ski rental equipment........................................ 3
Other equipment............................................. 3 - 10
Transportation equipment.................................... 3 - 7
</TABLE>
CASH FLOWS
For purposes of the statement of cash flows, the Company considers
short-term cash investments with a maturity of three months or less as cash. The
Company considers the line of credit with the bank to be short-term and presents
transactions net for purposes of the statement of cash flows.
Interest paid for the years ended May 31, 1996, 1995 and 1994 was $187,424,
$158,469 and $233,795, respectively.
F-100
<PAGE> 241
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company acquired certain equipment totaling $132,364 and $47,698
through capital leases and purchase contracts during the years ended May 31,
1996 and 1995, respectively.
The Company made deposits on the new chair lifts (Note 8) through advances
of $334,500 from its line of credit and $250,000 from its term loan during the
year ended May 31, 1996. These advances were non-cash transactions for the
Company and therefore are not presented in the statements of cash flows.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual results
could differ from those estimates.
RECLASSIFICATION
Certain reclassifications have been made to the 1994 and 1995 financial
statements in order to conform to the 1996 presentation.
2. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
MAY 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Retail goods............................................. $250,688 $248,941
Lounge -- beverage and supplies.......................... 6,792 9,923
Restaurant -- food and supplies.......................... 28,910 14,843
Sundries................................................. 12,130 3,256
-------- --------
$298,520 $276,963
======== ========
</TABLE>
3. LINE OF CREDIT
The Company has a line of credit in the amount of $850,000 with a bank
which is subject to renewal annually in April. As of May 31, 1996 the company
has an outstanding balance of $334,500. This line of credit is secured under a
general blanket collateral agreement which includes a security interest in the
Company's stock, buildings, inventory, equipment, furnishings, the forest
service lease and receivables. Additionally, this line of credit is personally
guaranteed by the stockholder and an officer of the Company. Interest is at 2%
above Chase Manhattan Bank's prime rate. Interest only payments are due monthly
beginning on April 30, 1996. Monthly principal payments of the lesser of
$200,000 or the entire principal balance then outstanding are due December 1996
through March 1997 with remaining balance due April 30, 1997.
F-101
<PAGE> 242
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
MAY 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Notes payable to the Farmers Home Administration, payable in
annual installments of $53,214 including interest at 5%,
balance due August, 1999, collateralized by buildings and
equipment................................................. $202,715 $243,743
Note payable to a bank, payable in five monthly principal
payments of $12,500 each year, December through April,
plus monthly interest payments at 3% above the bank's
index rate, due December 15, 1998, collateralized by
virtually all assets of the Company. ..................... -- 189,518
Note payable to a bank, payable in five monthly installments
equal to one thirty-fifth of the principal balance of the
note, December through April, plus monthly interest
payments at prime plus 2% as published by Chase Manhattan
Bank, due April 30, 2003, collateralized by virtually all
assets of the company, this loan is cross-collateralized
with the bank line of credit, see Note 3. ................ 650,000 --
Equipment purchase contract, payable in four monthly
installments of $1,381 each year, January through April,
including interest at 7.9% due April 1998, collateralized
by certain equipment...................................... 9,983 --
Notes payable -- individuals(1)............................. -- 100,000
Note payable to a related party, payable in monthly
installments of $2,046, including interest at 10.48%,
balance due August 1, 1997, unsecured..................... 28,645 49,033
Notes payable with interest ranging from 9% to 10%, due
January 26, 1997, guaranteed by the stockholder and an
officer of the Company, unsecured......................... 53,370 50,000
Short-term note payable with interest at a rate of 3.5%,
guaranteed by the stockholder and an officer of the
Company, unsecured........................................ -- 15,000
-------- --------
944,713 647,294
Less current portion........................................ 219,274 288,906
-------- --------
$725,439 $358,388
======== ========
</TABLE>
- -------------------------
(1) Notes payable -- individuals represent notes to individuals in the amounts
ranging from $10,000 to $25,000, at an interest rate of 13% due within 60
days of the date the note holder demands payment.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MAY 31,
----------
<S> <C>
1997........................................................ $216,721
1998........................................................ 149,302
1999........................................................ 157,184
2000........................................................ 142,934
2001........................................................ 92,857
Thereafter.................................................. 185,715
--------
$944,713
========
</TABLE>
F-102
<PAGE> 243
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
Transactions with related parties are as follows:
<TABLE>
<CAPTION>
MAY 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
CURRENT RECEIVABLE (PAYABLE):
High Mountain Travel................................... $ -- $ 154
Grand Teton Furniture Company.......................... -- (39,250)
Targhee Institute...................................... 14,045 23,769
Moritz Bergmeyer....................................... 30,000 --
------- --------
44,045 (15,327)
Portion included in accounts payable..................... -- 39,250
------- --------
$44,045 $ 23,923
======= ========
</TABLE>
The receivable from Moritz Bergmeyer is non-interest bearing and is due on
demand. The remaining related party accounts are non-interest bearing and result
from operating activities.
<TABLE>
<S> <C> <C>
LONG-TERM PAYABLE:
Notes payable and accrued interest..................... $154,609 $212,136
Leases payable......................................... 261,607 248,482
-------- --------
$416,216 $460,618
======== ========
</TABLE>
Targhee Institute was formed with the assistance of the Company as a
not-for-profit entity. Targhee Institute's purpose is to provide educational
programs on science, nature, and cultural related topics. The Company received
$102,522, $39,775 and $61,180 during the years ended May 31, 1996, 1995 and 1994
from Targhee Institute for room, board, and site fees related to its educational
and cultural programs. High Mountain Travel is a for-profit travel agency formed
by the shareholder to provide bus transportation to the ski resort area. The
Company accrued commissions totaling $31,879, $37,485 and $40,020 to High
Mountain Travel for the years ended May 31, 1996, 1995 and 1994, respectively.
During the years ended May 31, 1996, 1995 and 1994, the Company incurred
interest expense of $9,064, $22,596 and $6,169, respectively, with related
parties. The Company incurred lease expense of $63,000, $99,000 and $96,000 with
related parties during the years ended May 31, 1996, 1995 and 1994,
respectively. See also Notes 7 and 8.
During the year ended May 31, 1994, the Company acquired furniture and
fixtures from Grand Teton Furniture totaling $41,230. Grand Teton Furniture is
related to the Company through common ownership and management.
6. INCOME TAXES
At May 31, 1996, the Company has for tax purposes unused Alternative
Minimum Tax (AMT) credits of approximately $60,000 which can be carried forward
indefinitely. The Company has established a valuation allowance of $60,000
because of limitations on the usage of this credit. As a result, the Company has
used $0 of its AMT tax credit carryovers to reduce deferred income taxes
payable.
Deferred income taxes arise primarily because of temporary differences
related to recognition of the gain on the disposal of the building and equipment
destroyed in a fire. For tax purposes, the gain is treated as a reduction of the
cost of the replacement property and is recognized ratably over the life of the
property as a
F-103
<PAGE> 244
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
reduction of depreciation. The resulting deferred taxes are allocated between
current and non-current liabilities based on the expected reversal period.
Income tax expense for the years ended May 31, 1996, 1995 and 1994 vary
from Federal statutory rates because of the impact of the Alternative Minimum
Tax and use of the Alternative Minimum Tax Credit. Income tax expense includes
the following components:
<TABLE>
<CAPTION>
PAYABLE
--------------------
EXPENSE CURRENT DEFERRED
------- ------- --------
<S> <C> <C> <C>
Balance June 1, 1993........................................ $ 33,206 $192,627
Payments.................................................... (33,204) --
Expense..................................................... $113,371 95,998 17,373
======== --------- --------
Balance May 31, 1994........................................ 96,000 210,000
Payments.................................................... (96,098) --
Expense..................................................... $ 79,098 107,098 (28,000)
======== --------- --------
Balance May 31, 1995........................................ 107,000 182,000
Payments.................................................... (213,000) --
Expense..................................................... $ 73,000 125,000 (52,000)
======== --------- --------
Balance May 31, 1996........................................ $ 19,000 $130,000
========= ========
</TABLE>
7. LEASING ARRANGEMENTS
The Company leases certain furniture, fixtures, and equipment under leases
which expire at various times over the next three years. In addition, the
Company leases a building from its stockholder as more fully described in Note
8.
The following is a yearly schedule of future minimum lease payments under
long-term capital and operating leases:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
MAY 31, LEASES LEASES
---------- ------- ---------
<S> <C> <C>
1997...................................................... $ 68,276 $ 59,000
1998...................................................... 46,673 59,000
1999...................................................... 18,261 59,000
2000...................................................... -- 59,000
2001...................................................... -- --
-------- --------
Total minimum lease payments................................ 133,210 $236,000
========
Less amounts representing interest.......................... 17,105
Less portion included in current liabilities................ 59,821
--------
$ 56,284
========
</TABLE>
Substantially all of the operating leases are with the stockholder.
Management expects, as part of normal operations, to renew its operating leases
after the current lease term. In addition to these long-term operating leases,
minimum payments for short-term renewable leases with related parties in effect
at May 31, 1996 was approximately $250 per month.
F-104
<PAGE> 245
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASING ARRANGEMENTS -- (CONTINUED)
Equipment under capital leases of approximately $165,000, is included in
snow cats and hill grooming equipment, furniture and fixtures, other equipment
and transportation equipment. At the conclusion of these leases, title will
transfer to the Company or the Company will have the option to acquire the asset
at a bargain price. Amortization associated with the equipment under capital
leases is included in depreciation expense.
8. COMMITMENTS AND CONTINGENCIES
FOREST SERVICE LEASE
The Company has an agreement with the United States Department of
Agriculture whereby the Forest Service has granted the Company a permit for use
at the Resort. The permit, expiring on December 31, 2034, is a special use
permit covering approximately 2,400 acres for the purposes of constructing,
operating and maintaining a ski and summer resort including food service, retail
sales and other facilities.
A further reissuance of the National Forest special use permit may be
granted provided the holder shall comply with the then existing laws and
regulations governing the occupancy and use of National Forest lands.
The fee for this use is based on a graduated rate fee system using the cost
of certain "gross fixed assets" and annual sales to determine the rate applied
to sales. This fee was $171,436, $164,015 and $154,194 for the years ended May
31, 1996, 1995 and 1994, respectively. The Company is required to have minimum
public liability and bodily injury insurance in force. All installations and
improvements made on the property must be incompliance with the terms of the
permits. The Resort is subject to inspection by the Forest Service and must be
maintained to meet the applicable safety standards. The Company may sublease the
use of land and improvements covered under these permits and the operation of
concessions and facilities upon prior written notice to the authorized officer.
LEASE WITH RELATED PARTY
The Company has a sub-lease with its stockholder extending through May,
2000, allowing the stockholder the right to use and occupy a portion of the
Forest Service lease. The lease term requires payment of $1,000 per year.
