<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1997
REGISTRATION NO. 333-5341
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SECURITIES AND EXCHANGE COMMISSION
---------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VAIL RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0291762
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
VAIL RESORTS, INC.
137 BENCHMARK ROAD
AVON, COLORADO 81620
(970) 476-5601
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES S. MANDEL, ESQ.
VAIL RESORTS, INC.
POST OFFICE BOX 7
VAIL, COLORADO 81658
(970) 476-5601
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
JAMES J. CLARK, ESQ. NORMAN BROWNSTEIN, ESQ. HOWARD A. SOBEL, ESQ.
CAHILL GORDON & BROWNSTEIN HYATT FARBER KRAMER, LEVIN, NAFTALIS
REINDEL & STRICKLAND, P.C. & FRANKEL
80 PINE STREET 410 SEVENTEENTH STREET, 919 THIRD AVENUE,
NEW YORK, NY 10005 22ND FLOOR 39TH FLOOR
(212) 701-3000 DENVER, CO 80202-4437 NEW YORK, NY 10022-3903
(303) 534-6335 (212) 715-9100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value............... $210,000,000 $63,636(2)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten public offering in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent underwritten
public offering outside the United States and Canada (the "International
Prospectus"). The two prospectuses are identical except for the front and back
cover pages. The form of U.S. Prospectus is included herein and is followed by
the alternative pages to be used in the International Prospectus. Each of the
alternate pages for the International Prospectus included herein is labeled
"International Prospectus--Alternate Pages." Final forms of each Prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b)
under the Securities Act of 1933.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 8, 1997
PROSPECTUS
10,500,000 SHARES
VAIL RESORTS, INC.
LOGO
COMMON STOCK
Of the 10,500,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby, 5,000,000 shares will be sold by Vail Resorts,
Inc. (the "Company") and 5,500,000 shares will be sold by certain Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
A total of 8,400,000 shares (the "U.S. Shares") are being offered in the
United States and Canada (the "U.S. Offering") by the U.S. Underwriters, and
2,100,000 shares (the "International Shares") are being offered outside the
United States and Canada (the "International Offering") by the Managers. The
initial public offering price and the underwriting discounts and commissions
are identical for both the U.S. Offering and the International Offering
(collectively, the "Offerings").
The outstanding capital stock of the Company consists of the Common Stock and
the Class A Common Stock, $.01 par value per share (the "Class A Common
Stock"). The Common Stock and the Class A Common Stock are substantially
identical, except that holders of the Class A Common Stock elect a class of
directors that constitutes two-thirds of the Board of Directors and holders of
the Common Stock elect a class of directors that constitutes one-third of the
Board of Directors. See "Description of Capital Stock."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price will be
between $19.00 and $21.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. Up to
250,000 of the shares (the "Directed Shares") will be reserved for sale at the
initial public offering price (less the underwriting discounts and commissions)
and offered to persons who are directors, officers or employees of, or are
otherwise associated with, the Company. See "Underwriting."
The Common Stock has been approved for listing, subject to official notice of
issuance, on The New York Stock Exchange under the symbol "MTN."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
-----------
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.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
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Total(3)............... $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the U.S.
Underwriters and the Managers.
(2) Before deducting expenses related to the Offerings estimated at $ , all
of which will be paid by the Company.
(3) The Selling Stockholders have granted to the U.S. Underwriters and the
Managers 30-day options to purchase in the aggregate up to 1,575,000
additional shares of Common Stock solely to cover over-allotments, if any.
If the options are exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Selling
Stockholders will be $ , $ and $ , respectively. See "Underwriting."
If all of the Directed Shares are purchased by the persons to whom they are
offered, the total Price to Public and Underwriting Discounts and
Commissions each will be reduced by $ .
-----------
The U.S. Shares are offered by the several U.S. Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them and subject to
certain conditions, including the approval of certain legal matters by counsel.
The U.S. Underwriters reserve the right to withdraw, cancel or modify the U.S.
Offering and to reject orders in whole or in part. It is expected that delivery
of the U.S. Shares will be made against payment therefor on or about ,
1997, at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York,
New York 10167.
-----------
BEAR, STEARNS & CO. INC.
FURMAN SELZ
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
, 1997
<PAGE>
[RECREATIONAL PICTURES INSERTED HERE]
2
<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------
No dealer, salesperson or other person has been authorized to give any
information to make any representation not contained in this Prospectus in
connection with the offer contained herein and, if given or made, such other
information or representation must not be relied upon as having been
authorized by the Company, any Selling Stockholder, any Underwriter or any
other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy, any securities other than the registered
securities to which it relates, or an offer to sell or a solicitation of an
offer to buy, to anyone 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 anyone 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 its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Information
by Reference........................ 3
Prospectus Summary................... 4
Summary Consolidated Financial and
Operating Data...................... 12
Risk Factors......................... 15
Use of Proceeds...................... 19
Dividend Policy...................... 19
Dilution............................. 19
Capitalization....................... 20
Pro Forma Financial Data............. 21
Selected Consolidated Financial and
Operating Data...................... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business............................. 35
Management .......................... 62
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Compensation Table........... 67
Principal and Selling Stockholders .. 70
Certain Transactions................. 71
The Acquisition...................... 72
Description of Certain Indebtedness.. 74
Description of Capital Stock......... 76
Shares Eligible for Future Sale...... 79
Certain United States Federal Tax
Consequences to Non-United States
Holders of Common Stock............. 80
Underwriting......................... 83
Notice to Canadian Residents......... 85
Legal Matters........................ 87
Experts.............................. 87
Available Information................ 87
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by the Company (formerly named
Gillett Holdings, Inc.) with the Securities and Exchange Commission (the
"Commission") (File No. 1-9614) pursuant to the Securities Exchange Act of
1934 (the "Exchange Act") are incorporated and made a part of this Prospectus
by reference, except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the year ended September
30, 1996;
2. The Company's Registration Statement on Form 8-A dated July 3, 1996;
and
3. The Company's Current Report on Form 8-K dated January 8, 1997.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document described
herein (not including exhibits to those documents unless such exhibits are
specifically incorporated by reference into the information incorporated into
this Prospectus). Requests for such copies should be directed to James S.
Mandel, Esq., Senior Vice President and General Counsel, Vail Resorts, Inc.,
Post Office Box 7, Vail, Colorado 81658, telephone (970) 476-5601.
The Company's mailing address is Post Office Box 7, Vail, Colorado 81658 and
its executive offices are located at 137 Benchmark Road, Avon, Colorado 81620.
Its telephone number is (970) 476-5601.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in, or
incorporated by reference into, this Prospectus. Except where otherwise
indicated, the information in this Prospectus (i) assumes that the over-
allotment options granted to the U.S. Underwriters and the Managers will not be
exercised and (ii) gives effect to a 2 for 1 stock split with respect to the
Common Stock and Class A Common Stock that will be effected prior to the
consummation of the Offerings. Unless the context otherwise requires, the term
"Company" refers to (a) Vail Resorts, Inc. (formerly known as Gillett Holdings,
Inc., "Vail Resorts") and its subsidiaries, as such entities existed prior to
the consummation of the Acquisition (as hereinafter defined) and shall not
include the Acquired Resorts (as hereinafter defined) when used with respect to
historical information contained herein or (b) Vail Resorts and its
subsidiaries, including the Acquired Resorts, as such entities exist following
the Acquisition, when used with respect to information about events occurring
upon completion of or after the Acquisition or when giving pro forma effect
thereto. The Company will divest the Arapahoe Basin mountain resort, an
Acquired Resort (as hereinafter defined), pursuant to a Stipulation and Final
Judgment (the "Consent Decree") with the United States Department of Justice
(the "DOJ"). See "Recent Developments," "The Acquisition" and "Pro Forma
Financial Data". Unless otherwise specified, all data contained herein includes
the Arapahoe Basin mountain resort, "fiscal" in connection with a year shall
mean the 12 months ended September 30, "ski season" shall mean the period from
the opening of any of the Company's mountains for skiing to the closing of the
Company's last mountain for skiing, typically mid-November to late April, and
"skier day" shall mean one guest accessing a ski mountain on any one day.
"Beaver Creek" and other designated trademarks are registered trademarks of the
Company. As used herein, Resort Cash Flow is defined as revenues from resort
operations less resort operating expenses, excluding depreciation and
amortization. Resort Cash Flow is not a term that has an established meaning
under generally accepted accounting principles. The Company has included
information concerning Resort Cash Flow because management believes it is an
indicative measure of a resort company's operating performance and is generally
used by investors to evaluate companies in the resort industry. Resort Cash
Flow does not purport to represent cash provided by operating activities and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. For information regarding the Company's historical cash flows from
operating, investing and financing activities, see the Company's consolidated
financial statements included elsewhere in this Prospectus. Furthermore, Resort
Cash Flow is not available for the discretionary use of management and, prior
to the payment of dividends, the Company uses Resort Cash Flow to meet its
capital expenditure and debt service requirements.
THE COMPANY
Vail Resorts is the premier mountain resort operator in North America. The
Company operates Vail Mountain, the largest single ski mountain complex in
North America, and Beaver Creek(R) Mountain, one of the world's premier family-
oriented mountain resorts (together with Vail Mountain, the "Existing
Resorts"). The Company is one of the most profitable resort operators in the
ski industry due to its attractive guest demographics, favorable weather and
snowfall conditions, ability to attract both destination resort guests and day
travelers from local population centers and proximity to both Denver
International Airport and Vail/Eagle County Airport. In addition to resort
operations, the Company owns substantial real estate from which it derives
significant strategic benefits and cash flow. On January 3, 1997, the Company
acquired the Breckenridge, Keystone and Arapahoe Basin mountain resorts (the
"Acquired Resorts") and significant related real estate interests and
developable land (the "Acquisition"). As a result of the Acquisition, the
Company is the largest mountain resort company in North America, operating the
top three mountain resorts in the United States. The Company has a 9% share of
skier days in the United States, which is nearly 40% greater than that of its
nearest competitor, and is uniquely positioned to attract a broad range of
guests due to its diverse ski terrain, varied price points and numerous
activities and services. As the Company's resorts are located within 50 miles
of each other, the Company is able to offer guests the opportunity to visit
each resort during one vacation stay and participate in common loyalty
programs. For fiscal 1996, the Company's revenue from resort operations
("Resort Revenue") and Resort Cash Flow, pro forma for the Acquisition, were
$276.0 million and $88.2 million, respectively. Management believes that the
Company's Resort Revenue and Resort Cash Flow, pro forma for the Acquisition,
are greater than that of any other mountain resort company in the world.
4
<PAGE>
EXISTING RESORTS
Vail Mountain is the largest and most popular single ski mountain complex in
North America, offering over 4,100 acres of unique and varied ski terrain
spanning approximately 20 square miles. Included in this complex are Vail's
world-famous Back Bowls(TM) (the "Back Bowls"), the largest network of high
speed quad chairlifts in the world, a top rated ski school and a wide variety
of dining and retail venues. Vail Mountain's skier days reached 1.65 million
during the 1995-96 ski season, the most of any ski mountain in North America
and a new record for Vail Mountain. Vail Mountain has been chosen to host the
World Alpine Ski Championships in 1999, the first time a North American ski
resort has been selected to host this prestigious event twice. For the last
eight years, Vail Mountain has been rated the number one ski resort in the
United States by the Snow Country magazine survey.
Beaver Creek Mountain, located ten miles west of Vail Mountain, is one of the
world's premier family-oriented mountain resorts, offering its guests a
superior level of service in a pristine alpine setting. Since opening in 1980,
Beaver Creek Mountain has been one of the fastest growing ski resorts in North
America, with annual skier days increasing from 111,746 in the 1980-81 ski
season to 576,249 during the 1995-96 ski season, a new record for Beaver Creek
Mountain. The Company has recently completed the first step in introducing a
European style village-to-village ski experience by connecting (through ski
lifts and trails) three distinct ski areas--Beaver Creek, Bachelor Gulch(TM)
and Arrowhead(TM). Beaver Creek Mountain, which provides a distinct and varied
vacation experience from Vail Mountain, has consistently been rated among the
top ten resorts in North America in various industry surveys (it was ranked
number four in the 1996 Snow Country magazine survey).
BUSINESS STRATEGY
A key component of the Company's business strategy has been to expand and
enhance its core ski operations, while at the same time increasing the scope,
diversity and quality of the complementary activities and services offered to
its skiing and non-skiing guests throughout the year. This focus has resulted
in growth in skier days and lift ticket sales and has also allowed the Company
to expand its revenue base beyond its core ski operations. While lift ticket
sales (traditionally the largest source of revenues for most ski resorts) have
grown each year over the past ten years, revenues from other sources have grown
at a much faster rate and, as a result, have increased as a percentage of
Resort Revenue from 36% in fiscal 1985 to 51% in fiscal 1996. This trend is
expected to continue as the projects outlined in "Growth Initiatives" are
completed.
The Company's focus on developing a comprehensive destination resort
experience has also allowed it to attract a diverse guest population with an
attractive demographic and economic profile, including a significant number of
affluent and family-oriented destination guests, who tend to generate higher
and more diversified revenues per guest than day skiers from local population
centers. While the Company's Resort Revenue per skier day is currently among
the highest in the industry, management believes that the Company currently
captures less than 20% of the total vacation expenditures of an average
destination guest at its resorts. Vail Resorts' business strategy is not only
to increase skier days and guest visits but also to increase Resort Revenue per
skier day by capturing a higher percentage of the total spending by its year
round destination and day guests, by continuing to expand the range and enhance
the quality of activities and services offered by the Company. See "Business--
Existing Resorts" and "--Acquired Resorts."
The Company's success in implementing its business strategy, high Resort
Revenue per skier day and efficient operations have resulted in growth in
Resort Cash Flow and in levels of cash flow generation that are among the
highest in the industry. Between fiscal 1985 and fiscal 1996, the Company's
Resort Cash Flow increased from $7.9 million to $50.4 million. Furthermore,
Resort Cash Flow as a percentage of Resort
Revenue was 35.9% for fiscal 1996. The Company's high level of Resort Cash Flow
has allowed it to reinvest
5
<PAGE>
significant capital in its operations. Over the ten years ended December 31,
1995, the Company has invested approximately $125 million in resort
improvements, of which approximately $80 million was expansion capital to
improve and grow operations. In addition, during calendar year 1996, the
Company invested approximately $33 million of expansion capital in its Existing
Resorts to further improve and grow resort operations. See "Business--Existing
Resorts--Projects Under Construction." Management believes that the quality and
scope of its resort facilities and ski operations are unequaled in North
America and represent a significant competitive advantage.
GROWTH INITIATIVES
The Company's growth in Resort Revenue and Resort Cash Flow has been and
continues to be derived from a variety of factors, including (i) increases in
skier days and guest visits due primarily to "new attractions" (major terrain
and facility expansions) and the creation of additional resort lodging, (ii)
improving industry trends due to growth in snowboarding and advances in ski
equipment technology ("fat" skis and specially shaped skis), (iii) increases in
Resort Revenue per skier day resulting from new retail and restaurant
operations and other activities including expanded activities for nonskiers,
(iv) margin increases resulting from price increases and the benefits of
operating leverage and (v) increases in the Company's licensing and sponsorship
activities. The Existing Resorts have undergone a period of significant
expansion as numerous projects under development have been completed. The
results of this expansion are:
. A 30% expansion in the contiguous ski terrain on Beaver Creek Mountain
with the creation of a European style village-to-village ski experience;
. A greater than 50% increase in high speed access lift capacity on Vail
Mountain with the installation of both a new high speed quad lift and a
state-of-the-art, high speed, custom-designed gondola;
. The creation of the Company's first major non-ski activity center
(reached by Vail's new gondola) at the top of Vail Mountain, offering day
and evening ice skating, sledding, tubing, snowboarding attractions, a
children's snowpark and evening snowmobile tours; and
. For the 1997-98 ski season, a planned increase in base area retail and
restaurant square footage owned by the Company from 86,500 to 140,000
upon the completion of the retail core of Beaver Creek Village, a new
base lodge on Vail Mountain and five new themed restaurants available for
day, "apres ski" and evening dining.
Furthermore, over the next five years the Company plans to complete several
other significant projects at the Existing Resorts, including (i) the opening
of Category III, a major terrain expansion which will increase the skiable
acreage on Vail Mountain by approximately 50% to 6,000 acres with significant
intermediate bowl skiing, (ii) the redevelopment of the Company's property at
Lionshead, a primary access point at the base of Vail Mountain, which will
provide significant additional resort lodging, skier services, and retail and
restaurant facilities and (iii) a significant increase in resort lodging from
the completion of Arrowhead Village, Bachelor Gulch Village and Beaver Creek
Village. See "Business--Projects Under Construction," "Business--Real Estate"
and "Risk Factors--Growth Initiatives."
Historically, the completion of major terrain and facility expansions has
resulted in increases in skier days at the Company's resorts. For example,
prior to the beginning of the 1988-89 ski season Vail Mountain opened China
Bowl(TM), adding 1,633 acres of new open bowl ski terrain to Vail Mountain,
including the first intermediate runs in the Back Bowls. Over the two year
period following the opening of China Bowl, annual skier days at Vail Mountain
increased by 224,000 or 17%. Although management believes that the completion
of the terrain and facility expansions discussed above will significantly
increase the number of skier days at the Existing Resorts, particularly during
non-peak periods, there can be no assurance that such increases will be
achieved. See "Business--Existing Resorts--Projects Under Construction." Based
on current levels of operations, the Company believes it will be able to fund
the growth initiatives identified above with cash flow from operations and
borrowings under the New Credit Facilities (as hereinafter defined).
6
<PAGE>
ACQUIRED RESORTS
Breckenridge Mountain, located approximately 85 miles west of Denver and 40
miles east of Vail Mountain, is North America's second most popular ski area,
trailing only Vail Mountain in skier days. Breckenridge's skier days reached
1.35 million during the 1995-96 ski season, a new record for Breckenridge
Mountain. Breckenridge Mountain offers over 2,000 acres of skiing on four
different mountain peaks, including open bowl and excellent beginner and
intermediate ski terrain. The ski area is located adjacent to the Town of
Breckenridge, a Victorian mining town, which has numerous apres ski activities
and an extensive and growing bed base, making Breckenridge Mountain an
attractive destination for national and international skiers. The Company
believes there are improvements which can be made to Breckenridge Mountain
which will contribute to further growth in skier days and Resort Revenue,
including (i) an upgrade of certain older lift equipment and the addition of
new high speed quads, which will reduce lift lines and improve on-mountain
skier circulation, (ii) a significant expansion of the mountain's snowmaking
coverage, to ensure a better early and late season ski product and (iii) an
expansion of the Company's ski school, food service, retail and rental
operations. In addition, Breckenridge owns certain strategic land parcels at
the base of the mountain and in the Town of Breckenridge which are currently in
the planning stages for significant residential and commercial development.
Keystone Mountain is located 70 miles west of Denver and 15 miles from
Breckenridge and offers 1,739 acres of skiable terrain. Keystone Mountain is
the third most popular ski area in North America, achieving 1.06 million skier
days during the 1995-96 ski season. Keystone Mountain has the largest and most
advanced snowmaking capability of any Colorado mountain resort with snowmaking
coverage extending over 49% of Keystone's skiable acreage. Keystone Mountain is
located within the planned family-oriented community of Keystone Resort, which
offers numerous year round activities, the majority of which are operated by
the Company, including the Keystone Conference Center, which is the largest
convention center in the Colorado Rocky Mountains. Keystone Mountain also
provides the largest single-mountain night skiing experience in North America,
with 13 lighted trails covering 2,340 vertical feet, offering a 12 1/2 hour ski
day. Upgrades to Keystone Mountain include (i) for the 1996-97 ski season, the
construction of $5 million of snowboarding related improvements, including a
snowboard park, representing the first time snowboarders have been allowed on
Keystone Mountain and a significant opportunity for Keystone to capture a share
of this growing market and (ii) planned for the 1997-98 ski season, the
installation of a new high speed quad access lift from one of the resort's
major base areas. In addition, Keystone, through a joint venture (the "Keystone
JV"), received approval for and has begun the long term development of up to
3,400 new residential and lodging units and up to 318,000 square feet of new
commercial space on land contributed to the Keystone JV. This development will
supplement the resort's existing 1,273 residential and lodging units and
approximately 144,000 square feet of commercial real estate. In calendar year
1996, 130 residential and lodging units and 33,000 square feet of commercial
space were constructed by the Keystone JV. This development, which is expected
to be completed over the next 20 years, will create significant new resort
lodging and will be a primary factor in skier day growth. The development will
also create significant new retail, food service and apres ski activities,
which the Company believes will attract destination skiers and increase the
Company's Resort Revenue.
Arapahoe Basin is the highest ski area in North America, offering 486 acres
of skiing with a summit elevation of 13,050 feet. This high elevation allows
for the longest ski season in Colorado, with the mountain remaining open well
into June and even as late as August. During the 1995-96 ski season, Arapahoe
Basin had 241,435 skier days. Arapahoe Basin has a rustic flavor and offers
limited amenities, primarily targeting the skiing enthusiast with advanced
intermediate to expert ski terrain. The Company believes there is a possibility
of adding snowmaking facilities to Arapahoe Basin, which would improve
conditions during the traditional ski season and allow Arapahoe Basin to offer
year round skiing, which it believes would be a popular attraction to the
numerous summer tourists in Colorado. The Company has agreed to divest Arapahoe
Basin pursuant to the Consent Decree. See "Recent Developments," "The
Acquisition" and "Risk Factors--Antitrust."
7
<PAGE>
ACQUISITION STRATEGY
The Company's strategy in effecting the Acquisition is to build on the
historical success at the Acquired Resorts by introducing many of the programs
currently in effect at the Existing Resorts and to capitalize on the
combination of the Company's resorts. The Company believes there are numerous
opportunities to increase guest participation in activities operated by the
Acquired Resorts by upgrading existing facilities and implementing incentivized
selling techniques currently used at the Existing Resorts. For example, revenue
from ski school operations for fiscal 1996 at the Acquired Resorts (which had
2.7 million skier days during the 1995-96 ski season) was $9.3 million, versus
$23.9 million at the Existing Resorts (which had 2.2 million skier days during
the 1995-96 ski season). In addition, for the 1995-96 ski season, Breckenridge
Mountain achieved $1.65 in mountain food service revenue per skier day, versus
$5.42 in mountain food service revenue per skier day achieved by the Existing
Resorts during the same period. Similarly, the Company believes there are
opportunities to upgrade infrastructure at the Acquired Resorts, including the
addition of new ski lifts, as the Acquired Resorts operate 9 high speed lifts
while the Existing Resorts operate 16 high speed lifts. Based on current levels
of operations, the Company believes it will be able to fund such improvements
with cash flow from operations and borrowings under the New Credit Facilities.
The Company has also identified numerous opportunities to reduce costs as a
result of the Acquisition, including the consolidation of insurance premiums,
professional fees, systems development, purchases of capital equipment,
consumables and retail goods and the selective consolidation of administrative
functions.
The Company intends to implement a number of strategies to capitalize on the
combination of the Company's resorts and to increase Resort Cash Flow
throughout its operations, including:
. developing a coordinated marketing and promotional effort for all of the
Company's resorts for the local, North American and international
markets, using a combined marketing budget of almost $20 million, a
level unprecedented in the mountain resort industry;
. offering both the destination guest and the day skier the opportunity to
access all of its resorts with one lift ticket and instituting loyalty
programs, which will reward guests for participation in activities
throughout all of the Company's resorts;
. creating a sophisticated central reservation system, aggressively
promoting comprehensive vacation packages to the travel and tour
industry and significantly expanding its lodging and property management
operations, which will allow the Company to capture a greater percentage
of guests' expenditures;
. implementing common upgraded technology throughout the Company's
operations to enhance cross-selling opportunities through programs such
as resort-wide charging using lift ticket passes;
. extending existing licensing and sponsorship relationships across the
brand names of the Acquired Resorts and creating new relationships which
leverage the exposure the Company can offer corporate sponsors; and
. maintaining the Company's industry leadership in introducing new guest
attractions.
Management believes that the size, scope, location and quality of its
operations afford the Company the unique opportunity to continue the
transformation of Vail Resorts from a ski area operator to an integrated resort
company and a prominent force in the worldwide travel and tourism industry.
REAL ESTATE
The Company also benefits from its extensive holdings of real property at its
Existing Resorts and throughout the Vail Valley and from the activities of Vail
Associates Real Estate Group, Inc. ("VAREG"), a wholly owned subsidiary of the
Company. VAREG manages the Company's real estate operations, including the
8
<PAGE>
planning, oversight, marketing, infrastructure improvement and development of
Vail Resorts' real property holdings. The Company generated $48.7 million in
revenue from real estate operations in fiscal 1996. The Company believes that
the current market for the sale of its resort property is strong, as evidenced
by the fact that the Company contracted for the sale of 93 single family
homesites over the last 16 months in Bachelor Gulch Village at an aggregate
sales price of approximately $72 million. These sales occurred through a
lottery format because demand significantly exceeded the number of homesites
available for sale. In addition to the substantial cash flow generated from
real estate sales, these development activities benefit the Company's resort
operations through (i) the creation of additional resort lodging which is
available to the Company's guests, (ii) the ability to control the
architectural theming of its resorts, (iii) the creation of unique facilities
and venues (primarily themed restaurant and retail operations) which provide
the Company with the opportunity to create new sources of recurring revenue and
(iv) the expansion of the Company's property management and brokerage
operations, which are the preferred providers of these services for all
developments on VAREG's land. In order to facilitate the development and sale
of its real estate holdings, VAREG spends significant amounts on mountain
improvements, such as ski lifts, snowmaking equipment and trail construction.
While these mountain improvements enhance the value of the real estate held for
sale (for example, by providing ski-in/ski-out accessibility), they also
benefit resort operations. In most cases, VAREG seeks to minimize the Company's
exposure to development risks and maximize the long-term value of the Company's
real property holdings by selling land to third party developers for cash
payments prior to the commencement of construction, while retaining approval of
all development plans as well as an interest in the developer's profit. The
Company also typically retains the option to purchase, at a price significantly
below fair market value, any commercial space created in a development. The
Company is able to secure these benefits from third party developers as a
result of the high property values and strong demand associated with property
in close proximity to its world class mountain resort facilities. See "Risk
Factors--Real Estate Development."
The Company will also benefit from the activities of the Keystone JV, which
is developing a significant portion of the Keystone Resort. As residential and
commercial projects are completed, the Company has a priority right to receive
payments of up to approximately $22.6 million for the land which it previously
contributed to the Keystone JV. The Company also will receive approximately 50%
of the profits generated by the Keystone JV and will have the opportunity to
lease commercial space created by the Keystone JV. The Company has approval
rights over all major decisions of the Keystone JV. The Company will also own
certain strategic land parcels at the base of Breckenridge Mountain and in the
Town of Breckenridge which are currently in the planning stages for significant
residential and commercial development. In addition to generating cash flow
from real estate sales, the development opportunities at both Keystone and
Breckenridge are expected to benefit the Company's resort operations by
creating significant new resort lodging and guest amenities. See "Business--
Real Estate."
RECENT DEVELOPMENTS
On July 29, 1996, Adam Aron was appointed Chairman and Chief Executive
Officer of the Company. Mr. Aron has extensive experience in the resort leisure
industry, most recently serving as President and Chief Executive Officer of
Norwegian Cruise Line Ltd. Mr. Aron previously served as Senior Vice President
of Marketing for United Airlines and Senior Vice President of Marketing for
Hyatt Hotels. Andrew Daly, currently President and Chief Executive Officer of
Vail Associates, Inc., the Company's principal subsidiary, was appointed to the
additional position of President of the Company. On October 28, 1996, James
Donohue was appointed Senior Vice President and Chief Financial Officer of the
Company. Mr. Donohue previously served as Chief Financial Officer of Fibreboard
Corporation and Executive Vice President of Continental Illinois Bank, N.A.
On January 3, 1997, the Company acquired 100% of the stock of Ralston
Resorts, Inc. ("Ralston Resorts"), a wholly owned subsidiary of Ralston Foods,
Inc. ("Foods"), which owns and operates the Acquired Resorts.
9
<PAGE>
In connection with the Acquisition, Foods received 7,554,406 shares of Common
Stock (which may be increased as a result of certain post-closing adjustments)
and the Company assumed $165.0 million of Ralston Resorts' indebtedness.
The Company will divest the Arapahoe Basin mountain resort pursuant to the
Consent Decree. The Company entered into the Consent Decree to resolve certain
antitrust concerns of the DOJ raised by the Acquisition. The Consent Decree
requires the Company to use its best efforts to complete the divestiture as
expeditiously as possible, but in any event, by June 2, 1997 (unless such date
is extended by the DOJ). For fiscal 1996, Arapahoe Basin had 241,435 skier days
and Resort Revenue, Resort Cash Flow and total assets (at the end of such year)
of approximately $6.6 million, $3.0 million, and $5.1 million, respectively.
See "The Acquisition" and "Pro Forma Financial Data".
The Company has distributed a right to receive up to $2.44 per share of
Common Stock (the "Rights") to all stockholders of record on October 11, 1996,
with a maximum aggregate amount payable under the Rights of $50.5 million. The
purpose of the Rights is to provide cash to the existing stockholders of the
Company as a partial return on their investment in the Company. As of September
30, 1996, the Company had outstanding contracts (the "Real Estate Contracts")
for the sale of certain real estate and related amenities. The Company will
make payments under the Rights only to the extent it receives sufficient gross
proceeds under the Real Estate Contracts to make such payments. As of December
31, 1996, the Company had received sufficient gross proceeds under the Real
Estate Contracts to make substantially all of such payments. The Company
currently estimates payments under the Rights will be made in fiscal 1997.
Stockholders who purchase shares in the Offerings will not be entitled to any
payments with respect to the Rights. In addition, the Company has amended
certain option agreements held by management of the Company to eliminate their
right to receive any portion of the payments made under the Rights. In
connection with such amendment, the Company has accrued a payable to such
option holders of approximately $4.5 million (the "Option Payment"). The Rights
and the Option Payment are hereinafter collectively referred to as the
"Distribution." The Company believes that the payment of the Distribution will
not have any adverse consequences on the Company's future operations. See
"Business--Real Estate," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Certain Transactions."
10
<PAGE>
THE OFFERINGS
Common Stock to be sold by the Company:
U.S. Offering.......... 4,000,000 shares
International 1,000,000 shares
Offering...............
Total................. 5,000,000 shares
Common Stock to be sold by Selling Stockholders:
U.S. Offering.......... 4,400,000 shares
International 1,100,000 shares
Offering...............
Total................. 5,500,000 shares
Common Stock to be outstanding after the Offerings:
Common Stock........... 21,570,288 shares (a)
Class A Common Stock... 11,728,600 shares
Total................. 33,298,888 shares
Voting Rights........... The rights of holders of Class A Common Stock and
Common Stock are substantially identical, except that
holders of Class A Common Stock elect a class of di-
rectors that constitutes two-thirds of the Board of
Directors and holders of Common Stock elect a class
of directors that constitutes one-third of the Board
of Directors. The Class A Common Stock is convertible
into Common Stock (i) at the option of the holder,
(ii) automatically upon transfer to a non-affiliate
of the holder and (iii) automatically if less than
5,000,000 shares of Class A Common Stock are out-
standing. Upon completion of the Offerings, Apollo
Ski Partners, L.P. ("Apollo Ski Partners"), which
will hold approximately 99% of the Class A Common
Stock, will have approximately 35% of the combined
voting power of all outstanding shares of capital
stock of the Company. See "Management" and "Principal
and Selling Stockholders."
Use of Proceeds......... Approximately $67.7 million of the net proceeds of
the Offerings to be received by the Company will be
used to redeem all of the Company's outstanding 12
1/4% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes") (including accrued interest and
a contractual redemption premium) with the balance of
approximately $22.3 million used to reduce outstand-
ing revolving credit borrowings under the New Credit
Facilities and for general corporate purposes. The
Company believes that this reduction in indebtedness
will give it the flexibility to make additional
borrowings in the future to finance internal and ex-
ternal growth initiatives. The Company will not re-
ceive any proceeds from the sale of Common Stock by
the Selling Stockholders. See "Use of Proceeds."
New York Stock Exchange
Symbol................. "MTN"
- --------
(a) Excludes 2,253,300 shares issuable upon exercise of outstanding options
with an average exercise price of $10.39 per share and 62,000 shares of
unvested restricted stock granted to management. See "Management."
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AND PER SKIER DAY DATA)
The summary consolidated historical financial data presented below have been
derived from the Company's and Ralston Resorts' consolidated financial
statements and should be read in conjunction with those statements and related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the other financial information included elsewhere
in this Prospectus. The unaudited pro forma summary combined financial data for
the fiscal year ended September 30, 1996 give effect to the Acquisition and the
Offerings and are derived from the unaudited pro forma financial data presented
elsewhere in this Prospectus. The following information includes the results of
the Arapahoe Basin mountain resort, which will be divested pursuant to the
Consent Decree. See "Pro Forma Financial Data" and "The Acquisition."
THE COMPANY
<TABLE>
<CAPTION>
PRE-EFFECTIVE DATE(1) POST-EFFECTIVE DATE(1)
---------------------- -------------------------------------------------------
YEAR YEAR
ENDED ENDED FISCAL YEAR ENDED SEPTEMBER 30, PRO FORMA COMBINED
SEPTEMBER OCTOBER ------------------------------------ FISCAL YEAR ENDED
30, 1991(2) 8, 1992(2) 1993 1994 1995 1996 SEPTEMBER 30, 1996
----------- ---------- -------- -------- -------- -------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Resort................. $97,048 $105,525 $114,623 $124,982 $126,349 $140,288 $276,038
Real estate............ 2,601 3,767 4,610 22,203 16,526 48,655 49,569
------- -------- -------- -------- -------- -------- --------
Total revenues....... 99,649 109,292 119,233 147,185 142,875 188,943 325,607
Operating expenses:
Resort................. 56,680 63,099 69,749 78,365 82,305 89,890 187,878
Real estate............ 4,282 4,472 5,165 20,341 14,983 40,801 40,801
Corporate expense(3)... 7,939 4,151 6,467 7,160 6,701 12,698 12,698
Depreciation and
amortization.......... 8,389 7,626 13,404 17,186 17,968 18,148 37,478
------- -------- -------- -------- -------- -------- --------
77,290 79,348 94,785 123,052 121,957 161,537 278,855
Operating income from
continuing operations.. 22,359 29,944 24,448 24,133 20,918 27,406 46,752
Income (loss) from
continuing operations
(after-tax)(4)......... NM NM (146) 761 3,282 4,735 13,161
Unaudited pro forma
earnings per
common share(5)........ $ .38
OTHER DATA:
Resort
Resort Revenue......... $97,048 $105,525 $114,623 $124,982 $126,349 $140,288 $276,038
Resort Cash Flow(6).... 40,368 42,426 44,874 46,617 44,044 50,398 88,160
Skier days............. 1,969 1,986 2,059 2,056 2,136 2,228 4,885
Resort Revenue/skier
day................... $ 49.29 $ 53.13 $ 55.67 $ 60.79 $ 59.15 $ 62.97 $ 56.51
Real estate
Revenues from real
estate sales.......... $ 2,601 $ 3,767 $ 4,610 $ 22,203 $ 16,526 $ 48,655 $ 49,569
Real estate operating
profit(7)............. (1,681) (705) (555) 1,862 1,543 7,854 8,768
Real estate
assets(8)............. 16,144 13,091 15,673 42,637 54,858 88,665 146,502
</TABLE>
12
<PAGE>
RALSTON RESORTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------
1993 1994 1995 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Resort.................................... $83,717 $127,676 $125,816 $135,750
Real estate............................... 2,141 4,979 1,778 914
------- -------- -------- --------
Total revenues.......................... 85,858 132,655 127,594 136,664
Operating expenses:
Resort.................................... 71,330 94,382 94,846 97,988
Real estate............................... 1,619 3,837 1,040 --
Depreciation and amortization............. 10,754 14,227 14,948 15,780
------- -------- -------- --------
83,703 112,446 110,834 113,768
Operating income........................... 2,155 20,209 16,760 22,896
Net income (loss).......................... (4,090) 8,923 3,927 7,872
OTHER DATA:
Resort
Resort Revenue............................ $83,717 $127,676 $125,816 $135,750
Resort Cash Flow(6)....................... 12,387 33,294 30,970 37,762
Skier days................................ 1,284 2,568 2,532 2,657
Resort Revenue/skier day.................. $ 65.20 $ 49.72 $ 49.69 $ 51.09
Real estate
Revenues from real estate sales........... $ 2,141 $ 4,979 $ 1,778 $ 914
Real estate operating profit(7)........... 522 1,142 738 914
Real estate assets(8)..................... 46,275 49,683 50,009 51,352
</TABLE>
13
<PAGE>
- --------
(1) In addition to its resort and real estate operations, which are conducted
by the Company's wholly owned subsidiary, Vail Holdings, Inc. and its
subsidiaries (collectively "Vail Associates"), the Company also previously
owned subsidiaries which were engaged in the communications and beef
products businesses. In each year from fiscal 1986 through fiscal 1991, the
Company's resort operations experienced growth in Resort Cash Flow. In
1991, due to an inability to service debt incurred in connection with the
acquisition of certain assets in the communications business, the Company
was forced to seek relief under Chapter 11 of the Bankruptcy Code. On
October 8, 1992 (the "Effective Date"), the Company emerged from bankruptcy
(the "Reorganization") pursuant to a plan of reorganization which
contemplated divestitures of the Company's communications and beef products
businesses. Such divestitures were completed in fiscal years 1993 and 1994,
and accounted for as discontinued operations. As a result of the
transactions that took place on the Effective Date and the related
accounting treatment, the financial information for the two years presented
prior to the Effective Date ("Pre-Effective Date") is not comparable to the
financial information for the periods presented after the Effective Date
("Post-Effective Date"). See Note 1 to the Company's consolidated financial
statements.
(2) For fiscal 1991, results of operations include only nine months of
corporate expense of the Company due to a change in the fiscal year of the
Company. The results of Vail Associates for fiscal 1991 and the period
ended October 8, 1992 ("fiscal 1992") have been derived from their
separately audited financial statements.
(3) Prior to the Offerings, corporate expense included the costs associated
with the Company's holding company structure and overseeing multiple lines
of business, including the discontinued operations. Following the
Offerings, corporate expense will include certain personnel, tax, legal,
directors' and officers' insurance and other consulting fees relating
solely to the Company's resort and real estate operations. Corporate
expense is classified as resort operating expenses in the consolidated
financial statements of Ralston Resorts. For the year ended September 30,
1996, corporate expense included the following nonrecurring charges: (i)
$4.5 million related to the Option Payment, (ii) $1.9 million of
compensation expense related to the exercise of certain options held by the
Company's former Chairman and Chief Executive Officer and (iii) $2.1
million related to the termination of an employment agreement with the
Company's former Chairman and Chief Executive Officer. In addition, the
Company anticipates annual savings of approximately $750,000 related to
changes made in corporate management. These anticipated corporate expense
savings have not been reflected in the pro forma summary combined financial
data.
(4) Due to the Reorganization discussed in Note 1, income from continuing
operations and per share information for fiscal 1991 and fiscal 1992 are
not comparable to amounts reported in subsequent fiscal years, and
therefore, are not considered meaningful.
(5) Due to the Distribution, the Acquisition and the Offerings, the Company's
and Ralston Resorts' historical capital structure is not indicative of the
Company's capital structure upon the closing of the aforementioned
transactions. Accordingly, historical earnings per common share is not
considered meaningful and has not been presented herein.
(6) Resort Cash Flow is defined as revenues from resort operations less resort
operating expenses, excluding depreciation and amortization. Resort Cash
Flow is not a term that has an established meaning under generally accepted
accounting principles. The Company has included information concerning
Resort Cash Flow because management believes it is an indicative measure of
a resort company's operating performance and is generally used by investors
to evaluate companies in the resort industry. Resort Cash Flow does not
purport to represent cash provided by operating activities and should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. For
information regarding the Company's and Ralston Resorts' historical cash
flows from operating, investing and financing activities, see the Company's
and Ralston Resorts' consolidated financial statements included elsewhere
in this Prospectus. Furthermore, Resort Cash Flow is not available for the
discretionary use of management and, prior to the payment of dividends, the
Company uses Resort Cash Flow to meet its capital expenditure and debt
service requirements.
(7) Real estate operating profit is defined as revenue from real estate
operations less real estate costs and expenses, which include (i) selling
costs; (ii) holding costs; (iii) operating expenses; and (iv) the
allocation of the capitalized land, infrastructure, mountain improvement
and other costs relating to property sold. Real estate costs and expenses
exclude charges for depreciation and amortization as the Company has
determined that the portion of those expenses allocable to real estate are
not significant.
(8) Real estate assets include all land, development costs, and other
improvements associated with real estate held for sale and classified as
such in the Company's consolidated balance sheet. Real estate assets for
Ralston Resorts include investments in real estate joint ventures, real
estate held for sale and other developable land. See Note (d) to the Pro
Forma Financial Data.
14
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
following risk factors, as well as the other information contained, and
incorporated by reference, in this Prospectus before making an investment in
the Common Stock. Information contained or incorporated by reference in this
Prospectus contains "forward-looking statements" which can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy. See, e.g.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Projects Under Construction." No assurance can be
given that the future results covered by the forward-looking statements will
be achieved. The following matters constitute cautionary statements
identifying important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
vary materially from the future results covered in such forward-looking
statements. Other factors could also cause actual results to vary materially
from the future results covered in such forward-looking statements.
RISKS ASSOCIATED WITH SEASONALITY. The business of the Existing and Acquired
Resorts is highly seasonal. Over the last five fiscal years, the Existing
Resorts on average realized 92% of their Resort Revenue during the period from
November to April. The Existing Resorts have negative Resort Cash Flow for the
months of May through October and report losses for such period. The Acquired
Resorts experience similar seasonality. A substantial majority of the
Company's Resort Cash Flow is realized in the second quarter of each fiscal
year. To finance its activities and working capital requirements from May to
October, the Company has typically relied on borrowings under its revolving
credit facilities. The Company's ability to borrow under its revolving credit
facilities is subject to certain conditions, including compliance with certain
financial covenants. While the Company believes that it will continue to
comply with such conditions and that borrowings under the New Credit
Facilities will be adequate to support its capital requirements for the May
through October periods, to the extent that such borrowings became
unavailable, the Company could experience a material adverse impact on its
operations. See "Description of Certain Indebtedness--Credit Facilities."
CAPITAL REQUIREMENTS. The operation and development of the Existing and
Acquired Resorts is capital intensive. The Company spent approximately $17.4
million, $20.3 million and $13.9 million in its fiscal years ended September
30, 1994, 1995 and 1996, respectively, on resort capital expenditures. The
Company typically categorizes approximately $6 million to $7 million a year of
total resort capital expenditures as maintenance expenditures. For fiscal
years 1994, 1995, and 1996, the Acquired Resorts spent approximately $10.4
million, $11.0 million and $17.8 million, respectively, on resort capital
expenditures, a substantial portion of which was categorized as maintenance
expenditures. In addition, the Company makes significant investments in
connection with its real estate development activities. See "Business--Real
Estate." The Company anticipates making significant capital expenditures in
the future for maintenance and project development to maintain the competitive
position and enhance the operations of its resorts and implement its growth
initiatives. See "Business--Existing Resorts" and "--Acquired Resorts."
GROWTH INITIATIVES. The Company is currently engaged in and has plans for a
variety of development projects relating to both resort and real estate
operations. Although the Company expects that these projects will be completed
on schedule and at their respective estimated costs, there can be no assurance
(i) that the Company will receive the necessary regulatory approvals for such
projects, (ii) as to when such projects will be completed, (iii) that the
Company's estimated costs associated with such projects will prove to be
accurate or (iv) that the Company will receive the expected benefits from such
projects. Based on current levels of operations and anticipated growth and
cash availability, the Company believes that it will be able to fund its
growth initiatives with cash flow from operations and borrowings under the New
Credit Facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
DILUTION. Purchasers of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of the
Common Stock. The immediate dilution to purchasers of Common Stock offered
hereby (assuming an initial public offering price of $20.00 per share) will be
$16.46 or 82% per share of Common Stock. See "Dilution."
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF ACQUIRED RESORTS/FUTURE
ACQUISITIONS. The Company believes it will realize substantial benefits from
the successful integration of the Acquired Resorts. However,
15
<PAGE>
there can be no assurance that the Company will be able to establish, maintain
or increase the profitability of the Acquired Resorts or that the Acquired
Resorts will be successfully integrated into the operations of the Company.
In addition, there can be no assurance that the Company will be able to
realize any of the cost savings it has identified in connection with
integrating the operations of the Existing and Acquired Resorts. The Company
continually evaluates potential acquisitions and intends to actively pursue
acquisition opportunities, some of which could be material. Future
acquisitions could be financed by internally generated funds, bank borrowings,
public offerings or private placements of equity or debt securities, or a
combination of the foregoing. There can be no assurance that the Company will
be able to make acquisitions on terms favorable to the Company. If the Company
completes acquisitions, it will encounter various associated risks, including
the possible inability to integrate an acquired business into the Company's
operations, increased goodwill amortization, diversion of management's
attention and unanticipated problems or liabilities, some or all of which
could have a material adverse effect on the Company's operations and financial
performance.
ANTITRUST. The Company has agreed to resolve certain antitrust concerns of
the DOJ raised by the Acquisition by entering into the Consent Decree. Under
the Consent Decree the Company has agreed to divest the Arapahoe Basin
mountain resort as expeditiously as possible, and in any event, by June 2,
1997. If the Company is unable to effect the divestiture of Arapahoe Basin
within such time period, and if such time period is not extended by the DOJ, a
trustee may be appointed to accomplish the divestiture at the best price then
obtainable upon a reasonable effort by the trustee. There can be no assurance
regarding the result of such sale, including the price to be received or the
terms and conditions of the sale. There can also be no assurance that a sale
can be completed within the allotted time frame or that Arapahoe Basin will
not be subject to sale by a trustee. Furthermore, the Consent Decree will
become final only upon approval by the United States District Court for the
District of Colorado (the "District Court"), following a comment period of 60
days. There can be no assurance that the Consent Decree will be approved by
the District Court or what action the DOJ may take if the Consent Decree is
not approved.
IMPACT OF SIGNIFICANT COMPETITION. The ski industry is highly competitive.
The Existing and Acquired Resorts compete with mountain resort areas in the
United States, Canada and Europe for destination guests and with numerous ski
areas in Colorado for the day skier. The Company also competes with other
worldwide recreation resorts, including warm weather resorts, for the vacation
guest. The Existing and Acquired Resorts' major U.S. competitors include the
Utah ski areas, the Lake Tahoe ski areas in California and Nevada, the New
England ski areas and the other major Colorado ski areas, including Copper
Mountain, Telluride, Steamboat Springs, Winter Park and the Aspen resorts.