The Company has a five year lease with the stockholder extending through
May, 2000, allowing the Company the use of the Teewinot Lodge, located on the
sub-lease with the stockholder described above. The lease agreement calls for
annual payments of $60,000 payable in equal monthly installments of $5,000. The
Company is to maintain the premises and pay insurance and taxes thereon. During
the years ended May 31, 1996, 1995 and 1994, rent under this lease was $60,000.
CONCENTRATION OF CREDIT RISK
The Company's revenues are earned from the general public. The nature of
operations are such that credit is not generally extended to its customers.
Goods and services purchased are supplied by a variety of vendors. The Company
is, however, dependent upon a permit from the U.S. Forest Service because the
Resort is located in the Targhee National Forest.
The Company maintains its bank accounts in a Federally insured financial
institution. Amounts are insured up to $100,000. At times during the year,
amounts in excess of $100,000 are on deposit with the financial institution.
F-105
<PAGE> 246
GRAND TARGHEE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
CONSTRUCTION OF NEW LIFTS
At May 31, 1996, the Company has committed to the construction of two new
lifts. One is a stealth detachable quad and the second is a fixed grip quad.
These lifts will replace the current Bannock and Shoshone lifts. The Bannock
lift will continue to operate until its replacement is fully operational. The
Shoshone lift is being abandoned and impairment of its net carrying value at May
31, 1996 has been recognized (Note 9).
The contract calls for the new Bannock detachable quad to cost $2,371,865
and the Shoshone fixed grip quad to cost $437,750. The price is a "turnkey"
price but does not include removal of existing equipment nor taxes.
Financing for these lifts is provided in part by the existing term loan
from the Company's bank. The balance of the financing is to be provided through
loans arranged by the potential purchaser of the Company (Note 11). At May 31,
1996, the Company has made deposits of $684,500. Of this amount, $100,000 was
deposited as of May 31, 1995 and the balance was paid with $334,500 advanced
from the line of credit and $250,000 advanced from the term loan.
9. IMPAIRMENT OF LONG-LIVED ASSETS
At May 31, 1996, the Company has contracted to construct two new ski lifts
to be operational for the 1996-1997 ski season (Note 8). As part of this
process, the existing Shoshone lift with a net book value of $42,619 will be
abandoned. Fair market value of the abandoned lift, estimated by management
based on published advertisements for lifts with similar characteristics, is
$25,000. Cost to salvage this lift is also estimated at $25,000. A loss of
$42,619 is included in the statements of operations for the year ended May 31,
1996. The impairment is included in accumulated depreciation and amortization in
the balance sheet.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of funds in financial institutions, which includes
checking accounts and operating money markets, are equal to their carrying
value.
The estimated fair values of amounts due to/from related parties are equal
to their carrying value because terms of these rights and obligation have been
recently established or have recently been subject to remodification.
The established fair values of capitalized lease obligations and notes
payable are equal to their carrying value because all material obligations of
their nature have been negotiated recently with the exception of the note
payable to the U.S. Department of Agriculture, F.H.A. Department. The carrying
amount of this loan is $202,715 and the estimated fair value is not determinable
because notes of this nature are no longer issued.
11. SUBSEQUENT EVENT
On November 15, 1996, Mr. Moritz O. Bergmeyer and Ms. Carol Mann Bergmeyer
executed a letter of intent with Booth Creek, Inc. pursuant to which Booth Creek
proposes to acquire all of the issued and outstanding capital stock of the
Company.
F-106
<PAGE> 247
LOON MOUNTAIN RECREATION CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 26,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ -- $ 279
Accounts receivable....................................... 197 169
Inventories............................................... 489 471
Prepaid expenses.......................................... 3 16
------- -------
Total current assets........................................ 689 935
Land held for resale........................................ 705 705
Property and equipment, at cost:
Land and land improvements................................ 2,552 2,440
Slopes and trails......................................... 1,599 1,562
Buildings................................................. 8,312 7,396
Ski lifts................................................. 8,741 8,628
Operating equipment....................................... 7,257 6,942
Snowmaking equipment...................................... 9,665 7,554
Construction in progress.................................. 1,749 2,091
------- -------
39,875 36,613
Less accumulated depreciation and amortization............ 18,981 17,397
------- -------
20,894 19,216
Deferred tax assets......................................... -- 28
Other assets................................................ 67 81
------- -------
Total assets................................................ $22,355 $20,965
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 774 $ 623
Current portion of long-term debt......................... 155 915
Current portion of obligations under capital leases....... 140 128
Accrued expenses.......................................... 832 573
Advance deposits and deferred revenue..................... 699 456
------- -------
Total current liabilities................................... 2,600 2,695
Long-term debt, less current portion........................ 11,267 10,317
Obligations under capital leases, less current portion...... 289 210
Accrued stock options....................................... 55 63
Deferred income taxes....................................... 238 -
------- -------
Total liabilities........................................... 14,449 13,285
Commitments and contingencies
Stockholders' equity:
Preferred stock, 7% noncumulative, par value $100
(callable at $107 per share); authorized 2,250 shares;
none issued or outstanding at January 30, 1998 (1,461
shares issued at January 30, 1997 including 127 shares
held in treasury)...................................... -- 146
Common stock, par value $.10; authorized 750,000 shares;
issued 671,100 including 80,830 and 81,385 shares held
in treasury............................................ 67 67
Additional paid-in capital................................ 71 61
Retained earnings......................................... 8,311 7,961
Less cost of treasury stock............................... (543) (555)
------- -------
Total stockholders' equity.................................. 7,906 7,680
------- -------
Total liabilities and stockholders' equity.................. $22,355 $20,965
======= =======
</TABLE>
See accompanying notes.
F-107
<PAGE> 248
LOON MOUNTAIN RECREATION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
JANUARY 30, JANUARY 26,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Winter lifts.............................................. $ 4,258 $ 3,754
Food and beverage......................................... 1,962 1,824
Ski School................................................ 405 509
Ski rental and repair..................................... 416 355
Mountain Club............................................. 122 84
Summer programs........................................... 807 821
Real estate commissions................................... 158 117
Concessions............................................... 48 42
Retail sales.............................................. 318 353
Property services......................................... 191 174
Locker and basket......................................... 52 67
Day care.................................................. 138 91
Other..................................................... 107 116
------- -------
8,982 8,307
Expenses:
Employee costs............................................ 3,834 3,839
Depreciation and amortization............................. 1,125 1,093
Utilities................................................. 964 952
Materials, supplies and maintenance....................... 851 824
Purchases for resale...................................... 836 820
Interest.................................................. 696 789
Insurance................................................. 537 506
Marketing................................................. 513 420
Administrative............................................ 234 211
Outside services.......................................... 772 328
U.S. Forest Service lease................................. 95 93
Property taxes............................................ 329 290
Real estate commission.................................... 79 59
Other..................................................... 28 20
------- -------
10,893 10,244
------- -------
Loss before income taxes.................................... (1,911) (1,937)
Income tax benefit.......................................... (765) (775)
------- -------
Net loss.................................................... (1,146) (1,162)
Retained earnings, beginning of period...................... 9,535 9,162
Dividends................................................... (78) (39)
------- -------
Retained earnings, end of period............................ $ 8,311 $ 7,961
======= =======
</TABLE>
See accompanying notes.
F-108
<PAGE> 249
LOON MOUNTAIN RECREATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
--------------------------
JANUARY 30, JANUARY 26,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,146) $(1,162)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 1,125 1,093
Deferred income tax benefit............................ (765) (775)
Net changes in operating assets and liabilities:
Accounts receivable.................................. 112 (59)
Inventories.......................................... (92) (109)
Prepaid expenses..................................... 33 78
Accounts payable..................................... 230 79
Accrued expenses..................................... (46) (349)
Advance deposits and deferred revenue................ 632 402
Other................................................ 2 --
------- -------
Net cash provided by (used in) operating
activities................................... 85 (802)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (3,023) (1,314)
------- -------
Net cash used in investing activities........... (3,023) (1,314)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from seasonal line of credit................. 1,286 814
Net proceeds from revolving credit loan................... 1,902 1,470
Proceeds from option exercise............................. 1 3
Redemption of preferred stock............................. (133) -
Payment of capital lease obligations...................... (80) (98)
Payment of dividends...................................... (78) (39)
------- -------
Net cash provided by financing activities....... 2,685 2,150
------- -------
Net (decrease) increase in cash............................. (253) 34
Cash, beginning of period................................... 253 245
------- -------
Cash, end of period......................................... $ -- $ 279
======= =======
</TABLE>
See accompanying notes.
F-109
<PAGE> 250
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 30, 1998 AND JANUARY 26, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Loon Mountain Recreation Corporation (the "Company") provides facilities
for skiing and other outdoor recreational activities in Lincoln, New Hampshire.
Loon Realty Corp., a wholly-owned subsidiary of the Company, owns land held for
future development adjacent to land owned or leased by the Company, and also
conducts real estate brokerage operations under the name of Loon Mountain Real
Estate Company.
The accompanying consolidated financial statements as of January 30, 1998
and January 26, 1997 and for the nine months ended January 30, 1998 and January
26, 1997 are unaudited, but include all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management of the Company, are
considered necessary for a fair presentation of the Company's financial position
at January 30, 1998 and January 26, 1997, and its operating results and cash
flows for the nine months ended January 30, 1998 and January 26, 1997. Due to
the highly seasonal nature of the Company's business, the results for the
interim periods are not necessarily indicative of results for the entire year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to generally accepted accounting
principles applicable for interim periods. The unaudited interim financial
statements should be read in conjunction with the following notes and the
audited financial statements of the Company as of April 30, 1997 and 1996 and
for the years then ended.
2. CONTINGENCIES
Restore: The North Woods v. Department of Agriculture. This case is pending
in the United State District Court for the District of New Hampshire. It was
filed in 1997 under National Environmental Policy Act ("NEPA") arising out of
the decision by the Forest Service to allow the Company to install a new
pipeline connecting the new infiltration gallery in the Pemigewasset River to
the up-mountain pump house. The infiltration gallery, which had been properly
permitted by the State authorities and the Army Corps of Engineers, was
installed to improve the draw of water from the river.
Forest Service authorization was required because the pipeline connecting
that infiltration gallery to the up-mountain pump house runs across the forest
land upon which the Company operates. Restore asserted that the Forest Service
permit was improperly issued based upon a variety of procedural grounds. Restore
sought an injunction prohibiting further work on the pipeline and a declaration
that the permit was improperly issued.
The Company intervened as defendant. The Forest Service and the Company
asserted various defenses. On January 20, 1998, the District Court held that the
pipeline may be analyzed and approved by the Forest Service separately from the
South Mountain expansion, but that the Forest Service violated NEPA by failing
to consider the potential environmental effects of the resulting asserted
increase in snowmaking capacity. Whether this failure warrants injunctive relief
will be addressed at a future hearing. The Company would expect the pipeline to
be re-approved following further proceedings by the Forest Service. However, no
assurance can be given regarding the outcome or timing of this litigation or any
resulting Forest Service review.
3. SUBSEQUENT EVENT
In August 1997, the Company established an additional revolving credit
agreement for $2,570,000. Interest is fixed at 8.75% and availability reduces
annually through April 30, 2002.
On February 26, 1998, the Company and Booth Creek Ski Holdings, Inc., as
assignee of Booth Creek Ski Group, Inc., executed a plan of merger pursuant to
which Booth Creek Ski Holdings, Inc. acquired all of the outstanding common
shares of the Company for a net purchase price of approximately $29.0 million
(including the assumption of debt which was repaid in connection with the
acquisition).
F-110
<PAGE> 251
REPORT OF INDEPENDENT ACCOUNTANTS
June 20, 1997
To the Board of Directors of
Loon Mountain Recreation Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and retained earnings and of cash
flows present fairly, in all material respects, the financial position of Loon
Mountain Recreation Corporation and its subsidiary at April 30, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended 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
F-111
<PAGE> 252
LOON MOUNTAIN RECREATION CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 253,207 $ 245,125
Accounts receivable....................................... 308,987 109,122
Inventories............................................... 397,854 362,384
Prepaid expenses.......................................... 35,681 94,100
------------ ------------
Total current assets................................... 995,729 810,731
------------ ------------
Land held for resale........................................ 704,585 704,585
------------ ------------
Property and equipment, at cost:
Land and land improvements................................ 2,528,129 2,440,615
Slopes and trails......................................... 1,569,151 1,562,261
Buildings................................................. 8,071,249 7,450,389
Ski lifts................................................. 8,678,616 8,591,498
Operating equipment....................................... 6,877,410 6,393,338
Snow making equipment..................................... 7,587,786 7,553,955
Construction in progress.................................. 1,505,082 1,028,971
------------ ------------
36,817,423 35,021,027
Less accumulated depreciation and amortization............ (18,104,712) (16,332,113)
------------ ------------
18,712,711 18,688,914
------------ ------------
Other assets................................................ 69,142 81,220
------------ ------------
Total assets........................................... $ 20,482,167 $ 20,285,450
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 545,720 $ 543,274
Current portion of long-term debt (Note 2)................ -- 101,538
Current portion of obligations under capital leases (Note
6)..................................................... 69,819 129,405
Income taxes payable (Note 7)............................. 95,346 116,306
Accrued expenses (Note 9)................................. 782,071 763,691
Advance deposits.......................................... 66,577 54,555
Current portion of deferred revenue....................... -- 42,370
------------ ------------
Total current liabilities.............................. 1,559,533 1,751,139
------------ ------------
Long-term debt, less current portion (Note 2)............... 8,447,000 8,847,000
Obligations under capital leases, less current portion (Note
6)........................................................ 155,463 --
Deferred income taxes (Note 7).............................. 1,003,453 747,082
Accrued stock options....................................... 56,892 59,890
------------ ------------
Total liabilities...................................... 11,222,341 11,405,111
Commitments and contingencies (Note 9 and 10)
Stockholders' equity (Notes 3 and 5):
Preferred stock, 7% noncumulative, par value $100
(callable at $107 per share); authorized 2,250 shares;
issued 1,461 shares including 127 shares held in
treasury............................................... 146,100 146,100
Common stock, par value $.10; authorized 750,000 shares;
issued 671,100 including 80,830 and 81,385 shares held
in treasury............................................ 67,110 67,110
Additional paid-in capital................................ 67,543 60,616
Retained earnings......................................... 9,534,687 9,162,184
------------ ------------
Less cost of treasury stock (Note 3)........................ 555,614 555,671
------------ ------------
Total stockholders' equity............................. 9,259,826 8,880,339
------------ ------------
Total liabilities and stockholders' equity............. $ 20,482,167 $ 20,285,450
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE> 253
LOON MOUNTAIN RECREATION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Winter lifts.............................................. $ 8,472,756 $ 8,114,876
Food and beverage......................................... 3,192,605 2,724,752
Ski school................................................ 950,173 880,718
Ski rental and repair..................................... 874,212 720,949
Mountain Club............................................. 157,493 251,522
Summer programs........................................... 821,108 727,123
Real estate commissions................................... 148,814 147,569
Concessions............................................... 150,209 165,110
Retail sales.............................................. 356,906 384,289
Property services......................................... 176,062 186,546
Locker and baskets........................................ 82,901 81,759
Daycare................................................... 186,549 179,081
Other..................................................... 156,448 229,084
----------- -----------
15,726,236 14,793,378
----------- -----------
Expenses:
Employee costs............................................ 5,581,416 5,341,257
Depreciation and amortization............................. 1,884,162 1,752,455
Utilities................................................. 1,327,907 1,289,700
Materials, supplies and maintenance....................... 1,072,836 1,056,828
Purchases for resale...................................... 1,225,112 1,156,491
Interest (net of capitalized interest of $72,507 and
$156,161).............................................. 909,619 762,887
Insurance (Note 9)........................................ 684,271 848,509
Marketing................................................. 742,936 874,455
Administrative............................................ 379,185 301,995
Outside services.......................................... 577,467 514,061
U.S. Forest Service lease (Note 6)........................ 221,394 176,088
Property taxes............................................ 264,123 256,102
Real estate commission.................................... 75,590 73,494
Other..................................................... 39,923 86,426
----------- -----------
14,985,941 14,490,748
----------- -----------
Income before income tax expense............................ 740,295 302,630
Income tax expense (Note 7)................................. 299,455 118,013
----------- -----------
Net income.................................................. 440,840 184,617
Retained earnings, beginning of year........................ 9,162,184 9,034,084
Dividends................................................... 68,337 56,517
----------- -----------
Retained earnings, end of year.............................. $ 9,534,687 $ 9,162,184
=========== ===========
Earnings per share of common and common share equivalent.... $ .72 $ .29
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-113
<PAGE> 254
LOON MOUNTAIN RECREATION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 440,840 $ 184,617
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,896,240 1,752,455
Deferred income taxes.................................. 256,371 36,192
Decrease in deferred revenues.......................... (42,370) (42,630)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... (199,865) 100,987
Increase in inventory................................ (35,470) (71,853)
(Increase) decrease in prepaid expenses.............. 58,419 (68,879)
Increase in accounts payable......................... 2,446 347,414
Increase in accrued expenses......................... 20,960 103,325
Increase (decrease) in advance deposits.............. 12,022 (2,380)
(Decrease) increase in income taxes payable.......... (20,960) 73,419
Other................................................ (3,120) 8,074
---------- ----------
Net cash provided by operating activities......... 2,385,513 2,420,741
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property and equipment........... 21,725 24,835
Purchases of property and equipment.................... (1,623,562) (5,229,137)
---------- ----------
Net cash used by investing activities............. (1,601,837) (5,204,302)
---------- ----------
Cash flows from financing activities:
Net (repayments of) proceeds from current revolving
credit loan........................................... (400,000) 3,128,660
Repayment on note...................................... (101,538) (101,538)
Proceeds from option exercise.......................... 4,404 --
Decrease in capital lease obligations.................. (210,123) (63,798)
Payment of dividends................................... (68,337) (56,517)
---------- ----------
Net cash (used in) provided by financing
activities...................................... (775,594) 2,906,807
---------- ----------
Net increase in cash.............................. 8,082 123,246
Cash, beginning of year..................................... 245,125 121,879
========== ==========
Cash, end of year........................................... $ 253,207 $ 245,125
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE> 255
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS
Loon Mountain Recreation Corporation (the "Company" or "LMRC") provides
facilities for skiing and other outdoor recreational activities in Lincoln, New
Hampshire. Food and hospitality services are also provided. Loon Realty Corp., a
wholly-owned subsidiary, owns land adjacent to land owned or leased by Loon
Mountain Recreation Corporation, which is currently held for future development.
Loon Realty Corp. started a real estate brokerage operation in 1989 under the
name of Loon Mountain Real Estate Company.
A major portion of the Company's recreational area is on land leased from
the United States Forest Service under terms of a forty year permit granted on
March 16, 1994. This permit is similar to permits issued to other ski areas and
recreational facilities and annual payments are based upon a percentage of
annual gross revenues. This permit allows for the operation and expansion of the
existing ski area as well as the development of South Mountain.
CONCENTRATION OF BUSINESS
Most of the Company's customers are residents of the New England States,
particularly the Boston area. If this geographical area experienced severe
economic decline, the Company's financial performance could be adversely
impacted. In addition, the Company generates a substantial portion of its
revenues from ski lift ticket sales and associated food and beverage sales. If
the Company experienced unfavorable weather conditions, the Company's financial
performance could be adversely impacted.
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Loon Mountain
Recreation Corporation and Loon Realty Corp. All significant intercompany
balances and transactions have been eliminated in consolidation.
INVENTORY
Inventory, consisting of food and other operating supplies, is included at
the lower of cost (first-in, first-out method) or market.
LAND HELD FOR RESALE
Cost of land held for resale consists of the original cost of the land,
plus improvements, less the costs allocated to lots sold. Costs are allocated
equally to lots on the basis of estimated relative fair market value of the
lots. Sales of individual lots are recorded at the time the sale is consummated,
usually at closing. Deposits received are presented as liabilities until the
sale is consummated.
F-115
<PAGE> 256
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
expensed as incurred. For financial statement purposes, the Company provides for
depreciation and amortization, on the straight-line method over the estimated
useful lives of the assets which range from 20 to 45 years for buildings,
leasehold improvements, lifts and trails and 3 to 15 years for machinery and
equipment. Accelerated cost recovery and accelerated depreciation methods are
used for tax purposes. When an asset is retired or disposed of, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss
is recorded.
Construction in progress represents costs expended primarily to develop
South Mountain. As of the applicable balance sheet date, these assets have not
yet been placed in service.
INTEREST
Interest is expensed as incurred except when it is capitalized in
conjunction with major capital additions and development of properties for
resale. The amounts of interest capitalized are determined by applying current
interest rates to the funds required to finance the construction.
OTHER ASSETS
Included in other assets are debt origination costs that will be recognized
as expenses over the life of the related debt.
INCOME TAXES
The Company accounts for income taxes under Financial Accounting Standards
No. 109 "Accounting for Income Taxes," ("FAS 109"), which mandates the liability
method for computing deferred income taxes. The objective of the liability
method is to recognize the amount of current and deferred taxes payable or
refundable at the financial statement date resulting from all events that have
been recognized in the financial statements based upon the provisions of enacted
tax laws.
OTHER REVENUE
Other revenue consists primarily of special events revenues, employee
housing and television advertising income.
EARNINGS PER SHARE OF COMMON STOCK
The calculation of the earnings per share of common and common share
equivalents was based on the weighted average number of common shares
outstanding during each year (589,992 for 1997 and 599,220 for 1996), including
outstanding options, after provision for the dividend paid on the preferred
stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial
Instruments", which requires the Corporation to disclose the fair value of all
financial instruments. The carrying amounts of cash, accounts receivable,
prepaid expense, accounts payable, accrued expenses, and the revolving line of
credit. It was not practicable to estimate the fair value of the 7.5% unsecured
notes and the 8.5% note payable (1996 only) without the Company incurring
excessive costs.