Total skier days generated by all United States ski areas have increased by a
total of only 4% since the 1985-86 ski season which also has increased
competition for the vacation guest. The competitive position of the Existing
and Acquired Resorts is dependent upon many diverse factors such as proximity
to population centers, availability and cost of transportation to the areas,
including direct flight availability by major airlines, pricing, snowmaking
facilities, type and quality of skiing offered, duration of the ski season,
prevailing weather conditions, the number, quality and price of related
services and lodging facilities, and the reputation of the areas. In addition
to competition with other mountain and warm weather resorts for the vacation
guest, the Existing and Acquired Resorts also face competition for day skiers
from nearby population centers from varied alternative leisure activities,
such as attendance at movies, sporting events and participation in alternative
indoor and outdoor recreational activities.
FOREST SERVICE PERMITS. The Company has been granted the right to use 12,590
acres of federal land adjacent to the Town of Vail and 2,775 acres of federal
land adjacent to its Beaver Creek property as the site for most of its ski
lifts and trails and related activities under the terms of permits with the
United States Forest Service (the "Forest Service"). The Company's ski
operations on Arrowhead Mountain and in the Bachelor Gulch area are located on
Company-owned property and are thus not subject to permits. Under the terms of
the permits the Forest Service has the right to review and comment on the
location, design and construction of improvements in the permit area and on
many operational matters. The Vail permit is a "unified permit" which expires
on October 31, 2031, but can be terminated by the Forest Service if required
in the public interest. The Vail permit covers Category III. The Company has
received Forest Service approval to begin construction in this area, which
approval was appealed. As a result of this appeal, the Forest Service
Supervisor was directed to
16
<PAGE>
verify that the administrative record includes appropriate information on
potential off-site cumulative impacts to traffic/transportation, housing and
wildlife. The Forest Service Supervisor was also directed to take certain
additional steps to amend the Forest Plan, which is necessary to implement
certain elements of the project. While the Company anticipates successfully
resolving the issues raised by the appeal in the second quarter of fiscal
1997, there can be no assurance that the Company will receive final approval
to begin construction in Category III. The Beaver Creek property is covered by
a Term Special Use Permit covering 80 acres and a Special Use Permit covering
the remaining 2,695 acres. These permits expire in 2006 but are terminable by
the Forest Service at its discretion. In December 1992, the Company exercised
its statutory right to convert its dual permits for the Beaver Creek ski area
into a unified permit for the maximum period of 40 years and is currently in
the process of finalizing the terms of the unified permit. No assurance can be
given that the Beaver Creek unified permit will be granted or that it will be
granted for the entire 40 year period. With respect to the Acquired Resorts,
Ralston Resorts has been granted the right to use 3,156 acres, approximately
5,571 acres and approximately 825 acres of federal land under terms of permits
with the Forest Service for Breckenridge, Keystone and Arapahoe Basin,
respectively. Both the Breckenridge permit and the Arapahoe Basin permit
expire on December 31, 2029, while the Keystone permit expires on December 31,
2032. Like the Vail permit, each of the permits for the Acquired Resorts is
terminable by the Forest Service if required in the public interest. While the
Company believes that its relationship with the Forest Service is good, and to
the Company's knowledge no recreational Special Use Permit or Term Special Use
Permit for any major ski resort has ever been terminated by the Forest
Service, a termination of any of the Existing or Acquired Resorts' permits
would have a material adverse effect on the business and operations of the
Company. See "Business--Regulation and Legislation."
POTENTIAL ADVERSE EFFECTS OF UNFAVORABLE WEATHER CONDITIONS. Attracting
guests to the Existing and Acquired Resorts depends upon favorable weather
conditions and adequate snowfall during the winter ski season. Historically,
the Existing and Acquired Resorts have been able to mitigate the adverse
effects of unfavorable weather conditions and inadequate snowfall with their
snowmaking capabilities and through their broad offering of guest services and
activities. However, continuing periods of adverse weather conditions could
have a material adverse impact on the Company's operating results.
POTENTIAL ADVERSE EFFECTS OF ECONOMIC SLOWDOWN. Because the Existing and
Acquired Resorts derive a significant portion of their revenues from the
worldwide leisure market, an economic recession or other significant economic
slowdown could adversely affect the Company's business. Although historically
economic downturns have not had an adverse impact on the Company's operating
results, there can be no assurance that a decrease in the amount of
discretionary spending by the public in the future would not have an adverse
effect on the Company's business.
CONTROL BY APOLLO SKI PARTNERS. Following the Offerings, Apollo Ski Partners
will own approximately 99% of the Company's outstanding shares of Class A
Common Stock, giving Apollo Ski Partners approximately 35% of the combined
voting power with respect to all matters submitted for a vote of all
stockholders. Apollo Advisors, L.P., a Delaware limited partnership ("Apollo
Advisors"), indirectly controls Apollo Ski Partners. Accordingly, Apollo Ski
Partners and, indirectly, Apollo Advisors will be able to elect two-thirds of
the Board of Directors of the Company and control the approval of matters
requiring approval by the Board of Directors and significantly influence
decisions on matters submitted for stockholder consideration. This
concentration of ownership under certain circumstances could have the effect
of delaying or preventing a change in control of the Company.
REAL ESTATE DEVELOPMENT. The Company has extensive real estate holdings in
the Vail Valley and manages its real estate operations through VAREG. The
Company invested approximately $53.6 million, $22.5 million and $40.6 million
in fiscal years 1994, 1995 and 1996, respectively, in its real estate
operations. The Acquired Resorts have a significant investment in the Keystone
JV and have property at Breckenridge which the Company intends to develop.
Investments in real property and related development activities are subject to
numerous risks. The value of the Company's properties (including those
obtained in the Acquisition) and the revenue from related development
activities may be adversely affected by a number of factors, including the
national and local economic climate, local real estate conditions (such as an
oversupply of space or a reduction in demand for real estate in an area), the
attractiveness of the properties to prospective purchasers and tenants,
17
<PAGE>
competition from other available property or space, the ability of the Company
to obtain adequate insurance and to cover other construction costs, government
regulations and changes in real estate, zoning or tax laws, interest rate
levels, the availability of financing and potential liabilities under
environmental and other laws. In addition, acquisitions of new properties
entail risks that the investments will fail to perform in accordance with
expectations, and the risk that estimates of the costs of improvements for
such properties may prove inaccurate. While the Company attempts to mitigate
its exposure to these risks by selling multi-family development parcels to
third party developers who assume the risk of construction or by pre-selling
single-family homesites or condominium residences to individual purchasers
prior to the start of construction projects developed by the Company, there
can be no assurance that the Company will continue to do so in the future.
Although the Company believes that the current market for the sale of its
resort property is strong, there can be no assurance that such market
conditions will continue. See "Business--Real Estate."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of shares of Common Stock by
the Company or its existing stockholders could adversely affect the prevailing
market price of the Common Stock. The Company and each of its officers,
directors and the Selling Stockholders have agreed not to, directly or
indirectly, offer, sell, contract to sell, pledge, grant any option to
purchase or otherwise dispose (or announce any offer, sale, contract of sale,
pledge or other disposition) of any shares of Common Stock or other shares of
capital stock of the Company or securities convertible into or exercisable or
exchangeable for, or warrants, options or rights to purchase or acquire,
shares of Common Stock or other shares of capital stock of the Company or any
interest in the Common Stock (including derivative interests), without the
prior written consent of Bear, Stearns & Co. Inc. ("Bear Stearns"), for a
period of 180 days from the date of this Prospectus. The foregoing does not
prohibit the Selling Stockholders from selling shares subject to the
Underwriters' over-allotment option or pledging shares under certain
circumstances or prohibit the Company from issuing options or shares pursuant
to its stock option plans. In connection with the Acquisition, Foods received
7,554,406 shares of Common Stock (which may be increased as a result of
certain post-closing adjustments). The ability of Foods to dispose of such
shares is restricted pursuant to the terms of a Shareholder Agreement with the
Company. Upon consummation of the Offerings, Apollo will own 11,609,086 shares
of Class A Common Stock. Apollo and Foods each will have certain demand and
piggyback registration rights. See "Acquisition--Shareholder Agreement." No
prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sale, will have on the market price
of the Common Stock from time to time. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock and could
impair the Company's ability to raise additional capital through an offering
of its equity securities. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offerings, there has been no public market for the Common Stock. Although the
Common Stock has been approved for listing on the New York Stock Exchange
(subject to notice of issuance), there can be no assurance that an active
public market for the Common Stock will develop or continue after the
Offerings. Prices for the Common Stock will be determined in the marketplace
and may be influenced by many factors, including quarterly variations in the
financial results of the Company, changes in earnings estimates by industry
research analysts, investors' perceptions of the Company and general economic,
industry and market conditions. The initial public offering price per share of
the Common Stock will be determined by negotiations among the Company and the
representatives of the Underwriters and may not be indicative of the price at
which the Common Stock will trade after completion of the Offerings. The
Company believes that there are relatively few comparable companies that have
publicly-traded equity securities which may also impact the trading price of
the Common Stock after the Offerings. See "Underwriting." In addition, the
stock market has from time to time experienced extreme price and volume
volatility. These fluctuations may be unrelated to the operating performance
of particular companies whose shares are traded. Market fluctuations may
adversely affect the market price of the Common Stock. The market price of the
Common Stock could be subject to significant fluctuations in response to the
Company's operating results and other factors, and there can be no assurance
that the market price of the Common Stock will not decline below the initial
public offering price.
DIVIDENDS. The Company does not anticipate paying any cash dividends (other
than the Distribution) on its shares of Common Stock or Class A Common Stock
in the foreseeable future. See "Dividend Policy."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offerings will be
approximately $90.0 million. Approximately $67.7 million of such net proceeds
will be used to redeem all of the Company's outstanding Senior Subordinated
Notes (including accrued interest and a contractual redemption premium) with
the balance of approximately $22.3 million used to reduce outstanding
revolving credit borrowings under the New Credit Facilities and for general
corporate purposes. The Company believes that this reduction in indebtedness
will give it the flexibility to make additional borrowings in the future to
finance internal and external growth initiatives. The Company will not receive
any of the proceeds from the sale of Common Stock by the Selling Stockholders.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
DIVIDEND POLICY
The Company has never paid or declared a cash dividend on its Common Stock
or Class A Common Stock (other than the Distribution described under "Certain
Transactions"). The declaration of cash dividends in the future will depend on
the Company's earnings, financial condition and capital needs and on other
factors deemed relevant by the Board of Directors at that time. It is the
current policy of the Company's Board of Directors to retain earnings to
finance the operations and expansion of the Company's business, and the
Company does not anticipate paying any cash dividends (other than the
Distribution) on its shares of Common Stock or Class A Common Stock in the
foreseeable future.
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
approximately $1.87 per share of Common Stock (including Class A Common
Stock). "Net tangible book value per share" represents the amount of (a) total
tangible assets less total liabilities, divided by (b) the aggregate number of
shares of Common Stock (including Class A Common Stock) deemed outstanding on
such date (after giving retroactive effect to the 2 for 1 stock split that
will be effected prior to the consummation of the Offerings). After taking
into account changes in such net tangible book value after September 30, 1996,
including the consummation of the Acquisition (see Note (a) to the Pro Forma
Financial Data) and the receipt of the estimated net proceeds from the
Offerings at an assumed offering price of $20.00 per share (the midpoint of
the range set forth on the cover page of this Prospectus), after deduction of
the estimated aggregate underwriting discounts and commissions and estimated
Offering expenses to be paid by the Company, the Company's pro forma net
tangible book value per share at September 30, 1996 would be $3.54,
representing an immediate increase in net tangible book value per share of
$1.67 to existing stockholders and an immediate dilution of $16.46 per share
to new investors. Dilution is determined by subtracting pro forma net tangible
book value per share of Common Stock (including Class A Common Stock) after
the Offerings and the Acquisition from the public offering price paid by new
investors for a share of Common Stock. The following table illustrates this
dilution:
<TABLE>
<CAPTION>
PER SHARE
-------------
<S> <C> <C>
Assumed initial public offering price........................ $20.00
Net tangible book value before the Offerings and the
Acquisition............................................... $1.87
Increase attributable to the sale of shares offered
hereby.................................................... 2.66
Decrease attributable to the Acquisition................... (.99)
-----
Pro forma net tangible book value after the Offerings........ 3.54
------
Dilution of net tangible book value to new investors......... $16.46
======
</TABLE>
19
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996 (after giving retroactive effect to the 2 for
1 stock split that will be effected prior to the consummation of the
Offerings), and as further adjusted to give effect to (i) the Acquisition and
(ii) the sale by the Company in the Offerings of 5,000,000 shares of Common
Stock at an assumed price of $20.00 per share and the application by the
Company of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
SEPTEMBER 30, 1996 ----------------------- AS
ACTUAL(1) ACQUISITION OFFERINGS ADJUSTED
------------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Short term debt......... $ 63 $ 1,774(2) $ -- $ 1,837
Long term debt.......... 144,687 178,226(2) (87,494)(5) 235,419
-------- -------- -------- --------
Total debt............ 144,750 180,000 (87,494) 237,256
-------- -------- -------- --------
Stockholders' equity:
Preferred Stock, $.01
par value; 25,000,000
shares authorized, no
shares issued and
outstanding.......... -- -- -- --
Class A Common Stock,
$.01 par value;
20,000,000 shares
authorized;
12,426,220 shares
(actual); 11,728,600
shares (as adjusted)
issued and
outstanding.......... 124 -- -- 124
Common Stock, $.01 par
value; 80,000,000
shares authorized;
7,573,780 shares
(actual); 20,825,806
shares (as adjusted)
issued and
outstanding.......... 76 -- -- 76
Additional paid-in
capital.............. 123,707 151,088(3) 90,000 (4) 363,248
Retained earnings..... -- -- (1,547)(5) --
-------- -------- -------- --------
Total stockholders'
equity............. 123,907 151,088 88,453 363,448
-------- -------- -------- --------
Total capitalization.... $268,657 $331,088 $ 959 $600,704
======== ======== ======== ========
</TABLE>
- --------
(1) Actual retained earnings at September 30, 1996 reflects a reduction of
$50.5 million for the distribution of the Rights and a reduction of $4.5
million related to the Option Payment. The aggregate liability of $55
million is included in the Company's balance sheet at September 30, 1996.
See the Company's consolidated financial statements. Stockholders' equity
at September 30, 1996 does not reflect the issuance of 744,482 shares of
Common Stock to the Company's former Chairman and Chief Executive Officer
upon the exercise of certain stock options which occurred on October 11,
1996.
(2) Reflects the assumption of $165 million in debt related to the Acquisition
and the incurrence of $15 million of Acquisition related fees.
(3) Reflects the issuance of shares of Common Stock to Foods pursuant to the
Acquisition.
(4) Assumes the Company will realize approximately $90 million of net proceeds
from the sale of Common Stock in the Offerings.
(5) Reflects (i) the redemption of $62.6 million principal amount of the
Senior Subordinated Notes and a $1.5 million after-tax reduction to
stockholders' equity for the expense associated with the related
contractual redemption premium and (ii) the reduction of $24.8 million of
outstanding borrowings under the New Credit Facilities.
20
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Pro Forma Financial
Data") is derived from the historical consolidated financial statements of the
Company and Ralston Resorts, in each case included elsewhere in this
Prospectus, and should be read in conjunction with such financial statements
and the notes thereto included elsewhere in this Prospectus. The unaudited pro
forma statement of operations data for the year ended September 30, 1996 give
effect to the Acquisition and the Offerings as if they had occurred on October
1, 1995. The unaudited pro forma balance sheet data as of September 30, 1996
give effect to the Acquisition and the Offerings as if they had occurred on
such date. The Pro Forma Financial Data is not intended to be indicative of
either future results of operations or results that might have been achieved
had the Acquisition and the Offerings actually occurred on the dates specified.
In the opinion of the Company's management, all adjustments necessary to
present fairly such unaudited pro forma combined financial data have been made
based upon the proposed terms of the Acquisition and the Offerings. No
estimates of future cost savings related to administrative consolidations and
other efficiencies or economies of scale related to the Acquisition have been
reflected in the pro forma statement of operations data. The following
information includes the results of the Arapahoe Basin mountain resort, which
will be divested pursuant to the Consent Decree. See "Use of Proceeds," "The
Acquisition," "Risk Factors--No Assurance of Successful Integration of Acquired
Resorts/Future Acquisitions" and Note (f) to the Pro Forma Financial Data.
21
<PAGE>
VAIL RESORTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RALSTON ACQUISITION OFFERING PRO FORMA
THE COMPANY RESORTS ADJUSTMENTS ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equiva-
lents.................. $ 12,712 $ 1,274 $ $ $ 13,986
Receivables............. 5,741 6,325 12,066
Inventories............. 4,639 3,820 8,459
Deferred income taxes... 17,200 111 17,311
Other current assets.... 5,490 680 6,170
-------- -------- -------- ------- --------
Total current assets... 45,782 12,210 57,992
Property and equipment,
net.................... 192,669 131,000 323,669
Real estate held for
sale................... 88,665 28,788 117,453
Investment in joint ven-
ture................... -- 22,564 6,485 29,049
Deferred charges and
other assets........... 10,440 271 10,711
Intangible assets....... 85,056 36,177 124,253 245,486
-------- -------- -------- ------- --------
Total assets........... $422,612 $231,010 $130,738 $ -- $784,360
======== ======== ======== ======= ========
Accounts payable and
accrued expenses....... $ 48,096 $ 17,447 $ (1,079) $ $ 64,464
Income taxes payable.... 325 -- 325
Payable under Rights.... 50,513 -- 50,513
Long term debt due
within one year........ 63 141,806 (140,032) 1,837
-------- -------- -------- ------- --------
Total current liabili-
ties.................. 98,997 159,253 (141,111) 117,139
Long term debt.......... 144,687 26,522 151,704 (87,494) 235,419
Other long term liabili-
ties................... 15,521 1,998 17,519
Deferred income taxes... 39,500 12,294 (959) 50,835
-------- -------- -------- ------- --------
Total liabilities...... 298,705 200,067 10,593 (88,453) 420,912
Stockholders' equity.... 123,907 30,943 120,145 88,453 363,448
-------- -------- -------- ------- --------
Total liabilities and $784,360
stockholders' equity... $422,612 $231,010 $130,738 $ --
======== ======== ======== ======= ========
</TABLE>
22
<PAGE>
VAIL RESORTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30,
BALANCE SHEET ACCOUNT NOTE ADJUSTMENT 1996
--------------------- ---- ---------- -------------
(IN THOUSANDS)
<C> <C> <S> <C>
ACQUISITION ADJUSTMENTS
Investment in joint ven-
ture.................... (d) Loan to Keystone JV by Foods 6,485
--------
Intangible assets........ (a) Allocation of purchase price 124,253
--------
Effect on total assets.. 130,738
========
Accounts payable and ac-
crued expenses.......... Ralston Resorts' pension
liability which was not
assumed in the Acquisition (1,079)
--------
Long-term debt due within
one year................ Refinancing of Ralston
Resorts' line of credit
borrowings under the New
Credit Facilities (140,032)
--------
Long-term debt........... Refinancing of Ralston
Resorts' line of credit
borrowings under the New
Credit Facilities 140,032
Ralston Resorts' debt in
excess of that assumed in the
Acquisition (3,328)
Transaction costs related to
(b) the Acquisition 15,000
--------
151,704
--------
Effect on total liabili-
ties................... 10,593
========
Stockholders' equity..... Elimination of Ralston Resorts
stockholder's equity (30,943)
Issuance of shares of Common
Stock to Foods 151,088
--------
120,145
========
OFFERINGS ADJUSTMENTS
Cash..................... Net proceeds of the Offerings 90,000
Application of net proceeds of
the Offerings to redeem the
Senior Subordinated Notes (62,647)
Payment of premium on early
redemption of the Senior
Subordinated Notes (2,506)
Application of net proceeds of
the Offerings to reduce
revolving credit borrowings
under the New Credit
Facilities (24,847)
--------
--
========
Long-term debt........... Application of net proceeds of
the Offerings to redeem the
Senior Subordinated Notes (62,647)
Application of net proceeds of
the Offerings to reduce
revolving credit borrowings
under the New Credit
Facilities (24,847)
--------
(87,494)
--------
Deferred income taxes.... (e) Tax effect of premium on early
redemption of the Senior
Subordinated Notes (959)
--------
Effect on total liabili-
ties................... (88,453)
========
Stockholders' equity..... Net proceeds of the Offerings 90,000
(e) Premium on early redemption of
the Senior Subordinated Notes
(after-tax) (1,547)
--------
88,453
========
</TABLE>
23
<PAGE>
VAIL RESORTS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
--------------------
RALSTON ACQUISITION OFFERINGS PRO FORMA
THE COMPANY RESORTS ADJUSTMENTS ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Resort................ $140,288 $135,750 $ $ $276,038
Real estate........... 48,655 914 49,569
-------- -------- ------- ------- --------
Total revenues...... 188,943 136,664 325,607
-------- -------- ------- ------- --------
Operating expenses:
Resort................ 89,890 97,988 187,878
Real estate........... 40,801 -- 40,801
Corporate expense..... 12,698 -- 12,698
Depreciation and amor-
tization............. 18,148 15,780 3,550 37,478
-------- -------- ------- ------- --------
161,537 113,768 3,550 278,855
-------- -------- ------- ------- --------
Operating income........ 27,406 22,876 (3,550) 46,752
Investment income....... 586 -- 586
Interest expense........ (14,904) (9,200) (2,640) 9,286 (17,458)
Gain (loss) on the dis-
posal of fixed assets.. (2,630) -- (2,630)
Other................... (1,500) -- (1,500)
-------- -------- ------- ------- --------
Income (loss) from oper-
ations before
income taxes........... 8,958 13,696 (6,190) 9,286 25,750
(Provision) benefit for
income taxes........... (4,223) (5,824) 1,010 (3,552) (12,589)
-------- -------- ------- ------- --------
Net income.............. $ 4,735 $ 7,872 $(5,180) $ 5,734 $ 13,161
======== ======== ======= ======= ========
Earnings per common
share.................. $ .38
========
Weighted average common
shares outstanding..... 34,382
========
</TABLE>
24
<PAGE>
VAIL RESORTS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
SUMMARY OF PRO FORMA ADJUSTMENTS--STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR
ENDED
SEPTEMBER 30,
STATEMENT OF OPERATIONS ITEM NOTE ADJUSTMENT 1996
---------------------------- ---- ---------- -------------
ACQUISITION ADJUSTMENTS
-----------------------
<C> <C> <S> <C>
Depreciation and amortization.. (a) Amortization of $(3,550)
goodwill................
Interest expense............... (c) Interest expense on debt
assumed in the
Acquisition............ (2,640)
Provision for income taxes..... (e) Tax effect of pro forma
adjustments............ 1,010
-------
Effect on net income.......... $(5,180)
=======
<CAPTION>
OFFERINGS ADJUSTMENTS
---------------------
<C> <C> <S> <C>
Interest expense............... (c) Reduction of interest
expense attributable to
redemption of the
Senior Subordinated
Notes.................. $(7,674)
(c) Reduction of interest
expense attributable to
reduction of revolving
credit borrowings under
the New Credit
Facilities............. (1,612)
-------
(9,286)
-------
Provision for income taxes..... (e) Tax effect of pro forma
adjustments............ 3,552
-------
Effect on net income.......... $ 5,734
=======
</TABLE>
25
<PAGE>
VAIL RESORTS, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL DATA
(a) The Acquisition of Ralston Resorts by the Company will result in the
assets of Ralston Resorts being written up to reflect the purchase price
of the transaction. The purchase price of Ralston Resorts will be
calculated as the sum of (i) the fair value of the Company's Common Stock
that will be issued to Foods, the sole stockholder of Ralston Resorts,
(ii) the fair value of any liabilities of Ralston Resorts assumed, and
(iii) the transaction costs incurred by the Company. Under the purchase
accounting method, the acquisition cost is allocated to the assets and
liabilities acquired based on their relative fair values. The Company has
not yet received the results of appraisals and other valuation studies,
nor has it made a final determination of the useful lives of the assets
acquired. The Company's preliminary allocation of acquisition cost
resulted in an excess of purchase price over the historical basis of net
assets acquired of approximately $124.3 million. For purposes of the pro
forma combined financial data, this excess has been allocated to various
intangible assets, including goodwill. Amortization expense in the pro
forma financial statements has been calculated assuming an amortization
period of 35 years.
When the final purchase price is computed as of the closing date and an
actual allocation of the purchase price to the underlying assets acquired is
completed, some portion of the excess of purchase price over the historical
basis of the net assets acquired may be allocated to specific tangible and
intangible assets. Only after the final purchase price has been allocated
and the estimated remaining useful lives of the tangible and intangible
assets are determined by management will the actual amortization charge
associated with the acquired assets of Ralston Resorts become available. The
actual allocation of purchase cost and the resulting effect on operating
income may differ significantly from the pro forma amounts included herein.
The following table summarizes the preliminary purchase price allocation:
<TABLE>
<S> <C>
Stock to be issued.......................................... $151,088,100
Debt assumed................................................ 165,000,000
Transaction costs........................................... 15,000,000
------------
Total purchase price........................................ $331,088,100
============
Purchase price allocation:
Historical cost basis of acquired net assets................ $206,835,000
Purchase price in excess of historical cost basis........... 124,253,100
------------
$331,088,100
============
</TABLE>
(b) The Company incurred various direct costs and professional fees in
connection with the Acquisition which will be paid from borrowings under
the New Credit Facilities.
(c) The Senior Subordinated Notes accrue interest at a rate of 12.25%. The
average rate of interest under the New Credit Facilities is assumed to be
6.5%.
(d) As of September 30, 1996, Foods had made loans to the Keystone JV in the
aggregate amount of $6 million. Under the terms of the Acquisition, these
loans and an accrued interest receivable of $485,000 as of September 30,
1996 were assigned to Ralston Resorts upon the closing of the Acquisition.
(e) All adjustments to the unaudited Pro Forma Combined Statement of
Operations Data have been tax-effected using the expected statutory rate.
(f) The pro forma financial data set forth above includes the results of the
Arapahoe Basin mountain resort, which the Company will divest pursuant to
the Consent Decree. See "Recent Developments" and "The Acquisition--
Consent Decree." The following table summarizes certain financial and
operating data for Arapahoe Basin for fiscal 1996. This presentation is
not intended to be indicative of the operations or financial position of
Arapahoe Basin on a stand alone basis, but rather to isolate its impact on
the combined
26
<PAGE>
pro forma financial data of the Company after giving effect to the
Acquisition and the Offerings. Resort Cash Flow for Arapahoe Basin includes
$300,000 of certain operating expenses of Ralston Resorts which have been
allocated to Arapahoe Basin.
<TABLE>
<CAPTION>
ARAPAHOE BASIN
------------------
FISCAL YEAR ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Revenues............................................... $6,554,000
Resort cash flow....................................... 3,004,000
Total assets .......................................... 5,060,000
Property & equipment, net ............................. 4,910,000
Skier days ............................................ 241,435
</TABLE>
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AND PER SKIER DAY DATA)
The selected consolidated historical financial data presented below have
been derived from the Company's and Ralston Resorts' consolidated financial
statements and should be read in conjunction with those statements and related
notes thereto, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the other financial information included
elsewhere in this Prospectus. The unaudited pro forma summary combined
financial data for the fiscal year ended September 30, 1996 give effect to the
Acquisition and the Offerings and are derived from the unaudited pro forma
financial data presented elsewhere in this Prospectus. The following
information includes the results of the Arapahoe Basin mountain resort, which
will be divested pursuant to the Consent Decree. See "Pro Forma Financial
Data" and "The Acquisition."
THE COMPANY
<TABLE>
<CAPTION>
PRO FORMA
PRE-EFFECTIVE DATE (1) POST-EFFECTIVE DATE (1) COMBINED
------------------------ ------------------------------------ FISCAL
YEAR YEAR YEAR
ENDED ENDED FISCAL YEAR ENDED SEPTEMBER 30, ENDED
SEPTEMBER 30, OCTOBER 8, ------------------------------------ SEPTEMBER 30,
1991(2) 1992(2) 1993 1994 1995 1996 1996
------------- ---------- -------- -------- -------- -------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Resort................. $ 97,048 $105,525 $114,623 $124,982 $126,349 $140,288 $276,038
Real estate............ 2,601 3,767 4,610 22,203 16,526 48,655 49,569
--------- -------- -------- -------- -------- -------- --------
Total revenues....... 99,649 109,292 119,233 147,185 142,875 188,943 325,607
Operating expenses:
Resort................. 56,680 63,099 69,749 78,365 82,305 89,890 187,878
Real estate............ 4,282 4,472 5,165 20,341 14,983 40,801 40,801
Corporate expense (3).. 7,939 4,151 6,467 7,160 6,701 12,698 12,698
Depreciation and
amortization.......... 8,389 7,626 13,404 17,186 17,968 18,148 37,478
--------- -------- -------- -------- -------- -------- --------
77,290 79,348 94,785 123,052 121,957 161,537 278,855
Operating income from
continuing operations.. 22,359 29,944 24,448 24,133 20,918 27,406 46,752
Income (loss) from
continuing operations
(after-tax) (4)........ NM NM (146) 761 3,282 4,735 13,161
Unaudited pro forma
earnings per common
share(5)............... $ .38
Weighted average shares
outstanding (5)........ 34,382
OTHER DATA:
Resort
Resort Revenue......... $ 97,048 $105,525 $114,623 $124,982 $126,349 $140,288 $276,038
Resort Cash Flow (6)... 40,368 42,426 44,874 46,617 44,044 50,398 88,160
Skier days............. 1,969 1,986 2,059 2,056 2,136 2,228 4,885
Resort Revenue/skier
day................... $ 49.29 $ 53.13 $ 55.67 $ 60.79 $ 59.15 $ 62.97 $ 56.51
Real estate
Revenues from real
estate sales.......... $ 2,601 $ 3,767 $ 4,610 $ 22,203 $ 16,526 $ 48,655 $ 49,569
Real estate operating
profit (7)............ (1,681) (705) (555) 1,862 1,543 7,854 8,768
Real estate assets
(8)................... 16,144 13,091 15,673 42,637 54,858 88,665 146,502
BALANCE SHEET DATA (AT
PERIOD END):
Total assets........... $ 569,319 $805,881 $459,131 $450,018 $429,628 $415,322 $784,360
Long term debt......... 1,009,759 376,718 250,566 225,654 191,313 144,750 235,419
Total stockholders'
equity (deficit)...... (578,007) 132,102 131,973 162,494 167,694 123,907 363,448
</TABLE>
28
<PAGE>
RALSTON RESORTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------
1993 1994 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Resort................................ $ 83,717 $127,676 $125,816 $135,750
Real estate........................... 2,141 4,979 1,778 914
-------- -------- -------- --------
Total revenues...................... 85,858 132,655 127,594 136,664
Operating expenses:
Resort................................ 71,330 94,382 94,846 97,988
Real estate........................... 1,619 3,837 1,040 --
Depreciation and amortization......... 10,754 14,227 14,948 15,780
-------- -------- -------- --------
83,703 112,446 110,834 113,768
Operating income....................... 2,155 20,209 16,760 22,896
Net income (loss)...................... (4,090) 8,923 3,927 7,872
OTHER DATA:
Resort
Resort Revenue........................ $ 83,717 $127,676 $125,816 $135,750
Resort Cash Flow(6)................... 12,387 33,294 30,970 37,762
Skier days............................ 1,284 2,568 2,532 2,657
Resort Revenue/skier day.............. $ 65.20 $ 49.72 $ 49.69 $ 51.09
Real estate
Revenues from real estate sales....... $ 2,141 $ 4,979 $ 1,778 $ 914
Real estate operating profit(7)....... 522 1,142 738 914
Real estate assets(8)................. 46,275 49,683 50,009 51,352
BALANCE SHEET DATA:
Total assets.......................... $235,611 $231,362 $226,240 $231,010
Long term debt........................ 30,522 130,295 130,053 168,328
Total stockholder's equity............ 178,477 71,787 67,033 30,943
</TABLE>
29
<PAGE>
(1) In addition to its resort and real estate operations, which are conducted
by Vail Associates, the Company also previously owned subsidiaries which
were engaged in the communications and beef products businesses. In each
year from fiscal 1986 through fiscal 1991, the Company's resort operations
experienced growth in Resort Cash Flow. In 1991, due to an inability to
service debt incurred in connection with the acquisition of certain assets
in the communications business, the Company was forced to seek relief
under Chapter 11 of the Bankruptcy Code. On the Effective Date, the
Company emerged from bankruptcy pursuant to the Reorganization, which
contemplated divestitures of the Company's communications and beef
products businesses. Such divestitures were completed in fiscal years 1993
and 1994 and accounted for as discontinued operations. As a result of the
transactions that took place on the Effective Date and the related
accounting treatment, the Pre-Effective Date financial information is not
comparable to the Post-Effective Date financial information. See Note 1 to
the Company's consolidated financial statements.
(2) For fiscal 1991, results of operations include only nine months of
corporate expense of the Company due to a change in the fiscal year of the
Company. The results of Vail Associates for fiscal 1991 and fiscal 1992
have been derived from their separately audited financial statements.
(3) Prior to the Offerings, corporate expense included the costs associated
with the Company's holding company structure and overseeing multiple lines
of business, including the discontinued operations. Following the
Offerings, corporate expense will include certain personnel, tax, legal,
directors' and officers' insurance and other consulting fees relating
solely to the Company's resort and real estate operations. Corporate
expense is classified as resort operating expenses in the consolidated
financial statements of Ralston Resorts. For the year ended September 30,
1996, corporate expense included the following nonrecurring charges: (i)
$4.5 million related to the Option Payment, (ii) $1.9 million of
compensation expense related to the exercise of certain options held by
the Company's former Chairman and Chief Executive Officer and (iii) $2.1
million related to the termination of the employment agreement with the
Company's former Chairman and Chief Executive Officer. In addition, the
Company anticipates annual savings of approximately $750,000 related to
changes made in corporate management. These anticipated corporate expense
savings have not been reflected in the pro forma summary combined
financial data.
(4) Due to the Reorganization discussed in Note 1, income from continuing
operations and per share information for fiscal 1991 and fiscal 1992 are
not comparable to amounts reported in subsequent fiscal years, and
therefore, are not considered meaningful.
(5) Due to the Distribution, the Acquisition and the Offerings, the Company's
and Ralston Resorts' historical capital structure is not indicative of the
Company's capital structure upon the closing of the aforementioned
transactions. Accordingly, historical earnings per common share is not
considered meaningful and has not been presented herein.
(6) Resort Cash Flow is defined as revenues from resort operations less resort
operating expenses, excluding depreciation and amortization. Resort Cash
Flow is not a term that has an established meaning under generally
accepted accounting principles. The Company has included information
concerning Resort Cash Flow because management believes it is an
indicative measure of a resort company's operating performance and is
generally used by investors to evaluate companies in the resort industry.
Resort Cash Flow does not purport to represent cash provided by operating
activities and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles. For information regarding the Company's and Ralston
Resorts' historical cash flows from operating, investing and financing
activities, see the Company's and Ralston Resorts' consolidated financial
statements included elsewhere in this Prospectus. Furthermore, Resort Cash
Flow is not available for the discretionary use of management and, prior
to the payment of dividends, the Company uses Resort Cash Flow to meet its
capital expenditure and debt service requirements.
(7) Real estate operating profit is defined as revenues from real estate
operations less real estate costs and expenses, which include (i) selling
costs, (ii) holding costs, (iii) operating expenses and (iv) the
allocation of the capitalized land, infrastructure, mountain improvement
and other costs relating to property sold. Real estate costs and expenses
exclude charges for depreciation and amortization as the Company has
determined that the portion of those expenses allocable to real estate are
not significant.
(8) Real estate assets include all land, development costs, and other
improvements associated with real estate held for sale and classified as
such in the Company's consolidated balance sheet. Real estate assets of
Ralston Resorts include investments in real estate joint ventures, real
estate held for sale and other developable land. See Note (d) to the Pro
Forma Financial Data.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1996 ("FISCAL 1996") VERSUS FISCAL YEAR ENDED
SEPTEMBER 30, 1995 ("FISCAL 1995")
Resort Revenue. Resort Revenue for fiscal 1996 was $140.3 million, an
increase of $13.9 million, or 11.0%, compared to fiscal 1995. The increase was
attributable primarily to (i) an 8.4% increase in lift ticket revenue due to a
4.3% increase in skier days (a 5.3% increase at Vail Mountain and a 1.5%
increase at Beaver Creek Mountain) and an increase in effective ticket price
(defined as total lift ticket revenue divided by total skier days) ("ETP")
from $29.96 to $31.12, or 3.9%, (ii) a 9.6% increase in ski school revenue due
to increases in lesson prices and increases in lesson volume driven primarily
by snowboarding and children's lessons, (iii) a 9.8% increase in food service
revenues due to price increases and the increase in skier days, (iv) a 19.1%
increase in retail and rental revenues due to favorable changes in product
mix, the growth in popularity of snowboarding and new ski technology, and the
increase in skier days and (v) a 17.2% increase in hospitality revenues due
primarily to enhanced marketing efforts for the Company's property management
activities.
Resort Operating Expenses. Operating expenses from resort operations
("Resort Operating Expenses") were $89.9 million for fiscal 1996, representing
an increase of $7.6 million, or 9.2%, as compared to fiscal 1995. As a
percentage of Resort Revenue, Resort Operating Expenses declined from 65.1% to
64.1% in fiscal 1996. The increase in Resort Operating Expenses is primarily
attributable to (i) increased variable expenses resulting from the increased
level of Resort Revenue and skier days in fiscal 1996, (ii) a $1.6 million
increase in the accrual for long term incentive compensation associated with
the improvement in the operating results of the resorts segment during fiscal
1996 and (iii) a $1.1 million increase in labor related expenses due to
expanded operations.
Resort Cash Flow. Resort Cash Flow for fiscal 1996 was $50.4 million, an
increase of $6.4 million, or 14.4%, compared to fiscal 1995. Resort Cash Flow
as a percentage of Resort Revenue increased to 35.9% for fiscal 1996 as
compared to 34.9% for fiscal 1995. The increase in Resort Cash Flow is
primarily due to the increase in skier days and ETP as discussed above.
Real Estate Revenues. Revenues from real estate operations for fiscal 1996
were $48.7 million, an increase of $32.1 million, compared to fiscal 1995. The
increase is due primarily to the closings of sales of 30 single family lots in
the Strawberry Park development at Beaver Creek Resort in December 1995 and
February 1996, which generated $30.9 million in gross proceeds.
Real Estate Operating Expenses. Real estate operating expenses for fiscal
1996 were $40.8 million, an increase of $25.8 million, compared to fiscal
1995. The increase resulted primarily from the cost of sales and commissions
associated with the sale of the Strawberry Park lots which totaled $24.7
million.
Corporate Expense. Corporate expense was $12.7 million for fiscal 1996, an
increase of $6.0 million as compared to fiscal 1995. Corporate expense for
fiscal 1996 includes the following nonrecurring charges: (i) $2.1 million
related to the termination of an employment agreement with the Company's
former Chairman and Chief Executive Officer, (ii) $4.5 million related to the
Option Payments and (iii) $1.9 million of compensation expense related to the
exercise of stock options by the Company's former Chairman and Chief Executive
Officer. Excluding the effect of those items, corporate expense decreased $2.5
million. This decrease was primarily due to the inclusion in fiscal 1995, of
$1.6 million of compensation expense related to shares of Common Stock granted
to the Company's former Chairman and Chief Executive Officer pursuant to an
employment agreement dated October 8, 1992. Those shares were earned over the
three year period beginning on the date of the employment agreement and ending
on October 8, 1995. Accordingly, compensation expense was charged to corporate
expense ratably over that period. The remaining decrease was attributable to
reductions in payroll expense and other office expenses related to the partial
closure of the Company's Denver office as of December 31, 1995.
Depreciation and Amortization. Depreciation and amortization expense
increased by $180,000 for fiscal 1996 over fiscal 1995, primarily due to
capital expenditures made in fiscal 1995.
31
<PAGE>
Interest Expense. During fiscal 1996 and fiscal 1995, the Company recorded
interest expense of $14.9 million and $19.5 million, respectively, which
relates primarily to the Company's Senior Subordinated Notes, the Industrial
Development Bonds, and the Company's credit facilities. The decrease in
interest expense from fiscal 1995 to fiscal 1996, is attributable to the
redemptions of $30 million and $24.5 million in principal amount of Senior
Subordinated Notes on December 11, 1995 and February 2, 1996, respectively,
offset by call premiums paid in connection with those redemptions. See
"Liquidity and Capital Resources."
Gain (loss) on disposal of fixed assets. The loss on disposal of fixed
assets for fiscal 1996 was $2.6 million compared to $849,000 for fiscal 1995.
The loss for fiscal 1996 consists primarily of a $2.3 million loss on the
retirement of the Lionshead gondola and a $340,000 loss on the retirement of
the Golden Peak chairlift. Both lifts have been replaced with upgraded
equipment. The loss for fiscal 1995 consists primarily of a $600,000 loss on
the write off of lift equipment which was replaced during an upgrade of a Vail
Mountain chairlift.
Other income (expense). The significant components of other income (expense)
for fiscal 1996 are (i) a $725,000 increase in the reserves related to the
Company's indemnity to the purchaser of a former subsidiary of the Company,
(ii) a $690,000 increase in the estimate of the pension liability related to
three founders of the Company, (iii) a $600,000 increase in reserves related
to a change in the estimate of the Company's obligation to a medical research
foundation, and (iv) $373,000 in income related to a favorable retrospective
adjustment on a worker's compensation insurance policy of a former subsidiary
of the Company. The significant components of other income (expense) for
fiscal 1995 are (i) a $1.2 million gain on the sale of securities, (ii) income
of $687,000 related to the elimination of reserves for pre-petition bankruptcy
claims and (iii) $1.6 million in income related to a change in the estimate of
the Company's obligation to a medical research foundation.
YEAR ENDED SEPTEMBER 30, 1995 ("FISCAL 1995") VERSUS YEAR ENDED SEPTEMBER 30,
1994 ("FISCAL 1994")
Resort Revenue. Resort Revenue for fiscal 1995 was $126.3 million, an
increase of $1.4 million, or 1.1%, compared to fiscal 1994. The increase was
attributable primarily to (i) a 1.1% decrease in lift ticket revenue due to a
3.9% increase in skier days (a 2.7% increase at Vail Mountain and a 7.4%
increase at Beaver Creek Mountain) offset by a decline in ETP from $31.29 to
$29.96, or 4.3%, (ii) a 4.4% increase in ski school revenue due primarily to
increases in corporate group sales at Vail Mountain and private lesson sales
at Beaver Creek Mountain, (iii) a 0.7% increase in food service revenue
attributable to slight growth in winter food and beverage sales offset by
significant decreases in summer sales due to poor weather conditions during
June which delayed the opening of certain mountain facilities, (iv) a 20.8%
increase in retail and rental sales due to the opening of two new retail
outlets in fiscal 1995, (v) a 3.2% increase in hospitality revenue due to
property management revenues from four properties which were managed by the
Company for a full year in fiscal 1995 and (vi) increases in revenue from
brokerage, commercial leasing, and licensing and sponsorship activities. The
decline in ETP in fiscal 1995 resulted from increased skier days in the early
and late season which have lower ETPs than those in the peak season. The
increase in early and late season skiers was due to incentive programs
targeted to attract increased corporate groups and skiers from the Denver
metropolitan area. In addition, skier days in the peak season, which have
higher ETPs, were adversely affected by a number of factors, including (i) an
unusually high number of closings of Interstate 70 (the main highway from
Denver to Vail) due to adverse weather conditions and (ii) the December 1994
financial crisis in Mexico, the country of origin of a significant portion of
the Company's international guests who typically visit the Company's resorts
during the peak season. Following the 1994-95 ski season, the Company, working
with state and local agencies, took steps designed to improve snow removal
operations on Interstate 70. As a result of these steps, the number and
duration of highway closings were significantly reduced during the 1995-96 ski
season.
Resort Operating Expenses. Resort Operating Expenses were $82.3 million for
fiscal 1995, representing an increase of $3.9 million, or 5.0%, as compared to
fiscal 1994. As a percentage of Resort Revenue, Resort Operating Expenses
increased from 62.7% in fiscal 1994 to 65.1% in fiscal 1995. The increase in
Resort Operating Expenses is primarily attributable to (i) a $2.1 million
increase in marketing expenditures primarily related to increased direct
advertising expenditures, (ii) an increase of $1.3 million in expenses related
to an expansion of the Company's retail operations, write-downs of obsolete
inventory purchased in prior seasons, and
32
<PAGE>
costs associated with the implementation of new point of sale inventory
system, (iii) an increase of $740,000 in rent and occupancy costs due to the
relocation of certain of Vail Associates' offices from Company-owned space in
the Town of Vail to leased office space in the Town of Avon and (iv) increased
expenses resulting from the increased level of Resort Revenue in fiscal 1995.
Resort Cash Flow. Resort Cash Flow for fiscal 1995 was $44.0 million, a
decrease of $2.6 million, or 5.5%, compared to fiscal 1994. Resort Cash Flow
as a percentage of Resort Revenue decreased to 34.9% in fiscal 1995 as
compared to 37.3% in fiscal 1994. The decrease in Resort Cash Flow was due to
the decline in ETP and increase in Resort Operating Expenses as discussed
above.
Real Estate Revenues. Revenues from real estate operations for fiscal 1995
were $16.5 million, a decrease of $5.7 million, compared to fiscal 1994. The
decrease is due primarily to a reduction in the number of closings of
residential lot sales in Beaver Creek Resort due to the Company not having
significant lots available for sale during the period.
Real Estate Operating Expenses. Real estate operating costs and expenses for
fiscal 1995 were $15.0 million, a decrease of $5.4 million, compared to fiscal
1994 due to lower costs of sales associated with the reduced amount of lot
sales activity.
Corporate Expense. Corporate expense decreased $459,000 in fiscal 1995 as
compared to fiscal 1994 due primarily to lower salary and service costs.
Depreciation and Amortization. Depreciation and amortization expense from
continuing operations increased $782,000 in fiscal 1995 as compared to fiscal
1994, primarily as a result of the capital expenditures made during fiscal
1994.
Interest Expense. During fiscal 1995, the Company recorded interest expense
of $19.5 million, which relates primarily to the interest on the Company's
Senior Subordinated Notes and the Industrial Development Bonds and revolving
credit facilities of Vail Associates. See "--Liquidity and Capital Resources."
The decrease in interest expense from $22.5 million during fiscal 1994 to
$19.5 million during fiscal 1995 relates primarily to the redemption of the
Company's Senior Secured Notes on September 29, 1994 and the redemption of
$24.9 million principal amount of Senior Subordinated Notes on December 15,
1994.
Other Income (Expense). The significant components of other income (expense)
for fiscal 1995 are (i) income of $1.6 million related to a reduction in the
estimate of a liability related to the Company's obligation to a medical
research foundation, (ii) a $1.2 million gain on the sale of securities and
(iii) income of $687,000 related to the elimination of reserves for pre-
petition bankruptcy claims.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically provided funds for debt service, capital
expenditures and acquisitions through a combination of cash flow from
operations, short term and long term borrowings and sales of real estate.