F-116
<PAGE> 257
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
IMPAIRMENT OF LONG LIVED ASSETS
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived to Be Disposed Of," which establishes accounting
standards for the impairment of long-lived assets including intangibles and
goodwill. The objective of SFAS 121 is to assess the Company's long-lived assets
for recoverability using estimated future cash flows expected to result from the
use of the assets and its eventual disposition.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving credit loan payable to bank through May 2005.
Interest at prime rate plus .75%, 9.25% at April 30, 1997,
is payable monthly. The loan's maximum availability is
$8,334,000 at April 30, 1997. On each subsequent fiscal
year-end the availability reduces by $833,000. The Company
has a one time option to suspend the annual availability
reduction. The note is secured by a first mortgage on all
inventory, equipment and real estate...................... $7,295,000 $7,695,000
7.5% unsecured notes due August 1, 1998 with interest
payable annually. Payment is subordinated to all mortgage
debt. Upon approval of Citizen's Bank, a maximum of 10% of
unsecured notes annually may be redeemed prior to August
1, 1998................................................... 1,152,000 1,152,000
8.5% note payable in annual installments of $101,538, plus
interest. Secured by common stock held in treasury.
Payment is subordinated to all mortgage debt.............. -- 101,538
---------- ----------
8,447,000 8,948,538
Less current portion........................................ -- (101,538)
---------- ----------
$8,447,000 $8,847,000
========== ==========
</TABLE>
Based on the current principal outstanding at April 30, 1997, scheduled
annual principal payments are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998........................................................ $ --
1999........................................................ 1,779,000
2000........................................................ 833,000
2001........................................................ 833,000
2002........................................................ 833,000
Thereafter.................................................. 4,169,000
----------
$8,447,000
==========
</TABLE>
The Company has a line of credit of $3,200,000 with interest at prime plus
.25%, 8.75% at April 30, 1997. At April 30, 1997, the outstanding balance on
this line was zero. The line of credit, renewable annually, is a seasonal line
of credit and is secured by a second mortgage on all inventory, equipment and
real estate of the Company.
F-117
<PAGE> 258
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. TREASURY STOCK
At April 30, 1997, the Company had 127 preferred shares and 80,830 common
shares of stock held in treasury with a cost of $13,253 and $542,361,
respectively. At April 30, 1996, the Company had 127 preferred shares and 81,385
common shares of stock held in treasury with a cost of $13,253 and $542,418,
respectively.
4. 401(k)
On January 20, 1995, the Company's Board of Directors approved the
conversion of its previous qualified profit sharing pension plans to a 401(k)
plan. Effective May 1, 1995, the Company rolled over the participant balances
from the Plans into a new 401(k) plan. In fiscal 1997, the Company matched 30%
of the first 6% of employees contributions, totalling $38,672.
5. STOCK OPTION PLAN
During fiscal year 1991, the Company adopted a compensatory stock option
plan for certain key employees which is administered by the Company's Board of
Directors. The options granted are exercisable five years from the date of
grant. The exercise price is determined by the Board of Directors but cannot be
less than 50% of the book value of the common and common share equivalents at
the time of the grant.
On January 20, 1995, the Board of Directors voted to wind up the stock
option plan effective April 30, 1995. Stock options outstanding as of April 30,
1995 are still eligible to be exercised as described in the plan document,
however, no new stock options will be granted under this stock option plan.
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Options outstanding at April 30, 1994................. 14,360 $6.16 - $6.75
------
Granted............................................. 7,400 $7.19
Canceled............................................ (2,000) $6.16 - $6.75
------
Options outstanding at April 30, 1995................. 19,760 $6.16 - $7.19
------
Canceled............................................ (750) $6.30 - $7.19
------
Options outstanding at April 30, 1996................. 19,010 $6.16 - $7.19
Exercised........................................... (555) $6.30 - $6.75
Canceled............................................ (3,900) $6.16 - $7.19
------
Options outstanding at April 30, 1997................. 14,555 $6.16 - $7.19
======
</TABLE>
6. LEASES
The Company leases a major portion of the land used for ski trails from the
U.S. Forest Service under a forty year lease which extends to the year 2034.
Annual rental payments are determined using a percentage of gross revenues based
on prior years actual rate. This rate is adjusted annually in September of the
following fiscal year. Total rent expense under this lease was $221,394 in 1997
and $176,088 in 1996.
F-118
<PAGE> 259
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LEASES -- (CONTINUED)
The Company has various leased equipment under capital leases. The leased
equipment is included with property and equipment in the following categories:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Snow making equipment.................................... $ -- $344,578
Operating equipment...................................... 306,000 104,505
-------- --------
306,000 449,083
Less accumulated depreciation............................ 30,600 362,937
-------- --------
$275,400 $ 86,146
======== ========
</TABLE>
Future minimum annual rentals for property under capital leases are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998........................................................ $ 90,140
1999........................................................ 90,140
2000........................................................ 79,500
-----------
Total minimum lease obligation.............................. 259,780
Less imputed interest....................................... (34,498)
-----------
Present value of minimum lease obligation................. $ 225,282
===========
</TABLE>
The Company is the lessee under an operating lease that has remaining
noncancelable lease payments as of April 30, 1998 of $38,600.
7. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current.................................................. $ 43,084 $ 81,821
Deferred................................................. 256,371 36,192
-------- -----------
$299,455 $ 118,013
======== ===========
</TABLE>
As of April 30, 1997, the Company's gross deferred tax assets and
liabilities were comprised of the following:
<TABLE>
<S> <C>
Gross deferred tax assets:
Alternative minimum tax credits........................... $ 243,861
Accrued liabilities and reserve........................... 142,885
Other..................................................... 26,953
-----------
$ 413,699
===========
Gross deferred tax liabilities:
Depreciation.............................................. $ 1,342,327
Other..................................................... 74,825
-----------
$ 1,417,152
===========
</TABLE>
At April 30, 1997, the Company has Alternative Minimum Tax (AMT) credit
carryforwards of $243,861 available for future utilization, which do not expire.
F-119
<PAGE> 260
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH FINANCING ACTIVITIES
Capital lease obligations of $306,000 were incurred during the fiscal year
ended April 30, 1997, reflecting new equipment leases.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash paid during the year for:
Interest............................................... $982,738 $907,326
Income taxes paid...................................... 117,000 63,788
Income taxes received.................................. 101,518 50,000
</TABLE>
9. INSURANCE
In November 1993, the Company obtained workers' compensation through a risk
transfer premium insurance coverage through the State of New Hampshire's
assigned risk pool. In fiscal 1995, the Company ceased its participation in the
assigned risk pool and obtained workers' compensation coverage through a
retrospective policy. This policy calculates the annual premium based on
estimated rates and classifications. Annually, the rates and classifications are
reviewed and adjusted to the actual amounts. Overpayments are refunded to the
Company while underpayments require additional monies to be paid by the Company.
The Company has a workers' compensation reserve of $124,000 and $251,000 at
April 30, 1997 and 1996, respectively. The Company carries general liability
insurance with specific ($25,000) and aggregate ($125,000) deductibles. At April
30, 1997 and 1996, the general liability reserve is $161,000 and $118,000,
respectively. The Company self-insures its employee health and dental benefits
payments up to certain limits. Employees participating in these programs bear a
portion of the cost. Purchased insurance is in effect to cover annual claims
exceeding approximately $30,000 individually or $126,786 in the aggregate. At
April 30, 1997 and 1996, the health and dental reserve is $27,000.
10. CONTINGENCY
On December 19, 1996, the United States Court of Appeals of the First
Circuit partially reversed the District Court's dismissal holding that a
Supplemental Environmental Impact Statement under the National Environmental
Policy Act (NEPA) was required for a planned development to upgrade and expand
skiing terrain and snow making facilities. The Court also required that the U.S.
Forest Service (USFS) obtain a permit under the Clean Water Act for certain
discharges from the Company's snowmaking system.
LMRC and the USFS filed a timely motion for rehearing. On February 13,
1997, the Court of Appeals modified its December 19, 1996 decision to state,
that LMRC, not the USFS, was required to obtain the Clean Water Act permits, and
denied the rehearing. An order from the District Court of New Hampshire on May
5, 1997 required LMRC to halt all construction activities contemplated in LMRC's
Master Development Plan of March 1, 1993 and pursuant to the March 16, 1994
Special Use Permit. The order also required the USFS to proceed in accordance
with the decision of the United States Court of Appeals of the First Circuit and
to prepare such documentation under NEPA as may be required to allow LMRC to
proceed with the related expansion and improvement plans. This process could
take up to two years to complete.
The Court Order went on to require LMRC to discontinue the transferring of
water from the East Branch of the Pemigewasset River to Loon Pond. LMRC is
developing a new withdrawal site in the East Branch of the Pemigewasset River
that will provide snowmaking capacity to the level experienced in the past,
which is currently anticipated to require additional capital expenditures of
approximately $2.3 million.
The ultimate outcome of the above litigation is not known at this point in
time, however, management intends to continue to vigorously defend itself to
ensure completion of the planned development. Approximately $650,000 of the
Company's April 30, 1997 construction in progress balance is directly related to
the
F-120
<PAGE> 261
LOON MOUNTAIN RECREATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CONTINGENCY -- (CONTINUED)
aforementioned expansion and development plans, and other than these amounts,
management does not believe the ultimate outcome will have a material adverse
impact on its future results of operation or financial condition.
F-121
<PAGE> 262
===============================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................ 3
Certain Definitions and Market and Industry
Data....................................... 4
Prospectus Summary........................... 6
Risk Factors................................. 22
The Transactions............................. 30
Capitalization............................... 33
Pro Forma Financial Information.............. 34
Selected Financial Data...................... 46
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 50
Business..................................... 67
Management................................... 90
Certain Transactions......................... 95
Ownership and Control........................ 100
Description of Certain Indebtedness.......... 101
The Exchange Offer........................... 103
Description of the Notes..................... 112
Certain U.S. Federal Income Tax
Considerations............................. 136
Plan of Distribution......................... 136
Legal Matters................................ 137
Experts...................................... 137
Index of Financial Statements................ F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE
EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================
===============================================================
$17,500,000
[BOOTH CREEK LOGO]
BOOTH CREEK
SKI HOLDINGS, INC.
OFFER TO EXCHANGE $1,000
IN PRINCIPAL AMOUNT OF ITS
12 1/2% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
12 1/2% SERIES C SENIOR NOTES DUE 2007
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
MARINE MIDLAND BANK
BY FACSIMILE:
(212) 658-2292
CONFIRMATION BY TELEPHONE:
(212) 658-5931
BY MAIL, OVERNIGHT COURIER OR HAND DELIVERY:
140 BROADWAY -- LEVEL A
NEW YORK, NEW YORK 10005-1180
ATTENTION: CORPORATE TRUST SERVICES
-----------------
PROSPECTUS
-----------------
, 1998
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE> 263
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Booth Creek Ski Holdings, Inc. and its subsidiaries, Sierra-at-Tahoe, Inc.,
Bear Mountain, Inc., Booth Creek Ski Acquisition Corp., Waterville Valley Ski
Resort, Inc., Mount Cranmore Ski Resort, Inc., Grand Targhee Incorporated,
Targhee Company, Targhee Ski Corp. and LMRC Holding Corp. (collectively, the
"Delaware Subsidiaries"), are Delaware corporations. Section 145 ("Section 145")
of the General Corporation Law of the State of Delaware (the "DGCL") provides
that a Delaware corporation may indemnify any persons who were, are or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, were or are threatened
to be made, a party to any threatened, pending or completed action or suit by or
in the right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Certificate of Incorporation and/or Bylaws of each of Booth Creek and the
Delaware Subsidiaries provide for the indemnification of persons under the
circumstances described in Section 145 of the DGCL.
Trimont Land Company is a California corporation and its Articles of
Incorporation and Bylaws provide for indemnification of its officers and
directors to the fullest extent permitted by law. Section 204(10) of the
California General Corporation Law (the "CGCL") eliminates the liability of a
corporation's directors for monetary damages to the fullest extent permissible
under California law. Pursuant to Section 204(11) of the CGCL, a California
corporation may indemnify Agents (as defined in Section 317 of the CGCL),
subject only to the applicable limits set forth in Section 204 of the CGCL with
respect to actions for breach of duty to the corporation and its shareholders.
As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the CGCL),
to the maximum extent permitted by the CGCL, in connection with any proceeding
arising by reason of the fact that such person is or was such a director or
officer, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in any such proceeding.
Ski Lifts, Inc. is a Washington corporation and its Articles of
Incorporation provide for indemnification of its officers and directors in
accordance with Section 23B.08.510 of the Revised Code of Washington, which
authorizes Washington corporations to indemnify their officers and directors
under certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director.
II-1
<PAGE> 264
Under Washington law, the indemnification provision of Ski Lifts' Articles
of Incorporation eliminates the liability of a director for breach of fiduciary
duty but does not eliminate the personal liability of any director for (i) acts
of omissions of a director that involve intentional misconduct or a knowing
violation of law, (ii) conduct in violation of Section 23B.08.310 of the Revised
Code of Washington (which section relates to unlawful distributions) or (iii)
any transaction from which a director personally received a benefit in money,
property or services to which the director was not legally entitled.
B-V Corporation is a Wyoming corporation and its Bylaws provide for
indemnification of its officers and directors to the fullest extent permitted by
the Wyoming Business Corporation Act, Wyoming Statutes 17-16-850 et seq., which
provides for indemnification by a corporation of costs incurred by directors,
employees, and agents in connection with an action, suit, or proceeding brought
by reason of their position as a director, employee, or agent. The person being
indemnified must have acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation.
Loon Mountain Recreation Corporation and Loon Realty Corp. are New
Hampshire corporations and their Articles of Incorporation and Bylaws provide
for indemnification of their officers and directors in accordance with RSA
293-A:8.50 et. seq., of the New Hampshire Business Corporation Act ("NHBCA"),
which provides for the indemnification, subject to the applicable limits, by a
New Hampshire corporation of costs incurred by directors or officers in
connection with a civil, criminal, administrative, or investigative action
brought by reason of their position as a director or officer. The person being
indemnified must have acted in good faith and must have reasonably believed, (i)
in the case of conduct in his official capacity, that his conduct was in the
best interests of the corporation, and in all other cases, that his conduct was
at least not opposed to its best interests, or (ii) in the case of a criminal
proceeding, that he had no reasonable cause to believe his conduct was unlawful.
Under the NHBCA, officers and directors may not be indemnified in connection
with any proceeding charging improper personal benefit to them if they are
adjudged to be liable to the corporation. Under the NHBCA, a corporation must
indemnify an officer or director who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party and because
he was an officer or director of the corporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
+2.1 Agreement and Plan of Merger dated as of September 18, 1997
by and among Booth Creek Ski Group, Inc., LMRC Acquisition
Corp. and Loon Mountain Recreation Corporation (exhibits and
schedules omitted).
+2.2 First Amendment to Merger Agreement, dated December 22,
1997, by and among Booth Creek Ski Group, Inc., LMRC
Acquisition Corp. and Loon Mountain Recreation Corporation.
*3.1 Certificate of Incorporation of Booth Creek Ski Holdings,
Inc.
*3.2 Bylaws of Booth Creek Ski Holdings, Inc.
*3.3 Restated Articles of Incorporation of Trimont Land Company.
*3.4 Bylaws of Trimont Land Company.
*3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc.
*3.6 Bylaws of Sierra-at-Tahoe, Inc.
*3.7 Certificate of Incorporation of Bear Mountain, Inc.
*3.8 Bylaws of Bear Mountain, Inc.
*3.9 Certificate of Incorporation of Booth Creek Ski Acquisition
Corp.
*3.10 Bylaws of Booth Creek Ski Acquisition Corp.
*3.11 Amended and Restated Certificate of Incorporation of
Waterville Valley Ski Resort, Inc.
*3.12 Bylaws of Waterville Valley Ski Resort, Inc.
*3.13 Amended and Restated Certificate of Incorporation of Mount
Cranmore Ski Resort, Inc.
*3.14 Bylaws of Mount Cranmore Ski Resort, Inc.
</TABLE>
II-2
<PAGE> 265
<TABLE>
<S> <C>
*3.15 Amended and Restated Articles of Incorporation of Ski Lifts,
Inc.
*3.16 Bylaws of Ski Lifts, Inc.
*3.17 Certificate of Incorporation of Grand Targhee Incorporated.
*3.18 Bylaws of Grand Targhee Incorporated.
*3.19 Articles of Incorporation of B-V Corporation.
*3.20 Bylaws of B-V Corporation.
*3.21 Certificate of Incorporation of Targhee Company.
*3.22 Bylaws of Targhee Company.
*3.23 Certificate of Incorporation of Targhee Ski Corp.
*3.24 Bylaws of Targhee Ski Corp.
****3.25 Articles of Incorporation of LMRC Holding Corp.
****3.26 Bylaws of LMRC Holding Corp.
****3.27 Amended and Restated Articles of Incorporation of Loon
Mountain Recreation Corporation.
****3.28 Amended and Restated Bylaws of Loon Mountain Recreation
Corporation.
****3.29 Amended and Restated Articles of Incorporation of Loon
Realty Corp.
****3.30 Amended and Restated Bylaws of Loon Realty Corp.
*4.1 Indenture dated as of March 18, 1997 by and among Booth
Creek Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville
Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc.,
Booth Creek Ski Acquisition Corp., Ski Lifts, Inc., Grand
Targhee Incorporated, B-V Corporation, Targhee Company and
Targhee Ski Corp., as Subsidiary Guarantors, and Marine
Midland Bank, as trustee (including the form of 12 1/2%
Senior Note due 2007 and the form of Guarantee).
*4.2 Supplemental Indenture No. 1 to Indenture dated as of April
25, 1997 by and among Booth Creek Ski Holdings, Inc., as
Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear
Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount
Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition
Corp., Ski Lifts, Inc., Grand Targhee Incorporated, B-V
Corporation, Targhee Company and Targhee Ski Corp., as
Subsidiary Guarantors, and Marine Midland Bank, as trustee.
+4.3 Supplemental Indenture No. 2 to Indenture dated as of
February 20, 1998 by and among Booth Creek Ski Holdings,
Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe,
Inc., Bear Mountain, Inc., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski
Acquisition Corp., Ski Lifts, Inc, Grand Targhee
Incorporated, B-V Corporation, Targhee Company and Targhee
Ski Corp, as Subsidiary Guarantors, and Marine Midland Bank,
as Trustee.
+4.4 Supplemental Indenture No. 3 to Indenture dated as of
February 26, 1998, by and among Booth Creek Ski Holdings,
Inc., as Issuer, LMRC Holding Corp., Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors, and Marine Midland Bank, as Trustee.
+4.5 Registration Rights Agreement, dated as of February 26, 1998
by and among the Booth Creek Ski Holdings, Inc., as Issuer,
Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain,
Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts,
Inc, Grand Targhee Incorporated, B-V Corporation, Targhee
Company, Targhee Ski Corp, LMRC Holding Corp, Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors and CIBC Oppenheimer Corp.
+4.6 Securities Purchase Agreement, dated as of February 23,
1998, by and among the Booth Creek Ski Holdings, Inc.,
Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain,
Inc., Booth Creek Ski Acquisition Corp., Waterville Valley
Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski
Lifts, Inc., Grand Targhee Incorporated, B-V Corporation,
Targhee Company, Targhee Ski Corp., LMRC Holding Corp., Loon
Mountain Recreation Corporation and Loon Realty Corp and
CIBC Oppenheimer Corp.
</TABLE>
II-3
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<TABLE>
<S> <C>
+4.7 Amended and Restated Securities Purchase Agreement, dated as
of February 26, 1998, among Booth Creek Ski Group, Inc.,
Booth Creek Ski Holdings, Inc., the Subsidiary Guarantors as
defined therein and each of John Hancock Mutual Life
Insurance Company and CIBC WG Argosy Merchant Fund 2, L.L.C.
++5.1 Opinion of Winston & Strawn.
*10.1 Amended and Restated Credit Agreement dated as of March 18,
1997 among Booth Creek Ski Holdings, Inc., Booth Creek Ski
Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe,
Inc., Bear Mountain, Inc., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc.,
Grand Targhee Incorporated and The First National Bank of
Boston.
*10.2 Amendment No. 1 to Credit Agreement as Amended and Restated
dated as of June 15, 1997 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
**10.3 Amendment No. 2 to Credit Agreement as amended and restated
dated as of July 30, 1997 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
***10.4 Amendment No. 3 to Credit Agreement as amended and restated
dated as of October 27, 1997 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
+10.5 Amendment No. 4 to Credit Agreement, as amended and restated
as of February 23, 1998 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated,
LMRC Holding Corp., Loon Mountain Recreation Corporation,
Loon Realty Corp. and BankBoston, N.A. (exhibits and
schedules omitted).
*10.6 Purchase and Sale Agreement dated as of August 30, 1996 by
and between Waterville Valley Ski Area, Ltd., Cranmore,
Inc., American Skiing Company and Booth Creek Ski
Acquisition Corp.
*10.7 Subordinated Promissory Note dated November 27, 1996 issued
by Booth Creek Ski Acquisition Corp.,Waterville Valley Ski
Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American
Skiing Company.
*10.8 Stock Purchase and Indemnification Agreement dated as of
November 26, 1996 among Booth Creek Ski Holdings, Inc.,
Fibreboard Corporation, Trimont Land Company,
Sierra-at-Tahoe, Inc. and Bear Mountain, Inc.