At September 30, 1995, the Company had outstanding $117.2 million of Senior
Subordinated Notes maturing on June 30, 2002. On December 11, 1995 and
February 2, 1996, the Company redeemed principal amounts of $30.0 million and
$24.5 million, respectively, of the Senior Subordinated Notes. At September
30, 1996, the outstanding principal amount of Senior Subordinated Notes was
$62.6 million. The Company will use a portion of the net proceeds from the
Offerings to redeem all of the remaining outstanding Senior Subordinated
Notes.
The Company has $41.2 million of outstanding Industrial Development Bonds
issued by Eagle County, Colorado which accrue interest at 8% per annum and
mature on August 1, 2009. Interest is payable semi-annually on February 1 and
August 1. The Company has provided the holder of these bonds a debt service
reserve fund of $3.3 million, which has been netted against the principal
amount for financial reporting purposes.
In connection with the Acquisition, the Company entered into certain credit
facilities with NationsBank of Texas, N.A., as agent (the "Agent"), to provide
financing for the Acquisition and the working capital needs of
33
<PAGE>
the Company (the "New Credit Facilities"). The New Credit Facilities provide
for debt financing up to an aggregate principal amount of $340 million. The
New Credit Facilities are comprised of (i) a $175 million Revolving Credit
Facility ("Revolving Credit Facility"), (ii) a $115 million Tranche A Term
Loan Facility ("Tranche A") and (iii) a $50 million Tranche B Term Loan
Facility (together with Tranche A, the "Term Loan Facilities"). The Term Loan
Facilities were used to refinance $139.7 million of the $165 million of debt
assumed in connection with the Acquisition and the balance of the Term Loan
Facilities was used to repay borrowings under the Company's former credit
facilities. The Revolving Credit Facility matures on April 15, 2003. The
minimum amortization under the Term Loan Facilities will be $11.5 million,
$14.0 million, $19.0 million, $21.5 million, $26.5 million, $31.5 million, and
$41.0 million during fiscal years ending September 30, 1998, 1999, 2000, 2001,
2002, 2003, and 2004, respectively. The Company is also required to make
mandatory amortization payments under the Term Loan Facilities with excess
cash flow, proceeds from asset sales, and proceeds from equity and debt
offerings.
The New Credit Facilities require that no more than $125.0 million in the
aggregate be outstanding under the Revolving Credit Facility for a period of
30 consecutive days during each fiscal year, such period to include April 15.
The proceeds of the loans made under the Revolving Credit Facilities may be
used to fund the Company's working capital needs, capital expenditures and
other general corporate purposes, including the issuance of letters of credit.
See "Description of Certain Indebtedness--Credit Facilities."
Resort capital expenditures for fiscal 1996 were $13.9 million. Investments
in real estate for fiscal 1996 were $40.6 million, which included $9.1 million
of mountain improvements (such as ski lifts and snowmaking equipment) which
are related to real estate development but will also benefit resort
operations. The primary projects included in resort capital expenditures for
fiscal 1996 are (i) the new Lionshead gondola, (ii) the creation of the Eagles
Nest non-ski activity center and (iii) the allocated cost of the new retail,
restaurant and skier service facilities to be created in the renovated Golden
Peak base facility. The primary projects included in investments in real
estate for fiscal 1996 are (i) the renovation of the Golden Peak base
facility, including a new high speed quad chairlift, (ii) infrastructure
related to Bachelor Gulch Village, including a new high speed quad chairlift
and related snowmaking equipment, (iii) construction related to the Beaver
Creek Village Center, the majority of the related expenses of which was
recouped during fiscal 1996 from the third party developer of the project and
certain homeowner, community and governmental organizations, (iv)
infrastructure related to Arrowhead Village and (v) infrastructure related to
the Strawberry Park development in Beaver Creek Resort.
The Company estimates that it will make resort capital expenditures at the
Existing Resorts and the Acquired Resorts totaling approximately $72 million
in fiscal 1997. The primary projects at the Existing Resorts include (i)
infrastructure for the Category III expansion, (ii) expansion of snowmaking at
Beaver Creek Mountain, (iii) upgrades to and expansions of food service
operations at Beaver Creek Resort and (iv) the purchase of retail space at
Beaver Creek Resort. The primary projects at the Acquired Resorts include (i)
lift upgrades at Breckenridge Mountain and Keystone Mountain, (ii) the
expansion of snowmaking at Breckenridge Mountain and (iii) trail and
infrastructure improvement at Breckenridge Mountain and Keystone Mountain.
Investments in real estate at the Existing Resorts and Acquired Resorts are
expected to total approximately $60 million during fiscal 1997. The primary
projects included in these investments are (i) the completion of the Golden
Peak base facility, (ii) infrastructure related to Bachelor Gulch Village and
Arrowhead Village and (iii) completion of the Beaver Creek Village retail and
parking facilities.
In connection with the Distribution, the Company will make payments
aggregating $55 million, which it estimates will be made in fiscal 1997. The
Company will fund payments made under the Distribution from proceeds of the
Real Estate Contracts.
Based on current levels of operations and cash availability, the Company
believes that it will be able to satisfy its debt service, capital expenditure
requirements and investments in real estate from cash flow from operations and
borrowings under the New Credit Facilities.
The Company believes that inflation during the past three years has had
little effect on its results of operations and that any impact on costs has
been largely offset by increased pricing.
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BUSINESS
GENERAL
Vail Resorts is the premier mountain resort operator in North America. The
Company operates Vail Mountain, the largest single ski mountain complex in
North America, and Beaver Creek(R) Mountain, one of the world's premier
family-oriented mountain resorts (together with Vail Mountain, the "Existing
Resorts"). The Company is one of the most profitable resort operators in the
ski industry due to its attractive guest demographics, favorable weather and
snowfall conditions, ability to attract both destination resort guests and day
travelers from local population centers and proximity to both Denver
International Airport and Vail/Eagle County Airport. In addition to resort
operations, the Company owns substantial real estate from which it derives
significant strategic benefits and cash flow. On January 3, 1997, the Company
acquired the Breckenridge, Keystone and Arapahoe Basin mountain resorts (the
"Acquired Resorts") and significant related real estate interests and
developable land (the "Acquisition"). As a result of the Acquisition, the
Company is the largest mountain resort company in North America, operating the
top three mountain resorts in the United States. The Company has a 9% share of
skier days in the United States, which is nearly 40% greater than that of its
nearest competitor, and is uniquely positioned to attract a broad range of
guests due to its diverse ski terrain, varied price points and numerous
activities and services. As the Company's resorts are located within 50 miles
of each other, the Company is able to offer guests the opportunity to visit
each resort during one vacation stay and participate in common loyalty
programs. For fiscal 1996, the Company's Resort Revenue and Resort Cash Flow,
pro forma for the Acquisition, were $276.0 million and $88.2 million,
respectively. Management believes that the Company's Resort Revenue and Resort
Cash Flow, pro forma for the Acquisition, are greater than that of any other
mountain resort company in the world.
The Company will divest the Arapahoe Basin mountain resort pursuant to the
Consent Decree. See "Recent Developments" and "The Acquisition--Consent
Decree."
INDUSTRY
There are approximately 800 ski areas in North America, which during the
1995-96 ski season generated a total of approximately 71 million skier days.
There are approximately 519 ski areas in the U.S., which during the 1995-96
ski season generated approximately 54 million skier days. These resorts range
from small ski resort operations, which cater primarily to day skiers from
nearby population centers, to larger resorts which, given the scope of their
operations and their accessibility, are able to attract both day skiers and
destination resort guests who are seeking a comprehensive vacation experience.
While the day skier tends to focus primarily on lift ticket price and round-
trip travel time, destination travelers tend to make their choices based on
the number of amenities and activities offered, as well as the perceived
overall quality of the vacation experience. As a result, destination guests
generate significantly higher Resort Revenue per skier day than day skiers.
Management believes that the Company is one of a relatively small number of
ski areas in North America able to attract both the day skier and the
destination guest and provide a comprehensive vacation experience.
Within the United States, regional distribution of skier days during the
1995-96 ski season is estimated to have been as follows: Northeast
(13.8 million); Southeast (5.7 million); Midwest (7.3 million); Rocky Mountain
(18.1 million); and Pacific West (9.0 million). The 29 ski areas located in
Colorado currently account for over 21% of total skier days in the United
States, up from approximately 18% in 1985-86. While total skier days generated
by all United States resorts have increased by a total of 4.0% since the 1985-
86 ski season, skier days generated by Colorado ski areas have grown by
approximately 25% during the same period. During the same time period, skier
days at the Existing and Acquired Resorts increased by 39% and 29%,
respectively. The Company believes that the primary reasons for Colorado's
growth relative to the rest of the United States include the quality of the
ski areas located in the state, the accessibility of its resorts from major
transportation centers and the relatively favorable climate of the Rocky
Mountains. The Existing Resorts' share of the total skier days generated by
mountain resorts located in Colorado has grown from 18% in 1986 to 20% in
1996.
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The Company believes that it will benefit from certain trends and
developments which should favorably impact the North American ski industry,
including (i) advances in ski equipment technology ("fat" skis and specially
shaped skis) which facilitate learning and make the sport easier to enjoy,
thereby increasing an individual's days skied per year and overall years of
skiing, (ii) the rapid growth of snowboarding, which is increasing youth
participation in "on-snow" sports, (iii) a greater focus on leisure and
fitness and (iv) a growing interest among affluent families in purchasing
second homes in mountain resort communities. There can be no assurance,
however, that such trends and developments will have a favorable impact on the
ski industry.
Snowboarding has energized interest in "on-snow" sports, primarily among
males between the ages of 13 and 24. According to the National Sporting Goods
Association (the "NSGA"), the number of snowboarders in the U.S. has increased
from 1.5 million in 1990 to 2.3 million in 1995, an increase of 9% per year.
U.S. skier days attributable to snowboarders have increased an average of 19%
per year over the past three years and snowboarders are currently estimated to
represent 14% of all U.S. skier days. With international markets believed to
be experiencing similar growth rates, snowboarding is among the fastest
growing sports in the world. Recently, the International Olympic Committee
designated snowboarding as a demonstration event at the 1998 Winter Olympic
Games. Management believes that the growth in snowboarding has had a positive
impact on the ski industry and will continue to be an important source of lift
ticket, ski school, retail and rental revenue growth for the Company.
Management believes that the growth in snowboarding among children and teens,
who influence family vacation decisions, will allow the Company to attract
additional family-oriented destination guests. Consequently, the Company
intends to position itself as an industry leader in the creation of snowboard
attractions, programs and events.
The mountain resort industry is in a period of consolidation as the cost of
the infrastructure required to maintain competitiveness has increased, thereby
enhancing the position of larger and better capitalized resort owners. The
number of U.S. ski resorts has declined from approximately 709 in 1986 to 519
in 1996 and, based on industry estimates, the number of mountain resorts is
expected to decline further, as the majority of mountain resorts lack the
infrastructure, capital and management capability to compete in this multi-
dimensional and service-intensive industry. At the same time, the high cost of
mountain resort development and environmental restrictions have prevented new
resorts from being created. Since Beaver Creek Mountain opened in 1980, only
one other major ski facility has opened in the United States. Despite this
consolidation, the ski industry remains highly fragmented, with no one resort
operator accounting for more than 10% of the United States' 54 million skier
days. The Company believes that the consolidation trend in the mountain resort
industry will continue, and the Company intends to actively pursue acquisition
opportunities which provide attractive investment returns.
EXISTING RESORTS
VAIL MOUNTAIN
Opened in 1962, Vail Mountain is the largest and most popular single ski
mountain complex in North America, offering over 4,100 acres of unique and
varied ski terrain, spanning approximately 20 square miles. Included in this
complex is the largest network of high speed lifts in the world, a top-rated
ski school and a wide variety of dining and retailing establishments. Vail
Mountain is ideally suited for all levels of skiers as it has a balanced
distribution of beginner, intermediate and advanced terrain. Perhaps no single
physical attribute defines Vail Mountain better than the Back Bowls. More than
seven miles wide, the Back Bowls are one of the most distinctive terrain
features found at any ski mountain in North America and offer some of the
finest skiing in the world. Along with comprehensive snowmaking capabilities,
Vail Mountain receives "dry," dependable snowfall due to its central Rocky
Mountain location and, in its 34th season, attracted over 1.65 million skier
days, the highest number of skier days of any North American ski mountain and
a new record for Vail Mountain. For the last eight years, Vail Mountain has
been rated the number one ski resort in United States by the Snow Country
magazine survey.
While Vail Mountain provides the largest and most varied ski terrain of any
North American mountain resort, the Company has received approval (subject to
a pending appeal) from the Forest Service for infrastructure development of
bowl skiing terrain within its current permit area known as Category III.
Category
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III will add approximately 2,000 additional acres of ski terrain to the Back
Bowls, including 850 acres of new trails and an additional 1,150 acres of
undisturbed gladed skiing, increasing the ski terrain on Vail Mountain by
approximately 50%. The terrain's high, north facing location typically yields
extremely reliable snow conditions and should allow for earlier and later ski
season operations than Vail's existing Back Bowls which face south. Although
management believes that the completion of this terrain expansion will
significantly increase the number of skier days at Vail Mountain, particularly
in the early and late season non-peak periods, there can be no assurance that
such an increase will be achieved. See "Business--Projects Under Construction"
and "Risk Factors--Forest Service Permits."
Vail Mountain has a total of 29 lifts, including ten high speed quads and a
new high speed custom-designed gondola, constituting the largest network of
high speed lifts in the world. Based on Vail Mountain's existing terrain and
lift network, the theoretical capacity on the mountain is 19,900 skiers at one
time. During the 1995-96 ski season, the average skiers per day on Vail
Mountain was approximately 9,500, with only three days out of a 173 day ski
season having over 16,000 skiers.
The Company has also consistently improved and expanded guest amenities on
Vail Mountain. The Company currently owns and operates 15 on-mountain food
service establishments as well as 21,650 square feet of retail and commercial
space located throughout the mountain and at the three primary access points--
Golden Peak, Vail Village and Lionshead. While Vail Mountain is already viewed
as one of the premier destination mountain resorts in North America, the
Company has commenced several projects which will continue to improve mountain
operations, expand guest services and provide the Company with additional
retail and restaurant venues. See "Business--Projects Under Construction" and
"Business--Resort Operations--Food Service."
BEAVER CREEK MOUNTAIN
Beaver Creek Mountain, located ten miles west of Vail Mountain, consists of
the Beaver Creek, Arrowhead and Bachelor Gulch ski areas, and includes 1,530
acres of ski terrain. The Company acquired Beaver Creek Mountain in 1972 and
opened the ski facilities during the 1980-81 ski season. In 1993, the Company
expanded Beaver Creek Mountain by acquiring significant privately owned ski
terrain and development property at Arrowhead and Bachelor Gulch. This
purchase allowed the Company to (i) begin development of a European style
village-to-village ski experience which interconnects, through ski lifts and
ski trails, the three distinct ski areas, (ii) add significant intermediate
terrain, (iii) improve skier distribution patterns across Beaver Creek
Mountain and (iv) add mountain infrastructure capable of supporting
anticipated skier growth. Like Vail Mountain, Beaver Creek Mountain benefits
from "dry" dependable snowfall in addition to excellent snowmaking
capabilities. Since its opening, Beaver Creek Mountain has increased its skier
days from 111,746 in 1980-81 to 576,249 in the 1995-96 ski season, making it
one of the fastest growing mountain resorts in North America. Despite
achieving rapid growth over a sustained period of time, Beaver Creek Mountain
currently operates at 38% of its theoretical skier capacity. Prior to the
completion of the interconnect referred to above, the theoretical skier
capacity on Beaver Creek Mountain was 9,800 skiers at one time. During the
1995-96 ski season, the average skiers per day on Beaver Creek Mountain was
approximately 3,900, with only six days out of a 148 day ski season having
over 7,000 skiers. Management believes that the success of Beaver Creek
Mountain has resulted from its unique combination of ambience, architecture
and a variety of groomed and natural terrain providing world-class skiing
which appeals to Beaver Creek Mountain's family-oriented destination guests.
Beaver Creek Mountain operates 14 lifts, including five high speed quads. The
Company also owns and operates seven on-mountain restaurants, as well as
15,650 square feet of retail/commercial space strategically located on and at
the base of Beaver Creek Mountain. The Company has commenced several projects
that will continue to improve mountain operations, expand guest services and
provide the Company with additional owned retail and restaurant venues. See
"Business--Projects Under Construction" and "Business--Resort Operations--Food
Service."
One of the primary factors in the growth of Beaver Creek Mountain has been
an increase in resort lodging. Beaver Creek Resort has grown from only 500
residential units and no hotels in 1985 to nearly 1,480 residential units and
private homes and 471 hotel rooms as of January 1, 1996. In addition to the
significant growth taking
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place in Beaver Creek Resort, there has been substantial development in the
surrounding communities of Avon, Edwards, Eagle and Gypsum, providing
substantial additional, moderately-priced, resort lodging. The Company
anticipates the substantial resort lodging growth to continue from the
buildout of the Bachelor Gulch Village and Arrowhead Village resort
communities, both of which offer unique slopeside development opportunities
due to the Company's fee simple ownership of the mountain land, and from the
significant development taking place in the surrounding communities. See
"Business--Real Estate."
PROJECTS UNDER CONSTRUCTION AND IN DEVELOPMENT
The following represents depictions and renderings of certain projects under
construction and in development. Descriptions of the projects follow such
depictions and renderings.
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[DEPICTION AND RENDERING OF CERTAIN PROJECTS UNDER CONSTRUCTION AND IN
DEVELOPMENT BY VAIL RESORTS, INC.]
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[DEPICTION AND RENDERING OF CERTAIN PROJECTS UNDER CONSTRUCTION AND IN
DEVELOPMENT BY VAIL RESORTS, INC.]
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[DEPICTION AND RENDERING OF CERTAIN PROJECTS UNDER CONSTRUCTION AND IN
DEVELOPMENT BY VAIL RESORTS, INC.]
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[DEPICTION AND RENDERING OF CERTAIN PROJECTS UNDER CONSTRUCTION AND IN
DEVELOPMENT BY VAIL RESORTS, INC.]
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PROJECTS UNDER CONSTRUCTION
During the next 24 months, the Company's Existing Resort operations will
undergo a period of significant expansion as numerous projects under
construction are completed.
Village-to-Village Skiing--For the 1996-97 ski season, Vail Resorts
completed the first step in introducing a European style village-to-village
ski experience by connecting (through ski lifts and ski trails) three distinct
ski areas--Beaver Creek, Bachelor Gulch and Arrowhead. The interconnect of
these three areas has increased the contiguous ski terrain on Beaver Creek
Mountain by 330 acres or 30%. The Company has incorporated architectural, food
and retail themes in the development plans of Bachelor Gulch Village and
Arrowhead Village which are distinct from Beaver Creek Village and from each
other.
Golden Peak(TM)--Construction is underway on the redevelopment of Golden
Peak, which will revitalize and replace the base facility at one of Vail
Mountain's primary access points. Improvements include the construction of a
new 83,000 square foot base lodge which will include approximately 21,000
square feet of restaurant and retail space, including the Company's first
restaurant offering apres ski and evening dining proximate to Vail Village,
and approximately 22,000 square feet of ski school, ticketing and skier
service facilities. As part of the redevelopment, the Company replaced the
existing Golden Peak lift with an extended high speed quad lift with more than
double the capacity of the existing lift, which will balance skier flow at the
base of Vail Mountain and provide a direct connection to the Back Bowls. Other
components of the Golden Peak project include six luxury condominiums, a
private 148 space parking garage and club facility and substantial site and
transportation improvements. Due to their convenient location adjacent to both
the Vail Village and the Ford Park Amphitheater, the Company believes that,
following the redevelopment, Golden Peak's retail and restaurant facilities
will generate significant revenues both in the evening and throughout the
year. Construction on Golden Peak is scheduled to be completed during fiscal
1997 at a total cost anticipated to be approximately $33 million. The Company
has executed contracts for the sale of the six condominiums for an aggregate
sales price of $24.2 million (representing an average price per saleable
square foot of $1,000). In addition, the Company expects to generate an
additional $6 million (approximately $4.9 million of which is already under
contract) from the sale of private parking privileges and access to club
facilities.
One Beaver Creek--Construction has begun and is expected to be completed
during 1997 on a new mixed use retail, restaurant, skier service and
condominium project at the base of the primary access lift to Beaver Creek
Mountain. The Company was involved in the planning and design of this project,
which is being developed by a third party. The project will include 18
condominium units, 17,260 square feet of retail and restaurant space, and
10,847 square feet of ski school, ticketing and skier service facilities. The
Company has contracted to purchase all the retail, restaurant, ski school,
ticketing and skier service facilities from the developer at a price
approximating cost, which is significantly below fair market value. The cost
of this purchase will be financed primarily from proceeds the Company received
from the sale of the land to the developer. The One Beaver Creek project will
include substantial improvements in pedestrian access to Beaver Creek Mountain
through the installation of outdoor escalators integrated with the new retail,
restaurant and skier service facilities and will constitute a substantial step
toward the completion of Beaver Creek Village. Due to its convenient location
within Beaver Creek Village, the Company believes that, following its
development, One Beaver Creek will generate significant revenues both in the
evening and throughout the year.
Beaver Creek Village Center--Construction has begun on this multi-phase,
multi-year project that will be completed in stages beginning in 1997. The
completion of the Village Center development will add significantly to the
ambiance, character and amenities of Beaver Creek Resort. The project is
expected to include a year-round outdoor ice skating rink surrounded by 13,000
square feet of retail and restaurant space, a 518 seat performing arts center,
a new transportation center, a 423 space parking garage and additional resort
lodging, including approximately 78 condominium and townhouse units and a 45
unit timeshare project to be developed by a major international hotel
operator. The Company was involved in the planning and design of this project,
which is being developed by a third party. A substantial portion of the common
improvements are being paid for by homeowner, community and governmental
organizations. The Company has contracted to purchase all of the retail and
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restaurant space from the developer at a price approximating cost, which is
significantly below fair market value. The cost of this purchase will be
financed primarily from proceeds the Company received from the sale of the
land to the developer. After development, the Company will also own 166
parking spaces in the newly created parking garage. The Village Center
development will complete the retail core of Beaver Creek Village and is
expected to result in a substantial increase in pedestrian traffic throughout
Beaver Creek Village, which also should benefit the Company's existing
restaurant and retail operations. Due to its convenient location within Beaver
Creek Village and adjacent to the performing arts center and ice rink, the
Company believes that, following its development, the restaurant and retail
operations in the Village Center development will generate significant
revenues for the Company in the evening and throughout the year.
Lionshead/Eagle's Nest(TM) Gondola--In the fall of 1996, the Company
replaced the Lionshead gondola with a new state-of-the-art, custom-designed
gondola. Lionshead is one of three primary access points to Vail Mountain. The
gondola travels from Lionshead to the Eagle's Nest mountain facility, which is
located at the top of the western side of Vail Mountain. The capacity of the
new gondola is 2.5 times that of the replaced gondola. The cabins are
oversized for twelve passengers and include amenities such as cushioned
seating, heat and lights. The new gondola allows for nighttime operation and
provides evening access to Eagle's Nest and Game Creek Club(TM). This gondola
improvement, in conjunction with the new high speed chairlift installed at
Golden Peak, has increased high speed access lift capacity to Vail Mountain by
over 50%.
Eagle's Nest Improvements--The first major non-ski activity center on Vail
Mountain opened for the 1996-97 ski season at Eagle's Nest Ridge at the top of
the new Lionshead gondola. Activities offered include (i) snowboard parks and
related attractions, (ii) sledding and tubing with lifts for uphill transport,
(iii) ice skating, (iv) snowmobile tours and (v) a children's snowpark. New
facilities at Eagle's Nest include an 80 seat bar, a 130 seat pizzeria and a
300 seat outdoor sundeck serviced by both the bar and an outdoor kitchen.
Management believes that the improvements to Eagle's Nest will allow the
Company to offer its guests a more diversified vacation experience and
increase Resort Revenue per skier day.
Game Creek Club--In addition to evening dining options at Eagle's Nest, the
Company now offers gourmet dinners at the Game Creek Club. Built in 1996 at a
cost of approximately $7 million, Game Creek Club is the premier dining
facility on Vail Mountain, available to members for lunch during the ski
season and open to the general public for dinners throughout the year. A
similar dinner operation at Beano's Cabin(TM) on Beaver Creek Mountain
generated revenues of $3.7 million in fiscal 1996. The construction cost of
Game Creek Club is being financed primarily by the sale of club memberships.
As of December 31, 1996, 227 out of a total of 395 available memberships in
Game Creek Club have been sold for total proceeds of $7.1 million.
Bachelor Gulch Village(TM)--The Company is currently completing its master
plan for the development of 725 dwelling units in Bachelor Gulch Village. In
addition, zoning for Bachelor Gulch Village includes approximately 68,000
square feet of retail, restaurant and commercial space. Infrastructure
development commenced in 1994 and is expected to be substantially completed by
1998. During the summer of 1995 and the winter of 1996, 93 single-family
homesites (averaging approximately two acres each) were contracted for sale at
prices aggregating approximately $72 million (an average of approximately
$776,000 per homesite). All 93 homesites were sold in a lottery format because
demand significantly exceeded the number of homesites available for sale. The
Company is in discussions with developers regarding the sale of multi-family
and cluster homesite parcels. See "Business--Real Estate."
Arrowhead Village--The Company's current development activities in Arrowhead
are focused on the development of Arrowhead Village, a 218-unit staged
development centered around an alpine club. The proposed Arrowhead Alpine Club
is expected to be a 79,000 square foot facility containing 23 condominiums,
14,500 square feet of spa and athletic training space and 5,800 square feet of
restaurant, retail and skier service facilities. In Arrowhead Village,
developers have commenced construction on 44 residential units on land
purchased from the Company. In addition, multi-family parcels zoned for an
additional 13 residential units have been sold to developers with construction
scheduled to begin in the Spring of 1997. See "Business--Real Estate."
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PROJECTS IN DEVELOPMENT
Category III--The Company has received approval (subject to a pending
appeal) to begin construction to expand its renowned Back Bowls by
approximately 2,000 additional acres into an area known as Category III.
Category III is expected, at completion, to include three lifts, numerous
trails and mountain infrastructure and two restaurants. The opening of
Category III will increase the ski terrain on Vail Mountain by approximately
50%, including significant terrain offering intermediate and advanced bowl and
gladed skiing, which will further improve skier distribution on Vail Mountain.
With nearly 50% of the guests at Vail Mountain classified as intermediate
skiers, Category III represents a significant expansion in non-expert bowl
skiing for these skiers. Category III will also offer better snow conditions
in the early and late season due to its northern exposure. See "Risk Factors--
Forest Service Permits."
Lionshead Redevelopment--The Company is currently planning the redevelopment
of its owned property in Lionshead, together with related properties owned by
third parties. Current plans contemplate more than 200 luxury hotel rooms, a
significant number of condominiums and timeshare units, significant additions
to restaurant and retail space, an employee housing complex, an office
facility (intended to be used for Vail Mountain's administrative and
operations functions) and a convention center. The redevelopment of Lionshead
will require certain approvals from, and a cooperative partnership with, the
Town of Vail and there can be no assurance that the Company will receive such
approvals or cooperation.
ACQUIRED RESORTS
BRECKENRIDGE
Breckenridge Mountain, located approximately 85 miles west of Denver and 40
miles east of Vail Mountain, is North America's second most popular ski area,
trailing only Vail Mountain in skier days. Breckenridge's skier days reached
1.35 million during the 1995-96 ski season, a new record for Breckenridge
Mountain. Breckenridge offers over 2,000 acres of skiing on four different
mountain peaks, including open bowl skiing and excellent beginner and
intermediate ski terrain. Breckenridge's mountains are interconnected by a
network of 18 lifts, including four high speed quad chairlifts. Breckenridge
currently operates four on-mountain food service establishments and 3,030
square feet of on-mountain retail and commercial space, a relatively modest
scope of operations in comparison to the Existing Resorts. The Company
believes there are improvements which can be made to Breckenridge Mountain
which will contribute to further growth in skier days and Resort Revenue,
including (i) an upgrade of certain older lift equipment and the addition of
new high speed quads, which will reduce lift lines and improve on-mountain
skier circulation, (ii) a significant expansion of the mountain's snowmaking
coverage to ensure a better early and late season ski product and (iii) an
expansion of the Company's ski school, food service, retail and rental
operations. The Company owns certain strategic land parcels at the base of
Breckenridge Mountain and in the Town of Breckenridge which are currently in
the planning stages for significant residential and commercial development.
The Breckenridge mountain resort benefits significantly from its location
adjacent to the Town of Breckenridge, a restored 140 year old Victorian mining
town which has over 20,000 beds, over 70 restaurants and bars and over 130
shops. Significant apres ski activities and extensive bed base have made
Breckenridge an attractive destination to national and international
destination guests. The Company anticipates significant additional resort
lodging growth will be fueled by third party developers as well as by the
development of the Company's owned properties, (see "Business--Real Estate").
KEYSTONE
Keystone Mountain, located approximately 70 miles west of Denver and 15
miles from Breckenridge, is North America's third most popular mountain
resort, achieving 1.06 million skier days during the 1995-96 ski season.
Comprised of three mountains and interconnected by a network of 19 lifts,
including two high speed gondolas and three high speed quad chairlifts,
Keystone provides 1,739 skiable acres suited to a wide variety of skier
ability levels. Keystone has the largest and most advanced snowmaking
capability of any Colorado mountain resort with snowmaking coverage extending
over 49% of Keystone's skiable acreage. As a result, Keystone is typically
among the first mountain resorts in the nation to open each season and is one
of the last to
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close. Keystone also provides the largest single-mountain night skiing
experience in North America. With 13 lighted trails covering 2,340 vertical
feet from the summit to the base, Keystone offers a 12 1/2 hour ski day
allowing day guests to customize their ski day and providing destination
guests the opportunity to ski on arrival days. Keystone is a planned family-
oriented community which offers a variety of year round activities, the
majority of which are operated by the Company, including 20 on-mountain and
in-valley restaurants and 24,522 feet of on-mountain and in-valley retail and
rental stores. Upgrades to Keystone Mountain include (i) for the 1996-97 ski
season, the construction of $5 million of snowboarding related improvements,
including a snowboard park, representing the first time snowboarders have been
allowed on Keystone Mountain and a significant opportunity for Keystone to
capture a share of this growing market and (ii) planned for the 1997-98 ski
season, the installation of a new high speed quad access lift from one of the
resort's major base areas.
The Keystone JV is developing a significant portion of the Keystone Resort,
and expects to add up to 3,400 residential and lodging units and up to 318,000
square feet of retail and restaurant space over the next 20 years. The Company
believes that the build-out of this real estate will result in increased skier
days and Resort Revenue per skier day and will significantly increase the
number of higher revenue destination guests at Keystone Resort (see
"Business--Real Estate").
ARAPAHOE BASIN
Arapahoe Basin is the highest ski area in North America, offering 486 acres
of skiing with a summit elevation of 13,050 feet. This high elevation allows
for the longest ski season in Colorado, with the mountain remaining open well
into June and even as late as August. During the 1995-96 ski season, Arapahoe
Basin had 241,435 skier days. Arapahoe Basin has a rustic flavor and offers
limited amenities, primarily targeting the skiing enthusiast with advanced
intermediate to expert ski terrain. The Company believes there is a
possibility of adding snowmaking facilities to Arapahoe Basin, which would
improve conditions during the traditional ski season and allow Arapahoe Basin
to offer year round skiing, which it believes would be a popular attraction to
the numerous summer tourists in Colorado. The Company has agreed to divest
Arapahoe Basin pursuant to the Consent Decree. See "Recent Developments," "The
Acquisition" and "Risk Factors--Antitrust."
ACCESSIBILITY
Given their close proximity to Vail/Eagle County Airport ("Vail/Eagle
Airport") and the recently-completed Denver International Airport ("DIA"), all
of the Company's resorts are easily accessible to national and international
destination resort guests, as well as to day travelers from the Denver
metropolitan area. The Vail/Eagle Airport is located within 25 miles of Beaver
Creek and reasonably accessible to the Acquired Resorts and can accommodate
large jet aircraft from major metropolitan areas. Nearly 30% of the
destination guests who traveled by air to ski at the Existing Resorts during
the 1995-96 ski season arrived through Vail/Eagle Airport, up from only 9% in
1990. The Company estimates that approximately 70% of the destination guests
flying to the Existing Resorts and a similar percentage of the destination
guests traveling to the Acquired Resorts arrive through DIA.
Over the last six years, the Company has worked closely with the nation's
major airlines to significantly improve accessibility to its resorts through
Vail/Eagle Airport. As a result of these efforts, the number of daily non-stop
flights, total seats, major airlines and cities served by Vail/Eagle Airport
have increased significantly. The Company expects that Vail/Eagle Airport will
continue to expand its operations and offer more direct flights to more North
American cities. In the spring of 1996, American Airlines announced plans to
add four daily flights to the Vail/Eagle Airport, as well as two additional
flights per week from Miami International Airport, representing a total of
approximately 73,000 additional annual seats, an 83% increase in total
American Airlines seats from the 1995-96 ski season. Furthermore, the Company
continues to work with the major airlines to increase both direct and
connecting international flights into Vail/Eagle Airport. Presently, guests
from major cities located in Europe, South America, Mexico, New Zealand,
Australia and the Pacific Rim can conveniently fly to the Vail Valley with
only a single stopover or connection through a major U.S. city. The Company
believes that its proximity to Vail/Eagle Airport provides it with a
significant competitive advantage relative to other North American destination
ski resorts. In order to induce major air carriers to offer flights from
selected new cities to the Vail/Eagle Airport, the Company has entered into
agreements guaranteeing the carriers minimum
42
<PAGE>
seasonal revenue associated with such flights. The Company made no payments
under these agreements during fiscal 1995 and 1996 and has made no material
payments with respect to winter flights during the last four years.
As of December 31, 1996, scheduled flights to the Vail/Eagle Airport for the
1996-97 ski season were as follows:
<TABLE>
<CAPTION>
NUMBER OF FLIGHTS NUMBER OF SEATS
CARRIER CITY PER WEEK PER SEASON
------- ---- ----------------- ---------------
<S> <C> <C> <C>
American Dallas/Fort Worth 23 63,920
American Chicago 15 42,864
American Miami 3 8,084
American New York 1 2,820
American Newark 7 21,244
American Los Angeles 7 21,244
Delta Atlanta 7 20,520
Northwest Minneapolis/St. Paul 9 28,310
Northwest Detroit 2 6,080
United Denver 31 52,536
United Los Angeles 7 9,592
--- -------
112 277,214*
=== =======
</TABLE>
- --------
* Compares to approximately 164,000 seats during the 1995-96 ski season.
WEATHER, SNOWMAKING AND GROOMING
Given their location in the Colorado Rocky Mountains, Vail Mountain and
Beaver Creek Mountain receive some of the most reliable snowfall experienced
anywhere in the world, averaging approximately 340 inches of annual snowfall
over the last 20 years, which is significantly in excess of the average for
all ski resorts in the Rocky Mountains for such period.
Despite the natural snowfall described above, the Company continues to
invest in the latest technology in snowmaking systems and actively acquires
additional water rights, which has allowed it to offer its guests more
predictable and consistent conditions, particularly during the early and late
ski season. During 1995, the Company doubled its snowmaking capacity on Vail
Mountain and purchased water rights sufficient to enable a further doubling of
snowmaking capacity in the future. For the 1996-97 ski season, the Company
increased snowmaking capacity on Beaver Creek Mountain by 60% and, with the
addition of a new reservoir planned for completion in 1997, will further
increase snowmaking capacity on Beaver Creek Mountain by an additional 100%.
Approximately 800 acres of the Company's ski terrain are covered by
snowmaking. In addition, the Company has extensive snowgrooming equipment,
including the largest fleet of snowcats in the world.
The Acquired Resorts are also located in the Colorado Rocky Mountains and
receive consistent and reliable natural snowfall which has averaged in excess
of 255 inches over the last 20 years. In addition to abundant natural
snowfall, the Acquired Resorts have made a significant investment in
snowmaking technology and equipment. Keystone Resort currently has the largest
and most advanced snowmaking system in Colorado, enabling it to manufacture
snow using less water and at warmer temperatures than other mountain resorts.
With the ability to cover approximately 49% of the mountain, including trails
accessible from each lift, with snow, Keystone has consistently been one of
the first resorts in Colorado to open each ski season. Breckenridge's
snowmaking system currently has the capacity to cover 360 acres and management
plans to upgrade the existing snowmaking system and increase capacity to cover
an additional 180 acres for the 1997-98 season. While Arapahoe Basin does not
currently possess snowmaking capability, as the highest lift-served mountain
in the United States, Arapahoe Basin enjoys abundant natural snowfall and a
favorable climate which typically allows Arapahoe Basin to offer a longer ski
season than any other mountain resort in Colorado.
43
<PAGE>
The Company's snowmaking capabilities and diversity of activities and
services has mitigated the effects of fluctuations in yearly snowfall. The
chart below illustrates the Company's historical ability to increase Resort
Revenue at the Existing Resorts despite fluctuations in annual snowfall.
[CHART]
CUSTOMERS
The Company's customers are primarily comprised of worldwide resort
destination guests and, to a lesser extent, day skiers from the Front Range,
the Vail Valley and Summit County. For the 1995-96 ski season, the Company
believes that destination guests represented 73% of total skier days at the
Existing Resorts and 61% of total skier days at the Acquired Resorts.
By offering diverse vacation experiences and services at a variety of price
points, the Existing and Acquired Resorts attract a broad guest population
with complementary demographic profiles, allowing the Company to compete for a
wide array of potential customers. The following chart highlights that while
the Existing Resorts attract a more affluent guest with a higher relative
concentration from the Northeast and Western United States, the Acquired
Resorts attract a more price sensitive consumer with a relative higher
concentration from the Southern and Midwestern United States. In addition,
while international guests at the Existing Resorts have a higher relative
concentration from Mexico and South America, international guests at the
Acquired Resorts have a higher relative concentration from Europe
(particularly the United Kingdom) and Australia/New Zealand.
44
<PAGE>
COMPARISON OF CUSTOMER DEMOGRAPHICS
ANNUAL INCOME OF SKIERS*
<TABLE>
<CAPTION>
EXISTING ACQUIRED
RESORTS RESORTS
-------- --------
<S> <C> <C>
Less than $50,000....................................... 29.0% 41.1%
$50,000 - $100,000...................................... 23.2% 35.1%
------ ------
Less than $100,000...................................... 52.2% 76.2%
$100,000 - $200,000..................................... 24.0% 16.5%
Greater than $200,000................................... 23.8% 7.3%
------ ------
Greater than $100,000................................... 47.8% 23.8%
Total................................................... 100.0% 100.0%
====== ======
</TABLE>
GEOGRAPHIC ORIGIN OF DESTINATION SKIERS**
<TABLE>
<CAPTION>
EXISTING ACQUIRED
RESORTS RESORTS
-------- --------
<S> <C> <C>
South................................................... 26.6% 28.4%
Northeast............................................... 24.5% 17.0%
Midwest................................................. 22.8% 33.2%
International........................................... 12.7% 12.5%
West.................................................... 11.7% 6.4%
Non-Colorado Rocky Mountains............................ 1.7% 2.5%
------ ------
100.0% 100.0%
====== ======
</TABLE>
GEOGRAPHIC ORIGIN OF INTERNATIONAL SKIERS**
<TABLE>
<CAPTION>
EXISTING ACQUIRED
RESORTS RESORTS
-------- --------
<S> <C> <C>
United Kingdom.......................................... 34.1% 44.1%
Mexico/South America.................................... 22.9% 3.1%
Canada.................................................. 15.2% 12.1%
Europe.................................................. 16.2% 22.9%
Australia/New Zealand................................... 8.2% 13.0%
Other................................................... 3.5% 4.8%
------ ------
100.0% 100.0%
====== ======
</TABLE>
- --------
*Based upon mountain surveys conducted by RRC Associates at the Existing and
Acquired Resorts during the 1995-96 ski season.
**Based upon mountain surveys conducted by RRC Associates at the Existing
Resorts and Breckenridge during the 1995-96 ski season and at Keystone and
Arapahoe Basin during the 1994-95 ski season.
Although the Company's resorts accommodate a wide range of budgets and
attract guests from different regions of the country and the world, both the
Existing Resorts and the Acquired Resorts attract family-oriented guests who
tend to generate higher and more diversified revenues per guest than day
skiers from local population centers. Over 40% of the destination guests at
the Existing Resorts visited with their families during the 1995-96 ski
season.
International guests, who tend to have longer average stays and higher
vacation expenditures than other destination guests, accounted for
approximately 13% of the Existing Resorts' destination skier days during the
1995-96 ski season, an increase from 8% in fiscal 1988. The Company believes
that this growth was partially
45
<PAGE>
attributable to the prestige gained by, and the promotional opportunities
resulting from, the Existing Resorts' hosting of the 1989 World Alpine Ski
Championships, which had an estimated worldwide television viewership of over
300 million people. The Company anticipates a further increase in
international visits will result when it hosts the 1999 World Alpine Ski
Championships. As the first North American site to host the event twice, the
Company will use the occasion to promote both the Existing Resorts and the
Acquired Resorts to further increase its penetration of the international
market. Breckenridge Mountain has excellent relationships with European tour
operators, a primary factor behind the Acquired Resorts' international guests
representing 13% of its destination skier days. The Company intends to expand
these relationships to further promote the Existing Resorts throughout Europe.
Consistent with the trends in the overall ski market, snowboarders represent
the fastest growing segment of the Company's guest demographic. The Company is
committed to promoting snowboarding as an exciting outgrowth of traditional
skiing. As an example of this commitment, the Company has upgraded the
snowboard facilities at the Existing Resorts, published trail maps for the
convenience of snowboarders and created additional trails, half-pipes and
other varied terrain to attract snowboarders. For the 1996-97 ski season,
Keystone Mountain completed construction of $5 million in snowboarding related
improvements, including a snowboarding park. Furthermore, the ski schools at
the Acquired Resorts have added extensive snowboarding instruction to their
schedules, and these classes have become one of the fastest growing lesson
products offered in the industry. The Company believes that snowboarding,
which is easier to learn and excel at than skiing, will continue to increase
the Company's skier days.
The Company believes that the Existing and Acquired Resorts are well
positioned to respond to the needs presented by the industry trends toward
family vacationers, conference attendees, international travelers and
snowboarders, while at the same time attracting guests from differing economic
and geographic backgrounds. By marketing to different economic and geographic
consumers, the Company intends to minimize competition among the resorts for
the same guest dollar while providing the opportunity to cross-market the
Existing and Acquired Resorts. The Company believes that it has been
successful at providing an exceptional vacation experience to its guests as
evidenced by the fact that for the 1995-96 ski season over 70% of the
destination guests at the Existing Resorts and approximately 64% of the
destination guests at the Acquired Resorts, were return visitors.
RESORT OPERATIONS
The Company derives Resort Revenue from a wide variety of sources, including
lift ticket sales, ski school, equipment rental, retail stores, restaurants,
travel reservation services, lodging, property, club and conference
management, real estate brokerage, licensing and sponsorship activities,
recreational activities (including golf and tennis facilities) and property,
club and conference management.
46
<PAGE>
The Company's ability to appeal to a broad spectrum of guests and offer a
wide selection of activities and services has enabled the Company to generate
Resort Revenue per skier day at the Existing Resorts that is among the highest
in the industry and approximately 57% greater than the average Resort Revenue
per skier day of all ski areas in the United States. Set forth below is a
chart outlining the Resort Revenue per skier day at both the Existing and
Acquired Resorts for fiscal 1996, including a comparison to industry averages
for the 1995-96 ski season.
[CHART]
Lift ticket revenue represents the single largest revenue source at both the
Existing and Acquired Resorts. While lift ticket revenue at the Existing
Resorts increased 22.6% over the last five years, non-lift ticket revenue
increased 75.2% over the same time period and currently represents over 50% of
Resort Revenue. The Company expects non-lift ticket revenue will continue to
grow at a greater rate than lift ticket revenue as a result of the ongoing
expansion of the activities and services it provides.
<TABLE>
<CAPTION>
EXISTING ACQUIRED
REVENUES FOR FISCAL 1996 ($ IN THOUSANDS) RESORTS RESORTS TOTAL
----------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Lift Ticket Revenue................................. $ 69,341 $ 64,374 $133,715
Non-Lift Ticket Revenue............................. 70,947 71,376 142,343
-------- -------- --------
Total Resort Revenue................................ $140,288 $135,750 $276,038
======== ======== ========
</TABLE>
The Company believes there are selected opportunities to increase non-lift
ticket revenue at the Acquired Resorts. While overall non-lift ticket revenue
represents 50% of total Resort Revenue at the Acquired Resorts due to the
extensive hospitality operation at Keystone Resort, activities such as ski
school are far less developed than they are at the Existing Resorts, and
operations such as retail and food service at Breckenridge Mountain are very
modest. In addition to creating new activities at the Acquired Resorts, the
Company intends to implement a number of the operating strategies currently in
place at the Existing Resorts, such as incentivized selling techniques and
cross marketing programs, to increase guest participation in Company operated
activities.
Lift Ticket Revenue ($133.7 million of revenue for fiscal 1996, pro forma
for the Acquisition ("Pro Forma 1996 Revenue")). The Existing Resorts'
favorable demographics and world class resort facilities have enabled the
Company to achieve premium ticket pricing. The adult single-day lift ticket
price at the Existing Resorts, which for the 1995-96 ski season was $48 a day,
is among the highest in the industry. To maximize skier volume during non-peak
periods and attract certain segments of the market, the Company also offers a
wide variety of incentive ticket programs, including season passes, student
rates, group discounts and senior discounts. Depending upon anticipated levels
of skier demand at various times throughout the ski season, the Company
47
<PAGE>
sells lift tickets at reduced prices. The Company engages in sophisticated
yield management analysis to maximize its ETP which was $31.12 for the 1995-96
ski season, and among the highest in the industry. Over the past ten fiscal
years, the Company has been able to increase its ETP at an average of 4.1% per
year.
The Acquired Resorts ETP for the 1995-96 season was $24.23. The Company
believes that while the differential in ETP between the Acquired Resorts and
the Existing Resorts is largely a result of different guest demographics,
there is a substantial opportunity to increase ticket yield at the Acquired
Resorts through more effective targeting and distribution of incentive ticket
programs. The Company intends to introduce a "combined mountain pass" allowing
guests to ski at any one of the Company's resorts which the Company believes
will increase the perceived value of its lift tickets.
Ski School ($33.2 million of Pro Forma 1996 Revenue). The Company believes
that the Vail/Beaver Creek Ski School(TM) is the largest (1,288 instructors),
most profitable ski school in the world and has a higher guest participation
rate than any other ski school in the world. The Vail/Beaver Creek Ski School
has achieved revenue growth of 53% since 1991. Future growth is expected to
stem in part from the significant growth in the sport of snowboarding, for
which the ski school has qualified instructors, and technological advances
currently taking place in alpine skiing equipment.