*10.9 Escrow Agreement dated December 3, 1996 by and among
Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and
First Trust of California.
*10.10 Purchase Agreement dated February 11, 1997 among Booth Creek
Ski Holdings, Inc., Grand Targhee Incorporated, Moritz O.
Bergmeyer and Carol Mann Bergmeyer.
*10.11 Promissory Note dated February 11, 1997 issued by Grand
Targhee Incorporated to Booth Creek Ski Holdings, Inc.
*10.12 Stock Purchase Agreement dated as of February 21, 1997 by
and between Booth Creek Ski Holdings, Inc., William W.
Moffett, Jr., David R. Moffett, Laurie M. Padden,
individually and as custodian for Christina Padden, Jennifer
Padden and Mary M. Padden, Stephen R. Moffett, Katharine E.
Moffett, Frances J. DeBruler, individually and as
representative of the Estate of Jean S. DeBruler, Jr.,
deceased, and Peggy Westerlund, and David R. Moffett, as
representative.
</TABLE>
II-4
<PAGE> 267
<TABLE>
<S> <C>
*10.13 Preferred Stock Purchase Agreement dated as of February 21,
1997 by and between DRE, L.L.C., William W. Moffett, Jr.,
David R. Moffett, Laurie M. Padden, individually and as
custodian for Christina Padden, Jennifer Padden and Mary M.
Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J.
DeBruler, individually and as representative of the Estate
of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and
David R. Moffett, as representative.
*10.14 Management Agreement dated as of November 27, 1996 by and
between Booth Creek Ski Holdings, Inc. and Booth Creek, Inc.
*10.15 Letter Agreement dated December 3, 1996 between Booth Creek
Ski Holdings, Inc. and Nanci N. Northway.
*10.16 Ski Area Term Special Use Permit No. 4002/01 issued by the
United States Forest Service to Waterville Valley Ski
Resort, Inc.
*10.17 Ski Area Term Special Use Permit No. 5123/01 issued by the
United States Forest Service to Bear Mountain, Inc.
*10.18 Ski Area Term Special Use Permit No. 4186/01 issued by the
United States Forest Service to Sierra-at-Tahoe, Inc.
*10.19 Ski Area Term Special Use Permit No. 4033/01 issued by the
United States Forest Service to Grand Targhee Incorporated.
*10.20 Ski Area Term Special Use Permit No. 4127/09 issued by the
United States Forest Service to Ski Lifts, Inc.
*10.21 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by
the United States Forest Service to Ski Lifts, Inc.
++10.22 Ski Area Term Special Use Permit No. 4031/01 issued by the
United States Forest Service to Loon Mountain Recreation
Corporation.
++10.23 Amendment Number 2 for Special Use Permit No. 4008/1 issued
by the United States Forest Service to Loon Mountain
Recreation Corporation.
++10.24 Amendment Number 5 for Special Use Permit No. 4008/1 issued
by the United States Forest Service to Loon Mountain
Recreation Corporation.
***10.25 Waiver Agreement dated January 27, 1998 to Credit Agreement
dated as of December 3, 1996, as amended and restated as of
March 18, 1997, as further amended as of June 15, 1997, July
30, 1997 and October 27, 1997 among Booth Creek Ski
Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont
Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
***10.26 Waiver Agreement dated January 28, 1998 to Credit Agreement
dated as of December 3, 1996, as amended and restated as of
March 18, 1997 as further amended as of June 15, 1997, July
30, 1997 and October 27, 1997 among Booth Creek Ski
Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont
Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
****10.27 Employment Agreement dated as of July 1, 1997, by and
between Booth Creek Ski Holdings, Inc. and Timothy H. Beck.
***10.28 Employment Agreement dated May 5, 1997 by and between Booth
Creek Ski Holdings, Inc. and Timothy M. Petrick.
***10.29 Stock Option Agreement dated as of October 1, 1997 between
Booth Creek Ski Group, Inc. and Timothy M. Petrick.
++10.30 Amendment No. 5 to Credit Agreement, as amended and restated
as of April 22, 1998 among Booth Creek Ski Holdings Inc.,
Booth Creek Ski Acquisition Corp., Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville
Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc.,
Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding
Corp., Loon Mountain Recreation Corporation, Loon Realty
Corp., and BankBoston, N.A.
</TABLE>
II-5
<PAGE> 268
<TABLE>
<C> <S>
10.31 Amendment No. 6 to Credit Agreement, as amended and restated as of April 22, 1998 among Booth Creek
Ski Holdings Inc., Booth Creek Ski Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe, Inc.,
Bear Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts,
Inc., Grand Targhee Incorporated, LMRC Holding Corp., Loon Mountain Recreation Corporation, Loon
Realty Corp., and BankBoston, N.A.
12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
++21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Feldhake & Associates, P.C.
23.5 Consent of Price Waterhouse LLP.
23.6 Consent of Winston & Strawn (included in Exhibit 5.1)
++99.1 Form of Letter of Transmittal.
++99.2 Form of Notice of Guaranteed Delivery.
++99.3 Form of Tender Instructions.
</TABLE>
- ---------------
* Filed with Registration Statement No. 333-26091 and incorporated herein by
reference.
** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended August 1, 1997 and incorporated herein by reference.
*** Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 31, 1997 and incorporated herein by reference.
**** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 30, 1998 and incorporated herein by reference.
+ Filed with the Company's Current Report on Form 8-K dated February 26, 1998
and incorporated herein by reference.
++ Previously filed as an Exhibit to this Registration Statement on Form S-4
(File No. 333-48619).
(b) Financial Statement Schedules:
None.
ITEM 22. UNDERTAKINGS.
Each 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;
II-6
<PAGE> 269
(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
the time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) Each undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the registrant undertakes that
such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form;
(5) Each registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective,
and that, for purposes 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;
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrants pursuant to the provisions
described under Item 20 or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 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 registrants 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, each registrant will, unless in the
opinion of its counsel the matter has 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 Act and will be governed by the final
adjudication of such issue;
(7) For purposes of determining any liability under the Securities Act
of 1933, 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 registrants
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;
(8) For the purpose of determining any liability under the Securities
Act of 1933, 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;
(9) Each undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request; and
(10) Each undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became
effective.
II-7
<PAGE> 270
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
BOOTH CREEK SKI HOLDINGS, INC.
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 271
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
TRIMONT LAND COMPANY
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 272
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
SIERRA-AT-TAHOE, INC.
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 273
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
BEAR MOUNTAIN, INC.
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 274
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
BOOTH CREEK SKI ACQUISITION CORP.
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 275
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
WATERVILLE VALLEY SKI RESORT, INC.
By: /s/ GEORGE N. GILLETT, JR.
-----------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 276
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
MOUNT CRANMORE SKI RESORT, INC.
By: /s/ GEORGE N. GILLETT, JR.
-----------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 277
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
SKI LIFTS, INC.
By: /s/ GEORGE N. GILLETT, JR.
-----------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 278
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
GRAND TARGHEE INCORPORATED
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 279
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
B-V CORPORATION
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- and Director (principal financial and
Jeffrey J. Joyce accounting officer)
</TABLE>
<PAGE> 280
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
TARGHEE COMPANY
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 281
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
TARGHEE SKI CORP.
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 282
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
LMRC HOLDING CORP.
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 283
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
LOON MOUNTAIN RECREATION CORPORATION
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 284
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Truckee, State of California, as of June 19, 1998.
LOON REALTY CORP.
By: /s/ GEORGE N. GILLETT, JR.
------------------------------------
George N. Gillett, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE N. GILLETT, JR. Chairman of the Board of Directors and June 19, 1998
- --------------------------------------------- Chief Executive Officer
George N. Gillett, Jr.
/s/ JEFFREY J. JOYCE Executive Vice President, Finance June 19, 1998
- --------------------------------------------- (principal financial and accounting
Jeffrey J. Joyce officer)
</TABLE>
<PAGE> 285
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
+2.1 Agreement and Plan of Merger dated as of September 18, 1997
by and among Booth Creek Ski Group, Inc., LMRC Acquisition
Corp. and Loon Mountain Recreation Corporation (exhibits and
schedules omitted).
+2.2 First Amendment to Merger Agreement, dated December 22,
1997, by and among Booth Creek Ski Group, Inc., LMRC
Acquisition Corp. and Loon Mountain Recreation Corporation.
*3.1 Certificate of Incorporation of Booth Creek Ski Holdings,
Inc.
*3.2 Bylaws of Booth Creek Ski Holdings, Inc.
*3.3 Restated Articles of Incorporation of Trimont Land Company.
*3.4 Bylaws of Trimont Land Company.
*3.5 Certificate of Incorporation of Sierra-at-Tahoe, Inc.
*3.6 Bylaws of Sierra-at-Tahoe, Inc.
*3.7 Certificate of Incorporation of Bear Mountain, Inc.
*3.8 Bylaws of Bear Mountain, Inc.
*3.9 Certificate of Incorporation of Booth Creek Ski Acquisition
Corp.
*3.10 Bylaws of Booth Creek Ski Acquisition Corp.
*3.11 Amended and Restated Certificate of Incorporation of
Waterville Valley Ski Resort, Inc.
*3.12 Bylaws of Waterville Valley Ski Resort, Inc.
*3.13 Amended and Restated Certificate of Incorporation of Mount
Cranmore Ski Resort, Inc.
*3.14 Bylaws of Mount Cranmore Ski Resort, Inc.
*3.15 Amended and Restated Articles of Incorporation of Ski Lifts,
Inc.
*3.16 Bylaws of Ski Lifts, Inc.
*3.17 Certificate of Incorporation of Grand Targhee Incorporated.
*3.18 Bylaws of Grand Targhee Incorporated.
*3.19 Articles of Incorporation of B-V Corporation.
*3.20 Bylaws of B-V Corporation.
*3.21 Certificate of Incorporation of Targhee Company.
*3.22 Bylaws of Targhee Company.
*3.23 Certificate of Incorporation of Targhee Ski Corp.
*3.24 Bylaws of Targhee Ski Corp.
****3.25 Articles of Incorporation of LMRC Holding Corp.
****3.26 Bylaws of LMRC Holding Corp.
****3.27 Amended and Restated Articles of Incorporation of Loon
Mountain Recreation Corporation.
****3.28 Amended and Restated Bylaws of Loon Mountain Recreation
Corporation.
****3.29 Amended and Restated Articles of Incorporation of Loon
Realty Corp.
****3.30 Amended and Restated Bylaws of Loon Realty Corp.
</TABLE>
<PAGE> 286
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*4.1 Indenture dated as of March 18, 1997 by and among Booth
Creek Ski Holdings, Inc., as Issuer, Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville
Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc.,
Booth Creek Ski Acquisition Corp., Ski Lifts, Inc., Grand
Targhee Incorporated, B-V Corporation, Targhee Company and
Targhee Ski Corp., as Subsidiary Guarantors, and Marine
Midland Bank, as trustee (including the form of 12 1/2%
Senior Note due 2007 and the form of Guarantee).