The success of the ski school comes from (i) personalizing and enhancing the
guest vacation experience, (ii) creating new teaching and learning systems
(many of which have historically been purchased from the Company by the
Professional Ski Instructors of America and adopted as the standard for the
industry), (iii) introducing innovative teaching methods for children,
including separate children's centers, mountain-wide attractions, themed
entertainment and teaching systems geared toward specific age groups and (iv)
continually creating new techniques to react to technological advances in
ski/snowboard equipment.
Another differentiating characteristic of the Vail/Beaver Creek Ski School
is its commitment to instructor training procedures and customer service. In
addition to ski technique, instructors are trained to match teaching
methodologies to individual learning styles. Each instructor is trained in
sports psychology and the latest sports performance enhancement techniques.
Customer service is continually reviewed and improved as the result of
feedback from customers. The Company has adopted a pay incentive program to
reward instructors based on guest satisfaction and repeat students.
Breckenridge and Keystone also have significant ski school operations which
on a combined basis include more than 900 full and part-time instructors.
During the 1995-96 ski season, the Breckenridge and Keystone ski schools
achieved a 8.0% guest participation rate versus a rate of 11.8% at the
Company's Existing Resorts. The Company believes that by implementing
strategies similar to those utilized at its Existing Resorts, such as
incentive compensation programs and new lesson products, it can increase ski
school participation rates at the Acquired Resorts.
Food Service ($39.1 million of Pro Forma 1996 Revenue). Food service is a
key component in providing a satisfying guest experience and has been an
important source of revenue growth for the Company. The Company believes that
by owning and operating both on-mountain and base area restaurants, it can
better ensure the quality of products and services offered to its guests, as
well as capture a greater percentage of the guest's vacation expenditures. The
strategies with respect to its food service operations include (i) focusing
growth in venues which allow for food service throughout the day and
throughout the year, including breakfast, lunch, apres-ski, dinner, evening
entertainment, group functions and summer/non-ski season operations, (ii)
creating unique themed environments to maximize guest enjoyment and revenue
opportunities, (iii) further expanding on-mountain seating, (iv) offering
affordable family lunchtime and evening dining and entertainment, (v)
continuing to create additional private clubs and restaurants which are
financed through memberships and the sale of related real estate and (vi)
continuing affiliations with institutions such as Johnson and Wales, one of
the largest culinary and restaurant management schools in the world. The large
number of food service facilities operated by the Company allows it to improve
margins through large quantity purchasing agreements and sponsorship
relationships.
48
<PAGE>
The Company's restaurant operations range from full service sit-down
restaurants to trailside express food outlets and offer a wide variety of
cuisine. The Company operates 19 restaurants on Vail Mountain and 11
restaurants on Beaver Creek Mountain and in Beaver Creek Village. The Company
currently has indoor seating capacity on Vail Mountain of 3,693. On Beaver
Creek Mountain the Company currently has 1,449 indoor seats.
Over the next 24 months, the Company intends to open a number of new food
service facilities, each of which will be themed and provide apres ski,
nighttime and off-season dining. These facilities are as follows:
<TABLE>
<CAPTION>
INDOOR OUTDOOR
RESTAURANT SEATS SEATS LOCATION DESCRIPTION
- ---------- ------ ------- -------- -----------
<S> <C> <C> <C> <C>
Vail Mountain
Blue Moon Bar and Tal-
ons Deck*............. 120 290 Eagle's Nest Mountain top setting with excep-
tional views; accessed by Vail's
new high speed gondola; serving
drinks and barbecue and rotis-
serie foods as well as salads;
open for lunch, dinner, apres ski
and evening entertainment.
Terminal Pizza*........ 130 0 Eagle's Nest Mountain top setting with excep-
tional views; accessed by Vail's
new high speed gondola; seating
amid vintage ski equipment; serv-
ing pizza; open for lunch, din-
ner, apres ski.
BellaRiva*............. 232 100 Golden Peak Slope-side northern Italian din-
ing featuring a display kitchen
and located within easy walking
distance of Vail Village; open
year round for breakfast, lunch,
dinner, apres ski.
Wreck Room*............ 116 0 Golden Peak Located on the lower level of the
Golden Peak base lodge; designed
to accommodate children and ski
groups; offering casual dining in
a relaxed setting; open for
breakfast, lunch, dinner and
apres ski.
Game Creek Club*....... 191 76 Game Creek Bowl Set amid Vail's Game Creek Bowl,
this nighttime adventure restau-
rant is accessed by sleigh or
snowcat from a pick-up point at
the top of Vail's new gondola.
Already open for lunch, this fa-
cility will now also be open for
dinner and special events.
Beaver Creek Mountain
One Beaver Creek**..... -- -- Base of Centennial Slope-side dining with signifi-
Lift cant outdoor seating located ad-
jacent to large retail plaza,
Beaver Creek Village and the
Hyatt hotel; open for breakfast,
lunch, dinner and apres ski.
Village Center**....... -- -- Beaver Creek Located adjacent to the ice rink
Village and Beaver Creek performing arts
center; open for breakfast,
lunch, dinner, apres ski.
</TABLE>
- --------
* New for 1996-97 ski season
** New for 1997-98 ski season. Seating to be determined.
Keystone operates almost all of the food service facilities available to
guests at the Keystone Resort, with 12 on-mountain and base restaurants
totaling 3,200 indoors seats in addition to eight in-valley restaurants.
Keystone has the only two AAA Four Diamond fine dining restaurants in Summit
County, including the highest
49
<PAGE>
on-mountain dining facility in North America. Open for dinner year round,
these establishments are popular among resort guests and have a significant
following among residents and visitors to the greater Summit County as well.
As a popular year round resort, Keystone generates significant food service
revenues throughout the non-ski season, including substantial banquet revenues
from groups utilizing Keystone's conference center facility. The Company
expects to further expand its food service operations, including the addition
of a number of new restaurants, as the Company exercises its option to lease
commercial space developed by the Keystone JV (see "Business--Real Estate").
Breckenridge owns and operates four on-mountain restaurants totaling only
1,090 indoor seats and as a result achieved only $1.65 in mountain food
service revenue per skier day during the 1995-96 season. This compares to
$5.42 in mountain food service revenue per skier day achieved by the Existing
Resorts during the same season. Due to Breckenridge's lack of on-mountain
dining options, most Breckenridge guests dine at food establishments located
in the town of Breckenridge which are owned and operated by third parties.
Management believes there is a substantial opportunity to expand dining
operations at Breckenridge and capture a significantly greater percentage of
its guest food expenditures.
Arapahoe Basin owns a 700 seat cafeteria style restaurant located at the
base of the mountain and a 260 seat limited service lunch facility located at
the mountain's mid-station.
Hospitality ($32.1 million of Pro Forma 1996 Revenue). The Company's
hospitality operations are designed to offer the Company's guests a full
complement of quality resort services and provide the Company with additional
sources of revenue and profitability. These operations include reservations,
tour and travel operations, lodging and property, club and conference center
management.
The Existing Resort's reservation center provides the Company's guests with
information and access to the full complement of the resorts' services and
activities. The center handles over 211,000 calls per year and is capable of
booking and selling airline and ground transportation, lodging, lift tickets,
ski school and most other Vail Valley activities, earning commissions on each
third party sale. The Acquired Resorts operate two full service reservations
operations, Keystone Reservations and "Reservations for the Summit". Keystone
Reservations handles approximately 330,000 calls per year and is capable of
booking and selling discounted airline tickets, rental cars, ground
transportation, condominium/hotel accommodations, lift tickets, ski lessons,
ski rentals, dinner reservations and recreation activities prior to a guest's
arrival at the resort. "Reservations for the Summit" provides a similar range
of services for Summit County as a whole, handling over 47,000 calls per year.
The Company believes that 97% of Keystone's overnight guests use these
reservation services.
Both the Existing Resorts' reservation center and "Reservations for the
Summit" are relatively new operations, which the Company believes will
continue to grow as the operations mature. The Company believes that, as a
result of the Acquisition, a significant opportunity exists to expand the
Company's central reservation operations, by (a) creating preferred
relationships with major travel companies, (b) increasing purchases of bulk
air and large blocks of room nights, (c) capitalizing on the growth of the
Company's customer database, (d) expanding the variety of activities and
services offered and (e) improving cross-selling of the Company's activities
and services, particularly prior to the guest's arrival at the resort.
The Company's property management operation seeks to utilize the Company's
hospitality expertise through the first class management of lodging properties
owned by both the Company and third parties. The Company currently manages 13
properties, including hotels, timeshare projects and condominiums. The Company
believes that its substantial historical investment in this operation will
allow for growth at attractive margins as new properties are brought under
management. One source of new properties for this operation will be the
continued development of the Company's real estate throughout the Vail Valley.
In certain situations, such as the Pines Lodge in Beaver Creek Resort (a 60
room luxury hotel), the Company will purchase properties whose financial
performance can be improved through the Company's property management
operation.
50
<PAGE>
The Acquired Resorts' property management operations are primarily conducted
at Keystone Resort where the Acquired Resorts have property management
contracts representing approximately 85% of the Keystone Resort bed base.
Property management services performed by the Acquired Resorts includes rental
management of approximately 860 condominiums and homes and 103 lodge rooms,
maintenance services to non-renting unit owners, and association management
services to condominium associations. In fiscal 1996, property management
activities generated more than 137,000 room nights at Keystone Resort. The
Company believes the scope of property management operations at Keystone
provides a number of important advantages including the ability to set quality
standards for rental unit participants, ensuring guests receive a consistent
lodging product and providing the reservation operations with significant
lodging inventory. The Company expects the property management operations to
continue to expand as it secures contracts on the additional condominiums and
homes developed by the Keystone JV and third party developers. See "Business--
Real Estate."
The Company owns and operates the Keystone Conference Center, which is the
largest convention center in the Colorado Rocky Mountains. With meeting
facilities totaling 32,500 square feet and capable of accommodating groups of
up to 1,800, the Keystone Conference Center draws groups throughout the year
and is typically sold-out during the non-ski season. In fiscal 1996, the
Keystone Conference Center hosted over 500 groups, generating more than $3
million of banquet food service revenues over 88,000 room nights at the
resort. Additionally, the Company believes that over 90% of the conference
center attendees utilize the Acquired Resorts' recreational facilities and
activities, including skiing, golf, tennis and horseback riding. The Company
is presently reviewing plans to add 25,000 square feet of exhibit space to the
Keystone Conference Center, which would allow it to accommodate the
significant excess demand which it currently experiences. In addition to the
Keystone Conference Center, the Company owns and operates the 152 room
Keystone Lodge, a member of Preferred Hotels & Resorts Worldwide, and operates
The Inn, a hotel, meeting and banquet facility located at Keystone, under a
management contract.
The Company is also active in the creation and management of private
membership clubs, which allows the Company to provide high-end services and
amenities to its upper income guest, and evening dining options and other
services and activities to its overall guest population. The Company's current
clubs include (i) the Beaver Creek Club, which offers members luncheon
privileges at Beano's Cabin (which is open to the general public for dinner)
and certain golf, tennis and skiing amenities, (ii) Game Creek Club, which
offers members luncheon privileges and is open to the general public for
dinner and (iii) the Passport Clubhouse at Golden Peak(TM), which, when
completed, will provide members with a reserved parking space, concierge
services, a private dining facility and locker and club facilities at the base
of Vail Mountain. In addition to using membership sales to defray and in some
cases entirely pay for the cost of construction, the Company earns management
fees for overseeing club operations. The Company intends to create selected
additional clubs over the next five years, including the Arrowhead Alpine Club
at Arrowhead Village and a mountain club to be located in Bachelor Gulch
Village similar to Beano's Cabin. These clubs allow the Company to add to its
restaurant operations and related skier service and retail operations, at a
relatively modest capital cost.
Retail/Rental Operations ($14.1 million in Pro Forma 1996 Revenue). The
Company's retail division owns and operates all on-mountain locations and
selected base area locations. Over the last six months, the Company has taken
several steps to significantly expand the scope of its retail and rental
operations in order to maximize Resort Revenue and Resort Cash Flow derived
from these activities. This expansion will increase retail space from 29,320
square feet in fiscal 1996 to 33,658 for fiscal 1997 and 42,275 square feet
for fiscal 1998.
The Company's on-mountain retail locations offer ski accessories (i.e.,
hats, gloves, sunglasses, goggles, warmers), snack food and selected logo
merchandise, all in locations which are conveniently located for skiers. Off-
mountain, the Company operates both ski equipment rental and retail locations.
The Company's retail operations typically feature Company or resort-related
logo merchandise and products of the Company's sponsors. The Company's rental
operations offer a wide variety of ski and snowboard equipment for daily and
weekly use. The Company intends to utilize certain locations within the
Company's newly created leasable space as new retail and rental operations,
while continuing to maintain a significant presence of third party tenants.
51
<PAGE>
The Acquired Resorts have significant retail and rental operations at
Keystone Resort, both in the base area and on-mountain. Base area operations
include seven venues covering 24,522 square feet with a mix of ski/snowboard
retail and rental products. For the 1996-97 ski season, the Acquired Resorts
will operate one retail shop at Breckenridge Mountain and one at Arapahoe
Basin. The Company intends to significantly expand on- mountain and base area
retail operations at Breckenridge.
Commercial Leasing Operations. The Company owns significant on-mountain and
base area restaurant, retail and commercial space at both Vail Mountain and
Beaver Creek Mountain. The Company operates all on-mountain space and leases a
portion of its base area space to third parties. The strategy of the Company's
leasing operation is to secure the commercial locations adjacent to its
resorts for retail, restaurant and entertainment venues and carefully select
the appropriate tenant mix for these locations to provide a high quality and
diverse selection of retailers and restauranteurs. The Company anticipates a
significant expansion in its owned commercial space over the next two years.
Upon the completion of One Beaver Creek and Beaver Creek Village Center, the
Company's leasable restaurant and retail space will increase from 39,179
square feet to 69,435 square feet. These projects will also include the
creation of a "Rockefeller Center" style year-round ice skating rink and a 518
seat performing arts theater in the center of Beaver Creek Village which
management believes, in combination with the additional square footage, will
bring the entire village to the critical mass necessary to serve as a new
destination for shopping in the Vail Valley. The Company currently owns 23,973
square feet of retail and restaurant space at the base of Vail Mountain and
has 20,889 square feet of additional space under construction and expected to
be completed during fiscal 1997. The information set forth above excludes the
Company's on-mountain retail, restaurant and commercial space. See "Business--
Projects Under Construction."
The Acquired Resorts currently have limited commercial leasing operations.
The Company, through the Keystone JV, will significantly expand its commercial
leasing operations (which currently leases 18,500 square feet of commercial
space to third parties) through its development activities at Keystone Resort.
In addition, the Company intends to retain commercial space created by the
Company's development activities at Breckenridge Mountain.
Licensing and Sponsorship. An important part of the Company's business
strategy is to leverage its brand name by (i) entering into sponsorship
relationships and strategic alliances with world-class business partners, (ii)
building its logo and licensing business and (iii) gaining national and
international exposure through the hosting of special events. The Company's
leading industry position coupled with the demographics of its customer base
make it an attractive partner. Examples of the Company's sponsors include (i)
FILA, which is supplying the Company's employee ski uniforms over a six-year
period and has launched a line of clothing using the Vail name and logo, (ii)
Chevy Trucks, which provides the Company with mountain vehicles and national
marketing exposure, (iii) Pepsi, which provides substantial marketing
benefits, (iv) Sprint, which provides funding for the construction and
operation of a mountain-top business center, (v) Tag Heuer, which provides
funding for the operation and promotion of snowboarding activities at Vail and
Beaver Creek Mountains, and (vi) Coors, which provides the Company with access
to certain national marketing promotions. The Company's sponsorship
arrangements typically have a three to five year term and provide benefits in
the form of cash payments, expense reductions, capital improvements and/or
marketing exposure. The Company has licensed the use of its trademarks to over
one hundred companies for a variety of products such as apparel and
sunglasses. While the terms of each license agreement vary, such agreements
generally are for a two-year term and provide for the payment by the licensee
of quarterly royalty payments ranging from 6% to 8% of the gross wholesale
price of the licensed goods.
The Acquired Resorts do not currently have significant revenues from
licensing and sponsorship activities. The Company plans to extend existing
licensing and sponsorship relationships across the brand names of the Acquired
Resorts and create new relationships which leverage the exposure the Company
can offer corporate sponsors to almost five million winter skier days and
numerous summer visitors.
Vail and Beaver Creek Mountains are frequently the sites of special events
and promotions. In addition to hosting annual World Cup Skiing and World Cup
Biking events, Vail Mountain and Beaver Creek Mountain have collectively been
chosen as the site for the 1997 World Cup Skiing Finals and the 1999 World
Alpine
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Skiing Championships, an event previously hosted by Vail in 1989, marking the
first time a North American site has been selected twice. These events give
the Company significant international exposure. TV viewership in Europe for
World Cup Skiing and the World Alpine Skiing Championships is estimated to be
in excess of 250 million viewers. These events will be organized by and co-
hosted with the Vail Valley Foundation, a non-profit foundation whose mandate
is to bring international sporting and cultural events to the Vail Valley. The
Foundation provides significant funding, volunteers and liability assumption
in conjunction with such events. The Company's facilities are also the site of
numerous skiing, snowboarding and music events sponsored by corporations.
These events generate revenue for the Company through sponsorship fees and
increased skier traffic, as well as provide national and international brand
exposure through television and advertising campaigns. The Company also owns
an interest in an events production company, Eclipse Television and Sports
Marketing, LLC, which creates and produces made-for-TV events.
Brokerage
The Company's real estate brokerage operations are conducted through a joint
venture in which the Company has a 50% interest. The joint venture was created
in June 1994 to facilitate the merger of the Company's brokerage operations,
Vail Associates Real Estate, Inc., with the brokerage operations of Slifer,
Smith and Frampton, which combined the two largest brokerage operations in the
Vail Valley. The joint venture has a large share of both first time developer
sales and resales throughout the Vail Valley, creating both a significant
source of profitability and a valuable source of information in planning and
marketing the Company's real estate projects. The joint venture will continue
to benefit from its position as the preferred provider of brokerage services
to all of the Company's future development projects. In addition to profit
distributions from the joint venture, the Company will directly receive
certain override payments on all brokerage revenue from sales of its own
property. Brokerage operations at Keystone are operated by the Keystone JV.
Other Revenue Sources
The Company also derives revenue during the non-ski season by offering
guests a variety of activities and services, including (i) gondola and
chairlift rides, (ii) on-mountain and base area bike rentals, (iii) on-
mountain lunch operations, (iv) wedding and group functions at mountain and
village restaurants, (v) golf and tennis, (vi) horseback riding, fly fishing,
hiking and barbecues at Piney River Ranch(TM) and (vii) shopping at the
Company's retail locations. Management expects summer revenues to increase in
the future due to the expansion of the Company's restaurant, retail and group
event operations.
SYSTEMS AND TECHNOLOGY
New information systems are helping the Company improve its guest
communications and enhance guest service and convenience. The Company has
consistently invested in new technology and is currently in the implementation
phase of a comprehensive systems and technology plan which was developed in
1995 and includes: (i) bar code lift ticket scanning systems that provide more
accurate tracking, control and information on all ticket and pass products,
(ii) a Direct-To-Lift access system that allows skiers to bypass the ticket
window and proceed directly to the lift with a photo ID that is linked to
their credit cards, (iii) a ski school reservation system that allows guests
to book a specific ski instructor, enabling the Company to optimize the
utilization of its 1,288 instructors, (iv) an equipment rental system that
tracks guest preferences, allows for resort-wide exchanges, and incorporates
state-of-the-art ski tuning technology, making it more convenient for a guest
to rent ski equipment, (v) an integrated customer database that tracks
information about Vail Resorts' guests which will be readily retrievable at
all points of sale, providing guest history, guest preferences and spending
patterns, functioning as both a source of information for "front-line" guest
service systems, as well as a "back-end" tool for the Company's direct
marketing and promotion activities, (vi) a resort-wide guest charging system
whereby a lift ticket or I.D. card can be used to charge goods or services at
any of the Company's facilities, eliminating the need for cash or credit cards
to make purchases, and (vii) an extensive data communications network which
links all on-mountain and off-mountain sales locations back to a central data
center.
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<PAGE>
Following the Acquisition, the Company intends to integrate systems which
exist at each resort, expanding the most advanced systems and replacing older
equipment. This will enable the Company to utilize common technology
throughout all of its resorts, allowing the Company to successfully implement
programs such as joint lift ticket passes and loyalty programs. The Company
believes it will realize significant synergies by leveraging its information
technology development costs over all of its resorts, ensuring the Company's
industry leadership in this crucial aspect of guest service, marketing and
operations.
MARKETING AND SALES
The primary objectives of the Company's marketing efforts include (i)
continuing to increase the recognition and goodwill associated with the
Company's brand names and trademarks, (ii) building demand during both peak
and non-peak periods, (iii) increasing overall sales through targeted
promotional programs in national and international markets and (iv) capturing
a larger share of an individual vacationer's total out-of-pocket spending at
the Company's resorts. The Company's total marketing expenses for fiscal 1996
were $8.9 million for the Existing Resorts. The Company anticipates that, as a
result of the Acquisition, its total marketing budget will approach $20
million, a level unprecedented in the mountain resort industry. A major focus
of this combined marketing program will be to reinforce the image of a
"family" of resorts, each with its distinct personality, theming and
character, but all providing an exciting, service-oriented vacation experience
with superior infrastructure and amenities.
Mountain resorts generally do not sell significant numbers of vacation
packages to travel agents or wholesale tour operators even though such agents
and operators control the vast majority of air travel vacations in the United
States and Canada. The Company believes that, as a result of the Acquisition,
it will be able to supply sufficient lodging nights, air transportation and
other complementary activities and services to develop and aggressively
distribute vacation packages through this segment of the tourism industry.
The Company's primary marketing method is direct print media advertising in
ski industry publications such as SKI and Snow Country and lifestyle
publications such as Conde Nast Traveler and Bon Appetit, whose readership
reflects the demographic profile of the Company's clientele. The Company is
also very active in a number of promotional programs such as discount programs
offered through local retailers designed to attract day skiers from local
population centers. In an effort to target destination guests, a newspaper and
radio advertising campaign is used in markets which have direct air service to
the Vail/Eagle Airport.
In addition to advertisements directed at the vacation guest, an important
part of the Company's marketing activities is focused on attracting ski
groups, corporate meetings and convention business. During the 1995-96 ski
season, the Existing and Acquired Resorts hosted over 1,100 groups, ranging in
size from 10 to 2,100 people. The Company is constantly attracting new
conference business due to its excellence in providing professional planning
services, recreational activities, and superior dining and lodging facilities.
The Existing Resorts typically capture a large share of the high-end
professional conferences, particularly from the legal, medical, computer and
insurance communities due to the Company's world class facilities and
amenities.
The Company has intensified its use of sophisticated direct mail and direct
marketing techniques, including maintaining a sizable database of past
customers. In 1996, the Company sent directly or through third party marketing
arrangements over seven million pieces of direct mail to past and potential
customers.
REAL ESTATE
The Company benefits from its extensive holdings of real property at its
Existing Resorts and throughout the Vail Valley and from the activities of
VAREG, a wholly owned subsidiary of the Company. VAREG manages the Company's
real estate operations, including the planning, oversight, marketing,
infrastructure improvement and development of Vail Resorts' real property
holdings. In addition to the substantial cash flow generated from real estate
sales, these development activities benefit the Company's resort operations
through (i) the creation of additional resort lodging which is available to
the Company's guests, (ii) the ability to control the
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<PAGE>
architectural theming of its resorts, (iii) the creation of unique facilities
and venues (primarily themed restaurant and retail operations) which provide
the Company with the opportunity to create new sources of recurring revenue
and (iv) the expansion of the Company's property management and brokerage
operations, which are the preferred providers of these services for all
developments on VAREG's land. In order to facilitate the development and sale
of its real estate holdings, VAREG spends significant amounts on mountain
improvements, such as ski lifts, snowmaking equipment and trail construction.
While these mountain improvements enhance the value of the real estate held
for sale (for example, by providing ski-in/ski-out accessibility), they also
benefit resort operations. In most cases, VAREG seeks to minimize the
Company's exposure to development risks and maximize the long-term value of
the Company's real property holdings by selling land to third party developers
for cash payments prior to the commencement of construction, while retaining
approval of all development plans as well as an interest in the developer's
profit. The Company also typically retains the option to purchase, at a price
significantly below fair market value, any retail/commercial space created in
a development. The Company is able to secure these benefits from third-party
developers as a result of the high property values and strong demand
associated with property in close proximity to its mountain resort facilities.
VAREG's principal activities include (i) the sale of single family homesites
to individual purchasers, (ii) the sale of certain land parcels to third party
developers for condominium, townhome, cluster home, lodge and mixed use
developments, (iii) the zoning, planning and marketing of new resort
communities (such as Beaver Creek Resort, Bachelor Gulch Village and
Arrowhead), (iv) arranging for the construction of the necessary roads,
utilities and mountain infrastructure for new resort communities, (v) the
development of certain mixed use condominium projects which are integral to
resort operations (such as the base facility at Golden Peak) and (vi) the
purchase of selected strategic land parcels, which the Company believes can
augment its existing land holdings or resort operations. The Company's current
development activities are focused on (i) the completion of its three resort
communities, Beaver Creek Resort, Bachelor Gulch Village and Arrowhead, (ii)
preparing for the redevelopment of the Lionshead base area and adjacent land
holdings and (iii) the long-term planning of the Company's significant real
estate holdings in and around Avon and at the entrance to Beaver Creek Resort.
In developing its real estate holdings, VAREG typically contracts to sell
multi-family sites to third party developers who undertake the construction
and sale of these projects. In this case, the Company typically receives an
upfront cash payment and a residual interest in the profit realized by such
developers. In connection with the sale of single-family homesites and VAREG's
development of certain mixed use condominium projects, VAREG often seeks to
sell such homesites or condominium residences to individual purchasers in
advance of significant infrastructure investments. As a result, the Company is
able to forecast a large portion of its real estate revenues 12 to 18 months
in advance and reduce development risk prior to making significant
expenditures.
The Company's expenses associated with its real estate operations consist
primarily of: (i) selling costs, which include brokerage fees and direct
marketing costs, (ii) holding costs, which include property taxes and
insurance, (iii) operating expenses, which include VAREG's general and
administration expense and (iv) the amortization of the capitalized land and
other costs relating to the property sold.
The Company has been able to have a substantial portion of the
infrastructure costs (primarily related to road and utility costs), in
connection with certain of its developments, funded by quasi-municipal
entities ("Metro Districts"). These Metro Districts raise funds through the
sale of tax-exempt municipal bonds supported by the assessed valuation of a
particular real estate development or district. The Company may guarantee bond
issuances by a Metro District during the early stages of a development until
the assessed valuation is sufficient to support the district's infrastructure
and other costs. A letter of credit has been issued under the credit
facilities on behalf of the Company in the amount of $27.6 million to secure
the Metro District bonds issued in connection with infrastructure and other
costs in Bachelor Gulch Village. In addition, the Company is obligated to pay
capital improvement fees to one of the Metro Districts. The Company estimates
that such payments will not exceed $5.7 million, payable over the three years
ending April 30, 2000.
In addition to the costs and expenses set forth above, VAREG spends
significant amounts on mountain improvements, such as ski lifts, snowmaking
equipment and trail construction. While these mountain
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<PAGE>
improvements enhance the value of the real estate held for sale (for example,
by providing ski-in/ski-out accessibility), they also benefit resort
operations. VAREG expenses all on mountain improvements undertaken in
conjunction with its real estate development activities as the related real
estate is sold.
A summary of the Company's historical real estate revenues and real estate
expenses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Multi-family parcels................. $ 2,559,000 $ 7,494,000 $14,650,000
Single family lots................... 12,803,000 270,000 32,644,000
Other................................ 6,841,000 8,762,000 1,361,000
----------- ----------- -----------
Total revenues..................... 22,203,000 16,526,000 48,655,000
=========== =========== ===========
Expenses:
Selling expenses..................... 1,900,000 613,000 3,011,000
Operating expenses................... 4,464,000 5,163,000 5,397,000
Allocated land, infrastructure and
other costs......................... 13,977,000 9,207,000 24,683,000
Allocated mountain improvement
costs............................... -- -- 7,710,000
----------- ----------- -----------
Total expenses..................... 20,341,000 14,983,000 40,801,000
----------- ----------- -----------
Real estate operating income........... $ 1,862,000 $ 1,543,000 $ 7,854,000
=========== =========== ===========
</TABLE>
The Company currently owns 574 acres of developable real estate, including
land zoned for 1,144 residential units and 152,000 square feet of commercial
space. The majority of the Company's undeveloped land holdings and current
development activities are located in Beaver Creek Resort, Bachelor Gulch
Village and Arrowhead. A summary of each of these resort communities is set
forth below.
Beaver Creek Resort
Since its opening in 1980, Beaver Creek Resort has emerged as one of the
world's premier resort communities. Beaver Creek Resort offers a wide array of
shopping, dining, lodging and entertainment options in addition to being the
primary skiing access point to Beaver Creek Mountain.
Over the past 12 months, VAREG has completed extensive development planning
to complete the Beaver Creek Resort village core. VAREG has sold the One
Beaver Creek and Beaver Creek Village Center development sites to third party
developers. These projects will be adjacent to the Company's existing retail
operations and will contain the majority of the Company's retail and
restaurant operations in Beaver Creek Resort. See "Business--Existing
Resorts--Beaver Creek Mountain."
In addition to the completion of the Beaver Creek Resort village core, the
Company is engaged in the development of its residential property in Beaver
Creek Resort. In 1994, the Company sold 30 single-family ski-in-ski-out
homesites (averaging approximately two acres each), in an area known as
Strawberry Park on Beaver Creek Mountain. All 30 lots were sold by VAREG in
one day in a lottery format because demand significantly exceeded the number
of homesites available for purchase. Gross proceeds of this sale were
approximately $31 million, or an average of over $1.0 million per homesite.
The Company's remaining land holdings in Beaver Creek Resort consist of one
single-family homesite as well as zoned multi-family sites (requiring limited
additional infrastructure expenditures) expected to contain approximately 200
multi-family residences located at the entrances to Beaver Creek Resort. The
Company expects to sell these remaining land holdings over the next five
years.
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Bachelor Gulch Village
The Bachelor Gulch Village development, which will be the newest village on
Beaver Creek Mountain, is comprised of 1,410 acres of Company-owned land
located in a valley between Arrowhead and Beaver Creek Resort. A private
residential resort community set in a natural ski mountain environment,
Bachelor Gulch Village will combine a skiing gateway to Beaver Creek Mountain,
an intimate mountain village and private, upscale real estate enclaves with
ski-in/ski-out access to a substantial portion of the homesites, and
architecture modeled after the grand lodges of the U.S. National Parks. In
addition, plans for Bachelor Gulch Village incorporate 67,880 square feet of
retail, restaurant and commercial space. Commencing with the 1996-97 ski
season, Bachelor Gulch Village features a high speed quad chairlift and
approximately 150 acres of mostly intermediate ski terrain contiguous with
Beaver Creek Mountain.
The Company is currently completing its master plan for the development of
725 residential units in Bachelor Gulch Village. Infrastructure development
commenced in 1994 and is expected to be substantially complete in 1998. A
significant portion of the infrastructure costs have already been incurred,
including the majority of the mountain improvements. A substantial portion of
these costs have been financed by a Metro District bond issue as described
above.
During the summer of 1995 and the winter and summer of 1996, 93 single-
family homesites (averaging approximately two acres per lot) were contracted
for by purchasers at prices aggregating $72.2 million (an average of $776,000
per lot). All 93 homesites were sold in a lottery format because demand
significantly exceeded the number of homesites available for purchase. Of
these sales, $46.6 million closed in 1996 with $25.6 million expected to close
in 1997. The Company is in discussions with developers regarding the sale of
multifamily parcels in Bachelor Gulch Village.
The Company's current unsold inventory in Bachelor Gulch Village consists of
18 single-family homesites, 48 cluster homesites, 31 townhome sites and
development parcels zoned for 535 condominium, timeshare and lodge units. The
Company expects to complete the sale of these parcels over the next five to
ten years.
Arrowhead
Arrowhead, known as "Vail's Private Address," is comprised of over 1,500
acres of Company-owned land and is recognized for its country club approach to
residential and resort amenities. Home of the Country Club of the Rockies, a
private golf club designed by Jack Nicklaus, Arrowhead features swimming, clay
tennis courts, hiking, mountain biking, private fly-fishing on the Eagle River
and privacy gates that assure controlled access 24 hours a day. Arrowhead
contains the westernmost skiing access point to Beaver Creek Mountain.
The Company's current development activities are focused on the development
of Arrowhead Village, a 218 unit staged development centered around an alpine
club. The proposed Arrowhead Alpine Club is expected to serve as the social
and athletic activity center of Arrowhead. The Arrowhead Alpine Club is
expected to be a 79,000 square foot facility consisting of 23 residential
condominiums and 14,500 square feet of spa and athletic training space and
5,800 square feet of restaurant, retail and skier service facilities. The
Company's plans to build the Arrowhead Alpine Club are contingent upon the
pre-sale of a sufficient number of condominium residences and Arrowhead Alpine
Club memberships.
In Arrowhead Village, developers have commenced construction of 44 multi-
family units on land purchased from the Company. Multi-family parcels planned
for 13 additional units have been sold to developers and construction is
expected to begin in the Spring of 1997. In addition to the remaining multi-
family parcels in Arrowhead Village, the Company has extensive land holdings
in Arrowhead, including land zoned for 28 single-family homesites, 34 cluster
homesites and 45 townhomes, as well as land for 150 multi-family units which
are planned but not yet zoned.
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<PAGE>
In addition to the Company's extensive land holdings contained in the resort
communities discussed above, the Company has substantial land holdings in
Lionshead (located in the Town of Vail), Avon (located at the base of Beaver
Creek Mountain) and elsewhere in the Vail Valley.
Real Estate Contracts
As of September 30, 1996 the Company had entered into Real Estate Contracts
for the sale of certain real estate and related amenities for gross proceeds
of approximately $106.9 million. The Company estimates that subsequent to
September 30, 1996, it will incur additional selling, holding and
infrastructure costs of $24.5 million in connection with the sale of the
properties subject to the Real Estate Contracts. The Company will utilize $55
million of the gross proceeds from the Real Estate Contracts to fund the
Distribution. As a result, assuming all the sales under the Real Estate
Contracts are closed, after taking into account the additional expenses to be
incurred by the Company to complete the projects and the payments under the
Distribution, the Company will realize net pre-tax cash proceeds of $27.4
million. In addition, the Company expects that subsequent to September 30,
1996 it will make mountain improvements of $17.2 million (a portion of which
will be completed in connection with the sale of the properties subject to the
Real Estate Contracts), which will consist primarily of a high speed quad
chairlift, base area improvements and snowmaking equipment and will benefit
the properties subject to the Real Estate Contracts as well as the Company's
remaining real estate holdings in Bachelor Gulch Village and Arrowhead. See
"Certain Transactions." As of December 31, 1996, the Company received $47.7
million of gross proceeds from the closing of Real Estate Contracts and had
$58.5 million receivable under remaining Real Estate Contracts as set forth
below.
<TABLE>
<CAPTION>
AMOUNTS RECEIVABLE
UNDER
REAL ESTATE
CONTRACTS
AS OF 12/31/96
PROJECT (IN MILLIONS) DESCRIPTION
- ------- ------------------ -----------
<S> <C> <C>
Beaver Creek Resort
Village Center......... $ 1.5 Three multi-family sites and related
parking
Art's Center Parking... 1.6 Private parking spaces
Elkhorn Lodge.......... 1.8 Residual developer interest
The Aspens Townhomes .. 0.8 Residual developer interest
One Beaver Creek ...... 2.5 Deferred purchase price
Market Square ......... 0.5 Deferred purchase price
-----
Subtotal.............. 8.7
Bachelor Gulch Village.. 25.6 Single family lots
Arrowhead
Cresta................. 3.6 Cluster homes
Vail
Golden Peak Condomini-
ums................... 20.6 Six condominium residences
-----
Total.................. $58.5
=====
</TABLE>
KEYSTONE
In 1994, the Acquired Resorts contributed over 500 acres of land at Keystone
Resort to the Keystone JV. With the benefit of extensive market research,
community input and government involvement, the Keystone JV created and has
received approval for an over $500 million master development plan which the
Keystone JV expects to develop over the next 20 years. The plan calls for the
creation of six separate neighborhoods, each featuring distinctive amenities
and architecture based on the area's colorful mining, ranching and railroad
history. At full buildout there will be an estimated 4,600 residential homes
and lodging units and 382,000 square feet of commercial space as well as more
than 300 acres of open space at Keystone Resort. A network of pedestrian
trails and a shuttle bus system are planned to link the resort neighborhoods
and amenities.
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<PAGE>
The long term development plan for Keystone Resort is expected to benefit
the Company, by (i) creating significant additional resort lodging which will
contribute to future skier day growth and the growth of the Company's property
management operations and (ii) creating new facilities, venues and activities
which create new sources of recurring revenue. As residential and commercial
projects are completed the Company has a priority right to receive payments of
up to $22.6 million for land which was previously contributed to the Keystone
JV. The Company will also receive approximately 50% of the profits generated
by the Keystone JV and will have the opportunity to lease commercial space
created by the Keystone JV. The Keystone JV is involved in a wide range of
real estate development activities, including the planning, infrastructure
improvement, construction and marketing of all real property improvements on
its land. The Keystone JV seeks to minimize its exposure to development and
construction risks by pre-selling a significant portion of the residential and
lodging units prior to the commencement of construction of a project and by
individually financing each project through a secured construction loan and
equity investment, which generally consists only of the contribution of the
Keystone JV's land required for the project.
The first two neighborhoods being developed by the real estate joint venture
are River Run and Ski Tip Ranch. River Run is a ski-in/ski-out pedestrian
village and commercial corridor which will be the new focal point of Keystone
Resort. Located at the base of the River Run Gondola, at full development the
River Run neighborhood will include an estimated 860 residential units, 250
lodge units and 190,000 square feet of restaurants, boutiques and apres ski
cafes. Ski Tip Ranch is a wooded residential community of 86 townhomes under
development at the easternmost end of the resort. As of November 30, 1996 the
joint venture had constructed 89 condominiums and lodging units in the River
Run and Ski Tip neighborhoods of which 80 units have been sold. Additionally,
there are 189 condominium and lodging units currently under construction for
completion in 1997 of which 137 units have already been sold. Development of
commercial space in 1996 included 33,000 square feet with an additional 31,000
square feet under development for completion in 1997. During the next five
years, the Keystone JV expects to develop more than 900 new residential and
lodging units and 150,000 square feet of commercial space. In addition,
Keystone's second championship golf course is currently under development with
construction expected to commence in 1997 and an opening planned for 1999.
As of September 30, 1996, the book value of the Acquired Resorts' investment
in the Keystone JV was $29.0 million of which $18.9 million relates to land
contributed to the Keystone JV and $10.1 million relates to cash invested in
real estate improvements and undistributed profits. In addition, the Keystone
JV has an option to require the Acquired Resorts to contribute to the joint
venture additional land, which had a book value as of September 30, 1996, of
$8.9 million.
BRECKENRIDGE
Developable real estate at Breckenridge Mountain encompasses approximately
295 acres located at the base of the mountain and in the Town of Breckenridge.
These parcels are strategically important as they will enable the resort to
(i) improve and expand the parking and transportation system at Breckenridge,
significantly enhancing guest access to the resort and skier distribution on
the mountain, (ii) create highly desirable ski-in/ski-out residential units,
(iii) create resort owned and operated on-mountain and in-valley commercial
space and (iv) establish a foundation for future terrain expansion. As of
September 30, 1996, the Acquired Resorts' book value in developable land at
Breckenridge Mountain was $21.1 million.
COMPETITION
The ski industry is highly competitive. The Company competes with mountain
resort areas in the United States, Canada and Europe for destination guests
and with numerous mountain resorts in Colorado for day skiers. The Company
also competes with other worldwide recreation resorts, including warm weather
resorts, for the vacation guest. The Company's major U.S. competitors include
the Utah ski areas, the Lake Tahoe mountain resorts in California and Nevada,
the New England mountain resorts and the major Colorado areas, including
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<PAGE>
Copper Mountain, Telluride, Steamboat Springs, Winter Park and the Aspen
resorts. In addition, while the Company's skier days have increased 39% over
the past ten years, there has been relatively modest growth in United States
skier days (which have increased only 4% over the same period). The
competitive position of the Company's mountain resorts is dependent upon many
diverse factors such as proximity to population centers, availability and cost
of transportation to the areas, including direct flight availability by major
airlines, pricing, snowmaking facilities, type and quality of skiing offered,
duration of the ski season, prevailing weather conditions, the number, quality
and price of related services and lodging facilities, and the reputation of
the areas. Based upon a review of these factors, management believes that the
Company is in a strong competitive position.
REGULATION AND LEGISLATION
The Company has been granted the right to use 12,590 acres of federal land
adjacent to the Town of Vail and 2,775 acres of federal land adjacent to its
Beaver Creek property as the site for most of its ski lifts and trails and
related activities under the terms of permits with the Forest Service. No
permits are required for Arrowhead or Bachelor Gulch Village since the
Arrowhead and Bachelor Gulch Village land is owned by the Company.
The permits originally granted to the Company or its subsidiary, Beaver
Creek Associates, Inc., for the Vail and Beaver Creek mountain resorts
consisted of (i) Term Special Use Permits which were granted for 30 year
terms, but are terminable upon 30 days written notice by the Forest Service if
it determines that the public interest requires such termination and (ii)
Special Use Permits which are terminable at will by the Forest Service. In
November 1986, a new law was enacted providing that Term Special Use Permits
and Special Use Permits may be combined into a unified single term special use
permit which can be issued for up to 40 years. On December 23, 1991, the
Company exercised its statutory right to convert its dual permits for the Vail
mountain resort into a unified permit covering 12,590 acres. The Vail permit
expires on October 1, 2031, but can be terminated by the Forest Service if
required in the public interest. The Vail permit covers Category III. The
Company has received Forest Service approval to begin construction in the
area, which approval was appealed. As a result of this appeal, the Forest
Service Supervisor was directed to verify that the administrative record
includes appropriate information on potential off-site cumulative impacts to
traffic/transportation, housing and wildlife. The Forest Service Supervisor
was also directed to take certain additional steps to amend the Forest Plan,
which is necessary to implement certain elements of the project. While the
Company anticipates successfully resolving the issues raised by the appeal in
the second quarter of fiscal 1997, there can be no assurance that the Company
will receive final approval to begin construction in Category III. The Beaver
Creek property is covered by a Term Special Use Permit covering 80 acres and a
Special Use Permit covering the remaining 2,695 acres. These permits will
expire in 2006 but are terminable by the Forest Service at its discretion. In
December 1992, the Company exercised its statutory right to convert its dual
permits for the Beaver Creek mountain resort into a unified permit for the
maximum period of 40 years and is currently in the process of finalizing the
terms of the unified permit. No assurance can be given that the Beaver Creek
unified permit will be granted for the entire 40 year period. To the Company's
knowledge, no recreational Special Use Permit or Term Special Use Permit for
any major ski resort has ever been terminated by the Forest Service.
With respect to the Acquired Resorts, Ralston Resorts has been granted the
right to use 3,156 acres, approximately 5,571 acres and approximately 825
acres of federal land under terms of permits with the Forest Service for
Breckenridge, Keystone and Arapahoe Basin, respectively. Both the Breckenridge
permit and the Arapahoe Basin permit expire on December 31, 2029 while the
Keystone permit expires on December 31, 2032. Like the Vail permit, each of
the permits for the Acquired Resorts is terminable by the Forest Service if
required in the public interest.
The Forest Service has the right to review and comment on the location,
design and construction of improvements in the permit area and on many
operational matters. Under the permits, the Existing and the Acquired Resorts
are each required to pay fees to the Forest Service. Under recently enacted
legislation, retroactively effective to fiscal 1996, the Company pays fees to
the Forest Service ranging from 1.5% to 4.25% of certain revenues for use of
Forest Service land. However, through fiscal 1998, the Company is required to
pay the greater of (i) the fees due under the new legislation or (ii) the fees
actually paid for fiscal 1995. The calculation of revenues includes, among
other things, lift tickets, ski school lessons, food and beverages, rental
equipment and retail merchandise revenues.
60
<PAGE>
The Company believes that its relations with the Forest Service are good
and, during the last two years, the Company has received awards and
recognition from the Forest Service including the "National Forest Partner
Award" for outstanding outdoor education programs and the Beaver Creek Nature
Center, the "National Service Award" for implementing universal access,
selection as a Forest Service "Accessible Trails Demonstration Project" and
designation as the Forest Service's first "Role Model for Socially Responsible
Programs."
EMPLOYEES
The Company currently employs approximately 2,500 year-round and 6,300
seasonal employees. Approximately 125 of the seasonal employees are unionized.
The Company considers its employee relations to be good.
LEGAL PROCEEDINGS
The athletic nature of the Company's ski operations subjects the Company to
litigation in the ordinary course of business, including claims for personal
injury and wrongful death. The Company is currently defending six such
lawsuits, all of which are covered by extensive liability insurance subject to
applicable self-insured retentions. The Existing Resorts are currently
defending four of such claims under the Colorado Ski Safety Act (the "Act"), a
comprehensive assumption-of-risk statute, while the Acquired Resorts are
currently defending two lawsuits under the Act. The Act delineates the
responsibilities of both ski resort operators and skiers. As long as the ski
resort operator complies with the Act's mandates, which consist of markings in
relation to ski lifts and man made obstructions, signage in relation to closed
areas and ski trails and their difficulty, designation of the ski resort
boundaries, closed trails and "danger areas" and flagging and lighting certain
maintenance equipment such as snowmobiles, the operator is presumed to be not
negligent in accidents involving injury to one of its guests. The Act further
provides that a skier injured through one of the "inherent dangers and risks
of skiing," which include weather and snow conditions and collisions with man-
made and natural objects and other skiers, is barred from suing the mountain
resort. Consequently, if the Company is successful in asserting that the
claims brought against it are covered by the Act, the Company will face no
liability for such claims.
Other than the matters discussed in the preceding paragraph and other
matters with respect to which the Company believes it is adequately insured,
the Company is not currently a defendant in any material litigation and there
are no material legal proceedings pending against the Company or to which any
of its property is subject and, to the knowledge of management, no such
proceedings have been threatened against it.
61
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Adam M. Aron................... 42 Chairman of the Board of Directors and
Chief Executive Officer of the Company
Frank Biondi................... 52 Director
Leon D. Black.................. 45 Director
Craig M. Cogut................. 43 Director
Stephen C. Hilbert............. 51 Director
Robert A. Katz................. 29 Director
Thomas H. Lee.................. 52 Director
William L. Mack................ 56 Director
Antony P. Ressler.............. 36 Director
Marc J. Rowan.................. 34 Director
John J. Ryan III............... 69 Director
John F. Sorte.................. 49 Director
Bruce H. Spector............... 54 Director
James S. Tisch................. 44 Director
Andrew P. Daly................. 50 President and Director of the Company
James P. Donohue............... 56 Senior Vice President and Chief Financial
Officer of the Company
Gerald E. Flynn................ 45 Senior Vice President of Vail Associates
James S. Mandel................ 46 Senior Vice President, General Counsel
and Secretary of the Company
J. Kent Myers.................. 47 Senior Vice President of Vail Associates
Edward D. O'Brien.............. 57 Senior Vice President and Chief Financial
Officer, Vail Associates Real Estate
Group, Inc.
Christopher P. Ryman........... 45 Senior Vice President and Chief Operating
Officer of Vail Associates
James P. Thompson.............. 53 President, Vail Associates Real Estate
Group, Inc.
</TABLE>
Pursuant to the Restated Certificate of Incorporation and Restated Bylaws of
the Company, the Board is divided into two classes of Directors, denoted as
Class 1 and Class 2, each serving one-year terms. Class 1 directors are
elected by a majority vote of the holders of the Class A Common Stock and
Class 2 directors are elected by a majority vote of the holders of the Common
Stock. The Class 1 directors are Messrs. Black, Cogut, Daly, Katz, Mack,
Ressler, Rowan, Ryan and Spector, and the Class 2 directors are Messrs. Aron,
Biondi, Hilbert, Lee, Sorte and Tisch. In addition, Apollo has agreed to vote
in favor of the election of two directors nominated by Foods. See "The
Acquisition."
Adam M. Aron was appointed the Chairman of the Board and Chief Executive
Officer of the Company in July 1996. Prior to joining the Company, Mr. Aron
served as President and Chief Executive Officer of Norwegian Cruise Line Ltd.
from July 1993 until July 1996. From November 1990 until July 1993 Mr. Aron
served as Senior Vice President of Marketing for United Airlines. From 1987-
1990, Mr. Aron served as Senior Vice President of Marketing for the Hyatt
Hotels Corporation. Mr. Aron is also a director of Interactive Flight
Technologies Inc.
Frank Biondi was appointed a Director of the Company on July 29, 1996. Mr.
Biondi is Chairman and Chief Executive Officer of Universal Studios Inc. Mr.
Biondi previously served as President and Chief Executive
62
<PAGE>
Officer of Viacom, Inc. from July 1987 to January 1996. He has also held
executive positions with The Coca-Cola Company, Home Box Office Inc. and Time
Inc. Mr. Biondi currently is a member of the Boards of Directors of Leake and
Watts Services, The Museum of Television and Radio, The Bank of New York and
the American Health Foundation.
Leon D. Black is one of the founding principals of Apollo Advisors, L.P.,
which was established in August 1990 ("Apollo Advisors"), and which, together
with an affiliate, acts as managing general partner of Apollo Investment Fund,
L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities
investment funds, of Apollo Real Estate Advisors, L.P. ("AREA") which,
together with an affiliate, acts as managing general partner of the Apollo
real estate investment funds and of Lion Advisors, L.P. ("Lion Advisors"),
which acts as financial advisor to and representative for certain
institutional investors with respect to securities investments. Mr. Black is
also a director of Big Flower Press, Inc., Culligan Water Technologies, Inc.,
Furniture Brands International, Inc., Samsonite Corporation and Telemundo
Group, Inc. Mr. Black was appointed a director of the Company in October 1992.
Mr. Black is Mr. Ressler's brother-in-law.
Craig M. Cogut is currently a private investor. Prior thereto he was one of
the founding principals of Apollo Advisors and of Lion Advisors. Prior to
1990, Mr. Cogut was a consultant and legal advisor, principally to Drexel
Burnham Lambert Incorporated and associated entities. Mr. Cogut is also a
director of Envirotest Systems, Inc. and Salant Corporation. Mr. Cogut was
appointed a director of the Company in October 1992.
Stephen C. Hilbert was appointed a director of the Company in December 1995.
Mr. Hilbert founded Conseco, Inc. in 1979, and serves as its Chairman,
President and Chief Executive Officer. Conseco, Inc., is a financial services
holding company based in Carmel, Ind., owns and operates life insurance
companies, provides investment management, administrative and other fee-based
services. Mr. Hilbert serves as a Director of the Indiana State University
Foundation and the Indianapolis Convention and Visitor's Association. He also
serves on the Board of Trustees of both the Indianapolis Parks Foundation and
the U.S. Ski Team Foundation, as a Trustee of the Central Indiana Council on
Aging Foundation, and as a Director of both the Indianapolis Zoo and the St.
Vincent Hospital Foundation.
Robert A. Katz is an officer of Apollo Capital Management, Inc. and Lion
Capital Management, Inc., the general partners of Apollo Advisors and Lion
Advisors, respectively. Mr. Katz is a limited partner of Apollo Advisors and
of Lion Advisors, with which he has been associated since 1990. Mr. Katz is
also a director of Salant Corporation and Aris Industries, Inc. Mr. Katz was
appointed a director of the Company in June 1996.
Thomas H. Lee was appointed a director of the Company in January 1993. Mr.
Lee founded the Thomas H. Lee Company in 1974 and since that time has served
as its President. The Thomas H. Lee Company and the funds which it advises
invest in friendly leveraged acquisitions and recapitalizations. From 1966
through 1974, Mr. Lee was with First National Bank of Boston where he directed
the bank's high technology lending group from 1968 to 1974 and became a Vice
President in 1973. Prior to 1966, Mr. Lee was a Securities Analyst in the
institutional research department of L.F. Rothschild in New York. Mr. Lee
serves as a Director of Autotote Corporation, Finlay Enterprises, Inc., First
Security Services Corporation, Health o meter Products, Inc., Livent Inc.,
Miller Import Corporation, Playtex Products, Inc., and Sondik Supply Company.
William L. Mack was appointed a director of the Company in January 1993. Mr.
Mack has been the President and Managing Partner of The Mack Organization, an
owner and developer of and investor in office and industrial buildings and
other commercial properties principally in the New York/New Jersey
metropolitan area as well as throughout the United States, since 1963. Mr.
Mack is a founding principal of AREA and since 1993 has provided consulting
services to Apollo Real Estate Investment Fund II, L.P. Mr. Mack is a Director
of Crocker Realty Trust, Inc. and First Capital Holdings Corp. He has been
Director of the Urban Development Corporation for the State of New York since
1983. Mr. Mack has also been Chairman of the Board of Directors of the Jacob
K. Javits Convention Center Development Corporation of New York since 1984 and
the Chairman of the Board of Directors of New York Convention Center Operating
Corporation since 1988.
63
<PAGE>
Antony P. Ressler is one of the founding principals of Apollo Advisors and
Lion Advisors. Mr. Ressler is also a director of Dominick's Supermarkets,
Family Restaurants, Inc., Packaging Resources, Inc. and United International
Holdings, Inc. He is also a member of the Executive Committee of the Board of
Directors of LEARN, the largest public school reform movement in the U.S., and
of the Jonsson Comprehensive Cancer Center at the UCLA Medical Center. Mr.
Ressler was appointed a director of the Company in October 1992.
Marc J. Rowan is one of the founding principals of Apollo Advisors and of
Lion Advisors. Mr. Rowan is also a director of Culligan Water Technologies,
Inc., Farley, Inc., Furniture Brands International, Inc. and Samsonite
Corporation. Mr. Rowan was appointed a director of the Company in October
1992.
John J. Ryan III has been a financial advisor based in Geneva, Switzerland
since 1972. Mr. Ryan is a director of Artemis S.A. and Financiere Pinault
S.A., private holding companies in Paris, France and Furniture Brands
International, Inc. He is Vice President and Director of Evergreen Resources
Inc., a publicly held oil and gas exploration company. Mr. Ryan is President
of J.J. Ryan & Sons, a closely held textile trading corporation in Greenville,
South Carolina. Mr. Ryan was appointed a director of the Company in January
1995. Artemis S.A. is a significant investor in Apollo Ski Partners.
John F. Sorte has been President of New Street Advisors L.P., a merchant
bank, and of New Street Investments L.P., its broker-dealer affiliate, since
he co-founded such entities in March 1994. From 1992 to March 1994, Mr. Sorte
was President and Chief Executive Officer of New Street Capital Corporation, a
merchant banking firm, and from 1990 to 1992, he was President and Chief
Executive Officer of The Drexel Burnham Lambert Group Inc., an investment
firm. Prior to 1990, Mr. Sorte was employed by Drexel Burnham Lambert
Incorporated. Mr. Sorte is also a director of WestPoint Stevens Inc. and
serves as Chairman of the Board of Directors of The New York Media Group, Inc.
Mr. Sorte was appointed a director of the Company in January 1993.
Bruce H. Spector has been a consultant to Apollo Advisors since 1992 and
since 1995 has been a principal in Apollo Advisors II, L.P., an affiliate of
Apollo Advisors which acts as general partner of Apollo Investment Fund III,
L.P. Prior to October 1992, Mr. Spector, a reorganization attorney, was a
member of the Los Angeles law firm of Stutman Triester and Glatt. Mr. Spector
is also a director of Telemundo Group, Inc. and United International Holdings,
Inc. Mr. Spector was appointed a director of the Company in January 1995.
James S. Tisch is President and Chief Operating Officer of Loews
Corporation. He has been with Loews Corporation since 1977. Prior to that he
was with CNA Financial Corporation. Mr. Tisch is Chairman of the Board of
Directors of Diamond Offshore Drilling, Inc., and is a member of the Board of
Directors of CNA Financial Corporation and Loews Corporation. He is also
Chairman of the Federation Employment and Guidance Service, a member of the
Board of Directors of UJA-Federation of New York, and a Trustee of The Mount
Sinai Medical Center. Mr. Tisch was appointed a director of the Company in
January 1995.
Andrew P. Daly was appointed a director of the Company in June 1996. Mr.
Daly became President of Vail Associates in 1992 and President of the Company
in 1996. He joined Vail Associates in 1989 as Executive Vice President and
President of Beaver Creek Resort. Prior to joining Vail Associates, Mr. Daly
owned and was President of Lake Eldora Ski Corporation, which operated the
Lake Eldora Mountain Resort ski area. From 1982 to 1987, Mr. Daly was Chief
Executive Officer of Copper Mountain Resort, where he held several positions
from 1972 to 1982.
James P. Donohue became Senior Vice President and Chief Financial Officer of
the Company in October 1996. From 1991 to October 1996, Mr. Donohue served as
Senior Vice President and Chief Financial Officer of Fibreboard Corporation, a
manufacturer and distributor of building products, which also owns and
operates three ski resorts located in California. Prior to 1991, Mr. Donohue
was an Executive Vice President of Continental Illinois Bank., N.A.
64
<PAGE>
Gerald E. Flynn became Senior Vice President and Chief Financial Officer of
Vail Associates in 1992. Mr. Flynn was formerly Senior Vice President and
Chief Financial Officer of the Company from 1995 until October 1996. Mr. Flynn
joined Vail Associates in 1981 as Manager of Tax and Joint Venture Planning
before being promoted to Director of Corporate Planning in 1983. Mr. Flynn was
promoted to Treasurer in 1984 and to Vice President of Finance in 1986. Prior
to joining Vail Associates, Mr. Flynn was a senior tax accountant for the
Denver office of Deloitte, Haskins & Sells from 1977 to 1981.
James S. Mandel joined the Company and Vail Associates in 1994 as Senior
Vice President and General Counsel of both the Company and Vail Associates,
and was named Secretary of Vail Associates in 1994 and of the Company in 1995.
From 1978, until joining the Company, Mr. Mandel was a partner with Brownstein
Hyatt Farber & Strickland, P.C., a Denver law firm, and specialized in real
estate development and corporate finance.
J. Kent Myers became Senior Vice President of Vail Associates in 1995. Prior
to that, he served as Chief Operating Officer of Beaver Creek Resort from 1992
to 1995, and as Vice President of Marketing for Vail Associates from 1988 to
1992. From 1981 to 1988, Mr. Myers was Vice President of Marketing for
Steamboat Ski Corporation.
Edward D. O'Brien joined Vail Associates Real Estate Group, Inc. in 1993.
Prior to that he was Chief Financial Officer and a Managing General Partner of
Lincoln Property Company, a real estate development and management firm from
1971 to 1991. From 1962 to 1971 Mr. O'Brien was an auditor with Arthur
Andersen LLP.
Christopher P. Ryman became Chief Operating Officer and Senior Vice
President of Vail Associates in 1995. From 1992 to 1995, he was Senior Vice
President of Mountain Operations. Mr. Ryman was managing director of the Vail
and Beaver Creek Ski Schools from 1986 to 1992, served in management positions
at the Beaver Creek Ski School from 1980 to 1985 and was involved in ski
school operations from 1978 to 1980. Prior to joining Vail Associates in 1978,
Mr. Ryman held positions at the Mt. Hood, Snowbird and Alta ski resorts.
James P. Thompson joined Vail Associates Real Estate Group, Inc. in 1993 in
connection with Vail Associates' acquisition of Arrowhead. He joined Arrowhead
in 1989, becoming President in March of 1994. Prior to joining Arrowhead, he
served as Vice-President of Moore and Company in Denver for 14 years.
BOARD OF DIRECTORS AND COMMITTEES
Messrs. Black, Katz, Mack, Ressler, Rowan and Spector are associated with
Apollo Advisors, an affiliate of Apollo Ski Partners, L.P. Apollo Ski Partners
is organized principally for the purpose of holding capital stock of the
Company. See "Principal and Selling Stockholders" regarding the shares of
Company stock held by Apollo Ski Partners.
The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee.
The Executive Committee has all powers and rights necessary to exercise the
full authority of the Board of Directors in the management of the business and
affairs of the Company when necessary in between meetings of the Board of
Directors. The members of the Executive Committee are Messrs. Aron, Daly, Katz
and Rowan.
The Audit Committee is primarily concerned with the effectiveness of the
Company's accounting policies and practices, financial reporting and internal
controls. The Audit Committee is authorized to (i) make recommendations to the
Board of Directors regarding the engagement of the Company's independent
accountants, (ii) review the plan, scope and results of the annual audit, the
independent accountants' letter of comments and management's response thereto,
and the scope of any non-audit services which may be performed by the
independent accountants, (iii) manage the Company's policies and procedures
with respect to internal
65
<PAGE>
accounting and financial controls, and (iv) review any changes in accounting
policy. The members of the Audit Committee are Messrs. Hilbert, Sorte and
Tisch.
The Compensation Committee is authorized and directed to (i) review and
approve the compensation and benefits of the executive officers, (ii) review
and approve the annual salary plans, (iii) review management organization and
development, (iv) review and advise management regarding the benefits,
including bonuses, and other terms and conditions of employment of other
employees and (v) administer any stock option plans which may be adopted and
the granting of options under such plans. The members of the Compensation
Committee are Messrs. Black, Rowan and Lee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to July, 1996, there was no Compensation Committee of the Board of
Directors. During fiscal 1996, executive compensation decisions were made by
the entire Board of Directors.
COMPENSATION OF DIRECTORS
All directors' fees will be determined by the Board of Directors of the
Company. As of the date of this Prospectus, the Company had paid no fees to
its directors, and the Company currently does not intend to pay directors'
fees. The Company pays a management fee of $500,000 per year to Apollo
Advisors, L.P. Messrs. Black, Katz, Mack, Ryan, Ressler, Rowan and Spector are
associated with Apollo Advisors and are directors of the Company.
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid by
the Company or any of its subsidiaries, as well as certain other compensation
paid or accrued, during the years ended September 30, 1996, 1995 and 1994 to
the Chief Executive Officer and the four highest paid executive officers of
the Company whose compensation was at least $100,000 for the year ended
September 30, 1996 in all capacities in which they served:
66
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- -------------------------------
AWARDS PAYOUTS
-------------------- ------------
RESTRICTED
SALARY OTHER ANNUAL STOCK LTIP ALL OTHER
NAME, PRINCIPAL AND BONUS COMPENSATION AWARD(S) OPTIONS/ PAYMENTS COMPENSATION
POSITION, AND PERIOD ($) ($)(1) ($) SAR ($)(2) ($)(3)
-------------------- --------- ------------ ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
George N. Gillett, Jr.,
(4)
Former Chairman and
Chief Executive
Officer of the Company
1994................... 1,542,000 58,150 1,966,200 -- -- 296,812
1995................... 1,584,000 116,000 2,383,200 -- -- --
1996................... 1,628,400 75,800 2,562,000 -- -- 36,956
Andrew P. Daly,
Chief Executive Officer
and President of Vail
Associates, President
of the Company
1994................... 269,907 34,835 -- -- 113,883 --
1995................... 307,538 32,322 -- -- 113,883 --
1996................... 348,077 24,007 -- -- 113,883 --
J. Kent Myers,
Senior Vice President
of Vail Associates
1994................... 174,462 16,280 -- -- 70,016 --
1995................... 193,618 14,673 -- -- 70,016 --
1996................... 183,192 5,075 -- -- 70,016 --
James S. Mandel,
Senior Vice President,
General Counsel and
Secretary of the
Company
1994................... 174,000 -- -- 179,960(5) -- --
1995................... 311,500 1,716 -- -- -- --
1996................... 329,462 1,924 -- -- -- --
Christopher P. Ryman,
Senior Vice President
and Chief Operating
Officer
1994................... 155,000 16,225 -- -- 70,016 --
1995................... 175,512 14,504 -- -- 70,016 --
1996................... 184,269 15,057 -- -- 70,016 --
</TABLE>
- --------
(1) Includes interest on long-term incentive plan compensation paid during the
period indicated to the named executive officer.
(2) Prior to October 8, 1992, the Company and certain of its subsidiaries
offered deferred compensation plans to certain key management employees in
lieu of any type of pension plans, stock options or other retirement
plans. As of October 8, 1992, following payments made on or around October
8, 1992, the outstanding deferred compensation balances for Mr. Daly, Mr.
Myers, and Mr. Ryman were $455,532, $280,063 and $280,063, respectively.
Mr. Daly's, Mr. Myers' and Mr. Ryman's outstanding deferred compensation
balances after October 8, 1992 are being paid to them over a four-year
period, with interest accruing on the balance at a rate of 8% per annum.
As of September 30, 1996, Mr. Daly's, Mr. Myers' and Mr. Ryman's
outstanding deferred compensation balances were $28,471, $17,504 and
$17,504, respectively. Due to the long-term incentive characteristics of
the deferred compensation plans of the Company and its subsidiaries,
payout amounts pursuant to these plans have been included in this column.
(3) In connection with the sale of certain non-ski-related assets of the
Company, Mr. Gillett received incentive payments of $296,812 on September
23, 1994, and $36,956 on January 31, 1996, each pursuant to the terms of
his employment agreement.
(4) Mr. Gillett has resigned as Chairman of the Board, Chief Executive Officer
and Director of the Company in order to pursue other business interests.
(5) Pursuant to a stock option plan adopted by the Company, these options were
issued on March 21, 1994. The options vest in equal installments over a
five year period and provide for an exercise price of $10.00 per share.
See "Management--Stock Option Plans."
67
<PAGE>
AGGREGATE OPTION/SAR EXERCISES DURING FISCAL YEAR ENDED SEPTEMBER 30, 1996
AND OPTION/SAR VALUES AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS(1)
SHARES --------------- -------------------
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
George N. Gillett, Jr. (2).... -- $-- 1,572,972/ -- $12,123,244/$ --
Andrew P. Daly................ -- -- 195,492/130,328 2,570,720/1,713,813
J. Kent Myers................. -- -- 107,976/ 71,984 1,419,884/ 946,590
James S. Mandel............... -- -- 71,984/107,976 719,840/1,079,760
Christopher P. Ryman.......... -- -- 107,976/ 71,984 1,419,884/ 946,590
</TABLE>
- --------
(1) In-the-money option values are calculated using an assumed offering price
of $20.00 per share.
(2) All of Mr. Gillett's options were exercised or exchanged on October 11,
1996. See "Employment Agreements of the Company" below.
PENSION PLANS
The Company has no pension plans.
EMPLOYMENT AGREEMENTS OF THE COMPANY
The Company has entered into an employment agreement with Adam Aron (the
"Employment Agreement"). Pursuant to the Employment Agreement, Mr. Aron serves
as Chief Executive Officer of the Company. The initial term of his employment
is for the period from August 1, 1996 through September 30, 1999, with a two-
year automatic renewal thereafter, subject to notice of termination by either
Mr. Aron or the Company. Mr. Aron's base salary is $560,000 per year, and a
bonus is guaranteed at an annualized rate of $250,000 through fiscal 1997,
after which Mr. Aron will participate in the Company's bonus plan.
Pursuant to the Employment Agreement, Mr. Aron will be granted 37,500
restricted shares of Common Stock and options to purchase 260,000 shares of
Common Stock, which restricted stock and options vest over five years. The
Company will provide Mr. Aron a life insurance policy of $5 million and
$500,000 of annual disability income protection. The Company will purchase a
home of Mr. Aron's choice in the Vail Valley (up to a maximum purchase price
of $1.5 million) for his use while employed by the Company. Mr. Aron is
subject to a 12 month non-compete clause upon termination.
Pursuant to an employment agreement with Andrew P. Daly, Mr. Daly will serve
as President of the Company for a three-year term. Mr. Daly's base salary will
be $350,000 per year and Mr. Daly will participate in the Company's bonus
plan. In addition, pursuant to such agreement, Mr. Daly will be granted 12,500
restricted shares of Common Stock and options to purchase 100,000 shares of
Common Stock, which restricted stock and options vest over five years. The
Company will provide Mr. Daly a life insurance policy of $3 million and
$262,500 of annual disability income protection. Mr. Daly will be subject to a
12 month non-compete clause upon termination.
The Company has entered into an employment agreement with James P. Donohue.
Such agreement will provide that Mr. Donohue will serve as Senior Vice
President and Chief Financial Officer of the Company for a three-year term.
Mr. Donohue's base salary will be $300,000 per year and Mr. Donohue will
participate in the Company's bonus plan. In addition, pursuant to such
agreement, Mr. Donohue will be granted 12,000 restricted shares of Common
Stock and options to purchase 60,000 shares of Common Stock, which restricted
stock and options vest over three years. Mr. Donohue will be subject to a 12
month non-compete clause upon termination.
Vail Associates has entered into employment contracts with Messrs. Ryman,
Myers, Flynn and Thompson, which provide for annual salaries, as well as
participation in bonus, stock option and other employee benefit plans. Each
agreement is for a three-year term expiring May 31, 1999, subject to automatic
renewal for successive one-year terms in the absence of notice of non-renewal
by either party.
68
<PAGE>
The Company and Vail Associates have separate employment agreements with Mr.
Mandel pursuant to which Mr. Mandel receives a current aggregate salary of
$300,000 per year, as well as participation in bonus, stock option and other
employee benefit plans. Mr. Mandel's employment agreements are effective until
March 31, 1997, unless earlier terminated according to their terms. In the
event the Company or Vail Associates terminates Mr. Mandel's employment
agreements without cause, Mr. Mandel will be paid his aggregate salary and
fringe benefits for a period of 12 months following the date of termination or
through March 31, 1997, whichever period is longer. Payment of the severance
benefits is conditioned upon Mr. Mandel's compliance with certain non-
competition, confidentiality and loyalty provisions which survive the
employment agreement.
Mr. Gillett has resigned as Chairman of the Board, Chief Executive Officer,
President and Director of the Company. In connection with his employment by
the Company, Mr. Gillett was granted (i) 714,976 shares of Common Stock as
incentive based compensation (the "Gillett Stock"), (ii) options to purchase
408,164 shares of Common Stock at an exercise price of $6.85 per share (the
"$6.85 Options") and (iii) options to purchase 1,164,808 shares of Common
Stock at $11.84 per share (the "$11.84 Options"). Pursuant to the terms of an
agreement dated October 11, 1996 between Mr. Gillett and the Company (the
"Gillett Agreement"), Mr. Gillett (i) will be paid his base salary (currently
$1.7 million per annum) through October 7, 1997, (ii) exchanged the $11.84
Options for 336,318 shares of Common Stock and (iii) waived his right to the
Distribution with respect to the Gillett Stock and the $6.85 Options as
payment of the exercise price on the $6.85 Options.
STOCK OPTION PLANS
The Company adopted a stock option plan (the "1992 Plan") pursuant to which
options covering an aggregate of 2,045,510 shares of Common Stock may be
issued to key employees, directors, consultants, and advisors of the Company
or its subsidiaries. Options covering 1,833,300 shares of Common Stock have
been issued to various key executives and managers of the Company. All of the
options vest in equal installments over five years, with exercise prices
ranging from $6.85 per share to $10.75 per share. As of September 30, 1996,
807,228 of these options were exercisable. Under certain circumstances, the
option plan would provide for loans by the Company to employees collateralized
by such employees' vested options in the event of need. The Company has
amended certain option agreements under the 1992 Plan with certain members of
the management of the Company to eliminate the right of option holders to
receive any portion of the payments made under the Rights. In connection with
such payment, the Company has accrued the Option Payment. See "Certain
Transactions."
In July 1996 the Company adopted a long term incentive and share award plan
(the "1996 Plan") to attract, retain and motivate employees and directors of
the Company. The Board of Directors of the Company has approved the 1996 Plan
and the reservation of 1,500,000 shares of Common Stock for issuance under the
1996 Plan. As of September 30, 1996, under the 1996 Plan 62,000 shares of
Common Stock had been awarded (subject to certain restrictions) and options to
purchase an aggregate of 420,000 shares of Common Stock at an exercise price
of $20.00 per share had been granted to executives of the Company. Of the
restricted stock and options awarded under the 1996 Plan, 12,000 shares of
restricted stock and options to purchase 60,000 shares of Common Stock vest in
equal increments over three years while the remainder of the restricted shares
and options vest in equal increments over five years. None of these options
were exercisable as of September 30, 1996.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Common Stock and Class A Common Stock as of January 3, 1997 by (i) each
person or entity who owns of record or beneficially five percent or more of
the Company's capital stock, (ii) each director and named executive officer of
the Company, (iii) all directors and executive officers of the Company as a
group and (iv) each stockholder selling shares of Common Stock in the Offering
(collectively, the "Selling Stockholders"). To the knowledge of the Company,
each of such stockholders has sole voting and investment power as to the
shares shown unless otherwise noted.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK COMMON STOCK CLASS A COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED PERCENT OF CLASS A
BEFORE OFFERINGS BEFORE OFFERINGS AFTER OFFERINGS(4) AFTER OFFERINGS(4) COMMON STOCK AND
-------------------- --------------------- -------------------- --------------------- COMMON STOCK
NAME OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF BENEFICIALLY OWNED
BNEFICIAL OWNER(1)E SHARES CLASS SHARES CLASS SHARES CLASS SHARES CLASS AFTER OFFERINGS(4)
- ------------------- --------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apollo Ski
Partners,
L.P.(2)........ 2,651,338 16.7% 11,917,748 95.9% 0 0% 11,609,086 99.0% 34.9%
Meadow Walk
Limited
Partnership.... 2,322,040 14.6 388,958 3.1 510,988 2.4 0 0 1.5
George N.
Gillett, Jr. .. 1,459,458 9.2 0 0 1,119,458 5.2 0 0 3.4
Ralston Foods
Inc. ......... 7,554,406 47.6 0 0 7,554,406 35.0 0 0 22.7
All directors
and officers as
a group,
15 persons(3).. 2,341,300 12.9 0 0 2,341,300 9.8 0 0 6.6
</TABLE>
- --------
(1) The addresses of the beneficial owners are as follows: Apollo Ski
Partners, L.P., 2 Manhattanville Road, Purchase, NY 10577; Meadow Walk
Limited Partnership, c/o Barberry Corp., 100 South Bedford Road, Mount
Kisco, NY 10549; George N. Gillett, Jr. c/o Booth Creek Inc., 1000 South
Frontage Road West, Suite 100, Vail, CO 81657; and Ralston Foods Inc., 800
Market Street, Suite 2900, St. Louis, Missouri 63101.
(2) Apollo Ski Partners, L.P. ("Apollo Ski Partners") was organized
principally for the purpose of holding Common Stock and Class A Common
Stock of the Company. The general partner of Apollo Ski Partners is Apollo
Investment Fund, L.P., a Delaware limited partnership ("Apollo Fund") and
a private securities investment fund. The managing general partner of
Apollo Fund is Apollo Advisors, L.P., a Delaware limited partnership, the
general partner of which is Apollo Capital Management, Inc., a Delaware
corporation ("Apollo Capital"). Mr. Black, a director of the Company, and
John Hannan are the directors of Apollo Capital. All officers, directors
and shareholders of Apollo Capital, including Messrs. Black, Katz, Mack,
Ressler, Rowan and Spector (directors of the Company) disclaim any
beneficial ownership of the common stock of the Company owned by Apollo
Ski Partners.
(3) With the exception of 26,000 shares of Common Stock owned by Mr. Ressler,
no directors or officers of the Company directly own shares of Common
Stock (other than options to purchase Common Stock granted to officers of
the Company and as otherwise described in this Prospectus).
(4) Assumes no exercise of the Underwriters' over-allotment option. Of the
1,575,000 shares subject to such option, 790,000 shares will be provided
by Apollo Ski Partners, 510,998 shares will be provided by Meadow Walk
Limited Partnership and 274,002 shares will be provided by George N.
Gillett, Jr.
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CERTAIN TRANSACTIONS
The Company has distributed the Rights to all stockholders of record on
October 11, 1996 provided that the maximum aggregate amount payable under the
Rights will be $50.5 million. The purpose of the Rights is to provide cash to
the existing stockholders of the Company as a partial return on their
investment in the Company. The Company will make payments under the Rights
only to the extent it receives gross proceeds under the Real Estate Contracts
to make such payments. The Company currently estimates payments under the
Rights will be made in fiscal 1997. As of December 31, 1996, the Company had
received sufficient gross proceeds under the Real Estate Contracts to make
substantially all of such payments. In addition, the Company has amended
certain option agreements held by management of the Company to eliminate the
right of option holders to receive any portion of payments made under the
Rights. In connection with such amendment, the Company has accrued the Option
Payment. The option holders will receive 60% of the Option Payment at the
times that payments are made under the Rights and the remaining 40% at the
time the options are exercised. Stockholders who purchase shares in the
Offerings will not be entitled to any payments with respect to the Rights. The
Company believes that the payment of the Distribution will not have any
adverse consequences to the Company. See "Business--Real Estate."
During the year ended September 30, 1991, the Company loaned Mr. Daly
$300,000, $150,000 of which bears interest at 9% and the remainder of which is
non-interest bearing. The principal sum plus accrued interest is due no later
than one year following the termination, for any reason, of Mr. Daly's
employment with the Company. The proceeds of the loan were used to finance the
purchase and improvement of real property, and the loan is secured by a deed
of trust on such property.
The Company pays a fee of $500,000 per year to Apollo Advisors, L.P. for
management services and expenses related thereto. This fee has been incurred
each year since 1993 and is paid partly in cash and partly in services
rendered by the Company to Apollo Advisors, L.P. and its affiliates. This
arrangement was approved by the Board of Directors of the Company in March
1993.
In 1995, Mr. Daly's spouse and Mr. Thompson and his spouse received
financial terms more favorable than those available to the general public in
connection with their purchase of homesites at Bachelor Gulch Village. Rather
than payment of an earnest money deposit with the entire balance due in cash
at closing, these contracts provide for no earnest money deposit with the
entire purchase price (which was below fair market value) to be paid under
promissory notes of $438,750 and $350,000 for Mr. Daly's spouse and Mr. and
Mrs. Thompson, respectively, each secured by a first deed of trust and
amortized over 25 years at 8% per annum interest, with a balloon payment due
on the earlier of five years from the date of closing or one year from the
date employment with the Company is terminated.
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THE ACQUISITION
STOCK PURCHASE AGREEMENT
On January 3, 1997 (the "Closing Date"), the Company consummated the
Acquisition pursuant to a Stock Purchase Agreement (the "Stock Purchase
Agreement") dated as of July 22, 1996, as amended, among the Company, Foods
and Ralston Resorts.
On the Closing Date, Foods received 7,554,406 shares of Common Stock, and
the Company assumed $165,000,000 of the outstanding indebtedness of Resorts.
The Stock Purchase Agreement provides for certain adjustments after the
Closing Date. Such adjustments, if any, will be made following the delivery of
audited financial statements of Resorts to the Company and Foods, and may
include payment by the Company or Foods, as the case may be, with respect to
the indebtedness of Resorts, and the delivery of additional shares of Common
Stock to Foods, based upon investments by Foods in Ralston Resorts from August
1, 1996 to the Closing Date.
SHAREHOLDER AGREEMENT
Foods, Apollo, and the Company are parties to a Shareholder Agreement
pursuant to which they have agreed to cause the Board of Directors of the
Company to consist of no more than twenty directors, with Foods having the
ability to nominate two directors for so long as it owns at least 10% of the
Company's outstanding voting securities. Pursuant to the Shareholder
Agreement, Apollo has agreed to vote in favor of the election of two directors
nominated by Foods.
The Shareholder Agreement subjects Foods to a voting agreement with respect
to actions taken by the Company's Board of Directors. Among other things,
Foods agrees to vote (i) "for" all the nominees recommended by the Board, (ii)
with the Board on all shareholder proposals and (iii) in the same proportion
as all other shareholders (i.e., "for," "against" and "abstain") on all other
matters, except that Foods has full discretion on extraordinary events such as
mergers or consolidations, sales of assets, creation of new stock with voting
rights and changes in the Company's charter or bylaws.
Under the terms of the Shareholder Agreement, Foods has agreed to certain
restrictions on the resale of its Common Stock. Foods has agreed not to
transfer or sell its shares of Common Stock, without the prior approval of a
majority of the Board of Directors, other than (i) to affiliates or Foods'
stockholders, (ii) pursuant to a demand or piggy-back registration as allowed
under the Shareholder Agreement, (iii) if an Initial Public Offering has not
been consummated by December 31, 1998, a transfer pursuant to Rule 144 of the
Securities Act of 1933 or a transfer where such transferee agrees to be bound
by the Shareholder Agreement or (iv) a transfer eighteen months after the
Closing Date, provided the transferee will not own more than 10% of then
outstanding voting securities of the Company and agrees to be bound by the
Shareholder Agreement. In addition, if Foods transfers its shares under (iii)
or (iv) above, it has agreed to provide the Company with a right of first
refusal, affording the Company the right to purchase such shares under the
same terms and conditions, and to provide Apollo a right of second refusal if
the Company elects not to purchase such shares.
The Shareholder Agreement will terminate (i) upon agreement of each of
Apollo and Foods; (ii) upon the dissolution of the Company or a sale of
substantially all of its assets; or (iii) when either Apollo or Foods owns
less than 10% of the Company's outstanding voting securities.
Pursuant to the Shareholder Agreement the Company has granted to each of
Apollo and Foods certain demand and piggyback registration rights with respect
to the Common Stock owned by them. Upon consummation of the Offerings, Apollo
and Foods will each have the right to effect one demand registration per
twelve month period; provided, that no demand registration may be made within
six months after the effective date of any other registration of voting
securities of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), including the Offerings. In addition, the Company will have
the right to purchase Foods' shares in lieu of registration (with Apollo
having the right to purchase such shares if the Company elects not to
purchase).
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CONSENT DECREE
The Company has resolved antitrust concerns of the DOJ raised by the
Acquisition by entering into the Consent Decree with the DOJ and the Attorney
General of the State of Colorado. Specifically, the Company has agreed to
divest the assets constituting the Arapahoe Basin mountain resort by June 2,
1997. The Consent Decree (i) requires the Company to use its best efforts to
complete the divestiture as expeditiously as possible, (ii) gives the DOJ the
ability, in its sole discretion, to extend the time period for completing the
divestiture by an additional 90 days, and (iii) allows for the appointment of
a trustee to accomplish the divestiture at the best price then obtainable upon
a reasonable effort by the trustee in the event the divestiture has not been
completed within the allotted time period. Until the divestiture is
accomplished, the Consent Decree requires the Company to take all steps
necessary to assure that the Arapahoe Basin mountain resort will be maintained
and operated as an on-going, economically viable resort, including maintaining
its usual and ordinary levels of marketing personnel and marketing activity,
and maintaining the resort's assets in operable condition based on normal
maintenance, and prohibits the Company from taking any action that would
jeopardize the divestiture of the resort. The Consent Decree will become final
upon approval by the District Court, following a 60 day comment period.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
In connection with the Acquisition, the Company entered into the New Credit
Facilities with NationsBank of Texas, N.A., as agent (the "Agent"), and
certain other lenders, to provide financing for the Acquisition and the
working capital needs of the Company. The New Credit Facilities provide for
debt financing up to an aggregate principal amount of $340 million. The New
Credit Facilities are comprised of the Revolving Credit Facility and the Term
Loan Facilities. The Term Loan Facilities were used to refinance $139.7
million of the $165 million of debt assumed in connection with the Acquisition
and the balance of the Term Loan Facilities was used to repay borrowings under
the Company's former credit facilities. The proceeds of the loans made under
the Revolving Credit Facility may be used to fund the Company's working
capital needs, capital expenditures and other general corporate purposes,
including the issuance of letters of credit.
The Revolving Credit Facility matures on April 15, 2003. The minimum
amortization under the Term Loan Facilities is $11.5 million, $14.0 million,
$19.0 million, $21.5 million, $26.5 million, $31.5 million, and $41 million
during fiscal years 1998, 1999, 2000, 2001, 2002, 2003, and 2004,
respectively. The Company is also required to make mandatory amortization
payments under the Term Loan Facilities with excess cash flow, proceeds from
asset sales, and proceeds from equity and debt offerings.
The New Credit Facilities require that no more than $125.0 million in the
aggregate be outstanding under the Revolving Credit Facility for a period of
30 consecutive days during each fiscal year, such period to include April 15.
Borrowings under the New Credit Facilities bear interest annually at the
Company's option at the rate of (i) LIBOR (which rate is based on a formula
relating to the London interbank offered rate for a given interest period)
plus a margin (ranging from .50% to 1.75% in the case of Tranche A and the
Revolving Credit Facility and 2.25% in the case of Tranche B) or (ii) the Base
Rate (defined as, generally, the higher of the Federal Funds Rate, as
published by the Federal Reserve Bank of New York, plus 0.5%, or the Agent's
prime lending rate) plus a margin up to .375%. In addition, the Company must
pay a fee on the face amount of each letter of credit outstanding at a rate
ranging from .625% to 1.875%. The Company must also pay a quarterly unused
commitment fee ranging from .20% to .50%. The interest margins and fees
described in this paragraph fluctuate based upon the ratio of Funded Debt (as
defined) to the Company's Resort EBITDA (as defined).
The obligations under the New Credit Facilities are secured by (i) a pledge
of all of the capital stock of the subsidiaries of Vail (the "Vail Pledged
Shares") and Ralston Resorts and its subsidiaries (the "Ralston Pledged
Shares") and (ii) an assignment of the permits granted by the Forest Service
to the Company (the "Vail Forest Service Permits") and Ralston Resorts (the
"Ralston Forest Service Permits"). The liens in favor of the Agent on the Vail
Pledged Shares and the Vail Forest Service Permits are subordinate to the
liens held by the holders of the IRBs (as hereinafter defined).
The New Credit Facilities contain various covenants that limit, among other
things, subject to certain exceptions, indebtedness, liens, transactions with
affiliates, restricted payments and investments, mergers, consolidations and
dissolutions, sales of assets, dividends and distributions and certain other
business activities. The New Credit Facilities also contain certain financial
covenants, including a Maximum Funded Debt to Resort Cash Flow Ratio, Minimum
Fixed Charge Coverage Ratio and Minimum Interest Coverage Ratio (each as
described in the New Credit Facilities).
INDUSTRIAL REVENUE BONDS
Pursuant to an indenture (as amended, the "Vail Indenture") dated as of
September 1, 1992 and amended as of November 23, 1993, between Eagle County,
Colorado, as issuer (the "Vail Issuer"), and Colorado National Bank, as
trustee (the "Vail Trustee"), $21.6 million aggregate principal amount of
industrial revenue bonds (the "Vail IRBs") were issued for the purpose of
providing funds to Vail Associates Inc. ("VAI") to refund certain Sports and
Housing Facilities Revenue Bonds (Vail Associates Project). Pursuant to a
financing agreement (as
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amended, the "Vail IRB Agreement") dated as of September 1, 1992 and amended
as of November 23, 1993, among the Vail Issuer, VAI and VHI, the Vail Issuer
loaned to VAI the proceeds of the issuance of the Vail IRBs and VAI agreed to
make payments in the aggregate amount, bearing interest at rates and payable
at times, corresponding to the principal amount of, interest rates on and due
dates under the Vail IRBs.
Pursuant to an indenture (as amended, the "Beaver Creek Indenture"; together
with the Vail Indenture, the "Indentures") dated as of September 1, 1992 and
amended as of November 23, 1993, between Eagle County, Colorado, as issuer
(the "Beaver Creek Issuer"; together with the Vail Issuer, the "Issuer"), and
Colorado National Bank, as trustee (the "Beaver Creek Trustee"; together with
the Vail Trustee, the "Trustee"), $19.6 million aggregate principal amount of
industrial revenue bonds (the "Beaver Creek IRBs"; together with the Vail
IRBs, the "IRBs") were issued for the purpose of providing funds to the
Company's subsidiary, Beaver Creek Associates, Inc. ("Beaver Creek"), to
refund certain Sports and Housing Facilities Revenue Bonds (Beaver Creek
Project). Pursuant to a financing agreement (as amended, the "Beaver Creek IRB
Agreement"; together with the Vail IRB Agreement, the "IRB Agreements") dated
as of September 1, 1992 and amended as of November 23, 1993, among the Beaver
Creek Issuer and Beaver Creek, the Beaver Creek Issuer loaned to Beaver Creek
the proceeds of the issuance of the Beaver Creek IRBs and Beaver Creek agreed
to make payments in the aggregate amount, bearing interest at rates and
payable at times, corresponding to the principal amount of, interest rates on
and due dates under the Beaver Creek IRBs. The obligations of Beaver Creek in
respect of the Beaver Creek IRBs have been guaranteed by VAI and VHI.
The obligations of VAI, VHI and Beaver Creek under the Indentures, the IRB
Agreements and the IRBs are secured by a pledge of all of the Vail Pledged
Shares and assignments of the Vail Forest Service Permits.
The IRBs mature, subject to prior redemption, on August 1, 2009. The IRBs
bear interest at the rate of 8% per annum. The IRBs are subject to redemption
at the option of VAI or Beaver Creek, as the case may be, at any time and from
time to time, and are subject to mandatory redemption (i) in connection with
the release of any Forest Service permits from the lien of the security
documents executed in connection with the Existing Credit Facilities and the
IRBs, which release is not consented to by the holders of a majority in
aggregate principal amount of the IRBs and (ii) if interest payments on the
IRBs lose their tax exempt status.
In connection with the Acquisition, the Company assumed $165 million of
outstanding indebtedness of Ralston Resorts. Of this amount, approximately
$139.7 million was refinanced from the proceeds of the New Credit Facilities.
The remaining indebtedness assumed ("Assumed Debt") consists of (i) $23.36
million of Industrial Revenue Bonds ("Ralston IRBs") and (ii) a loan from the
Colorado Water Conservation Board to Clinton Ditch and Reservoir Company
("Clinton Ditch"), of which Ralston Resorts is the largest owner, with a
remaining principal balance of approximately $1.95 million.
The Ralston IRBs consist of two series of refunding bonds which were
originally issued to finance the cost of sports facilities at Keystone
Mountain. The first IRB, the Series 1990 Sports Facilities Refunding Revenue
Bonds in the aggregate principal amount of $20.36 million, bears interest at
rates ranging from 7.2% to 7.875% and mature in installments in 1998, 2006,
and 2008. The second IRB, the Series 1991 Sports Facilities Refunding Revenue
Bonds in the aggregate principal amount of $3 million, bears interest at
7.125% for bonds maturing in 2002 and 7.375% for bonds maturing in 2010.
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DESCRIPTION OF CAPITAL STOCK
The following summarizes the material terms of the capital stock of the
Company.
GENERAL
Upon the closing of the Offerings, the authorized capital stock of the
Company will consist of 20,000,000 shares of Class A Common Stock, 11,728,600
of which will be issued and outstanding, 80,000,000 shares of Common Stock,
21,570,288 of which will be issued and outstanding, and 25,000,000 shares of
Preferred Stock, par value $.01 per share, none of which will be outstanding.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding shares of Preferred Stock would reduce the
amount of funds available for the payment of dividends on shares of Common
Stock and Class A Common Stock. Holders of shares of Preferred Stock may be
entitled to receive a preference payment in the event of any liquidation,
dissolution or winding-up of the Company before any payment is made to the
holders of shares of Common Stock and Class A Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors of the Company,
without stockholder approval, may issue shares of Preferred Stock with voting
and conversion rights which could adversely affect the holders of shares of
Common Stock and Class A Common Stock. Upon consummation of the Offerings,
there will be no shares of Preferred Stock outstanding, and the Company has no
present intention to issue any shares of Preferred Stock.
COMMON STOCK AND CLASS A COMMON STOCK
The issued and outstanding shares of Common Stock and Class A Common Stock
are, and the shares of Common Stock being offered will be upon payment
therefor, validly issued, fully paid and nonassessable. The rights of holders
of Class A Common Stock and Common Stock are substantially identical, except
that, while any Class A Common Stock is outstanding, holders of Class A Common
Stock elect a class of directors that constitutes two-thirds of the Board and
holders of Common Stock elect another class of directors constituting one-
third of the Board. The Class A Common Stock is convertible into Common Stock
(i) at the option of the holder, (ii) automatically, upon transfer to a non-
affiliate and (iii) automatically if less than 5,000,000 shares (as such
number shall be adjusted by reason of any stock split, reclassification or
other similar transaction) of Class A Common Stock are outstanding. The Common
Stock is not convertible. Subject to the prior rights of the holders of any
Preferred Stock, the holders of outstanding shares of Common Stock and Class A
Common Stock are entitled to receive dividends out of assets legally available
therefor at such times and in such amounts as the Board of Directors may from
time to time determine. See "Dividend Policy." The shares of Common Stock and
Class A Common Stock will have no preemptive or subscription rights to
purchase any securities of the Company. Upon liquidation, dissolution or
winding up of the Company, the holders of Common Stock and Class A Common
Stock are entitled to receive pro rata the assets of the Company which are
legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Each outstanding share of Common Stock and Class A Common
Stock is entitled to vote on all matters submitted to a vote of stockholders.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE
COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Statutory Provisions. The Company is a Delaware corporation and, after the
Offerings, will be subject to Section 203 of the Delaware General Corporation
Law ("Delaware Law"). In general, Section 203 prevents an
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"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii)
upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding shares owned by persons who are both
officers and directors of the corporation, and held by certain employee stock
ownership plans) or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder.