*4.2 Supplemental Indenture No. 1 to Indenture dated as of April
25, 1997 by and among Booth Creek Ski Holdings, Inc., as
Issuer, Trimont Land Company, Sierra-at-Tahoe, Inc., Bear
Mountain, Inc., Waterville Valley Ski Resort, Inc., Mount
Cranmore Ski Resort, Inc., Booth Creek Ski Acquisition
Corp., Ski Lifts, Inc., Grand Targhee Incorporated, B-V
Corporation, Targhee Company and Targhee Ski Corp., as
Subsidiary Guarantors, and Marine Midland Bank, as trustee.
+4.3 Supplemental Indenture No. 2 to Indenture dated as of
February 20, 1998 by and among Booth Creek Ski Holdings,
Inc., as Issuer, Trimont Land Company, Sierra-at-Tahoe,
Inc., Bear Mountain, Inc., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Booth Creek Ski
Acquisition Corp., Ski Lifts, Inc, Grand Targhee
Incorporated, B-V Corporation, Targhee Company and Targhee
Ski Corp, as Subsidiary Guarantors, and Marine Midland Bank,
as Trustee.
+4.4 Supplemental Indenture No. 3 to Indenture dated as of
February 26, 1998, by and among Booth Creek Ski Holdings,
Inc., as Issuer, LMRC Holding Corp., Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors, and Marine Midland Bank, as Trustee.
+4.5 Registration Rights Agreement, dated as of February 26, 1998
by and among the Booth Creek Ski Holdings, Inc., as Issuer,
Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain,
Inc., Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Booth Creek Ski Acquisition Corp., Ski Lifts,
Inc, Grand Targhee Incorporated, B-V Corporation, Targhee
Company, Targhee Ski Corp, LMRC Holding Corp, Loon Mountain
Recreation Corporation and Loon Realty Corp., as Subsidiary
Guarantors and CIBC Oppenheimer Corp.
+4.6 Securities Purchase Agreement, dated as of February 23,
1998, by and among the Booth Creek Ski Holdings, Inc.,
Trimont Land Company, Sierra-at-Tahoe, Inc., Bear Mountain,
Inc., Booth Creek Ski Acquisition Corp., Waterville Valley
Ski Resort, Inc., Mount Cranmore Ski Resort, Inc., Ski
Lifts, Inc., Grand Targhee Incorporated, B-V Corporation,
Targhee Company, Targhee Ski Corp., LMRC Holding Corp., Loon
Mountain Recreation Corporation and Loon Realty Corp and
CIBC Oppenheimer Corp.
+4.7 Amended and Restated Securities Purchase Agreement, dated as
of February 26, 1998, among Booth Creek Ski Group, Inc.,
Booth Creek Ski Holdings, Inc., the Subsidiary Guarantors as
defined therein and each of John Hancock Mutual Life
Insurance Company and CIBC WG Argosy Merchant Fund 2, L.L.C.
++5.1 Opinion of Winston & Strawn.
*10.1 Amended and Restated Credit Agreement dated as of March 18,
1997 among Booth Creek Ski Holdings, Inc., Booth Creek Ski
Acquisition Corp., Trimont Land Company, Sierra-at-Tahoe,
Inc., Bear Mountain, Inc., Waterville Valley Ski Resort,
Inc., Mount Cranmore Ski Resort, Inc., Ski Lifts, Inc.,
Grand Targhee Incorporated and The First National Bank of
Boston.
*10.2 Amendment No. 1 to Credit Agreement as Amended and Restated
dated as of June 15, 1997 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
</TABLE>
<PAGE> 287
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
**10.3 Amendment No. 2 to Credit Agreement as amended and restated
dated as of July 30, 1997 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
***10.4 Amendment No. 3 to Credit Agreement as amended and restated
dated as of October 27, 1997 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
+10.5 Amendment No. 4 to Credit Agreement, as amended and restated
as of February 23, 1998 among Booth Creek Ski Holdings,
Inc., Booth Creek Ski Acquisition Corp., Trimont Land
Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated,
LMRC Holding Corp., Loon Mountain Recreation Corporation,
Loon Realty Corp. and BankBoston, N.A. (exhibits and
schedules omitted).
*10.6 Purchase and Sale Agreement dated as of August 30, 1996 by
and between Waterville Valley Ski Area, Ltd., Cranmore,
Inc., American Skiing Company and Booth Creek Ski
Acquisition Corp.
*10.7 Subordinated Promissory Note dated November 27, 1996 issued
by Booth Creek Ski Acquisition Corp.,Waterville Valley Ski
Resort, Inc. and Mount Cranmore Ski Resort, Inc. to American
Skiing Company.
*10.8 Stock Purchase and Indemnification Agreement dated as of
November 26, 1996 among Booth Creek Ski Holdings, Inc.,
Fibreboard Corporation, Trimont Land Company,
Sierra-at-Tahoe, Inc. and Bear Mountain, Inc.
*10.9 Escrow Agreement dated December 3, 1996 by and among
Fibreboard Corporation, Booth Creek Ski Holdings, Inc. and
First Trust of California.
*10.10 Purchase Agreement dated February 11, 1997 among Booth Creek
Ski Holdings, Inc., Grand Targhee Incorporated, Moritz O.
Bergmeyer and Carol Mann Bergmeyer.
*10.11 Promissory Note dated February 11, 1997 issued by Grand
Targhee Incorporated to Booth Creek Ski Holdings, Inc.
*10.12 Stock Purchase Agreement dated as of February 21, 1997 by
and between Booth Creek Ski Holdings, Inc., William W.
Moffett, Jr., David R. Moffett, Laurie M. Padden,
individually and as custodian for Christina Padden, Jennifer
Padden and Mary M. Padden, Stephen R. Moffett, Katharine E.
Moffett, Frances J. DeBruler, individually and as
representative of the Estate of Jean S. DeBruler, Jr.,
deceased, and Peggy Westerlund, and David R. Moffett, as
representative.
*10.13 Preferred Stock Purchase Agreement dated as of February 21,
1997 by and between DRE, L.L.C., William W. Moffett, Jr.,
David R. Moffett, Laurie M. Padden, individually and as
custodian for Christina Padden, Jennifer Padden and Mary M.
Padden, Stephen R. Moffett, Katharine E. Moffett, Frances J.
DeBruler, individually and as representative of the Estate
of Jean S. DeBruler, Jr., deceased, and Peggy Westerlund and
David R. Moffett, as representative.
*10.14 Management Agreement dated as of November 27, 1996 by and
between Booth Creek Ski Holdings, Inc. and Booth Creek, Inc.
*10.15 Letter Agreement dated December 3, 1996 between Booth Creek
Ski Holdings, Inc. and Nanci N. Northway.
</TABLE>
<PAGE> 288
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*10.16 Ski Area Term Special Use Permit No. 4002/01 issued by the
United States Forest Service to Waterville Valley Ski
Resort, Inc.
*10.17 Ski Area Term Special Use Permit No. 5123/01 issued by the
United States Forest Service to Bear Mountain, Inc.
*10.18 Ski Area Term Special Use Permit No. 4186/01 issued by the
United States Forest Service to Sierra-at-Tahoe, Inc.
*10.19 Ski Area Term Special Use Permit No. 4033/01 issued by the
United States Forest Service to Grand Targhee Incorporated.
*10.20 Ski Area Term Special Use Permit No. 4127/09 issued by the
United States Forest Service to Ski Lifts, Inc.
*10.21 Annual Special Use Permit Nos. 4127/19 & 4127/19 issued by
the United States Forest Service to Ski Lifts, Inc.
++10.22 Ski Area Term Special Use Permit No. 4031/01 issued by the
United States Forest Service to Loon Mountain Recreation
Corporation.
++10.23 Amendment Number 2 for Special Use Permit No. 4008/1 issued
by the United States Forest Service to Loon Mountain
Recreation Corporation.
++10.24 Amendment Number 5 for Special Use Permit No. 4008/1 issued
by the United States Forest Service to Loon Mountain
Recreation Corporation.
***10.25 Waiver Agreement dated January 27, 1998 to Credit Agreement
dated as of December 3, 1996, as amended and restated as of
March 18, 1997, as further amended as of June 15, 1997, July
30, 1997 and October 27, 1997 among Booth Creek Ski
Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont
Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
***10.26 Waiver Agreement dated January 28, 1998 to Credit Agreement
dated as of December 3, 1996, as amended and restated as of
March 18, 1997 as further amended as of June 15, 1997, July
30, 1997 and October 27, 1997 among Booth Creek Ski
Holdings, Inc., Booth Creek Ski Acquisition Corp., Trimont
Land Company, Sierra-at-Tahoe, Inc., Bear Mountain, Inc.,
Waterville Valley Ski Resort, Inc., Mount Cranmore Ski
Resort, Inc., Ski Lifts, Inc., Grand Targhee Incorporated
and BankBoston, N.A.
****10.27 Employment Agreement dated as of July 1, 1997, by and
between Booth Creek Ski Holdings, Inc. and Timothy H. Beck.
***10.28 Employment Agreement dated May 5, 1997 by and between Booth
Creek Ski Holdings, Inc. and Timothy M. Petrick.
***10.29 Stock Option Agreement dated as of October 1, 1997 between
Booth Creek Ski Group, Inc. and Timothy M. Petrick.
++10.30 Amendment No. 5 to Credit Agreement, as amended and restated
as of April 22, 1998 among Booth Creek Ski Holdings Inc.,
Booth Creek Ski Acquisition Corp., Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville
Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc.,
Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding
Corp., Loon Mountain Recreation Corporation, Loon Realty
Corp., and BankBoston, N.A.
</TABLE>
<PAGE> 289
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.31 Amendment No. 6 to Credit Agreement, as amended and restated
as of April 22, 1998 among Booth Creek Ski Holdings Inc.,
Booth Creek Ski Acquisition Corp., Trimont Land Company,
Sierra-at-Tahoe, Inc., Bear Mountain, Inc., Waterville
Valley Ski Resort, Inc., Mount Cranmore Ski Resort, Inc.,
Ski Lifts, Inc., Grand Targhee Incorporated, LMRC Holding
Corp., Loon Mountain Recreation Corporation, Loon Realty
Corp., and BankBoston, N.A.
+++10.32 Stock Option Agreement dated as of February 28, 1998 by and
between Booth Creek Ski Group, Inc. and Timothy Silva.
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
++21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Feldhake & Associates, P.C.
23.5 Consent of Price Waterhouse LLP.
++23.6 Consent of Winston & Strawn (included in Exhibit 5.1)
++99.1 Form of Letter of Transmittal.
++99.2 Form of Notice of Guaranteed Delivery.
++99.3 Form of Tender Instructions.
</TABLE>
- ---------------
* Filed with Registration Statement No. 333-26091 and incorporated herein by
reference.
** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended August 1, 1997 and incorporated herein by reference.
*** Filed with the Company's Annual Report on Form 10-K for the Fiscal Year
Ended October 31, 1997 and incorporated herein by reference.
**** Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended January 30, 1998 and incorporated herein by reference.
+ Filed with the Company's Current Report on Form 8-K dated February 26, 1998
and incorporated herein by reference.
++ Previously filed as an Exhibit to this Registration Statement on Form S-4
(File No. 333-48619).
+++ Filed with the Company's Quarterly Report on Form 10-Q for the Quarterly
Period Ended May 1, 1998 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.31
Execution Copy
AMENDMENT NO. 6
TO CREDIT AGREEMENT
AS AMENDED AND RESTATED
As of May 1, 1998
BOOTH CREEK SKI HOLDINGS, INC., a Delaware corporation (together with
its successors and assigns, "BCS Holdings"), BOOTH CREEK SKI ACQUISITION CORP.,
a Delaware corporation (together with its successors and assigns, "BCS
Acquisition"), TRIMONT LAND COMPANY, a California corporation (together with its
successors and assigns, "Northstar-at-Tahoe"), SIERRA-AT-TAHOE, INC., a Delaware
corporation (together with its successors and assigns, "Sierra-at-Tahoe"), BEAR
MOUNTAIN, INC., a Delaware corporation (together with its successors and
assigns, "Bear Mountain"), WATERVILLE VALLEY SKI RESORT, INC., a Delaware
corporation (together with its successors and assigns, "Waterville"), MOUNT
CRANMORE SKI RESORT, INC., a Delaware corporation (together with its successors
and assigns, "Cranmore"), SKI LIFTS, INC., a Washington corporation (together
with its successors and assigns, "Ski Lifts"), GRAND TARGHEE INCORPORATED, a
Delaware corporation (together with its successors and assigns, "Grand
Targhee"), LMRC HOLDING CORP., a Delaware corporation (together with its
successors and assigns, "LMRC Holding"), LOON MOUNTAIN RECREATION CORPORATION, a
New Hampshire corporation (together with its successors and assigns, "Loon"),
and LOON REALTY CORP. (together with its successors and assigns, "Loon Realty",
and together with BCS Holdings, BCS Acquisition, Northstar-at-Tahoe,
Sierra-at-Tahoe, Bear Mountain, Waterville, Cranmore and Ski Lifts, Grand
Targhee, LMRC Holding and Loon, the "Borrowers", and each a "Borrower"),
BANKBOSTON, N.A. (f/k/a The First National Bank of Boston), a national banking
association (together with its successors and assigns, "BankBoston"), any other
Lenders from time to time party hereto, and BankBoston, as agent for itself and
the other Lenders (the "Agent") hereby agree as follows:
1. Reference to Credit Agreement: Definitions. Reference is made to the Credit
Agreement dated as of December 3, 1996, as amended and restated as of March 18,
1997, as further amended and in effect on the date hereof (the "Credit
Agreement"), among the Borrowers, BankBoston and the Agent. The Credit Agreement
as amended by this Amendment is referred to herein as the "Amended Credit
Agreement". Terms defined in the Amended Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined.
2. Amendments to the Credit Agreement. Subject to all the terms and conditions
hereof, effective as of the date hereof, the Credit Agreement is hereby amended
as set forth herein.
-1-
<PAGE> 2
2.1. Amendment to Section 7.5.2. Section 7.5.2 of the Credit Agreement
is hereby amended to read in its entirety as follows:
"7.5.2. Cash Flow to Fixed Charges. On the last day of each
fiscal quarter of the Borrowers, the sum of (a) Trailing Four Fiscal
Quarter Cash Flow measured on such date minus (b) Cash Flow Adjustment
for the four fiscal quarters then ending, shall equal or exceed the
percentage of Consolidated Fixed Charges for such period set forth in
the table below:
Fiscal Quarters Ending Nearest Percentage
------------------------------ ----------
April 30, 1998 108.25%
July 31, 1998 and thereafter 110%"
3. Representations and Warranties. In order to induce the Lenders to enter into
this Amendment, and to continue to extend credit to the Borrowers under the
Amended Credit Agreement, each of the Borrowers represents and warrants to the
Lenders that:
3.1. Organization and Qualification. Each of the Borrowers is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power
necessary to execute and deliver this Amendment and to perform its obligations
thereunder and under the Amended Credit Agreement.
3.2. Corporate Authority. The execution, delivery and performance of
this Amendment and the Amended Credit Agreement, and the borrowings and
transactions contemplated hereby and thereby, are within the corporate power and
authority of each of the Borrowers and have been authorized by proper corporate
proceedings, and do not and will not (a) require any consent or approval of the
stockholders of any of the Borrowers, (b) contravene any provision of the
charter documents or by-laws of any of the Borrowers or any law, rule or
regulation applicable to any of the Borrowers, (c) contravene any provision of,
or constitute an event of default or event which, but for the requirement that
time elapse or notice be given, or both, would constitute an event of default
under, any other agreement, instrument or undertaking binding on any of the
Borrowers, or (d) result in or require the imposition of any Lien on any of the
properties of any of the Borrowers.
3.3. No Default. No Default under the Credit Agreement now exists, and
after giving effect to this Amendment no Default under the Amended Credit
Agreement shall exist.
4. Miscellaneous. Except to the extent specifically amended hereby, the
provisions of the Credit Agreement shall remain unmodified, and the Amended
Credit Agreement is hereby confirmed as being in full force and effect. The
Borrowers hereby affirm that, after giving
-2-
<PAGE> 3
effect to this Amendment, the security interests contemplated by the Credit
Agreement and all other Credit Documents attach in favor of the Agent so as to
secure due and punctual performance of all Credit Obligations contemplated by
the Amended Credit Agreement.
This Amendment may be executed in any number of counterparts which
together shall constitute one instrument, shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
the conflict of laws rules of any jurisdictions, and shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns
pursuant to Section 12 of the Amended Credit Agreement.
-3-
<PAGE> 4
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
BOOTH CREEK SKI HOLDINGS, INC.
BOOTH CREEK SKI ACQUISITION CORP.
TRIMONT LAND COMPANY
SIERRA-AT-TAHOE, INC.
BEAR MOUNTAIN, INC.
WATERVILLE VALLEY SKI RESORT, INC.
MOUNT CRANMORE SKI RESORT, INC.
SKI LIFTS, INC.
GRAND TARGHEE INCORPORATED
LMRC HOLDING CORP.
LOON MOUNTAIN RECREATION CORPORATION
LOON REALTY CORP.
By: /s/ Jeffrey J. Joyce
-----------------------------
Title: Executive Vice President
BANKBOSTON, N.A.,
as Agent
By: /s/ Carlton F. Williams
-----------------------------
Title: Director
BANKBOSTON, N.A.,
as Lender
By: /s/ Carlton F. Williams
-----------------------------
Title: Director
-4-
<PAGE> 1
EXHIBIT 12.1
BOOTH CREEK SKI HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------- ------------------------------
YEAR SIX MONTHS SIX MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, 1997 MAY 2, 1997 MAY 1, 1998 OCTOBER 31, 1997 MAY 1, 1998
---------------- ----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income (loss) before income
taxes........................ $(15,928) $ 5,663 $12,314 $(22,688) $15,161
Fixed charges................... 16,296 7,391 9,696 20,037 10,531
Preferred stock dividend
requirement.................. (257) (98) (138) (304) (138)
-------- ------- ------- -------- -------
Total Earnings............. $ 111 $12,956 $21,872 $ (2,955) $25,554
======== ======= ======= ======== =======
FIXED CHARGES
Interest (expensed or
capitalized)................. $ 13,269 $ 5,163 $ 8,347 $ 17,788 $ 9,125
Portion of rent expense
representative of interest... 961 934 600 974 630
Amortization of deferred
financing fees............... 1,809 1,196 611 971 638
Preferred stock dividend
requirement.................. 257 98 138 304 138
-------- ------- ------- -------- -------
Total Fixed Charges........ $ 16,296 $ 7,391 $ 9,696 $ 20,037 $10,531
======== ======= ======= ======== =======
RATIO OF EARNINGS TO FIXED
CHARGES......................... -- 1.75 2.26 -- 2.43
======== ======= ======= ======== =======
COVERAGE DEFICIENCY............... $(16,185) $ -- -- $(22,992) $ --
======== ======= ======= ======== =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary
Financial Data," "Selected Financial Data," and "Experts" and to the use of our
reports dated January 16, 1998, with respect to the consolidated financial
statements of Booth Creek Ski Holdings, Inc., dated September 30, 1997, with
respect to the combined financial statements of The Resort Group of Fibreboard
Corporation (wholly-owned subsidiaries of Fibreboard Corporation), dated January
25, 1997 and September 30, 1997, with respect to the combined financial
statements of Waterville Valley Ski Area., Ltd., dated May 15, 1997, with
respect to the combined financial statements of Ski Lifts, Inc., and dated June
27, 1997, with respect to the combined financial statements of Grand Targhee
Incorporated, included in Amendment No. 3 to the Registration Statement on Form
S-4 and related Prospectus of Booth Creek Ski Holdings, Inc. for the
registration of $17,500,000 of its 12.5% Series B Senior Notes due 2007.
ERNST & YOUNG LLP
Sacramento, California
June 18, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the financial statements of The Resort Group of Fibreboard Corporation
dated November 22, 1996 (and to all references to our Firm) included in or made
a part of this Amendment No. 3 to the Registration Statement on Form S-4 and
related Prospectus of Booth Creek Ski Holdings, Inc. for the registration of its
12.5% Series B Senior Notes due 2007.
ARTHUR ANDERSEN LLP
San Francisco, California
June 18, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 3 to the Registration
Statement on Form S-4 of Booth Creek Ski Holdings, Inc. of our report on our
audits of the financial statements of Ski Lifts, Inc. as of September 30, 1996
and 1995 and for each of the three years in the period ended September 30, 1996,
dated December 9, 1996, except for Note 13 to the financial statements as to
which the date is December 19, 1996, which report includes an explanatory
paragraph describing Ski Lifts, Inc.'s change in method of accounting for income
taxes and an emphasis of a matter paragraph describing an agreement in principle
to sell the stock of Ski Lifts, Inc. We also consent to the reference to our
firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Seattle, Washington
June 18, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF FELDHAKE & ASSOCIATES, P.C.,
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated June 20, 1996, except for Note 11 for which the date
is January 27, 1997, with respect to the financial statements of Grand Targhee
Incorporated included in the Amendment No. 3 to the Registration Statement on
Form S-4 and related Prospectus of Booth Creek Ski Holdings, Inc. for the
registration of $17,500,000 of its 12.5% Series B Senior Notes due 2007.
FELDHAKE & ASSOCIATES, P.C.
Englewood, Colorado
June 18, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to the Registration Statement on Form S-4 of Booth Creek Ski
Holdings, Inc. of our report dated June 20, 1997 relating to the financial
statements of Loon Mountain Recreation Corporation, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Hartford, Connecticut
June 18, 1998