Directors Liability and Indemnification. The Company's Restated Certificate
of Incorporation (the "Certificate") provides that to the fullest extent
permitted by Delaware Law or other applicable law, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director. Under current Delaware Law,
liability of a director may not be limited (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases and (iv) for any transaction from
which the director derives an improper personal benefit. The effect of the
provision of the Certificate is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary
duty of care as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. This provision does not limit or eliminate the rights of
the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. In addition, the Company's Bylaws provide that the Company shall
indemnify its directors, officers and employees to the fullest extent
permitted by applicable law.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Company's Bylaws establish an advance notice procedure for
stockholders to make nominations of candidates for election as director, or to
bring other business before an annual meeting of stockholders of the Company
(the "Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a stockholder who has
given timely written notice to the principal executive offices of the Company
prior to the meeting at which directors are to be elected, will be eligible
for election as directors of the Company. The Stockholder Notice Procedure
provides that at an annual meeting only such business may be conducted as has
been brought before the meeting by, or at the direction of, the Board or by a
stockholder who has given timely written notice to the principal executive
offices of the Company of such stockholder's intention to bring such business
before such meeting. Under the Stockholder Notice Procedure, to be timely,
notice of stockholder nominations or proposals to be made at an annual or
special meeting must be received by the Company not less than 30 days prior to
the scheduled date of the meeting (or, if less than 60 days' notice of the
date of the meeting is given, the 9th day following the day such notice was
made).
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as a director must contain
certain information about the nominating stockholder and the proposed nominee.
Under the Stockholder Notice Procedure, a stockholder's notice relating to the
conduct of business other than the nomination of directors must contain
certain information about such business and about the proposing stockholder.
If the officer presiding at a meeting determines that a person was not
nominated, or other business was not brought before the meeting, in accordance
with the Stockholder Notice Procedure, such
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<PAGE>
person will not be eligible for election as a director, or such business will
not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure affords the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform stockholders about such qualifications. By
requiring advance notice of other proposed business, the Stockholder Notice
Procedure also provides a more orderly procedure for conducting annual
meetings of stockholders and, to the extent deemed necessary or desirable by
the Board, provides the Board with an opportunity to inform stockholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with any recommendations as to the Board's position
regarding action to be taken with respect to such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although the Bylaws does not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, the foregoing provisions may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deferring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to the Company and its stockholders.
Certain Effects of Authorized but Unissued Stock. Under the Certificate,
upon consummation of the Offerings there will be 8,271,400 shares of Class A
Common Stock authorized but unissued, 44,385,812 shares of Common Stock
authorized but unissued (and not reserved for issuance upon conversion of the
Class A Common Stock or exercise of options), and 25,000,000 shares of
preferred stock authorized but unissued, for future issuance without
additional stockholder approval. These additional shares may be utilized for a
variety of corporate purposes, including future offerings to raise additional
capital or to facilitate corporate acquisitions.
The issuance of preferred stock could have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock.
One of the effects of the existence of unissued and unreserved Common Stock
or preferred stock may be to enable the Board to issue shares to persons
friendly to current management, which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity
of management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Wilmington Trust
Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have outstanding
33,298,888 shares of common stock, consisting of 11,728,600 shares of Class A
Common Stock and 21,570,288 shares of Common Stock, assuming no exercise of
the Underwriters' over-allotment option and no exercise of outstanding
options. Of these shares, the 10,500,000 shares of Common Stock sold in the
Offerings and 11,070,288 shares of Common Stock not sold in the Offerings will
be freely tradeable without restriction under the Securities Act, unless
subsequently acquired by "affiliates" of the Company as that term is defined
in Rule 144. Substantially all the 11,728,600 shares of Class A Common Stock
outstanding upon completion of the Offerings will be owned by "affiliates"
within the meaning of Rule 144.
In general, under Rule 144 as currently in effect, an "affiliate" is
entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock ( 3,298,889 shares immediately after completion of the Offerings) or the
average weekly reported trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is given,
provided certain manner of sale and notice requirements as to the availability
of current public information are satisfied (which requirements as to the
availability of current public information is currently satisfied). Under Rule
144(k), a person who is not deemed an "affiliate" of the Company at any time
during the three months preceding a sale by such person, and who has
beneficially owned shares of Common Stock that were not acquired from the
Company or an "affiliate" of the Company within the previous three years,
would be entitled to sell such shares without regard to volume limitations,
manner of sale provisions, notification requirements or the availability of
current public information concerning the Company. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, such issuer.
In connection with the Acquisition, Foods received 7,554,406 Shares of
Common Stock (which may be increased as a result of certain post-closing
adjustments). The ability of Foods to dispose of such shares is restricted
pursuant to the terms of the Shareholder Agreement. Upon consummation of the
Offerings, Apollo Ski Partners will own 11,609,086 shares of Class A Common
Stock. Pursuant to the Shareholder Agreement, each of Foods and Apollo have
certain demand and piggyback registration rights. See "Acquisition--
Shareholder Agreement." Of the shares owned by Apollo Ski Partners, 200,000 of
such shares are subject to an option granted to Thomas H. Lee to purchase such
shares.
The Company and each of its officers, directors and the Selling Stockholders
have agreed not to, directly or indirectly, offer, sell, contract to sell,
pledge, grant any option to purchase or otherwise dispose (or announce any
offer, sale, contract of sale, pledge, or other disposition) of any shares of
Common Stock or other shares of capital stock of the Company or securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire, shares of Common Stock or other shares of
capital stock of the Company or any interest in the Common Stock (including
derivative interests), without the prior written consent of Bear Stearns, for
a period of 180 days from the date of this Prospectus. The foregoing does not
prohibit the Selling Stockholders from selling shares subject to the
Underwriters' over-allotment option or pledging shares under certain
circumstances or prohibit the Company from issuing options or shares pursuant
to its stock option plans.
Prior to the Offerings there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sale will have
on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial numbers of shares in the public market
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through a sale of its equity
securities.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS OF
COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder that, for United States federal tax purposes, is not a
"United States person" (a "Non-United States Holder"). For purposes of this
discussion, a "Non-United States Holder" is any holder that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership, or a non-resident fiduciary of a foreign estate or trust
as such terms are defined in the Internal Revenue Code. This discussion does
not address all United States federal income and estate tax considerations
that may be relevant to a Non-United States Holder in light of its particular
circumstances or to certain Non-United States Holders that may be subject to
special treatment under United States federal tax laws. Furthermore, this
section does not discuss any aspects of foreign, state or local taxation. This
discussion is based on current provisions of the Internal Revenue Code,
existing Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change, possibly
with retroactive effect. Each prospective Non-United States Holder is advised
to consult its tax advisor with respect to the tax consequences of owning and
disposing of Common Stock.
DIVIDENDS
Dividends paid with respect to the Common Stock to a Non-United States
Holder generally will be subject to withholding of United States federal
income tax at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty) unless the dividend is effectively connected
with the conduct of a trade or business of the Non-United States Holder within
the United States, in which case the dividend will be taxed at ordinary
federal income tax rates. In the case of a Non-United States Holder which is a
corporation, such effectively connected income may also be subject to a branch
profits tax (which is generally imposed on a foreign corporation on the
repatriation from the United States, or deemed repatriation, of effectively
connected earnings and profits). Non-United States Holders should consult any
applicable tax treaties which may provide for a lower rate of withholding or
other rules different than those described herein. Under current United States
Treasury regulations, dividends paid to an address in a foreign country are
presumed to be paid to a resident of such country (absent actual knowledge to
the contrary) for purposes of the withholding discussed above and, under the
current interpretation of the United States Treasury regulations, for purposes
of determining the applicability of a tax treaty. However, under proposed
United States Treasury regulations, a non-United States Holder of Common Stock
who wishes to claim the benefit of an applicable treaty rate would be required
to satisfy certain certification and other requirements; these regulations are
proposed to be effective for dividends paid after December 31, 1997.
SALE OR DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain recognized on the sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-United States Holder in the United States; (ii) in the
case of a Non-United States Holder who is an individual and holds the Common
Stock as a capital asset, such holder is present in the United States for 183
or more days in the taxable year of the disposition and either (a) has a "tax
home" for United States federal income tax purposes in the United States or
(b) has an office or other fixed place of business in the United States to
which the gain is attributable; (iii) the Non-United States Holder is subject
to tax pursuant to the provisions of United States federal income tax laws
applicable to certain United States expatriates; or (iv) the Company is or has
been during certain periods a "United States real property holding
corporation" (a "USRPHC") for United States federal income tax purposes and,
if the Common Stock is regularly traded on an established securities market,
the Non-United States Holder owned, actually or constructively, in excess of
5% of the fair market value of the Common Stock at any time during the
preceding five-year period.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other
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assets used or held for use in a trade or business at any time during the
five-year period ending on the date of disposition, or the period in which the
holder has owned the stock, whichever is shorter (the "Required Holding
Period"). A non-United States Holder would generally not be subject to tax on
gain from a sale or other disposition of Common Stock by reason of the Company
being deemed to have USRPHC status if the Common Stock is regularly traded on
an established securities market ("regularly traded") during the calendar year
in which such sale or disposition occurs, provided that such holder does not
own, actually or constructively, Common Stock with a fair market value in
excess of 5% of the fair market value of all Common Stock outstanding at any
time during the Required Holding Period (a "5% holder"). While not free from
doubt, the Company believes that the Common Stock should be treated as
regularly traded.
If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-United States Holder is a 5% holder (as described in the
preceding paragraph), such non-United States Holder of Common Stock will be
subject to United States federal income tax at regular graduated rates
("FIRPTA tax") on gain recognized on a sale or other disposition of such
Common Stock. In addition, if the Company is or has been a USRPHC within the
Required Holding Period and if the Common Stock is not treated as regularly
traded, a non-United States Holder (without regard to its ownership
percentage) is subject to withholding in respect of FIRPTA tax at a rate of
10% of the amount realized on sale or other disposition of Common Stock and
may be further subject to FIRPTA tax in excess of the amounts withheld. Any
amount withheld pursuant to such withholding tax is creditable against such
non-United States Holder's United States federal income tax liability.
The Company does not believe that it is a USRPHC as of the date of this
Prospectus. The Company has not received an appraisal with respect to the
Acquired Resorts and therefore cannot make such conclusion with certainty and
there can be no assurance that the IRS will not challenge such conclusion.
Non-United States Holders accordingly should consider the risk that the
Company is, or will become, a USRPHC, in which event gain on sale or
disposition of Common Stock will be subject to FIRPTA tax if (i) the Common
Stock is not treated as regularly traded (in which event the 10% withholding
tax also will be imposed) or (ii) even if the Common Stock is regularly
traded, a Non-United States Holder is a 5% holder.
Gain realized upon disposition of Common Stock that is effectively connected
with the conduct by the Non-United States Holder of a trade of business within
the United States is subject to United States federal income tax on the same
basis as United States persons generally (and, generally, with respect to
corporate holders, the branch profits tax) but will not be subject to
withholding.
Non-United States Holders should consult applicable tax treaties, which may
result in United States Federal income tax treatment on the sale or other
disposition of Common Stock different from that described above.
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
Generally, the Company must report annually to the IRS and to each Non-
United States Holder the amount of dividends paid to, and the tax withheld
with respect to, such holder, regardless of whether any tax was actually
withheld. This information may also be made available to the tax authorities
in the Non-United States Holder's country of residence.
United States backup withholding tax will generally not apply to dividends
paid on Common Stock to a Non-United States Holder at an address outside the
United States. Upon the sale of Common Stock by a Non-United States Holder to
or through a United States office of a broker, the broker must withhold tax at
a rate of 31% and report the sale to the IRS unless the holder certifies its
Non-United States Holder status under penalties of perjury or otherwise
establishes an exemption. Information reporting (but not backup withholding)
applies upon the sale of Common Stock by a Non-United States Holder to or
through the foreign office of a United States broker, or a foreign broker with
certain types of relationships to the United States, unless the broker has
documentary evidence in its files that the seller is a Non-United States
Holder and certain other conditions are met, or the holder otherwise
establishes an exemption.
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Proposed Treasury Regulations would, if adopted, alter the foregoing rules
in certain respects. Among other things, the Proposed Regulations would
provide certain presumptions under which Non-United States Holders would be
subject to backup withholding in the absence of required certifications.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
such Non-United States Holder's United States federal income tax liability, if
any, provided that the required information is furnished to the IRS.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident of the United States (as defined for United States federal estate
tax purposes) at the time of death will be included in such individual's gross
estate for United States federal estate tax purposes unless an applicable
estate tax treaty provides otherwise.
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UNDERWRITING
The underwriters of the U.S. Offering named below (the "U.S. Underwriters"),
for whom Bear, Stearns & Co. Inc., Furman Selz LLC, Goldman, Sachs & Co.,
Salomon Brothers Inc, Schroder Wertheim & Co. Incorporated and Smith Barney
Inc. are acting as representatives, have severally agreed with the Company and
the Selling Stockholders, subject to the terms and conditions of the U.S.
Underwriting Agreement (the form of which has been filed as an exhibit to the
Registration Statement on Form S-2 of which this Prospectus is a part), to
purchase from the Company and the Selling Stockholders the aggregate number of
U.S. Shares set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF U.S. UNDERWRITER U.S. SHARES
------------------------ -----------
<S> <C>
Bear, Stearns & Co. Inc. ...............................
Furman Selz LLC.........................................
Goldman, Sachs & Co. ...................................
Salomon Brothers Inc....................................
Schroder Wertheim & Co. Incorporated....................
Smith Barney Inc. ......................................
---------
Total............................................... 8,400,000
=========
</TABLE>
The Managers of the concurrent International Offering named below (the
"Managers"), for whom Bear, Stearns International Limited, Furman Selz LLC,
Goldman Sachs International, J. Henry Schroder & Co. Limited, Salomon Brothers
International Limited and Smith Barney Inc. are acting as lead Managers, have
severally agreed with the Company and the Selling Stockholders, subject to the
terms and conditions of the International Underwriting Agreement (the form of
which has been filed as an exhibit to the Registration Statement on Form S-2
of which this Prospectus is a part), to subscribe and pay for the aggregate
number of International Shares set forth opposite their respective names
below.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF MANAGER INTERNATIONAL SHARES
--------------- --------------------
<S> <C>
Bear, Stearns International Limited.................
Furman Selz LLC.....................................
Goldman Sachs International.........................
J. Henry Schroder & Co. Limited.....................
Salomon Brothers International Limited..............
Smith Barney Inc. ..................................
---------
Total........................................... 2,100,000
=========
</TABLE>
The nature of the respective obligations of the U.S. Underwriters and the
Managers is such that all of the U.S. Shares and all of the International
Shares must be purchased if any are purchased. Those obligations are subject,
however, to various conditions, including the approval of certain matters by
counsel. The Company and the Selling Stockholders have agreed to indemnify the
U.S. Underwriters and the Managers against certain liabilities, including
liabilities under the Securities Act, and, where such indemnification is
unavailable, to contribute to payments that the U.S. Underwriters and the
Managers may be required to make in respect of such liabilities.
The Company and the Selling Stockholders have been advised that the U.S.
Underwriters propose to offer the U.S. Shares in the United States and Canada
and the Managers propose to offer the International Shares outside the United
States and Canada, initially at the public offering price set forth on the
cover page of this Prospectus and to certain selected dealers at such price
less a concession not to exceed $ per share; that the U.S. Underwriters and
the Managers may allow, and such selected dealers may reallow, a concession to
certain other dealers not to exceed $ per share; and that after the
commencement of the Offerings, the public offering price and the concessions
may be changed.
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The Selling Stockholders have granted the U.S. Underwriters and the Managers
options to purchase in the aggregate up to 1,575,000 additional shares of
Common Stock solely to cover over-allotments, if any. The options may be
exercised in whole or in part at any time within 30 days after the date of
this Prospectus. To the extent options are exercised, the U.S. Underwriters
and the Managers will be severally committed, subject to certain conditions,
to purchase the additional shares of Common Stock in proportion to their
respective commitments as indicated in the preceding tables.
Pursuant to an agreement between the U.S. Underwriters and the Managers (the
"Agreement Between"), each U.S. Underwriter has agreed that, as part of the
distribution of the U.S. Shares and subject to certain exceptions, (a) it is
not purchasing any U.S. Shares for the account of anyone other than a U.S. or
Canadian Person (as defined below) and (b) it has not offered or sold, and
will not offer, sell, resell or deliver, directly or indirectly, any U.S.
Shares or distribute any prospectus relating to the U.S. Offering outside the
United States or Canada or to anyone other than a U.S. or Canadian Person or a
dealer who similarly agrees. Similarly, pursuant to the Agreement Between,
each Manager has agreed that, as part of the distribution of the International
Shares and subject to certain exceptions, (a) it is not purchasing any of the
International Shares for the account of any U.S. or Canadian Person and (b) it
has not offered or sold, and will not offer, sell, resell or deliver, directly
or indirectly, any of the International Shares or distribute any prospectus
relating to the International Offering in the United States or Canada or to
any U.S. or Canadian Person or to a dealer who does not similarly agree. As
used herein, "U.S. or Canadian Person" means any individual who is a resident
or citizen of the United States or Canada, any corporation, pension, profit
sharing or other trust or any other entity under or governed by the laws of
the United States or Canada or of any political subdivision thereof (other
than the foreign branch of any U.S. or Canadian Person), any estate or trust
the income of which is subject to United States or Canadian federal income
taxation regardless of the source of such income, and any United States or
Canadian branch of a person other than a U.S. or Canadian Person; "United
States" means the United States of America (including the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction; "Canada" means the provinces of Canada, its territories, its
possessions and other areas subject to its jurisdiction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the Managers of such number of shares of Common Stock as may
be mutually agreed upon. The price of any shares so sold shall be the public
offering price as then in effect for the Common Stock being sold by the U.S.
Underwriters and the Managers, less an amount not greater than the selling
concession allocable to such Common Stock. To the extent that there are sales
between the U.S. Underwriters and the Managers pursuant to the Agreement
Between, the number of shares of Common Stock initially available for sale by
the U.S. Underwriters or by the Managers may be more or less than the amount
specified on the cover page of this Prospectus.
Each U.S. Underwriter and each Manager has represented and agreed that (a)
it has not offered or sold, and will not offer or sell, in the United Kingdom
by means of any document, any shares of Common Stock other than to persons
whose ordinary business it is to buy or sell shares or debentures, whether as
principal or agent (except under circumstances which do not constitute an
offer to the public within the meaning of the Companies Act 1985 of Great
Britain), (b) it has complied and will comply with applicable provisions of
the Financial Services Act 1996 with respect to anything done by it in
relation to the Common Stock in, from or otherwise involving the United
Kingdom and (c) it has only issued or passed on, and will only issue or pass
on to any person in the United Kingdom, any documents received by it in
connection with the issue of Common Stock if that person is of a kind
described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988 (as amended) or in other circumstances
exempted from the restrictions on advertising in the Financial Services Act
1986.
Purchasers of the International Shares offered in the International Offering
may be required to pay stamp taxes and other charges in accordance with the
laws and practices of the country of purchase in addition to the initial
public offering price set forth on the cover page hereof.
Subject to certain expectations, the Company and each of its officers,
directors and the Selling Stockholders have agreed not to, directly or
indirectly, offer, sell, contract to sell, pledge, grant any option to
purchase or otherwise dispose (or announce any offer, sale, contract of sale,
pledge or other disposition) of any shares of
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Common Stock or other shares of capital stock of the Company or securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire, shares of Common Stock or other shares of
capital stock of the Company or any interest in the Common Stock (including
derivative interests), without the prior written consent of Bear Stearns, for
a period of 180 days from the date of this Prospectus. The foregoing does not
prohibit the Selling Stockholders from selling shares subject to the
Underwriters' over-allotment option or pledging shares under certain
circumstances or prohibit the Company from issuing options of shares pursuant
to its stock option plans.
At the Company's request, the U.S. Underwriters and the Managers have
reserved up to 250,000 shares of Common Stock (the "Directed Shares") for sale
at the public offering price (less the underwriting discounts and commissions)
to approximately persons who are directors, officers or employees of, or
otherwise associated with, the Company and who have advised the Company of
their desire to participate in its future growth. Each purchaser of more than
Directed Shares will be required to agree to restrictions on resale
similar to those described in the immediately preceding paragraph. However,
the U.S. Underwriters and the Managers are not obligated to sell any shares to
any persons. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent of sales of Directed Shares to
any of the persons for whom they have been reserved. Any shares not so
purchased will be offered by the U.S. Underwriters and the Managers on the
same basis as all other shares offered hereby.
Prior to the Offerings, there has been no public market for the Company's
Common Stock. Consequently, the initial public offering price will be
determined through negotiations among the Company, the representatives of the
U.S. Underwriters and the Managers. Among the factors to be considered in
making such determination will be the Company's financial and operating
history and condition, its prospects and prospects for the industry in which
it does business in general, the management of the Company, prevailing equity
market conditions and the demand for securities considered comparable to those
of the Company.
Bear Stearns has in the past provided, and may in the future provide,
investment banking services for Apollo Advisors and its affiliates. Bear
Stearns served as financial advisor to Vail Resorts in connection with the
Acquisition and received customary fees for such services. Salomon Brothers
Inc served as financial advisor to Foods in connection with the Acquisition
and received customary fees for such services.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company or the
Selling Stockholders prepare and file a prospectus with the relevant Canadian
securities regulatory authorities. Accordingly, any resale of the Common Stock
in Canada must be made in accordance with applicable securities laws, which
will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Confirmations of the acceptance of offers to purchase shares of Common Stock
will be sent to Canadian residents to whom this Prospectus has been sent and
who have not withdrawn their offers to purchase prior to the issuance of such
confirmations. Each purchaser of Common Stock in Canada who receives a
purchase confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable Canadian provincial
securities laws to purchase such Common Stock without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
such purchaser is purchasing as principal and not as agent, (iii) such
purchaser has reviewed the text above under "Notice to Canadian Residents--
Resale Restrictions", (iv) if such purchaser is located in Manitoba, such
purchaser is not an individual and is purchasing for investment only and not
with a view to resale or distribution, (v) if such purchaser is located in
Ontario, a dealer registered as an international dealer in Ontario may sell
shares of Common Stock to such purchaser, and (vi) if such purchaser is
located in Quebec, such purchaser is a "sophisticated purchaser" within the
meaning of Section 43 of the Securities Act (Quebec).
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TAXATION
Canadian purchasers should consult their own legal and tax advisers with
respect to the tax consequences of an investment in the Common Stock in their
particular circumstances and with respect to the eligibility of the Common
Stock for investment by the purchaser under relevant Canadian legislation.
ENFORCEMENT OF LEGAL RIGHTS
The Company is incorporated under the laws of the State of Delaware. All or
substantially all of the directors and officers of the Company reside outside
Canada and all or substantially all of the assets of the Company are located
outside Canada. As a result, it may not be possible for Canadian investors to
effect service of process within Canada upon the Company or to enforce against
the Company in Canada judgements obtained in Canadian courts that are
predicated upon the contractual rights of action, if any, granted to certain
purchasers by the Company. It may also not be possible for investors to
enforce against the Company in the United States judgements obtained in
Canadian courts.
Furthermore, although the requirement for an issuer to provide to certain
purchasers the contractual right of action for damages and/or rescission
described below is consistent with contractual considerations associated with
a private placement which constitutes a primary distribution of the issuer's
securities by the issuer, an investor may not be able to enforce a contractual
right of action for rescission against the issuer whom the offer or sale of
the issue's securities is a secondary distribution being made by a third party
such as the sale of the Common Stock by the Selling Stockholders.
NOTICE TO ONTARIO RESIDENTS
The securities being offered hereby are those of a foreign issuer and
Ontario purchasers will not receive the contractual right of action prescribed
by Section 32 of the Regulation under the Securities Act (Ontario). As a
result, Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All the Company's directors and officers as well as the experts named herein
may be located outside of Canada and, as a result, it may not be possible for
Ontario purchasers to effect service of process within Canada upon the Company
or such persons. All or a substantial portion of the assets of the Company and
such persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgement against the Company or such persons in Canada
or to enforce a judgement obtained in Canadian courts against the Company or
persons outside of Canada.
The foregoing summary is subject to the express provisions of the Securities
Act (Ontario) and the regulations thereunder and reference is made thereto for
the complete text of such provisions. Such provisions may contain limitations
and statutory defences on which the Company may rely.
The rights discussed above are in addition to and without derogation from
any other right or remedy which investors may have at law.
LANGUAGE OF DOCUMENTS
All Canadian purchasers of shares of Common Stock acknowledge that all
documents evidencing or relating in any way to the sale of such shares will be
drawn in the English language only. Tous les acheteurs canadiens d'actions
ordinaires reconnaissent par les presentes que c'est a leur volonte expresse
que tous les documents faisant foi ou se rapportant de quelque maniere a la
vente des actions ordinaires soient rediges en anglais seulement.
86
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York, and
Brownstein Hyatt Farber & Strickland, P.C., Denver, Colorado, and for the
Underwriters by Kramer, Levin, Naftalis & Frankel, New York, New York.
EXPERTS
The consolidated financial statements of Vail Resorts, Inc. at September 30,
1996 and September 30, 1995 and for each of the three years in the period
ended September 30, 1996 included in this prospectus and registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The consolidated statements of income, stockholder's equity, and cash flows
for the period from October 4, 1993 through August 31, 1994 of Packerland
Packing Company, Inc. have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are referred to herein in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Ralston Resorts, 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 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.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all the information set forth in the Registration Statement and the exhibits
and schedules thereto, certain items of which are omitted in accordance with
the rules and regulations of the Commission. 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 Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the information requirements of the Exchange Act,
and, in accordance therewith, files reports and other information with the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement
and such exhibits and schedules filed as a part thereof as well as such
reports and other information filed by the Company, which may be inspected and
copied at prescribed rates at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of all or any portion of the Registration Statement may be obtained
from the Public Reference Section of the Commission, upon payment of
prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov which contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The Common Stock will be listed on The New York Stock Exchange,
and such reports, proxy statements, and other information can also be
inspected and copied at the offices of The New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
87
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VAIL RESORTS, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Report of Ernst & Young LLP Independent Auditors ........................... F-3
Consolidated Balance Sheets................................................. F-4
Consolidated Statements of Operations....................................... F-5
Consolidated Statements of Stockholders' Equity............................. F-6
Consolidated Statements of Cash Flows....................................... F-7
Notes to Consolidated Financial Statements.................................. F-8
</TABLE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-22
Consolidated Balance Sheet................................................. F-23
Consolidated Statement of Operations....................................... F-24
Consolidated Statement of Changes in Stockholder's Equity.................. F-25
Consolidated Statement of Cash Flows....................................... F-26
Notes to Consolidated Financial Statements................................. F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Vail Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of VAIL
RESORTS, INC. formerly known as Gillett Holdings, Inc. (see Note 1) (a
Delaware corporation) and subsidiaries as of September 30, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
consolidated financial statements of Packerland Packing Company, Inc.
("Packerland"), a wholly owned subsidiary of Vail Resorts, Inc.; 100% of the
stock of Packerland was sold on August 31, 1994. The net revenues of
Packerland included in the consolidated statements of operations for the year
ended September 30, 1994 were $630,928,000. The accompanying consolidated
statements of operations for the year ended September 30, 1994 present the
operations of Packerland as discontinued (see Note 3). Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Packerland, is
based solely on the report of the other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Vail Resorts, Inc. and
subsidiaries as of September 30, 1996 and 1995 and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended September 30, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Denver, Colorado,
October 31, 1996
F-2
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors
Packerland Packing Company, Inc.
We have audited the consolidated statements of income, stockholder's equity
and cash flows for the period from October 4, 1993 through August 31, 1994, of
Packerland Packing Company, Inc. (the Company). 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 consolidated results of the Company's operations
and its cash flows for the period from October 4, 1993 through August 31,
1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
October 7, 1994
F-3
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 47,534 $ 12,712
Receivables...................................... 5,135 5,741
Inventories...................................... 4,221 4,639
Deferred income taxes (Note 8)................... 9,500 17,200
Other current assets............................. 3,716 5,490
-------- --------
Total current assets........................... 70,106 45,782
Property, plant, and equipment, net (Note 6)....... 205,151 192,669
Real estate held for sale.......................... 54,858 88,665
Deferred charges and other assets.................. 6,106 10,440
Intangible assets (Note 6)......................... 93,407 85,056
-------- --------
Total assets................................... $429,628 $422,612
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (Note 6)... $ 37,419 $ 48,096
Income taxes payable (Note 8).................... 81 325
Rights payable to stockholders (Note 10)......... -- 50,513
Long-term debt due within one year (Notes 1 and
5).............................................. 63 63
-------- --------
Total current liabilities...................... 37,563 98,997
Long-term debt (Note 5)............................ 191,250 144,687
Other long-term liabilities........................ 3,821 15,521
Deferred income taxes (Note 8)..................... 29,300 39,500
Commitments and contingencies (Notes 1, 3, 10, and
12)
Stockholders' equity (Notes 1, 12 and 13):
Preferred stock, $.01 par value 25,000,000 shares
authorized, no shares issued and outstanding.... -- --
Common stock--
Class A common stock, $.01 par value, 20,000,000
shares authorized, 12,817,692 and 12,426,220
shares issued and outstanding as of
September 30, 1995 and 1996, respectively...... 128 124
Common Stock, $.01 par value, 80,000,000 shares
authorized, 6,943,984 and 7,573,780 shares
issued and outstanding as of September 30, 1995
and 1996, respectively......................... 70 76
Additional paid-in capital....................... 135,561 123,707
Retained earnings................................ 31,935 --
-------- --------
Total stockholders' equity..................... 167,694 123,907
-------- --------
Total liabilities and stockholders' equity..... $429,628 $422,612
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues:
Resort............................. $ 124,982 $ 126,349 $ 140,288
Real estate........................ 22,203 16,526 48,655
----------- ----------- -----------
Total net revenues................. 147,185 142,875 188,943
Operating expenses:
Resort............................. 78,365 82,305 89,890
Real estate........................ 20,341 14,983 40,801
Corporate expense.................. 7,160 6,701 12,698
Depreciation and amortization...... 17,186 17,968 18,148
----------- ----------- -----------
Total operating expenses........... 123,052 121,957 161,537
----------- ----------- -----------
Operating income from continuing op-
erations........................... 24,133 20,918 27,406
Other income (expense):
Investment income.................. 1,523 3,295 586
Interest expense .................. (22,468) (19,498) (14,904)
Gain (loss) on disposal of fixed
assets............................ 128 (849) (2,630)
Other (Notes 9 and 10)............. (598) 3,291 (1,500)
----------- ----------- -----------
Income from continuing operations
before income taxes................ 2,718 7,157 8,958
Provision for income taxes (Note
8)................................. (1,957) (3,875) (4,223)
----------- ----------- -----------
Income from continuing operations... 761 3,282 4,735
Income from discontinued operations,
net of applicable income tax provi-
sion of $4,206 for the year ended
September 30, 1994 (Notes 3 and
9)................................. 7,058 -- --
Gain on disposal of subsidiaries op-
erating in discontinued segments,
net of applicable income tax provi-
sion of $13,357 for the year ended
September 30, 1994 (Notes 3 and
9)................................. 20,963 -- --
----------- ----------- -----------
Net income.......................... $ 28,782 $ 3,282 $ 4,735
=========== =========== ===========
Earnings per common share (Note 2):
Income from continuing operations.. $ .04 $ .16 $ .22
Income from discontinued
operations........................ .35 -- --
Gain on disposal of subsidiaries
operating in discontinued
segments.......................... 1.03 -- --
----------- ----------- -----------
Net income......................... $ 1.42 $ .16 $ .22
=========== =========== ===========
Weighted average shares
outstanding....................... 20,433,156 20,582,776 21,455,352
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
SHARES ADDITIONAL RETAINED TOTAL
-------------------------------- PAID-IN EARNINGS STOCKHOLDERS'
CLASS A COMMON TOTAL AMOUNT CAPITAL (DEFICIT) EQUITY
---------- --------- ---------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1993................... 14,781,606 4,503,418 19,285,024 $192 $131,910 $ (129) $131,973
Net income for the year
ended
September 30, 1994..... -- -- -- -- -- 28,782 28,782
Shares issued pursuant
to stock grants (Note
12).................... -- 238,326 238,326 4 1,735 -- 1,739
Shares of Class A Common
Stock converted to
Common Stock (Note
13).................... (532,192) 532,192 -- -- -- -- --
---------- --------- ---------- ---- -------- ------- --------
Balance, September 30,
1994................... 14,249,414 5,273,936 19,523,350 196 133,645 28,653 162,494
Net income for the year
ended
September 30, 1995..... -- -- -- -- -- 3,282 3,282
Shares issued pursuant
to stock grants (Note
12).................... -- 238,326 238,326 2 1,916 -- 1,918
Shares of Class A Common
Stock converted to
Common Stock (Note
13).................... (1,431,722) 1,431,722 -- -- -- -- --
---------- --------- ---------- ---- -------- ------- --------
Balance, September 30,
1995................... 12,817,692 6,943,984 19,761,676 198 135,561 31,935 167,694
Net income for the year
ended
September 30, 1996..... -- -- -- -- -- 4,735 4,735
Shares issued pursuant
to stock grants (Note
12).................... -- 238,324 238,234 2 1,989 -- 1,991
Rights payable to
stockholders........... -- -- -- -- (13,843) (36,670) (50,513)
Shares of Class A Common
Stock converted to
Common Stock (Note
13).................... (391,472) 391,472 -- -- -- -- --
---------- --------- ---------- ---- -------- ------- --------
Balance, September 30,
1996................... 12,426,220 7,573,780 20,000,000 $200 $123,707 $ -- $123,907
========== ========= ========== ==== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements
F-6
<PAGE>
VAIL RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income......................... $28,782 $ 3,282 $ 4,735
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 18,223 17,968 18,148
Deferred compensation payments in
excess of expense................. (1,257) (1,325) (814)
Noncash cost of real estate
sales............................. 13,817 9,208 32,394
Noncash compensation related to
stock grants (Note 12)............ 1,633 1,633 25
Noncash compensation related to
exercise of stock options......... -- -- 1,915
Gain on disposal of subsidiaries
(Notes 3 and 9)................... (34,320) -- --
Bond discount amortized............ 548 -- --
Deferred financing costs amor-
tized............................. 504 237 247
Loss (gain) on disposal of fixed
assets............................ (128) 849 2,630
Deferred real estate revenue....... 1,535 1,500 --
Deferred income taxes (Note 8)..... 16,000 2,900 2,500
Cash received on termination of
pension plan (Note 7)............. 500 -- --
Changes in assets and liabilities:
Accounts receivable, net........... 6,153 (349) (606)
Inventories........................ (455) (1,236) (418)
Accounts payable and accrued ex-
penses............................ 2,742 10,141 9,551
Other assets and liabilities....... 1,830 (3,704) (3,866)
------- -------- --------
Net cash provided by operating
activities...................... 56,107 41,104 66,441
Cash flows from investing activi-
ties:
Resort capital expenditures........ (17,414) (20,320) (13,912)
Investments in real estate......... (22,686) (22,477) (40,604)
Cash payments from GHTV (Note 1)... 39,097 -- --
Cash balances of GHTV acquired..... 3,145 -- --
Net cash proceeds from sale of
Packerland (Note 3)............... 56,260 -- --
Cash balances of Packerland sold... (7,853) -- --
Purchase of Arrowhead (Note 4)..... (30,919) -- --
Investment in joint venture........ (2,978) (400) (200)
Other.............................. (363) 953 --
------- -------- --------
Net cash provided by (used in)
investing activities............ 16,289 (42,244) (54,716)
Cash flows from financing activi-
ties:
Proceeds from borrowings under
long-term debt.................... 69,360 253,400 84,000
Payments on long-term debt......... (94,820) (287,741) (130,547)
Payment of reorganization items,
financing costs and other......... (1,422) -- --
------- -------- --------
Net cash used in financing activ-
ities........................... (26,882) (34,341) (46,547)
------- -------- --------
Net increase (decrease) in cash and
cash equivalents................... 45,514 (35,481) (34,822)
Cash and cash equivalents:
Beginning of period................ 37,501 83,015 47,534
------- -------- --------
End of period...................... $83,015 $ 47,534 $ 12,712
======= ======== ========
Cash paid for interest included as a
use of cash in operating
activities......................... $27,182 $ 13,852 $ 21,880
======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statementsare an integral part
of these statements
F-7
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Vail Resorts, Inc. ("VRI"), formerly known as Gillett Holdings, Inc., is
organized as a holding company and operates through various subsidiaries. VRI
and its subsidiaries (collectively, the "Company") currently operate in two
business segments, ski resorts and real estate development. Vail Associates,
Inc. and its subsidiaries (collectively, "Vail Associates") operate one of the
world's largest skiing facilities on Vail Mountain and Beaver Creek Mountain
in Colorado and have related real estate operations. The ski resorts are
operated on United States Forest Service land under Term Special Use Permits
expiring in 2031 for Vail Mountain and 2006 for Beaver Creek Mountain. Vail
Associates Real Estate Group ("VAREG") is a wholly-owned subsidiary of Vail
Associates, Inc. and conducts the Company's real estate development
activities. The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. Investments in
joint ventures are accounted for under the equity method. All significant
intercompany transactions have been eliminated.
On June 6, 1996, the Company filed a Registration Statement on Form S-2 for
an initial public offering ("Offering"). The Company plans to raise $100
million in the Offering with certain selling stockholders raising an
additional $100 million. The consummation of the Offering is contingent upon
the closing of the acquisition of Ralston Resorts, Inc. under a stock purchase
agreement dated July 22, 1996 (see Note 4).
The Company previously owned subsidiaries which were engaged in the beef
products and communications businesses. Packerland Packing Company, Inc. and
its subsidiaries (collectively, "Packerland") operated one of the largest
"lean beef" slaughtering and packing operations in the United States. GHTV,
Inc. and its subsidiaries (collectively, "GHTV") owned and operated various
broadcast stations and other related businesses. In 1991, due to an inability
to service debt incurred in connection with the acquisition of certain assets
in the communications business, the Company and these subsidiaries filed for
relief under Chapter 11 of the Bankruptcy Code. On October 8, 1992 (the
"Effective Date"), the Company, Packerland and GHTV emerged from bankruptcy
pursuant to a plan of reorganization (the "Plan") under which the beef
products and communications businesses were to be sold.
Packerland was sold on August 31, 1994. The results of its operations from
October 1, 1993 through August 31, 1994, are included in income from
discontinued operations in the consolidated statement of operations for the
fiscal year ended September 30, 1994 (see Note 3).
As of the Effective Date, the stock of GHTV was transferred by the Company
to a trust (the "GHTV Trust") due to foreign investment in the Company as of
the Effective Date and FCC regulations which prohibit foreign ownership of
broadcast stations. The beneficial interest in the GHTV Trust was sold to an
independent third party subject to the terms of a repurchase agreement between
the Company and the third party whereby the Company could repurchase the
beneficial interest in the GHTV Trust or the underlying GHTV stock at a later
date. As of September 23, 1994, all of GHTV's communications subsidiaries had
been sold. On September 30, 1994, the Company repurchased the stock of GHTV
from the GHTV Trust. Upon the repurchase, GHTV became a wholly-owned
subsidiary of the Company and accordingly, the consolidated balance sheets of
the Company as of and subsequent to September 30, 1994 include the remaining
assets and liabilities of GHTV.
On the Effective Date, the Company held notes receivable from GHTV in the
aggregate amount of $194.0 million (the "GHTV Subsidiary Notes"). GHTV made
payments on the GHTV Subsidiary Notes with proceeds from the sales of its
subsidiaries. Through September 30, 1994, GHTV made aggregate principal
payments of $182.5 million to the Company. At September 30, 1994, the
remaining principal amount receivable was written off by the Company
concurrent with the write-off by GHTV of the remaining payable under the GHTV
Subsidiary Notes recorded on its books. Since the Company was to be the
ultimate recipient of substantially all gains or losses of GHTV through
payments under the GHTV Subsidiary Notes, and its ability to repurchase the
beneficial interest in GHTV, the operating results of GHTV have been included
in the Company's consolidated statements of operations throughout the periods
that the GHTV Stock was held by the GHTV Trust. Accordingly,
F-8
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest expense of GHTV related to the GHTV Subsidiary Notes was eliminated
against the related interest income on the Company's books. This elimination
of interest expense resulted in net income for GHTV, all of which was deferred
and included as a component of the ultimate gain on the disposal of
communications subsidiaries included in the consolidated statement of
operations for the year ended September 30, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents.
Inventories--The Company's inventories consist primarily of purchased retail
goods, food, and spare parts. Inventories are valued at the lower of cost,
determined using the first-in, first-out (FIFO) method, or market.
Property, Plant and Equipment--Property, plant and equipment is carried at
cost net of accumulated depreciation. Depreciation is calculated generally on
the straight-line method based on the following useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements...................................................... 40
Buildings and terminals................................................ 40
Ski lifts.............................................................. 15
Ski trails............................................................. 20
Machinery, equipment, furniture and fixtures........................... 3-12
Automobiles and trucks................................................. 3-5
</TABLE>
Deferred Financing Costs--Costs incurred with the issuance of debt
securities are included in deferred charges and other assets, net of
accumulated amortization. Amortization is charged to income over the
respective original lives of the applicable issues and is included as an other
expense.
Intangible Assets--"Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets" ("Excess Reorganization Value") represents the excess of
the Company's reorganization value over the amounts allocated to the net
tangible and other intangible assets of the Company as of the Effective Date
(see Note 6). The Company amortizes Excess Reorganization Value over 20 years.
The cost of other intangible assets with determinable lives is charged to
operations based on their respective economic lives, which range from 7 to 40
years, using the straight line method.
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 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 September
30, 1996, management believes that there has not been any impairment of the
Company's long-lived assets or other identifiable intangibles.
F-9
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition--Resort Revenue is recognized as services are performed.
Revenues from real estate sales are accounted for as follows:
A. Revenue is not recognized until title has been transferred.
B. Revenue is deferred if the receivable is subject to subordination
until such time as all costs have been recovered.
C. Until the initial down payment and subsequent collection of principal
and interest are by contract substantial, cash received from the buyer is
reported as a deposit on the contract.
The Company capitalizes as land held for sale the original acquisition cost
(or appraised value as of the Effective Date), direct construction and
development costs, property taxes, interest incurred on costs related to land
under development, and other related costs (engineering, surveying,
landscaping, etc.) until the property reaches its intended use. The cost of
sales for individual parcels of real estate or condominium units within a
project is determined using the relative sales value method. Selling expenses
are charged against income in the period incurred. Interest capitalized on
real estate development projects during fiscal years 1994, 1995 and 1996
totalled $0.8 million, $1.4 million and $2.2 million, respectively.
Advertising Costs--Advertising costs are expensed the first time the
advertising takes place. Advertising expense for the years ended September 30,
1994, 1995 and 1996 was $4.4 million, $6.3 million and $6.9 million,
respectively. At September 30, 1995 and 1996, advertising costs of $1.2
million and $1.7 million were reported as assets in the Company's consolidated
balance sheet.
Income Taxes--The Company uses the liability method of accounting for income
taxes as prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, a deferred
tax liability or asset is recognized for the effect of temporary differences
between financial reporting and tax reporting.
Earnings Per Share--Earnings (loss) per common share are based on the
weighted average number of shares outstanding during the period after
consideration of the dilutive effect of stock grants, warrants and options
(see Note 12).
Fair Value of Financial Instruments--The recorded amounts for cash and cash
equivalents, receivables, other current assets, and accounts payable and
accrued expenses approximate fair value due to the short-term nature of these
financial instruments. The fair value of amounts outstanding under the
Company's Credit Facilities approximates book value due to the variable nature
of the interest rate associated with that debt. The fair values of the
Company's Senior Subordinated Notes and Industrial Development Bonds have been
estimated using discounted cash flow analyses based on current borrowing rates
for debt with similar maturities and ratings.
The estimated fair values of the Senior Subordinated Notes and Industrial
Development Bonds at September 30, 1996 are presented below:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
<S> <C> <C>
Senior Subordinated Notes.................................. $62,647 $76,369
Industrial Development Bonds............................... $37,903 $43,701
</TABLE>
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,
the 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
accompanying consolidated financial statements for the years ended September
30, 1994 and 1995 to conform to the current period presentation.
F-10
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DISCONTINUED OPERATIONS
On August 31, 1994, the Company sold 100% of the stock of Packerland to PPC
Acquisition Co. ("PPC"), an entity owned in part by the existing management
group of Packerland and the Company's former Chairman and Chief Executive
Officer for net cash proceeds totaling approximately $56,260,000. The net gain
resulting from this transaction of $10,678,000 is included in the gain on
disposal of subsidiaries operating in discontinued segments for the year ended
September 30, 1994, in the accompanying consolidated statements of operations.
The Packerland portion of the gain on disposal of subsidiaries operating in
discontinued segments included in the accompanying consolidated statement of
cash flows for the year ended September 30, 1994 includes the net cash
proceeds from the sale reduced by the net assets of Packerland as of August
31, 1994, and other costs associated with the transaction. The net revenues of
Packerland included in the consolidated statements of operations were
$630,928,000 for the year ended September 30, 1994.
On September 23, 1994, GHTV sold substantially all of the assets of its
remaining operating subsidiaries to an unaffiliated party for net cash
proceeds totaling approximately $35,372,000. Following this sale, GHTV no
longer had an ownership interest in subsidiaries engaged in the communications
business. On September 30, 1994, the Company repurchased the stock of GHTV
from the GHTV Trust (see Note 1). As discussed in Note 1, the GHTV net income
following the elimination of interest expense was deferred until the remaining
GHTV subsidiaries were sold and then included as a component of the net gain
on the disposal of the related subsidiaries. The net gain resulting from these
sales of $10,285,000 is included in the gain on disposal of subsidiaries
operating in discontinued segments in the accompanying consolidated statements
of operations for the year ended September 30, 1994.
Corporate expense related to the communications segment has been classified
as income from discontinued operations for the year ended September 30, 1994
based upon the corporate expenses directly attributable to GHTV in excess of
the $250,000 expense reimbursement from GHTV during the year (see Note 9).
Corporate expense related to Packerland has been classified as income from
discontinued operations based upon the corporate expenses directly
attributable to Packerland. Corporate expense classified as income from
discontinued operations totaled $762,000 for the year ended September 30,
1994. Corporate interest expense has been allocated to income from
discontinued operations based upon the ratio of the net assets of Packerland
and GHTV to the consolidated net assets of the Company. Total corporate
interest expense allocated to income from discontinued operations was
$4,033,000 for the year ended September 30, 1994.
Incentive payments to George N. Gillett Jr., the Company's former Chairman
and Chief Executive Officer ("Mr. Gillett"), and certain other members of the
Company's management related to the sales of Packerland and the GHTV
subsidiaries totaling $1.3 million have been included as a component of the
net gain on the disposal of subsidiaries operating in discontinued segments in
the consolidated statement of operations for the year ended September 30,
1994.
In connection with the sales of Packerland and the GHTV subsidiaries, the
Company retained certain contingent liabilities that are customary for
transactions of this nature. The Company does not anticipate that these
contingencies will have a material effect on either future financial results
or liquidity.
4. ACQUISITIONS
On November 30, 1993, Vail Associates purchased substantially all of the
assets of Arrowhead for approximately $31,000,000 in cash. These assets
included (i) approximately 1,200 acres of land on Arrowhead Mountain,
including 180 acres of skiable terrain, (ii) approximately 1,000 acres of
undeveloped real estate on, at the base of and adjacent to Arrowhead Mountain
and (iii) the rights to designate, and receive the proceeds from,
F-11
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
certain membership privileges to the Country Club of the Rockies ("CCR") golf
club. Arrowhead is currently a year round resort which offers membership to
CCR and skiing as amenities to home owners to promote real estate sales.
On April 5, 1994, Vail Associates purchased SaddleRidge for approximately
$10,400,000 in cash. SaddleRidge is a 12 unit townhouse project with an
adjoining clubhouse. Vail Associates has sold eleven of the townhouse units
and currently operates a restaurant and meeting facilities in the clubhouse.
On July 22, 1996, the Company entered into a Stock Purchase Agreement
("Purchase Agreement") with Ralston Foods, Inc. and its wholly-owned
subsidiary Ralston Resorts, Inc., pursuant to which the Company will acquire
the capital stock of Ralston Resorts, Inc., the operator of the Breckenridge,
Keystone and Arapahoe Basin ski resorts located in Summit County, Colorado
(the "Acquisition"). Under the terms of the Purchase Agreement, the Company
will assume and/or refinance $165 million of indebtedness of Ralston Resorts,
Inc. and will issue approximately 7.6 million shares of Common Stock to
Ralston Foods, Inc. The closing of the Acquisition is dependent upon various
conditions, including obtaining financing to refinance the indebtedness
assumed (see Note 5), the continuing accuracy of representations and
warranties made by the parties to the Purchase Agreement, and the receipt of
necessary government approvals including those required under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended.
5. LONG-TERM DEBT
Long-term debt as of September 30, 1995 and 1996 is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Senior Subordinated Notes (a)....................... $117,147 $ 62,647
Industrial Development Bonds (b).................... 37,903 37,903
Credit Facilities (c)............................... 36,000 44,000
Other............................................... 263 200
-------- --------
191,313 144,750
Less--current maturities.......................... 63 63
-------- --------
$191,250 $144,687
======== ========
</TABLE>
(a) The Senior Subordinated Notes are unsecured, bear interest at 12 1/4% and
mature on June 30, 2002. Interest is payable semi-annually on March 31 and
September 30.
The Company redeemed $30 million and $24.5 million principal amounts of
Senior Subordinated Notes on December 11, 1995 and February 2, 1996,
respectively, pursuant to the optional redemption provisions of the Senior
Subordinated Note Indenture (the "Indenture"). Under these provisions, the
Company was required to pay a call premium in the amount of 5% of the
principal redeemed for each of these redemptions. The Company, pursuant to
the covenants in the Indenture, may not incur additional indebtedness unless
expressly permitted in the Indenture; make certain Restricted Payments (as
defined in the Indenture); sell assets of the Company or its subsidiaries
unless within the guidelines set forth in the Indenture; engage in certain
transactions with affiliates; or make certain acquisitions in excess of
specific limitations.
(b) The Company has $41.2 million of outstanding Industrial Development Bonds
issued by Eagle County, Colorado which accrue interest at 8% per annum and
mature on August 1, 2009. Interest is payable semi-annually on February 1
and August 1. The Company has provided the holder of these bonds a debt
service reserve fund of $3.3 million, which has been netted against the
principal amount for financial reporting purposes. The Industrial
Development Bonds are secured by the stock of the subsidiaries of Vail
Associates and the United States Forest Service permits.
F-12
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(c) The Company's revolving line of credit provides for total availability of
$135 million which is comprised of a $105 million revolver ("Facility A")
and a $30 million revolver ("Facility B") (collectively, the "Credit
Facilities"). The maximum availability under Facility A will be reduced to
$80 million on March 31, 1999 with the remaining principal balance due on
March 31, 2000. Facility A also requires that no more than $75 million be
outstanding for a 30 day period each year. The maximum availability under
Facility B will be reduced by $10 million on March 31, 1997, 1998 and
1999. The Credit Facilities are available for the seasonal working capital
needs of the Company and for capital expenditures and other general
corporate purposes, including the issuance of up to $50 million of letters
of credit ("LOC"). Interest on outstanding advances under the Credit
Facilities is payable monthly or quarterly at rates based upon either
LIBOR plus a margin ranging from .75% to 2.0% (6.2% at September 30, 1996)
or prime plus a margin of up to .25% (8.25% at September 30, 1996). These
rates fluctuate depending on the ratio of funded debt to resort cash flow
as defined in the Credit Facilities. The Company is also required to pay
an unused commitment fee ranging from .25% to .375%. Of the $50 million of
LOC availability, approximately $45 million will ultimately be used to
credit enhance the Smith Creek Metropolitan District revenue bonds (see
Note 10). As of September 30, 1996, the Company had $27.6 million of LOCs
outstanding related to this credit enhancement and is using approximately
$4.1 million of LOCs for other Vail Associates corporate purposes. Fees
for LOCs outstanding are payable when LOCs are issued at rates ranging
from .875% to 2.125%. Vail Associates is permitted under the Credit
Facilities to make (i) quarterly dividend payments to the Company in the
amount of net cash proceeds from real estate sales, (ii) annual dividend
payments based upon annual excess cash flow excluding cash proceeds from
real estate sales, and (iii) management fee payments not to exceed $3
million per year. Borrowings under the Credit Facilities are secured by
the stock of the subsidiaries of Vail Associates and the permits granted
by the United States Forest Service (see Note 1). Due to the long term
nature of the Credit Facilities, all amounts outstanding are considered to
be noncurrent liabilities.
The Company has received a commitment from its lender, as agent, to
provide financing for the Acquisition and the working capital needs of the
Company upon the closing of the Acquisition ("New Credit Facilities"). The
New Credit Facilities will provide for debt financing up to an aggregate
principal amount of $340 million. The New Credit Facilities are comprised
of (i) a $175 million Revolving Credit Facility ("Revolving Credit
Facility"), (ii) a $115 million Tranche A Term Loan Facility ("Tranche A")
and (iii) a $50 million Tranche B Term Loan Facility (together with the
Tranche A, the "Term Loan Facilities"). The Term Loan Facilities will be
used to refinance a portion of the $165 million of debt assumed in
connection with the Acquisition. The Revolving Credit Facility matures on
April 15, 2003. The minimum amortization under the Term Loan Facilities
will be $11.5 million, $14.0 million, $19.0 million, $21.5 million, $26.5
million, $31.5 million, and $41 million during the fiscal years ending
September 30, 1998, 1999, 2000, 2001, 2002, 2003, and 2004, respectively.
The Company will also required to make mandatory amortization payments
under the Term Loan Facilities with excess cash flow, proceeds from asset
sales, and proceeds from equity and debt offerings. Aggregate maturities
for debt outstanding are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1996
-------------
<S> <C>
Due during year ending September 30:
1997............................................................ $ 63
1998............................................................ 63
1999............................................................ 63
2000............................................................ 11
2001............................................................ --
Thereafter...................................................... 144,550
--------
Total debt.................................................... $144,750
========
</TABLE>
F-13
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SUPPLEMENTARY BALANCE SHEET INFORMATION (IN THOUSANDS)
The composition of property, plant and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Land and land improvements.......................... $ 70,172 $ 66,966
Buildings and terminals............................. 65,812 60,928
Machinery and equipment............................. 65,123 68,286
Automobiles and trucks.............................. 2,847 3,729
Furniture and fixtures.............................. 11,152 12,817
Construction in progress............................ 17,421 15,118
-------- --------
232,527 227,844
Accumulated depreciation and amortization........... ( 27,376) (35,175)
-------- --------
$205,151 $192,669
======== ========
Depreciation expense for fiscal years 1994, 1995 and 1996 totaled $10.2
million, $11.3 million and $11.4 million, respectively.
The composition of intangible assets follows:
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Trademarks.......................................... $ 41,096 $ 41,096
Other intangible assets............................. 33,489 32,639
Excess Reorganization Value (Note 2)................ 38,494 37,702
-------- --------
$113,079 $111,415
Accumulated amortization............................ (19,672) (26,381)
-------- --------
$ 93,407 $ 85,056
======== ========
</TABLE>
The composition of accounts payable and accrued expenses follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Trade payables.................................... $14,847 $28,263
Accrued interest.................................. 8,092 869
Accrued salaries and wages........................ 5,808 5,705
Current portion of option payment payable (see
Note 10)......................................... -- 1,629
Other accruals.................................... 8,672 11,630
------- -------
$37,419 $48,096
======= =======
</TABLE>
7. RETIREMENT AND PROFIT SHARING PLANS
During 1992, a defined benefit pension plan covering employees of certain
companies which have been sold was terminated. The accrued benefits for those
plan participants became vested as of the date of sale, with no additional
benefits to be accrued. In connection with the termination of the plan, a
group annuity contract was purchased for settlement of substantially all
remaining plan obligations. The Company received the final $500,000 of the
total excess of the plan's assets over the cost of the annuity contract of
$7.3 million during the year ended September 30, 1994.
F-14
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company maintains a defined contribution retirement plan, qualified
under Section 401(k) of the Internal Revenue Code, for its employees.
Employees are eligible to participate in the plan upon attaining the age of 21
and completing one year of employment with a minimum of 1,000 hours of
service. Participants may contribute from 2% to 15% of their qualifying annual
compensation up to the annual maximum specified by the Internal Revenue Code.
The Company matches an amount equal to 50% of each participant's contribution
up to 6% of a participant's annual qualifying compensation. The Company's
matching contribution is entirely discretionary and may be reduced or
eliminated at any time.
Total profit sharing plan expense recognized by the Company for the years
ended September 30, 1994, 1995 and 1996 was $784,000, $493,000 and $594,000,
respectively.
8. INCOME TAXES
At October 8, 1992, the Company had net operating loss (NOL) carryforwards
for federal income tax purposes of $575 million ("Effective Date NOLs"). Due
to discharge of indebtedness income relating to the restructuring, these NOLs
were reduced by $214 million. Pursuant to Section 382 of the Internal Revenue
Code (IRC), due to the change in control of the Company as described in Note
1, the Company will be limited in its use of the NOLs which existed on the
Effective Date. The Company will be able to use Effective Date NOLs to the
extent of approximately $8 million per year in each of the 15 years subsequent
to the Effective Date. In addition, the Company will be able to use Effective
Date NOLs to the extent that built-in gains (excess of fair market value over
tax basis at October 8, 1992) are recognized on asset sales which occur
through October 8, 1997. Accordingly, at October 8, 1992 the financial
statements reflect the benefit of the expected use of $120 million of
Effective Date NOLs. As the likelihood is low that the Company will be able to
recognize a significant portion of the remaining Effective Date NOLs, the
accompanying financial statements and tables of deferred tax items below do
not recognize any benefits related to the remaining Effective Date NOLs,
except to the extent realized. To the extent any additional tax benefits from
these Effective Date NOLs are recognized, there will be a reduction to the
reorganization value in excess of amounts allocable to identifiable assets
recorded at October 8, 1992. During the years ended September 30, 1994, 1995
and 1996, the Company recognized the benefit of Effective Date tax attributes
which were recorded as reductions to the reorganization value in excess of
amounts allocable to identifiable assets of $2,764,000, $278,000 and $814,000,
respectively. At September 30, 1996, the Company has total federal NOL
carryforwards of approximately $353 million for income tax purposes that
expire in the years 2002 through 2008, $49 million of which are not subject to
any Section 382 limitation.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of September 30, 1995 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
--------------------------- ---------------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------------- ------------- ------------- -------------
ASSETS ASSETS ASSETS ASSETS
(LIABILITIES) (LIABILITIES) (LIABILITIES) (LIABILITIES)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed assets........... $ -- $(41,578) $ $(35,916)
Interest on notes...... 216 1,822 211 773
Intangible assets...... -- (21,516) (19,928)
Deferred compensation.. 124 270 3,018 63
NOL carryover.......... 7,182 49,881 10,549 35,807
Valuation allowance.... -- (19,535) (22,544)
Minimum tax credit..... -- 595 1,208
All other.............. 1,978 761 3,422 1,037
------ -------- ------- --------
Net total............ $9,500 $(29,300) $17,200 $(39,500)
====== ======== ======= ========
</TABLE>
F-15
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the provision for income taxes from continuing
operations are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal........................... $ 447 $ 621 $1,502
State............................. 235 354 221
------ ------ ------
Total current................... 682 975 1,723
Deferred:
Federal........................... 347 2,066 2,065
State............................. 928 834 435
------ ------ ------
Total deferred.................. 1,275 2,900 2,500
------ ------ ------
$1,957 $3,875 $4,223
====== ====== ======
A reconciliation of the income tax provision from continuing operations and
the amount computed by applying the U.S. federal statutory income tax rate to
income from continuing operations before income taxes is as follows (in
thousands):
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
At U.S. federal income tax rate..... $ 951 $2,505 $3,135
State income tax, net of federal
benefit............................ 270 714 426
Excess reorganization value amorti-
zation............................. 754 727 773
Other............................... (18) (71) (111)
------ ------ ------
$1,957 $3,875 $4,223
====== ====== ======
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company provided administrative and other services to GHTV subsequent to
the Effective Date pursuant to a Reimbursement Agreement between the Company
and GHTV. Under the Reimbursement Agreement, GHTV reimbursed the Company for
all costs incurred directly by the Company on behalf of GHTV, and for its
allocated share of all Company corporate salaries and overhead expenses. In
connection with the sale of a GHTV subsidiary on May 25, 1993, the
Reimbursement Agreement was amended to limit the GHTV reimbursement to the
Company to $250,000 per year. Accordingly, the Company received $250,000 of
expense reimbursements related to the Reimbursement Agreement during the year
ended September 30, 1994. As a result of the repurchase by the Company of the
stock of GHTV (see Note 1), the Reimbursement Agreement was no longer in
effect subsequent to September 30, 1994. During that year, the Company
received an additional $760,000 from GHTV for its allocation of the costs of
participating in certain of the Company's fringe benefit plans and in sharing
the cost of master policies for business insurance coverage.
Packerland utilized related companies for repair, maintenance and leasing of
transportation equipment. Services totaling $881,000 were purchased from
related parties during the year ended September 30, 1994. As a result of the
sale of Packerland on August 31, 1994 (see Note 3), these costs were no longer
incurred subsequent to that date.
F-16
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Corporate expense for each of the years end September 30, 1994, 1995 and
1996 includes an annual fee of $500,000 for management services provided by an
affiliate of the majority holder of the Company's Common Stock. This fee is
generally settled partially through use of the Company's facilities and
partially in cash. At September 30, 1996, the Company's liability with respect
to this arrangement was $319,000.
The Game Creek Club (the "Club") is a private club located at the top of
Vail Mountain which began operations during fiscal 1996. Club members have
luncheon privileges at the Club's facilities during the ski season. The
Company operates the Club under an agreement which requires the Club to
reimburse the Company for any operating losses sustained on the Club's
operations. At September 30, 1996, the Club owed the Company $1.0 million
pursuant to this agreement.
Vail Associates has effective control of the Beaver Creek Resort Company
(Resort Company), a non-profit entity formed for the benefit of property
owners in Beaver Creek. As of December 31, 1995, Vail Associates relinquished
its right to appoint certain directors, however, as of September 30, 1996,
Vail Associates still controls the Board. Vail Associates has a management
agreement with the Resort Company, renewable for one-year periods, to provide
management services on a fixed fee basis without any profit. In accordance
with a cash flow agreement which is effective through 2000, Vail Associates
will fund the cash needs of the Resort Company that are not otherwise met
through the Resort Company's operations or borrowings. During fiscal years
1991 through 1996, the Resort Company was able to meet its operating
requirements through its own operations. Management fees paid to the Company
under its agreement with the Resort Company during fiscal years 1994, 1995 and
1996 totaled $5.8 million, $7.0 million and $5.5 million, respectively.
Related amounts due the Company at September 30, 1995 and 1996 were $34,000
and $599,000, respectively.
In 1991, the Company loaned to Andrew P. Daly, the Company's President,
$300,000, $150,000 of which bears interest at 9% and the remainder of which is
non-interest bearing. The principal sum plus accrued interest is due no later
than one year following the termination, for any reason, of Mr. Daly's
employment with the Company. The proceeds of the loan were used to finance the
purchase and improvement of real property. The loan is secured by a deed of
trust on such property.
In 1995, Mr. Daly's spouse and James P. Thompson, President of VAREG, and
his spouse received financial terms more favorable than those available to the
general public in connection with their purchase of lots in the Bachelor Gulch
development. Rather than payment of an earnest money deposit with the entire
balance due in cash at closing, these contracts provide for no earnest money
deposit with the entire purchase price (which was below fair market value)
paid under promissory notes of $438,750 and $350,000 for Mr. Daly's spouse and
Mr. and Mrs. Thompson, respectively, each secured by a first deed of trust and
amortized over 25 years at 8% per annum interest, with a balloon payment due
on the earlier of five years from the date of closing or one year from the
date employment with the Company is terminated. The promissory notes will be
executed upon the closings of the lot sales which are expected to occur in
December 1996.
10. COMMITMENTS AND CONTINGENCIES
As of September 30, 1996, the Company had entered into real estate contracts
for the sale of certain real estate and related amenities for gross proceeds
of approximately $106.9 million. The Company estimates that subsequent to
September 30, 1996, it will incur additional selling, holding and
infrastructure costs of $24.5 million in connection with the sale of the
properties subject to those contracts. In addition, the Company expects that
subsequent to September 30, 1996 it will make mountain improvements of $17.2
million (a portion of which will be completed in connection with the sale of
the properties subject to the real estate contracts), which will consist
primarily of a high speed quad chairlift, base area improvements and
snowmaking and will benefit the properties subject to the real estate
contracts as well as the Company's remaining real estate holdings
F-17
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in Bachelor Gulch Village and Arrowhead. The Company has entered into
repurchase agreements with certain developers who have purchased real estate
from the Company to repurchase certain retail and residential space in the
completed developments. At September 30, 1996, the Company has agreed to
repurchase various retail and residential space for amounts totaling $10.9
million.
On September 25, 1996, the Company declared a right to receive up to $2.44
per share of Common Stock (the "Rights") to all stockholders of record on
October 11, 1996, with a maximum aggregate amount payable under the Rights of
$50.5 million. The Company will make payments under the Rights only to the
extent it receives sufficient gross proceeds under the real estate contracts
referred to above to make such payments. The Company currently estimates
payments under the Rights will be made in January and June 1997. Stockholders
who purchase shares in the Company's anticipated Offering will not be entitled
to any payments with respect to the Rights. In addition, the Company amended
certain option agreements held by management of the Company to eliminate the
right of option holders to receive any portion of the payments made under the
Rights. In connection with such amendment, the Company accrued a payable to
option holders of approximately $4.5 million. The related expense is included
in corporate expense in the consolidated statement of operations for the year
ended September 30, 1996.
On July 9, 1996, the Company entered into a Standby Bond Purchase Agreement
which could obligate the Company to purchase $10.1 million of Eagle Country
Air Terminal Corporation Revenue Bonds if certain events occur. The Company
entered into this agreement to facilitate construction of a new terminal to
allow expanded air service to the Eagle County Airport.
In June 1995, Vail Associates entered into an agreement with Cordillera
Valley Club Investors Limited Partnership and Stag Gulch Partners to purchase
100 Cordillera Club memberships for resale to purchasers of residential lots.
The obligation to purchase memberships is secured by a $2.2 million letter of
credit. As of September 30, 1996, Vail Associates has paid $2.6 million in
connection with this agreement and has resold memberships with a cost of
$977,500 to purchasers of residential lots.
In March 1995, the Smith Creek Metropolitan District ("SCMD") and the
Bachelor Gulch Metropolitan District ("BGMD") were organized as quasi-
municipal corporations and political subdivisions of the State of Colorado.
The two districts will cooperate in the financing, construction and operation
of basic public infrastructure serving the BGMD. SCMD was organized primarily
to own, operate and maintain water, street, traffic and safety,
transportation, fire protection, emergency medical, parks and recreation,
television relay and translation, sanitation and certain other facilities and
equipment of the BGMD. SCMD is comprised of approximately 150 acres of open
space land owned by the Company and members of the Board of Directors of the
SCMD. The BGMD is located adjacent to the SCMD and covers an area of
approximately 1,250 acres of land in an unincorporated portion of Eagle
County, Colorado between the Beaver Creek and Arrowhead ski mountains. All of
the land in the BGMD has received final approval by Eagle County for
development as two planned unit developments including various single family,
two-family, cluster home and townhouse units and related uses. All of the land
in the BGMD is currently owned by the Company. The Company has contracted to
sell 94 single family lots, the closings of which are scheduled for December
1996 and May 1997. The Company is currently preparing to offer additional land
for sale to persons, including builders, who may construct up to 600 units of
various multi-family dwelling types over the next several years. Of the $50
million of letter of credit availability under the Company's Credit Facilities
(see Note 5), approximately $45 million will ultimately be used to credit
enhance the SCMD revenue bonds in order to secure the timely payment of
principal and interest on the bonds. Currently, SCMD has issued $26 million of
revenue bonds which have been credit enhanced with a $27.6 million letter of
credit issued under the Credit Agreement. The SCMD bonds are variable rate
bonds which mature on October 1, 2035. It is anticipated that as the Bachelor
Gulch community expands, the BGMD will begin to become self supporting and
that within 25 to 30 years will issue general obligation bonds, the
F-18
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
proceeds of which will be used to retire the SCMD revenue bonds. Until that
time, the Company has agreed to subsidize the interest payments on the SCMD
revenue bonds. During fiscal 1996, the subsidy totaled $505,000. The Company
estimates that the aggregate undiscounted future interest subsidy until the
revenue bonds are retired will approximate $40.1 million. The accompanying
consolidated financial statements do not reflect this obligation.
Under the Stock Purchase Agreement dated August 31, 1994 for the sale of
Packerland, the Company has agreed to indemnify the purchasers of Packerland
for payments made to settle environmental claims which existed at the sale
date. A liability of $1.0 million related to these claims was recorded on the
sale date. During fiscal 1996, the liability was increased by $725,000 on the
basis of revised estimates of the maximum potential liability. That amount was
included in other income (expense) in the consolidated financial statements.
Under the indemnification provisions of the Stock Purchase Agreement, the
Company is to be reimbursed for any insurance proceeds, any reimbursements
received under various government programs or any recoveries from third
parties for items reimbursable under the Stock Purchase Agreement. Management
is unable to estimate the amounts or likelihood of any potential
reimbursements at this time and, accordingly, the accompanying consolidated
financial statements do not reflect any receivable for such reimbursements.
As of the Effective Date, the Company's consolidated balance sheet included
as a long-term liability an estimated potential obligation of $3 million
related to a fundraising agreement between the Company and Mr. Gillett, and a
medical research foundation located in Vail, Colorado. As of September 30,
1994, the liability had been reduced to $2.1 million on the basis of current
estimates of the Company's maximum potential obligation. During the year ended
September 30, 1995, the Company paid $500,000 related to this agreement. As of
September 30, 1995, the Company believed that it had no further obligation to
the medical research foundation and accordingly, other income (expense) in the
consolidated statement of operations for the year ended September 30, 1995
included related income of $1.6 million. During the year ended September 30,
1996, the Company became aware that the medical research foundation believed
that the Company still had a potential obligation related to this matter. On
the basis of recent discussions between the parties to the agreement, the
Company believes the maximum potential obligation is $1.2 million, the amount
of which is included in accounts payable and accrued expenses in the
consolidated balance sheet at September 30, 1996. A receivable of $600,000
from Mr. Gillett related to his contractual portion of the potential
obligation, is included in other current assets at September 30, 1996. Other
income (expense) for the year ended September 30, 1996 includes expense of
$600,000 related to the Company's portion of the potential obligation.
The Company has executed operating leases for the rental of office space,
employee residential units, office equipment and snowcats though fiscal 2004.
For the years ended September 30, 1996, 1995 and 1994, lease expense related
to these agreements of $3.8 million, $3.8 million and $3.1 million,
respectively, is included in the accompanying consolidated statements of
operations.
Future minimum lease payments under these leases as of September 30, 1996
are as follows:
<TABLE>
<CAPTION>
Due during fiscal year ending September 30:
<S> <C>
1997................................................................ $1,460,395
1998................................................................ 1,030,937
1999................................................................ 1,246,546
2000................................................................ 1,110,696
2001................................................................ 1,029,000
Thereafter.......................................................... 2,486,750
----------
Total............................................................. $8,364,324
==========
</TABLE>
F-19
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. BUSINESS SEGMENTS
As a result of the sale of Packerland on August 31, 1994 (see Note 3) and
the sale of the remaining GHTV subsidiaries on September 23, 1994 (see Note
3), the Company now operates only in the Resorts and Real Estate segments.
Segment information presented below excludes the Communications and Beef
Products segments as their results were reported as discontinued during fiscal
1994 and they had no operations subsequent to fiscal 1994. Data by segment is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues:
Resorts............................. $124,982 $126,349 $140,288
Real Estate......................... 22,203 16,526 48,655
-------- -------- --------
$147,185 $142,875 $188,943
======== ======== ========
Income from operations:
Resorts............................. $ 29,431 $ 26,076 $ 32,250
Real Estate......................... 1,862 1,543 7,854
Corporate........................... (7,160) (6,701) (12,698)
-------- -------- --------
$ 24,133 $ 20,918 $ 27,406
======== ======== ========
Depreciation and amortization:
Resorts............................. $ 17,186 $ 17,968 $ 18,148
Real Estate......................... -- -- --
-------- -------- --------
$ 17,186 $ 17,968 $ 18,148
======== ======== ========
Capital expenditures:
Resorts............................. $ 17,414 $ 20,320 $ 13,912
Real Estate......................... 22,686 22,477 40,604
-------- -------- --------
$ 40,100 $ 42,797 $ 54,516
======== ======== ========
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C> <C>
Identifiable assets:
Resorts............................. $205,151 $192,669
Real Estate......................... 54,858 88,665
-------- --------
$260,009 $281,334
======== ========
</TABLE>
12. STOCK GRANTS, OPTIONS AND WARRANTS
Pursuant to an employment agreement as of the Effective Date, Mr. Gillett
earned as additional performance-based compensation over the three year period
ending on the third anniversary of the Effective Date, (i) 714,976 shares of
Common Stock and (ii) warrants with an exercise price of $6.85 per share for
an additional 408,164 shares of Common Stock. In addition, on the third
anniversary of the Effective Date, Mr. Gillett earned as additional
performance-based compensation long-term stock options with an exercise price
of $11.84 per share, as of October 8, 1995, increasing 20% per year for
1,164,808 shares of Common Stock. These shares of Common Stock, warrants and
long-term stock options have all been issued to Mr. Gillett.
Effective September 30, 1996, Mr. Gillett resigned as Chairman of the Board,
Chief Executive Officer, President and Director of the Company. Pursuant to
the terms of an agreement dated October 11, 1996 between Mr. Gillett and the
Company (the "Gillett Agreement"), Mr. Gillett (i) will receive his base
salary (currently $1.7 million per annum) through October 7, 1997, (ii)
exchanged the 1,164,808 long-term stock options for 336,318 shares of Common
Stock and (iii) waived his right to the Distribution with respect to his
714,976 shares
F-20
<PAGE>
VAIL RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Common Stock and his warrants to purchase 408,164 shares of Common Stock in
exchange for the payment of the exercise price on those warrants. In addition,
the Company has agreed to pay Mr. Gillett's office expenses through December
31, 1996. Corporate expense for the fiscal year ended September 30, 1996
includes $2.1 million related to the base salary and office expenses of Mr.
Gillett payable under the Gillett Agreement and $1.9 million in compensation
expense related to Mr. Gillett's exchange of his long-term stock options.
The Company has adopted a stock option plan pursuant to which options
covering an aggregate of 2,045,510 shares of Common Stock may be issued to key
employees, directors, consultants, and advisors of the Company or its
subsidiaries. As of September 30, 1996, options covering 1,833,300 shares of
Common Stock have been issued to various key executives of the Company. All of
the options vest in equal installments over five years, with exercise prices
ranging from $6.85 per share to $10.75 per share. As of September 30, 1996,
807,228 of these options were exercisable. None of the options issued under
the stock option plan have been exercised. Under certain circumstances, the
option plan provides for loans by the Company to employees, collateralized by
such employees' vested options.
In July 1996, the Company's Board of Directors approved a new stock option
plan ("New Option Plan") under which 1,500,000 shares of Common Stock have
been reserved for various stock and option awards.
Effective July 29, 1996, the Company hired Adam Aron as Chairman and Chief
Executive Officer. Pursuant to the terms of an employment agreement,
approximately 37,500 shares of restricted stock and options to purchase
260,000 shares of Common Stock for $20.00 per share (subject to adjustment in
certain circumstances) will be granted to Mr. Aron under the New Option Plan.
The restricted shares and the options vest in equal increments over five
years. Effective October 28, 1996, the Company hired James P. Donohue as
Senior Vice President and Chief Financial Officer. Pursuant to the terms of an
employment agreement with Mr. Donohue, approximately 12,000 shares of
restricted stock and options to purchase 60,000 shares of Common Stock for
$20.00 per share (subject to adjustment in certain circumstances) will be
granted to Mr. Donohue under the New Option Plan. The restricted shares and
the options vest in equal increments over three years. On September 30, 1996,
the Company awarded 12,500 shares of restricted stock and options to purchase
100,000 shares of Common Stock for $20.00 per share (subject to adjustment in
certain circumstances) to Andrew P. Daly, the Company's President, under the
New Option Plan. The restricted shares and the options vest in equal
increments over five years. Compensation expense related to these restricted
stock awards will be charged ratably over the respective vesting periods.
13. CAPITAL STOCK
On June 3, 1996, the Company's Board of Directors changed the name of the
Company from Gillett Holdings, Inc. to Vail Resorts, Inc. and the name of the
Company's Common Stock from Class 1 and Class 2 to Class A Common Stock and
Common Stock, respectively. The authorized common stock was increased to
20,000,000 shares of Class A Common Stock and 40,000,000 shares of Common
Stock. The Company's Board of Directors also authorized a Common Stock and
Class A Common Stock split of up to 3 for 1 prior to the date of any public
stock offering.
The rights of holders of Class A Common Stock and Common Stock are
substantially identical, except that, while any Class A Common Stock is
outstanding, holders of Class A Common Stock elect a class of directors that
constitutes two-thirds of the Board and holders of Common Stock elect another
class of directors constituting one-third of the Board. The Class A Common
Stock is convertible into Common Stock (i) at the option of the holder, (ii)
automatically, upon transfer to a non-affiliate and (iii) automatically if
less than 5,000,000 shares (as such number shall be adjusted by reason of any
stock split, reclassification or other similar transaction) of Class A Common
Stock are outstanding. The Common Stock is not convertible. Each outstanding
share of Common Stock and Class A Common Stock is entitled to vote on all
matters submitted to a vote of stockholders.
14. EVENT SUBSEQUENT TO DATE OF AUDITORS REPORT
In January 1997, the Company declared a 2 for 1 stock split on the Class A
Common Stock and Common Stock and increased the authorized Common Stock to
80,000,000 shares. All share and per share amounts in the accompanying
consolidated financial statements have been adjusted to reflect this stock
split.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Ralston Resorts, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in stockholder's equity and
cash flows present fairly, in all material respects, the financial position of
Ralston Resorts, Inc. and its subsidiaries at September 30, 1995 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, 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.
As discussed in Note 1 to the consolidated financial statements, the Company
and its parent have entered into an agreement to sell the Company.
Price Waterhouse LLP
Denver, Colorado
October 31, 1996
F-22
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 813 $ 1,274
Accounts receivable, net................................... 5,359 6,325
Inventories................................................ 2,685 3,820
Deferred income taxes...................................... 157 111
Prepaid expenses........................................... 304 680
-------- --------
Total current assets..................................... 9,318 12,210
Property and equipment, net.................................. 128,662 131,000
Goodwill and intangibles, net................................ 37,929 36,177
Land held for development.................................... 27,684 28,788
Investments in joint ventures................................ 22,325 22,564
Other noncurrent assets...................................... 322 271
-------- --------
Total assets............................................. $226,240 $231,010
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................... $ 8,454 $ 11,535
Accrued expenses........................................... 5,950 5,912
Line of credit............................................. -- 140,032
Current portion of long-term debt.......................... 1,757 1,774
-------- --------
Total current liabilities................................ 16,161 159,253
Long-term debt............................................... 128,296 26,522
Deferred income taxes........................................ 12,473 12,294
Other noncurrent liabilities................................. 2,277 1,998
-------- --------
Total liabilities........................................ 159,207 200,067
Commitments and contingencies (Note 14)
Stockholder's Equity:
Common stock, stated value of $10 per share,
100 shares authorized, issued and outstanding............... 1 1
Additional paid-in capital................................... 59,986 16,024
Retained earnings............................................ 7,046 14,918
-------- --------
Total stockholder's equity............................... 67,033 30,943
-------- --------
Total liabilities and stockholder's equity............... $226,240 $231,010
======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-23
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Resort........................................ $127,676 $125,816 $135,750
Real Estate................................... 4,979 1,778 914
-------- -------- --------
132,655 127,594 136,664
Resort operating expenses....................... (77,404) (77,600) (79,441)
Real estate operating expenses and cost of
sales.......................................... (3,837) (1,040) --
Selling, general and administrative expenses.... (16,978) (17,246) (18,547)
Depreciation.................................... (12,114) (12,824) (13,544)
Amortization.................................... (2,113) (2,124) (2,236)
-------- -------- --------
Earnings before interest and taxes.............. 20,209 16,760 22,896
Interest expense................................ (5,087) (9,686) (9,200)
-------- -------- --------
Income before income taxes...................... 15,122 7,074 13,696
Income taxes.................................... (6,199) (3,147) (5,824)
-------- -------- --------
Net income...................................... $ 8,923 $ 3,927 $ 7,872
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-24
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at September 30, 1993............. $ 1 $136,542 $ 41,934 $178,477
Net income................................ 8,923 8,923
Dividends to Parent....................... (47,738) (47,738)
Net transactions with Parent.............. (67,875) (67,875)
--- -------- -------- --------
Balance at September 30, 1994............. 1 68,667 3,119 71,787
Net income................................ 3,927 3,927
Net transactions with Parent.............. (8,681) (8,681)
--- -------- -------- --------
Balance at September 30, 1995............. 1 59,986 7,046 67,033
Net income................................ 7,872 7,872
Net transactions with Parent.............. (43,962) (43,962)
--- -------- -------- --------
Balance at September 30, 1996............. $ 1 $ 16,024 $ 14,918 $ 30,943
=== ======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-25
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 8,923 $ 3,927 $ 7,872
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 12,114 12,824 13,544
Amortization.................................. 2,113 2,124 2,236
Equity in earnings of joint ventures.......... (36) (217) (914)
Deferred income taxes......................... 1,559 935 (133)
Changes in assets and liabilities used in op-
erations
Increase in accounts receivable............. (846) (1,546) (966)
Increase in inventories..................... (280) (1) (1,135)
Decrease (increase) in prepaid expenses..... 918 98 (376)
Decrease (increase) in land held for devel-
opment..................................... (2,712) 2,090 (1,104)
Increase (decrease) in accounts payable..... 1,296 (1,178) 3,081
Increase (decrease) in accrued expenses..... (414) 216 (38)
Other, net.................................. 807 (1,730) 554
-------- -------- ---------
Net cash provided by operating activi-
ties..................................... 23,442 17,542 22,621
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment............ (10,396) (11,011) (17,761)
Distributions from (investments in) joint ven-
tures, net.................................... (1,681) (550) 675
Additions to goodwill and intangibles.......... (83) (358) (484)
-------- -------- ---------
Net cash used by investing activities..... (12,160) (11,919) (17,570)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt........... (227) (242) (100,257)
Line of credit................................. -- -- 140,032
Net transactions with Parent................... (12,848) (5,788) (44,365)
-------- -------- ---------
Net cash used by financing activities..... (13,075) (6,030) (4,590)
Net increase (decrease) in cash and cash equiv-
alents........................................ (1,793) (407) 461
Cash and cash equivalents, beginning of year... 3,013 1,220 813
-------- -------- ---------
Cash and cash equivalents, end of year......... $ 1,220 $ 813 $ 1,274
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid.................................. $ 173 $ 158 $ 143
NON-CASH TRANSACTIONS
Allocation of debt from Parent................. 100,000
Land contributed to joint venture with
Intrawest..................................... 17,509
Noncash investments in joint ventures.......... 1,946
Transfer of land from Parent................... 1,065
Noncash dividend to Parent..................... 47,738
Debt payments made by Parent................... 1,500
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-26
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
General
Ralston Resorts, Inc. (the "Company") is a wholly owned subsidiary of
Ralston Foods, Inc. ("Ralston Foods"). Ralston Foods is in turn a wholly owned
subsidiary of Ralcorp Holdings, Inc. ("Ralcorp"), which is a publicly held
company that was spun-off from Ralston Purina Company on March 31, 1994.
Ralston Foods and Ralcorp are collectively referred to as the "Parent".
The Company operates the Keystone Resort lodging and food and beverage
operations and the Keystone, Breckenridge and Arapahoe Basin ski areas. All of
the Company's operations are located in Colorado. The Company's revenue is
earned primarily in December through March.
On July 22, 1996, the Company and Ralston Foods entered into a stock
purchase agreement with Vail Resorts, Inc. The agreement calls for Vail
Resorts, Inc. to acquire all issued and outstanding shares of the Company's
stock upon the closing date of the agreement in return for approximately
7,554,000 shares of Vail Resorts, Inc. common stock. Vail Resorts, Inc. will
also assume debt of up to $165,000,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Investments in joint ventures
are accounted for under the equity method. All significant intercompany
transactions have been eliminated.
Allocation of Common Costs
Certain common costs, such as the salaries for certain corporate officers,
accounting costs and legal fees are allocated to the Company based upon the
Parent's estimate of time incurred specifically related to the Company's
activities. Management believes that these allocations are reasonable.
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, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be
cash equivalents.
Property and Equipment
Property and equipment is stated at cost including certain internal costs
directly associated with the acquisition and construction of such property and
equipment. Depreciation is computed using the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Machinery, equipment, furniture and fixtures.................. 3-20 years
Ski lifts..................................................... 15 years
Ski trails.................................................... 15-30 years
Buildings..................................................... 30 years
Land improvements............................................. 10-30 years
</TABLE>
Maintenance, repairs and minor renewals are expensed as incurred.
F-27
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories include primarily ski shop items and rentals, food and beverage,
china and silver, and uniforms.
Goodwill and Intangibles
Goodwill and intangible assets are capitalized and amortized using the
straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Goodwill..................................................... 15-25 years
Forest service permits....................................... 37 years
Trademarks................................................... 25 years
Other intangibles............................................ 1-5 years
</TABLE>
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, allocated Ralcorp debt, the line of credit
and Clinton Ditch and Reservoir Company promissory notes approximate their
fair value.
The estimated fair value of the refunding revenue bonds and the National
Australia Bank notes payable as of September 30, 1996 are presented below (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
-------- ---------
<S> <C> <C>
Refunding revenue bonds................................ $23,360 $27,134
National Australia Bank notes payable.................. $ 3,000 $ 3,227
</TABLE>
The fair value of the refunding revenue bonds was estimated by an
independent third party. The fair value of the National Australia Bank notes
payable was estimated by National Australia Bank.
Impairment
The Company regularly evaluates whether events or circumstances have
occurred which might impair the recoverability of the carrying value of its
long-lived assets, goodwill and other intangibles. In making such
determination with respect to goodwill, the Company evaluates its historical
and anticipated operating results, including future undiscounted cash flows.
Management believes that there has been no material impairment of the
Company's goodwill and other intangibles.
Income Taxes
The Company is included in the consolidated income tax returns of Ralcorp.
Taxes have been provided for in the accompanying consolidated financial
statements as if the Company filed its own tax return.
Revenue Recognition
Resort revenue primarily consists of revenue from ski operations, lodging,
food and beverage operations, conference center operations and other
recreational activities and is recognized as services are performed or as
goods are sold. Real estate revenue is recognized when consideration has been
received, title, possession and other attributes of ownership have been
transferred to the buyer and the Company is not obligated to perform
significant additional activities after the sale.
F-28
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Costs
Advertising costs are expensed the first time the advertising takes place.
Advertising expense for the years ended September 30, 1994, 1995 and 1996 was
$4,501,000, $4,571,000 and $5,180,000, respectively.
Earnings Per Share
Due to the proposed acquisition of the Company by Vail Resorts, Inc., the
Company's historical capital structure is not indicative of its prospective
structure upon the closing of the anticipated purchase transaction.
Accordingly, historical net income per common share is not considered
meaningful and has not been presented herein.
Adoption of New Accounting Standard
The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, during fiscal year 1995. The adoption of this standard did
not have a material effect on the Company's consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the accompanying financial
statements to conform to the current year presentation.
3. RECEIVABLES
Receivables and the related allowance for doubtful accounts were as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1995 1996
------ ------
<S> <C> <C>
Trade accounts receivable.................................... $4,353 $6,011
Miscellaneous receivables.................................... 1,064 364
Allowance for doubtful accounts.............................. (58) (50)
------ ------
$5,359 $6,325
====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
Machinery and equipment.................................. $116,853 $120,449
Buildings................................................ 56,101 55,506
Land used in operations.................................. 9,662 9,600
Construction in progress................................. 5,371 16,960
-------- --------
187,987 202,515
Less accumulated depreciation............................ (59,325) (71,515)
-------- --------
$128,662 $131,000
======== ========
</TABLE>
F-29
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. GOODWILL AND INTANGIBLES
Goodwill and intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1995 1996
------- -------
<S> <C> <C>
Goodwill................................................... $36,951 $36,951
Forest service permit...................................... 5,010 5,010
Trademarks and other intangibles........................... 2,993 3,477
------- -------
44,954 45,438
Less accumulated amortization.............................. (7,025) (9,261)
------- -------
$37,929 $36,177
======= =======
</TABLE>
6. LAND HELD FOR DEVELOPMENT
Included in land held for development at September 30, 1995 and 1996, is
approximately $8,900,000 of land subject to an agreement with
Keystone/Intrawest L.L.C., a joint venture of the Company. The agreement with
Keystone/Intrawest L.L.C. calls for the Company to contribute the land to the
joint venture (as a capital contribution) at an agreed upon value of
approximately $11,400,000 prior to June 1, 1999.
7. INVESTMENTS IN JOINT VENTURES
During 1994, the Company formed Keystone/Intrawest L.L.C., which is a joint
venture with Intrawest Resorts, Inc., to develop land at the base of the
Keystone ski area. The Company contributed land and prepaid tap fees with a
historical cost of approximately $18,900,000 for the development as well as
certain other funds to the joint venture. The joint venture intends to build
condominiums, townhomes, single-family homes and commercial shop space
throughout the base of Keystone Mountain using a master development plan over
approximately 20 years.
As real estate development projects are completed, the Company will receive
payments for the related land which it previously contributed to the joint
venture. Losses are allocated first to the partners to the extent of their
capital accounts. Income is first applied to offset prior cumulative allocated
losses with subsequent income shared 50/50. The investment in this joint
venture is accounted for under the equity method.
Condensed unaudited financial information for Keystone/Intrawest L.L.C.
follows (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED SEPTEMBER 30,
---------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Assets........................................... $ 26,840 $ 48,417 $ 63,188
Liabilities...................................... 670 12,153 33,959
Partners' equity................................. 26,170 36,264 29,229
Gross revenues................................... 381 1,570 27,082
Gross profit..................................... 204 599 1,927
Net income (loss)................................ 64 (147) 1,474
</TABLE>
Starfire Mountain Homes is a joint venture (in the form of a general
partnership) with Focus Keystone I, Ltd. to construct certain condominiums
near the base of Keystone Mountain. The development was completed during
fiscal 1996, with management of the condominiums turned over to the Company.
The Company receives 20% of the income or loss of the joint venture and
accounts for the investment under the equity method.
F-30
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1995 1996
------ ------
<S> <C> <C>
Property and use taxes........................................ $3,198 $3,975
Payroll and payroll related liabilities....................... 2,578 1,765
Interest payable.............................................. 174 172
------ ------
$5,950 $5,912
====== ======
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1996
-------- -------
<S> <C> <C>
Allocated Ralcorp debt.................................. $100,000 $ --
Bank of New York, trustee for refunding revenue bonds,
7.125% to 7.875%, maturing September 1998 to 2010,
secured by certain assets of the Company............... 23,360 23,360
National Australia Bank, notes payable, 10.85% to
11.15%, maturing September 1997-1998, secured by
certain assets of the Company.......................... 4,500 3,000
Clinton Ditch and Reservoir Company, a related party,
promissory notes, 6.5%, due in annual installments
through August 13, 2002................................ 2,193 1,936
-------- -------
130,053 28,296
Less current portion.................................... (1,757) (1,774)
-------- -------
$128,296 $26,522
======== =======
</TABLE>
The Ralcorp debt represents a Ralcorp revolving credit facility, a portion
of which has been allocated by Ralcorp to the Company. The Ralcorp revolving
credit facility bears interest at a LIBOR related rate. The original maturity
of the debt was in 1999. In March 1996, the maturity date was extended to
March 12, 2001. On September 30, 1996, the Ralcorp debt was replaced by a line
of credit. See Note 10. Amounts owed under the revolving credit facility are
guaranteed, on a joint and several basis, by certain Ralcorp subsidiaries,
including the Company.
Interest expense on the revolving credit facility has been allocated to the
Company in the amounts of $2,700,000, $7,100,000 and $6,700,000 for fiscal
1994, 1995 and 1996, respectively, based on Ralcorp's average interest rate
and the Company's allocated debt.
Future payments due on long-term debt as of September 30, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL
YEARS
------
<S> <C>
1997........................ $ 1,774
1998........................ 3,152
1999........................ 311
2000........................ 331
2001........................ 353
Thereafter.................. 22,375
-------
$28,296
=======
</TABLE>
F-31
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LINE OF CREDIT
At September 30, 1996, the Ralcorp debt was replaced by a bank line of
credit in contemplation of the acquisition of the Company by Vail Resorts,
Inc. The line of credit was established by Ralcorp on behalf of the Company
with Boatmen's Bank and bore interest at 8.25% on September 30, 1996,
switching to a LIBOR related rate on October 2, 1996. The line of credit is
renewable weekly with a final maturity at January 28, 1997. The line of credit
is guaranteed by Ralcorp.
11. RELATED PARTY TRANSACTIONS
Net Transactions with Parent included in the Statement of Changes in
Stockholder's Equity represents the net transactions with the Parent related
to payroll, employee benefits, insurance premiums and claims, interest, taxes,
general corporate overhead and participation in Ralcorp's cash management
program. The Company and the Parent do not intend to settle these intercompany
amounts and, therefore, they are reflected as part of the permanent equity of
the Company.
Net transactions with Parent consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash transfers................................. $ 42,335 $ 34,377 $ 35,387
Debt and interest allocations.................. 46,797 (8,274) 28,772
Payroll and employee benefits.................. (14,187) (14,869) (14,830)
Income taxes................................... (6,199) (3,147) (5,824)
Asset transfers................................ (1,624) -- 265
Allocated overhead............................. (791) (373) (937)
Pensions....................................... 321 345 381
Other.......................................... 1,223 622 748
-------- -------- --------
$ 67,875 $ 8,681 $ 43,962
======== ======== ========
</TABLE>
12. SELF-INSURANCE PLANS
The Company has a self-insurance plan for employee health benefits. The
health insurance plan covers all employees who elect enrollment once
eligibility requirements have been met and contains a stop-loss provision to
limit the Company's liability to $75,000 per employee. The liability for
employee health benefits was $380,000 and $402,000 at September 30, 1995 and
1996, respectively.
The Company also has a self-insurance plan for workers' compensation
approved by the State of Colorado Department of Labor. The Company has a
$500,000 retention limit and a $1,600,000 bond to guarantee payment of
workers' compensation claims. The liability for workers' compensation was
$1,573,000 and $1,272,000 at September 30, 1995 and 1996, respectively.
The Company has a self-insurance retention limit of $500,000 per occurrence
and $2,000,000 in the aggregate for general liability insurance prior to an
outside insurance company's coverage. The accrual for general liability
insurance was $324,000 at September 30, 1995 and 1996.
F-32
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES
The Company is included in the consolidated income tax return of Ralcorp.
Income taxes have been allocated to the Company as if it were filing a stand-
alone return. The components of the provision for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current tax provision
Federal........................................... $ 3,962 $ 1,880 $ 5,188
State............................................. 678 332 769
-------- -------- --------
4,640 2,212 5,957
-------- -------- --------
Deferred tax provision (benefit)
Federal........................................... 1,426 855 (122)
State............................................. 133 80 (11)
-------- -------- --------
1,559 935 (133)
-------- -------- --------
Total tax provision............................. $ 6,199 $ 3,147 $ 5,824
======== ======== ========
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
and the Company's effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit...... 3.3% 3.3% 3.3%
Nondeductible intangible amortization............... 2.1% 4.5% 2.3%
Nondeductible portion of meals and entertainment.... .5% 1.3% 1.6%
Other............................................... .1% .4% .3%
-------- -------- --------
Effective income tax rate........................... 41.0% 44.5% 42.5%
======== ======== ========
</TABLE>
F-33
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of gross deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------------
1995 1996 1995 1996
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Current:
Doubtful accounts.............. $ 22 $ 21 $ -- $ --
Start-up costs................. 85 81 -- --
Receivable..................... -- -- 50 80
Vacation accrual............... 80 89 -- --
Accrued expenses............... 20 -- -- --
--------- --------- ------------ ------------
207 191 50 80
--------- --------- ------------ ------------
Noncurrent:
Fixed assets basis
differences................... -- -- 13,099 12,924
Intangible assets.............. -- -- 576 869
Accrued pension................ 144 548 -- --
Insurance and other accruals... 1,058 951 -- --
--------- --------- ------------ ------------
1,202 1,499 13,675 13,793
--------- --------- ------------ ------------
Total deferred taxes......... $ 1,409 $ 1,690 $ 13,725 $ 13,873
========= ========= ============ ============
</TABLE>
14. RETIREMENT PLANS
Ralcorp sponsors a noncontributory defined benefit pension plan which covers
certain Company employees. The plan provides retirement benefits based on
years of service and final-average or career-average earnings. It is the
practice of Ralcorp to fund pension liabilities in accordance with the minimum
and maximum limits imposed by the Employee Retirement Income Security Act of
1974 and federal income tax laws. Plan assets consist primarily of investments
in a commingled employee benefit trust consisting of marketable equity
securities, corporate and government debt securities and real estate.
The Company's share of the components of net pension cost include the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)........................................ $ 382 $ 412 $ 445
Interest cost on projected benefit obligation... 228 232 240
Return on plan assets........................... (280) (286) (295)
Net amortization and deferral................... (9) (13) (9)
-------- -------- --------
Net pension cost.............................. $ 321 $ 345 $ 381
======== ======== ========
</TABLE>
F-34
<PAGE>
RALSTON RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents the Company's portion of the funded status of
the Ralcorp defined benefit plan and amounts recognized in the Company's
balance sheet at September 30, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1995 1996
------- -------
<S> <C> <C>
Actuarial present value of:
Vested benefits......................................... $(1,530) $(1,848)
Nonvested benefits...................................... (521) (629)
------- -------
Accumulated benefit obligation.......................... (2,051) (2,477)
Effect of projected future salary increases............. (1,242) (1,501)
------- -------
Projected benefit obligation............................ (3,293) (3,978)
Plan assets at fair value................................. 3,519 4,308
------- -------
Plan assets in excess of projected benefit obligation..... 226 330
Unrecognized net gain................................... (888) (1,348)
Unrecognized prior service cost......................... 12 9
Unrecognized net asset at transition.................... (81) (70)
------- -------
Accrued pension cost...................................... $ (731) $(1,079)
======= =======
</TABLE>
The key actuarial assumptions used in determining net pension cost and the
projected benefit obligation were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Discount rate........................................... 7.875% 7.875% 7.625%
Rate of future compensation increases................... 5.500% 5.500% 5.250%
Long-term rate of return on plan assets................. 9.500% 9.500% 9.500%
</TABLE>
The Company also has a 401(k) plan for its employees and certain employees
participate in the Ralcorp plan. Matching contributions totaled $577,000,
$604,000 and $678,000 for the years ended September 30, 1994, 1995 and 1996,
respectively.
15. COMMITMENTS AND CONTINGENCIES
The Company has aggregate future minimum lease payments under noncancelable
operating leases having an initial or remaining term of more than one year as
of September 30, 1996 as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL
YEARS
------
<S> <C>
1997......................... $1,948
1998......................... 1,780
1999......................... 1,533
2000......................... 1,084
2001......................... 1,022
</TABLE>
The Company is involved in various routine legal proceedings incidental to
the conduct of its normal business operations. The Company's management
believes that none of these legal proceedings will have a material adverse
impact on the financial condition, results of operations, or liquidity of the
Company.
F-35
<PAGE>
[RECREATIONAL PHOTOGRAPH TO BE INCLUDED ON BACK COVER PAGE]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 8, 1997
PROSPECTUS
10,500,000 SHARES
VAIL RESORTS, INC.
LOGO
COMMON STOCK
Of the 10,500,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby, 5,000,000 shares will be sold by Vail Resorts,
Inc. (the "Company") and 5,500,000 shares will be sold by certain Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
A total of 2,100,000 shares (the "International Shares") are being offered
outside of the United States and Canada (the "International Offering") by the
Managers, and 8,400,000 shares (the "U.S. Shares") are being offered in the
United States and Canada (the "U.S. Offering") by the U.S. Underwriters. The
initial public offering price and the underwriting discounts and commissions
are identical for both the International Offering and the U.S. Offering
(collectively, the "Offerings").
The outstanding capital stock of the Company consists of the Common Stock and
the Class A Common Stock, $.01 par value per share (the "Class A Common
Stock"). The Common Stock and Class A Common Stock are substantially identical,
except that holders of Class A Common Stock elect a class of directors that
constitutes two-thirds of the Board of Directors and holders of Common Stock
elect a class of directors that constitutes one-third of the Board of
Directors. See "Description of Capital Stock."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price will be
between $19.00 and $21.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. Up to
250,000 of the shares (the "Directed Shares") will be reserved for sale at the
initial public offering price (less the underwriting discounts and commissions)
and offered to persons who are directors, officers or employees of, or are
otherwise associated with, the Company. See "Underwriting."
The Common Stock has been approved for listing, subject to official notice of
issuance, on The New York Stock Exchange under the symbol "MTN."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- --------------------------------------------------------------------------------
Total(3)............... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the Managers and
the U.S. Underwriters.
(2) Before deducting expenses payable by the Company, estimated at $ , all of
which will be paid by the Company.
(3) The Selling Stockholders have granted to the Managers and the U.S.
Underwriters 30-day options to purchase in the aggregate up to additional
shares of Common Stock solely to cover over-allotments, if any. If the
options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Selling Stockholders will be
$ , $ and $ , respectively. See "Underwriting." If all of the
Directed Shares are purchased by the persons to whom they are offered, the
total Price to Public, and Underwriting Discounts and Commissions each will
be reduced by $ .
-----------
The International Shares are offered by the several Managers, subject to
prior sale, when, as and if delivered to and accepted by them and subject to
certain conditions, including the approval of certain legal matters by counsel.
The Managers reserve the right to withdraw, cancel or modify the International
Offering and to reject orders in whole or in part. It is expected that delivery
of the International Shares will be made against payment therefor on or
about , 1997, at the offices of Bear, Stearns International Limited, 245 Park
Avenue, New York, New York 10167.
-----------
BEAR, STEARNS INTERNATIONAL LIMITED
FURMAN SELZ
GOLDMAN SACHS INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
SCHRODERS
SMITH BARNEY INC.
, 1997
<PAGE>
[PHOTOGRAPHS DEPICTING VAIL RESORTS, INC. SKI AREAS]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the sale
of Common Stock being registered (all amounts are estimated except the SEC
registration fee, the NASD filing fee and the New York Stock Exchange listing
fee). The Company will bear all expenses incurred in connection with the sale
of the Common Stock being registered hereby.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $63,636
NASD Filing Fee..................................................... 15,500
New York Stock Exchange Listing Fee................................. *
Printing............................................................ *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Blue Sky Fees and Expenses.......................................... *
Stock Certificates and Transfer Agent Fees.......................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act").
The Company's Restated Certificate of Incorporation (the "Certificate")
provides that to the fullest extent permitted by Delaware Law or other
applicable law, a director of the Company shall not be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Under current Delaware Law, liability of a director may not be
limited (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provision of the Certificate is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or rescission in the event of a
breach of a director's duty of care. In addition, the Company's Restated
Bylaws (the "Bylaws") provide that the Company shall indemnify its directors,
officers and employees to the fullest extent permitted by applicable law.
The Bylaws provide that the Company may indemnify any person who is or was
involved in any manner or is threatened to be made so involved in any
threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including any action suit or proceeding by or in the right of the registrant
to procure a judgment in its town), by reason of the fact that he is or was or
had agreed to become a director, officer or employee of the registrant or is
or was or had agreed to become at the request of the board or an officer of
the registrant a director, officer or employee of another corporation,
partnership, joint venture, trust or other entity against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
Proceeding.
II-1
<PAGE>
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company.**
3.2 Restated By-Laws of the Company.**
*5.1 Opinion of Cahill Gordon & Reindel as to the legality of the Common
Stock.
10.1 Management Agreement by and between Beaver Creek Resort Company of
Colorado and Vail Associates, Inc. (Incorporated by reference to
Exhibit 10.1 of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including all amendments
thereto).
10.2 Forest Service Term Special Use Permit for Beaver Creek ski area.
(Incorporated by reference to Exhibit 10.2 of the Registration
Statement on Form S-4 of Gillett Holdings, Inc. (Registration No. 33-
52854) including all amendments thereto).
10.3 Forest Service Special Use Permit for Beaver Creek ski area.
(Incorporated by reference to Exhibit 10.3 of the Registration
Statement on Form S-4 Gillett Holdings, Inc. (Registration No. 33-
52854) including all amendments thereto).
10.4 Forest Service unified Permit for Vail ski area. (Incorporated by
reference to Exhibit 10.4 of the Registration Statement on Form S-4
of Gillett Holdings, Inc. (Registration No. 33-52854) including all
amendments thereto).
10.5 Employment Agreement dated October 1, 1996 between the Company and
Andrew P. Daly.
*10.6 Employment Agreement dated [ ] between the Company and James Kent
Myers.
10.7 Joint Liability Agreement by and among Gillett Holdings, Inc. and the
subsidiaries of Gillett Holdings, Inc. (Incorporated by reference to
Exhibit 10.10 of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including all amendments
thereto).
10.8(a) Management Agreement between Gillett Holdings, Inc. and Gillett Group
Management, Inc. dated as of the Effective Date. (Incorporated by
reference to Exhibit 10.11 of the Registration Statement on Form S-4
of Gillett Holdings, Inc. (Registration No. 33-52854) including all
amendments thereto).
10.8(b) Amendment to Management Agreement by and among the Company and its
subsidiaries dated as of November 23, 1993. (Incorporated by
reference to Exhibit 10.12(b) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992 through September
30, 1993).
10.9(a) Tax Sharing Agreement between Gillett Holdings, Inc. dated as of the
Effective Date. (Incorporated by reference to Exhibit 10.12 of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments thereto).
10.9(b) Amendment to Tax Sharing Agreement by and among the Company and its
subsidiaries dated as of November 23, 1993. (Incorporated by
reference to Exhibit 10.13(b) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992 through September
30, 1993).
10.10 Form of Gillett Holdings, Inc. Deferred Compensation Agreement for
certain GHTV employees. (Incorporated by reference to Exhibit
10.13(b) of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-528540) including all amendments
thereto).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11(a) Credit Agreement dated as of March 31, 1995 among The Vail
Corporation, the Banks named therein and NationsBank of Texas, N.A.,
as issuing banks and agent. (Incorporated by reference to Exhibit
10.12(a) of the report on Form 10-Q of Gillett Holdings, Inc. for the
quarterly period ended March 31, 1995).
10.11(b) Second Amended and Restated Credit Agreement dated as of March 31,
1995 among The Vail Corporation, the banks named therein and
NationsBank of Texas, N.A., as issuing banks and agent. (Incorporated
by reference to Exhibit 10.12(b) of the report on Form 10-Q of
Gillett Holdings, Inc. for the quarterly period ended March 31,
1995).
10.11(c) Pledge Agreement dated as of March 31, 1995 among Gillett Holdings,
Inc. and NationsBank of Texas, N.A. as agent. (Incorporated by
reference to Exhibit 10.12(c) of the report on Form 10-Q of Gillett
Holdings, Inc. for the quarterly period ended March 31,1995).
10.11(d) Guaranty dated as of November 23, 1993 by subsidiaries named therein
for the benefit of NationsBank of Texas, NA., as agent. (Incorporated
by reference to Exhibit 10.17(b) of the report on Form 10-K of
Gillett Holdings, Inc. for the period from October 9, 1992 through
September 30, 1993).
10.11(e) Collateral Agency Agreement dated as of November 23, 1993 among Vail
Associates, Inc., The Vail Corporation, Beaver Creek Associates, Inc.
NationsBank of Texas, N.A., as Collateral agent and agent, Colorado
National Bank as Beaver Creek Indenture Trustee and Vail Indenture
Trustee. (Incorporated by reference to Exhibit 10.17(c) of the report
of Form 10-K of Gillett Holdings, Inc. for the period from October 9,
1992 through September 30, 1993).
10.11(f) Pledge Agreement dated as of November 23, 1993 among The Vail
Corporation, Vail Associates, Inc., Beaver Creek Associates, Inc.,
Vail Associates Real Estate Group, Inc., Vail Associates Real Estate
Inc., as obligors and NationsBank of Texas, N.A., as collateral
agent. (Incorporated by reference to Exhibit 10.17(d) of the report
on Form 10-K of Gillett Holdings, Inc. for the period from October 9,
1992 through September 30, 1993).
10.11(g) Trust Indenture dated as of September 1, 1992 between Eagle County,
Colorado and Colorado National Bank, as Trustee, securing Sports
Housing Facilities Revenue Refunding Bonds. (Incorporated by
reference to exhibit 10.16(g) of the Registration Statement on Form
S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including
all amendments thereto).
10.11(h) First Amendment to Trust Indenture dated as of November 23, 1993
between Eagle County, Colorado and Colorado National Bank, as
Trustee, securing Sports and Housing Facilities Revenue Refunding
Bonds. (Incorporated by reference to Exhibit 10.17(f) of the report
on Form 10-K of Gillett Holdings, Inc. for the period from October 9,
1992 through September 30, 1993).
10.11(i) Trust Indenture dated as of September 1, 1992 between Eagle County,
Colorado, and Colorado National Bank, as Trustee, securing Sports
Facilities Revenue Refunding Bonds. (Incorporated by reference to
Exhibit 10.16(h) of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including all amendments
thereto).
10.11(j) First Amendment to Trust Indenture dated as of November 23, 1993
between Eagle County, Colorado and Colorado National Bank, as
Trustee, securing Sports Facilities Revenue Refunding Bonds.
(Incorporated by reference to Exhibit 10.17(h) of the report on Form
10-K of Gillett Holdings, Inc. for the period from October 9, 1992
through September 30, 1993).
10.11(k) Sports and Housing Facilities Financing Agreement dated as of
September 1, 1992 between Eagle County, Colorado and Vail Associates,
Inc. (Incorporated by reference to Exhibit 10.16(i) of the
Registration Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments thereon).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11(l) First Amendment to Sports and Housing Facilities Financing Agreement
and Assignment and Assumption Agreement dated as of November 23, 1993
between Eagle County, Colorado, Vail Associates, Inc. and The Vail
Corporation. (Incorporated by reference to Exhibit 10.17(j) of the
report on Form 10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993).
10.11(m) Sports Facilities Financing Agreement dated as of September 1, 1992
between Eagle County Colorado and Beaver Creek Associates, Inc., with
Vail Associates, Inc., as Guarantor. (Incorporated by reference to
Exhibit 10.16(j) of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including all amendments
thereto).
10.11(n) First Amendment to Sports Facilities Financing Agreement and
Assignment and Assumption Agreement dated as of November 23, 1993 by
and among Eagle County, Colorado, Beaver Creek Associates, Inc., Vail
Associates, Inc., and The Vail Corporation. (Incorporated by
reference to Exhibit 10.17(l) of the report on Form 10-K of Gillett
Holdings., Inc. for the period from October 9, 1992 through September
30, 1993).
10.11(o) Guaranty dated as of September 1, 1992, by Vail Associates, Inc.
delivered to Colorado National Bank, as Trustee. (Incorporated by
reference to Exhibit 10.16(k) of the Registration Statement on Form
S-4 of Gillett Holdings, Inc. (Registration No. 33-52854) including
all amendments thereto).
10.11(p) Credit Agreement dated as of January 3, 1997 among the Vail
Corporation., the lenders referred to therein and NationsBank of
Texas, N.A. as agent.
10.11(q) First Amendment dated as of July 1994 to Pledge Agreement dated as of
November 23, 1993 among The Vail Corporation, Vail Associates, Inc.,
Beaver Creek Associates, Inc., Vail Associates Real Estate Group,
Inc., Vail Associates Real Estate Inc., as obligors and NationsBank
of Texas, N.A., as collateral agent.
10.11(r) Second Amendment dated as of December 30, 1996 to Pledge Agreement
dated as of November 23, 1993 among The Vail Corporation, Vail
Associates, Inc., Beaver Creek Associates, Inc., Vail Associates Real
Estate Group, Inc., Vail Associates Real Estate Inc., as obligors and
NationsBank of Texas, N.A., as collateral agent.
10.12(a) Agreement for Purchase and Sale dated as of August 25, 1993 by and
among Arrowhead at Vail, Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management Company and
Vail Associates, Inc. (Incorporated by reference to Exhibit 10.19(a)
of the report on Form 10-K of Gillett Holdings, Inc., for the period
from October 9, 1992 through September 30, 1993).
10.12(b) Amendment to Agreement for Purchase and Sale dated September 8, 1993
by and between Arrowhead at Vail, Arrowhead Ski Corporation,
Arrowhead at Vail Properties Corporation, Arrowhead Property
Management Company and Vail Associates, Inc. (Incorporated by
reference to Exhibit 10.19(b) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992 through September
30, 1993).
10.12(c) Second Amendment to Agreement for Purchase and Sale dated September
22, 1993 by and between Arrowhead at Vail, Arrowhead Ski Corporation,
Arrowhead at Vail Properties Corporation, Arrowhead Property
Management Company and Vail Associates, Inc. (Incorporated by
reference to Exhibit 10.19(c) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992 through September
30, 1993).
10.12(d) Third Amendment to Agreement for Purchase and Sale dated November 30,
1993 by and between Arrowhead at Vail, Arrowhead Ski Corporation,
Arrowhead at Vail Properties Corporation, Arrowhead Property
Management Company and Vail Associates, Inc. (Incorporated by
reference to Exhibit 10.19(d) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992 through September
30, 1993).
10.13 1992 Stock Option Plan of Gillett Holdings, Inc. (Incorporated by
reference to Exhibit 10.20 of the report on form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992 through September
30, 1993).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.14 Agreement to Settle Prospective Litigation and for Sale of Personal
Property dated May 10, 1993, between the Company, Clifford E. Eley, as
Chapter 7 Trustee of the Debtor's Bankruptcy Estate, and George N.
Gillett, Jr. (Incorporated by reference to Exhibit 10.21 of the report
on Form 10-K of Gillett Holdings, Inc. for the period from October 9,
1992 through September 30, 1993).
10.15 Employment Agreement dated April 1, 1994 between Gillett Holdings,
Inc. and James S. Mandel (Incorporated by reference to Exhibit 10.22
of the report on Form 10-K of Gillett Holdings, Inc. for the year
ended September 30, 1994).
10.16 Employment Agreement dated April 1, 1994 between Vail Associates, Inc.
and James S. Mandel (Incorporated by reference to Exhibit 10.23 of the
report on Form 10-K of Gillett Holdings, Inc. for the year ended
September 30, 1994).
*10.17 Employment Agreement dated [ ] between Vail Associates, Inc. and
Gerald E. Flynn.
*10.18 Employment Agreement dated [ ] between Vail Associates, Inc. and
Christopher P. Ryman.
*10.19 Employment Agreement dated [ ] between Vail Associates, Inc. and
James P. Thompson.
Employment Agreement dated [ ] between the Company and James P.
*10.20 Donohue.
Employment Agreement dated July 29, 1996 between the Company and Adam
10.21 M. Aron.
10.22 Stock Purchase Agreement Among Vail Resorts, Inc., Ralston Foods,
Inc., and Ralston Resorts, Inc. dated July 22, 1996. (Incorporated by
reference to Exhibit 2.1 of the report on Form 8-K of Vail Resorts,
Inc. dated July 23, 1996).
10.23 First Amendment to the Stock Purchase Agreement among Vail Resorts,
Inc., Ralston Foods, Inc. and Ralston Resorts, Inc. dated December 20,
1996 (Incorporated by reference to Exhibit 2.2 of the report on Form
8-K of Vail Resorts, Inc. dated January 8, 1997).
10.24 Second Amendment to the Stock Purchase Agreement among Vail Resorts,
Inc., Ralston Foods, Inc. and Ralston Resorts, Inc. dated December 31,
1996. (Incorporated by reference to Exhibit 2.3 of the report on Form
8-K of Vail Resorts, Inc. dated January 8, 1997).
10.25 Shareholder Agreement among Vail Resorts, Inc., Ralston Foods, Inc.
and Apollo Ski Partners, L.P. dated January 3, 1997 (Incorporated by
reference to Exhibit 2.4 of the report on Form 8-K of Vail Resorts,
Inc. dated January 8, 1997).
10.26 1996 Stock Option Plan.
Agreement dated October 11, 1996 between Vail Resorts, Inc. and George
10.27 N. Gillett.
Annual Report on Form 10-K for the year ended September 30, 1996
13.1 (Incorporated by reference).
16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant. (Incorporated by reference to Exhibit 16 of the report on
Form 8-K of Gillett Holdings, Inc. for the reportable event occurring
on October 25, 1994).
21.1 Subsidiaries of Vail Resorts, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Price Waterhouse LLP.
*23.4 Consent of Cahill Gordon & Reindel (included in Exhibit 5.1).
24.1 Powers of Attorney (set forth on the signature page of the
Registration Statement).
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being
II-5
<PAGE>
registered, the 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. The undersigned Registrant hereby undertakes
to provide to the Underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser. The
undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act 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 Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
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.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN VAIL, COLORADO ON JANUARY 8, 1997.
VAIL RESORTS, INC.
/s/ Adam M. Aron*
By: _________________________________
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITY INDICATED ON JANUARY 8, 1997.
SIGNATURE TITLE
--------- -----
/s/ Adam M. Aron* Chairman of the Board and Chief
- ------------------------------------- Executive Officer (Principal Chief
ADAM M. ARON Executive Officer)
/s/ Andrew P. Daly* Director
- -------------------------------------
ANDREW P. DALY
/s/ Leon D. Black* Director
- -------------------------------------
LEON D. BLACK
/s/ Craig M. Cogut* Director
- -------------------------------------
CRAIG M. COGUT
/s/ Stephen C. Hilbert* Director
- -------------------------------------
STEPHEN C. HILBERT
/s/ Robert A. Katz* Director
- -------------------------------------
ROBERT A. KATZ
II-7
<PAGE>
SIGNATURE TITLE
--------- -----
/s/ Thomas H. Lee* Director
- -------------------------------------
THOMAS H. LEE
/s/ William L. Mack* Director
- -------------------------------------
WILLIAM L. MACK
/s/ Antony P. Ressler* Director
- -------------------------------------
ANTONY P. RESSLER
/s/ Marc J. Rowan* Director
- -------------------------------------
MARC J. ROWAN
/s/ John J. Ryan III* Director
- -------------------------------------
JOHN J. RYAN III
/s/ John F. Sorte* Director
- -------------------------------------
JOHN F. SORTE
/s/ Bruce H. Spector* Director
- -------------------------------------
BRUCE H. SPECTOR
/s/ James S. Tisch* Director
- -------------------------------------
JAMES S. TISCH
/s/ James P. Donohue* Senior Vice President and
- ------------------------------------- Chief Financial Officer
JAMES P. DONOHUE
/s/ Robert A. Katz Attorney-in-Fact
- -------------------------------------
ROBERT A. KATZ
* By Attorney-in-Fact
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE NUMBER
------- ----------- ------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the
Company.**
3.2 Restated By-Laws of the Company.**
*5.1 Opinion of Cahill Gordon & Reindel as to the legality
of the Common Stock.
10.1 Management Agreement by and between Beaver Creek
Resort Company of Colorado and Vail Associates, Inc.
(Incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including
all amendments thereto).
10.2 Forest Service Term Special Use Permit for Beaver
Creek ski area. (Incorporated by reference to Exhibit
10.2 of the Registration Statement on Form S-4 of
Gillett Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto).
10.3 Forest Service Special Use Permit for Beaver Creek ski
area. (Incorporated by reference to Exhibit 10.3 of
the Registration Statement on Form S-4 Gillett
Holdings, Inc. (Registration No. 33-52854) including
all amendments thereto).
10.4 Forest Service unified Permit for Vail ski area.
(Incorporated by reference to Exhibit 10.4 of the
Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including
all amendments thereto).
10.5 Employment Agreement dated October 1, 1996 between the
Company and Andrew P. Daly.
*10.6 Employment Agreement dated [ ] between the Company
and James Kent Myers.
10.7 Joint Liability Agreement by and among Gillett
Holdings, Inc. and the subsidiaries of Gillett
Holdings, Inc. (Incorporated by reference to Exhibit
10.10 of the Registration Statement on Form S-4 of
Gillett Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto).
10.8(a) Management Agreement between Gillett Holdings, Inc.
and Gillett Group Management, Inc. dated as of the
Effective Date. (Incorporated by reference to Exhibit
10.11 of the Registration Statement on Form S-4 of
Gillett Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto).
10.8(b) Amendment to Management Agreement by and among the
Company and its subsidiaries dated as of November 23,
1993. (Incorporated by reference to Exhibit 10.12(b)
of the report on Form 10-K of Gillett Holdings, Inc.
for the period from October 9, 1992 through September
30, 1993).
10.9(a) Tax Sharing Agreement between Gillett Holdings, Inc.
dated as of the Effective Date. (Incorporated by
reference to Exhibit 10.12 of the Registration
Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereto).
10.9(b) Amendment to Tax Sharing Agreement by and among the
Company and its subsidiaries dated as of November 23,
1993. (Incorporated by reference to Exhibit 10.13(b)
of the report on Form 10-K of Gillett Holdings, Inc.
for the period from October 9, 1992 through September
30, 1993).
10.10 Form of Gillett Holdings, Inc. Deferred Compensation
Agreement for certain GHTV employees. (Incorporated by
reference to Exhibit 10.13(b) of the Registration
Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-528540) including all amendments
thereto).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE NUMBER
------- ----------- ------------
<C> <S> <C>
10.11(a) Credit Agreement dated as of March 31, 1995 among The
Vail Corporation, the Banks named therein and
NationsBank of Texas, N.A., as issuing banks and
agent. (Incorporated by reference to Exhibit 10.12(a)
of the report on Form 10-Q of Gillett Holdings, Inc.
for the quarterly period ended March 31, 1995).
10.11(b) Second Amended and Restated Credit Agreement dated as
of March 31, 1995 among The Vail Corporation, the
banks named therein and NationsBank of Texas, N.A., as
issuing banks and agent. (Incorporated by reference to
Exhibit 10.12(b) of the report on Form 10-Q of Gillett
Holdings, Inc. for the quarterly period ended March
31, 1995).
10.11(c) Pledge Agreement dated as of March 31, 1995 among
Gillett Holdings, Inc. and NationsBank of Texas, N.A.
as agent. (Incorporated by reference to Exhibit
10.12(c) of the report on Form 10-Q of Gillett
Holdings, Inc. for the quarterly period ended March
31,1995).
10.11(d) Guaranty dated as of November 23, 1993 by subsidiaries
named therein for the benefit of NationsBank of Texas,
NA., as agent. (Incorporated by reference to Exhibit
10.17(b) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992
through September 30, 1993).
10.11(e) Collateral Agency Agreement dated as of November 23,
1993 among Vail Associates, Inc., The Vail
Corporation, Beaver Creek Associates, Inc. NationsBank
of Texas, N.A., as Collateral agent and agent,
Colorado National Bank as Beaver Creek Indenture
Trustee and Vail Indenture Trustee. (Incorporated by
reference to Exhibit 10.17(c) of the report of Form
10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993).
10.11(f) Pledge Agreement dated as of November 23, 1993 among
The Vail Corporation, Vail Associates, Inc., Beaver
Creek Associates, Inc., Vail Associates Real Estate
Group, Inc., Vail Associates Real Estate Inc., as
obligors and NationsBank of Texas, N.A., as collateral
agent. (Incorporated by reference to Exhibit 10.17(d)
of the report on Form 10-K of Gillett Holdings, Inc.
for the period from October 9, 1992 through September
30, 1993).
10.11(g) Trust Indenture dated as of September 1, 1992 between
Eagle County, Colorado and Colorado National Bank, as
Trustee, securing Sports Housing Facilities Revenue
Refunding Bonds. (Incorporated by reference to exhibit
10.16(g) of the Registration Statement on Form S-4 of
Gillett Holdings, Inc. (Registration No. 33-52854)
including all amendments thereto).
10.11(h) First Amendment to Trust Indenture dated as of
November 23, 1993 between Eagle County, Colorado and
Colorado National Bank, as Trustee, securing Sports
and Housing Facilities Revenue Refunding Bonds.
(Incorporated by reference to Exhibit 10.17(f) of the
report on Form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30,
1993).
10.11(i) Trust Indenture dated as of September 1, 1992 between
Eagle County, Colorado, and Colorado National Bank, as
Trustee, securing Sports Facilities Revenue Refunding
Bonds. (Incorporated by reference to Exhibit 10.16(h)
of the Registration Statement on Form S-4 of Gillett
Holdings, Inc. (Registration No. 33-52854) including
all amendments thereto).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE NUMBER
------- ----------- ------------
<C> <S> <C>
10.11(j) First Amendment to Trust Indenture dated as of
November 23, 1993 between Eagle County, Colorado and
Colorado National Bank, as Trustee, securing Sports
Facilities Revenue Refunding Bonds. (Incorporated by
reference to Exhibit 10.17(h) of the report on Form
10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993).
10.11(k) Sports and Housing Facilities Financing Agreement
dated as of September 1, 1992 between Eagle County,
Colorado and Vail Associates, Inc. (Incorporated by
reference to Exhibit 10.16(i) of the Registration
Statement on Form S-4 of Gillett Holdings, Inc.
(Registration No. 33-52854) including all amendments
thereon).
10.11(l) First Amendment to Sports and Housing Facilities
Financing Agreement and Assignment and Assumption
Agreement dated as of November 23, 1993 between Eagle
County, Colorado, Vail Associates, Inc. and The Vail
Corporation. (Incorporated by reference to Exhibit
10.17(j) of the report on Form 10-K of Gillett
Holdings, Inc. for the period from October 9, 1992
through September 30, 1993).
10.11(m) Sports Facilities Financing Agreement dated as of
September 1, 1992 between Eagle County Colorado and
Beaver Creek Associates, Inc., with Vail Associates,
Inc., as Guarantor. (Incorporated by reference to
Exhibit 10.16(j) of the Registration Statement on Form
S-4 of Gillett Holdings, Inc. (Registration No. 33-
52854) including all amendments thereto).
10.11(n) First Amendment to Sports Facilities Financing
Agreement and Assignment and Assumption Agreement
dated as of November 23, 1993 by and among Eagle
County, Colorado, Beaver Creek Associates, Inc., Vail
Associates, Inc., and The Vail Corporation.
(Incorporated by reference to Exhibit 10.17(l) of the
report on Form
10-K of Gillett Holdings., Inc. for the period from
October 9, 1992 through September 30, 1993).
10.11(o) Guaranty dated as of September 1, 1992, by Vail
Associates, Inc. delivered to Colorado National Bank,
as Trustee. (Incorporated by reference to Exhibit
10.16(k) of the Registration Statement on Form S-4 of
Gillett Holdings, Inc. (Registration
No. 33-52854) including all amendments thereto).
10.11(p) Credit Agreement dated as of January 3, 1997 among the
Vail Corporation., the lenders referred to therein and
NationsBank of Texas, N.A. as agent.
10.11(q) First Amendment dated as of July 1994 to Pledge
Agreement dated as of November 23, 1993 among The Vail
Corporation, Vail Associates, Inc., Beaver Creek
Associates, Inc., Vail Associates Real Estate Group,
Inc., Vail Associates Real Estate Inc., as obligors
and NationsBank of Texas, N.A., as collateral agent.
10.11(r) Second Amendment dated as of December 30, 1996 to
Pledge Agreement dated as of November 23, 1993 among
The Vail Corporation, Vail Associates, Inc., Beaver
Creek Associates, Inc., Vail Associates Real Estate
Group, Inc., Vail Associates Real Estate Inc., as
obligors and NationsBank of Texas, N.A., as collateral
agent.
10.12(a) Agreement for Purchase and Sale dated as of August 25,
1993 by and among Arrowhead at Vail, Arrowhead Ski
Corporation, Arrowhead at Vail Properties Corporation,
Arrowhead Property Management Company and Vail
Associates, Inc. (Incorporated by reference to Exhibit
10.19(a) of the report on Form 10-K of Gillett
Holdings, Inc., for the period from October 9, 1992
through September 30, 1993).
10.12(b) Amendment to Agreement for Purchase and Sale dated
September 8, 1993 by and between Arrowhead at Vail,
Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management
Company and Vail Associates, Inc. (Incorporated by
reference to Exhibit 10.19(b) of the report on Form
10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE NUMBER
------- ----------- ------------
<C> <S> <C>
10.12(c) Second Amendment to Agreement for Purchase and Sale
dated September 22, 1993 by and between Arrowhead at
Vail, Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management
Company and Vail Associates, Inc. (Incorporated by
reference to Exhibit 10.19(c) of the report on Form
10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993).
10.12(d) Third Amendment to Agreement for Purchase and Sale
dated November 30, 1993 by and between Arrowhead at
Vail, Arrowhead Ski Corporation, Arrowhead at Vail
Properties Corporation, Arrowhead Property Management
Company and Vail Associates, Inc. (Incorporated by
reference to Exhibit 10.19(d) of the report on Form
10-K of Gillett Holdings, Inc. for the period from
October 9, 1992 through September 30, 1993).
10.13 1992 Stock Option Plan of Gillett Holdings, Inc.
(Incorporated by reference to Exhibit 10.20 of the
report on form 10-K of Gillett Holdings, Inc. for the
period from October 9, 1992 through September 30,
1993).
10.14 Agreement to Settle Prospective Litigation and for
Sale of Personal Property dated May 10, 1993, between
the Company, Clifford E. Eley, as Chapter 7 Trustee
of the Debtor's Bankruptcy Estate, and George N.
Gillett, Jr. (Incorporated by reference to Exhibit
10.21 of the report on Form 10-K of Gillett Holdings,
Inc. for the period from October 9, 1992 through
September 30, 1993).
10.15 Employment Agreement dated April 1, 1994 between
Gillett Holdings, Inc. and James S. Mandel
(Incorporated by reference to Exhibit 10.22 of the
report on Form 10-K of Gillett Holdings, Inc. for the
year ended September 30, 1994).
10.16 Employment Agreement dated April 1, 1994 between Vail
Associates, Inc. and James S. Mandel (Incorporated by
reference to Exhibit 10.23 of the report on Form 10-K
of Gillett Holdings, Inc. for the year ended
September 30, 1994).
*10.17 Employment Agreement dated [ ] between Vail
Associates, Inc. and Gerald E. Flynn.
*10.18 Employment Agreement dated [ ] between Vail
Associates, Inc. and Christopher P. Ryman.
*10.19 Employment Agreement dated [ ] between Vail
Associates, Inc. and James P. Thompson.
Employment Agreement dated [ ] between the Company
*10.20 and James P. Donohue.
Employment Agreement dated July 29, 1996 between the
10.21 Company and Adam M. Aron.
10.22 Stock Purchase Agreement Among Vail Resorts, Inc.,
Ralston Foods, Inc., and Ralston Resorts, Inc. dated
July 22, 1996. (Incorporated by reference to Exhibit
2.1 of the report on Form 8-K of Vail Resorts, Inc.
dated July 23, 1996).
10.23 First Amendment to the Stock Purchase Agreement among
Vail Resorts, Inc., Ralston Foods, Inc. and Ralston
Resorts, Inc. dated December 20, 1996 (Incorporated
by reference to Exhibit 2.2 of the report on Form 8-K
of Vail Resorts, Inc. dated January 8, 1997).
10.24 Second Amendment to the Stock Purchase Agreement
among Vail Resorts, Inc., Ralston Foods, Inc. and
Ralston Resorts, Inc. dated December 31, 1996.
(Incorporated by reference to Exhibit 2.3 of the
report on Form 8-K of Vail Resorts, Inc. dated
January 8, 1997).
10.25 Shareholder Agreement among Vail Resorts, Inc.,
Ralston Foods, Inc. and Apollo Ski Partners, L.P.
dated January 3, 1997 (Incorporated by reference to
Exhibit 2.4 of the report on Form 8-K of Vail
Resorts, Inc. dated January 8, 1997).
10.26 1996 Stock Option Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE NUMBER
------- ----------- ------------
<C> <S> <C>
Agreement dated October 11, 1996 between Vail Resorts,
10.27 Inc. and George N. Gillett.
Annual Report on Form 10-K for the year ended September
13.1 30, 1996 (Incorporated by reference).
16.1 Letter from Ernst & Young LLP regarding change in
certifying accountant. (Incorporated by reference to
Exhibit 16 of the report on Form 8-K of Gillett
Holdings, Inc. for the reportable event occurring on
October 25, 1994).
21.1 Subsidiaries of Vail Resorts, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Price Waterhouse LLP.
*23.4 Consent of Cahill Gordon & Reindel (included in Exhibit
5.1).
24.1 Powers of Attorney (set forth on the signature page of
the Registration Statement).
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 10.5
Execution Copy
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of October 1, 1996 by and between (i) VAIL
RESORTS, INC., a Delaware corporation ("Resorts"), and VAIL ASSOCIATES, INC., a
Colorado corporation and a wholly-owned subsidiary of Resorts ("Associates"
and, together with Resorts, "Vail"), and (ii) ANDREW P. DALY (hereinafter
referred to as "Daly").
RECITALS
1. Vail desires to employ Daly to render services to it for the period
and upon the terms and conditions provided for in this Agreement; and
2. Daly wishes to serve in the employ of Vail for its benefit for the
period and upon the terms and conditions provided for in this Agreement.
COVENANTS
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment.
----------
(a) Vail hereby employs Daly to serve as President of Resorts and
President and Chief Executive Officer of Associates on the terms and conditions
set forth herein. In such capacities, Daly shall have the responsibilities
normally associated with such positions, subject to the supervision and control
of the Board of Directors and chief executive officer of Resorts.
(b) Daly accepts employment by Vail and agrees that, during the term of
his employment, he will devote substantially all his time and best efforts to
the performance of his duties hereunder, which duties shall be performed in an
efficient and competent manner and to the best of his ability. Daly further
agrees that, during the term of this Agreement, he will not, without the prior
written consent of the Board of Directors of Resorts, directly or indirectly
engage in any manner in any business or other endeavor, either as an owner,
employee, officer, director, independent contractor, agent, partner, advisor, or
in any other capacity calling for the rendition of his personal services. This
restriction will not preclude Daly from having passive investments, and devoting
reasonable time to the supervision thereof (so long as such does not interfere
with Daly's obligations hereunder), in any business or enterprise which is not
in competition with any business or enterprise of Vail or any of its
subsidiaries or affiliates (collectively the "Companies").
<PAGE>
2. Compensation.
------------
For all services rendered by Daly to or on behalf of Vail and the
Companies, Associates shall pay to Daly, subject to any and all withholdings
and deductions required by law, the following compensation in accordance with
the normal payroll practices of Associates:
(a) Base Salary. Daly shall receive regular compensation at the initial
-----------
rate of Three Hundred Fifty Thousand Dollars ($350,000) per year, subject to
increase as provided in the following sentence (the "Base Salary"). Daly's Base
Salary shall be reviewed annually by the Board of Directors of Resorts, but any
increases in such Base Salary shall be at the discretion of the Board of
Directors and Daly acknowledges that the Board is not obligated to make any
increases. Daly's Base Salary shall not be lowered from its highest amount
during the term of this Agreement without his consent.
(b) Bonuses, etc. Daly shall also be considered annually for bonuses,
------------
deferred compensation, and/or stock options based upon his performance in light
of objectives established by the Board of Directors of Resorts, it being
understood that any such awards are at the discretion of the Board of
Directors. Without limiting the generality of the foregoing, Daly shall be
eligible to participate in (i) the Long-Term Incentive Plan of Associates (the
"LTIP"), and (ii) any other bonus, incentive, deferred compensation and fringe
benefit plans as Vail shall make generally available to other employees in
senior management positions in accordance with the terms of the relevant
contracts, policies or plans providing such benefits, specifically including
health and dental insurance, any deferred incentive compensation plan and any
discretionary annual bonus plan, all on such terms as the Board may determine.
Daly's annual target bonus under the LTIP shall be 40% of his Base Salary;
provided, however, that such target shall not create any obligation on the part
of Vail to declare any bonus to Daly in any amount or otherwise alter the
discretionary nature of the LTIP. If any such compensation or benefits are paid
or made available, it shall be at such time or times as the Board shall
determine, based upon such factors, if any, as the Board may establish.
(c) Insurance. Daly shall also receive, at Vail's expense, long-term
---------
disability insurance which provides a benefit equal to 75% of Base Salary
through the end of the term of this Agreement, and term life insurance which
provides a death benefit of at least Three Million Dollars ($3,000,000),
subject in each case to the applicable underwriting limitations of such
programs.
(d) Expense Reimbursement; Country Club. Daly shall also be reimbursed
-----------------------------------
for reasonable dues and assessments for business and service interests of Vail.
Daly shall have a travel and entertainment budget which is reasonable in light
of his position and responsibilities and shall be reimbursed for all reasonable
travel and entertainment expenses incurred by him thereunder upon submission of
appropriate documentation thereof. Vail will reimburse Daly for 50% of the cost
of his membership in Eagle Springs Country Club, which reimbursement shall
-2-
<PAGE>
be payable in equal monthly installments during the first 36 months of the term
of this Agreement.
(e) Loan Repayment. The maturity date of Daly's $300,000 loan from
--------------
Associates is hereby extended to October 1, l999 or, if earlier, the first
anniversary of the date on which this Agreement is terminated for any reason
other than (i) by Vail without "cause" or (ii) by Daly for "good reason" (in
either case as defined below).
3. Term and Termination.
--------------------
(a) Term and Renewal. The Effective Date of this Agreement shall be
----------------
October 1, 1996. Unless terminated earlier, as hereinafter provided, the term of
this Agreement shall be for the period commencing with the Effective Date and
continuing through October 1, 1999; provided, however, that unless either Vail
or Daly gives written notice of non-renewal to the other not less than 120 days
prior to the then-current scheduled expiration date, this Agreement shall be
automatically renewed for successive one-year periods.
(b) Termination for Cause. Vail, acting through the Board of Directors
---------------------
of Resorts, may terminate this Agreement at any time for "cause" by giving Daly
written notice specifying the effective date of such termination and the
circumstances constituting such cause. For purposes of this Agreement, "cause"
shall mean (i) any conduct involving dishonesty, disloyalty or the unauthorized
disclosure of confidential information or trade secrets which has a material
detrimental impact on the reputation, goodwill or business position of Vail or
any of the Companies; (ii) gross obstruction of business operations or illegal
or disreputable conduct by Daly which materially impairs the reputation,
goodwill or business position of Vail or any of the Companies, including acts of
unlawful sexual harassment; or (iii) any action involving a material breach of
the terms of the Agreement including, after 15 days' written notice and
opportunity to cure to the Board's satisfaction, inattention to or neglect of
duties. In the event of a termination for cause, Daly shall be entitled to
receive his then-current Base Salary through the date of such termination.
(c) Termination Without Cause or Non-Renewal. Vail may terminate this
----------------------------------------
Agreement at any time without cause, by giving Daly written notice specifying
the effective date of such termination. In the event of a termination without
cause, or if Vail gives notice of non-renewal of this Agreement as provided in
Section 3(a), Daly shall be entitled to receive (i) his then-current Base Salary
through the date of such termination or non-renewal, (ii) in the event that the
applicable performance targets for the year are achieved, a pro-rated bonus for
the portion of the year in which such termination or non-renewal occurs, which
prorated bonus shall be payable in the same form and at the same time as bonus
payments are made to senior executives generally, and (iii) continuation of his
then-current Base Salary through the first anniversary of the date of
termination or non-renewal. Notwithstanding the foregoing, should Vail and Daly
mutually agree to waive Daly's compliance with the provisions of Section 4
hereof within 60 days of such termination or expiration, then Daly shall be
under an obligation to mitigate
-3-
<PAGE>
damages by seeking other employment and the Base Salary continuation shall be
reduced by compensation received by Daly from other employment or self-
employment following such waiver.
(d) Termination By Daly.
-------------------
(1) Daly shall be entitled to terminate this Agreement at any time for
"good reason" by giving Vail not less than ninety (90) days prior written
notice. For purposes of this Agreement, "good reason" shall mean (i) Vail shall
breach its obligations hereunder in any material respect and shall fail to cure
such breach within 60 days following written notice thereof from Daly, (ii)
Vail shall cease to operate a major ski resort in Colorado, (iii) Vail shall
effect a material change in Daly's reporting responsibilities, titles, offices
or duties as in effect immediately prior to such change, or shall remove Daly
from, or fail to re-elect Daly to, any of such positions, which in either case
shall have the effect of materially reducing the responsibility or authority of
Daly as President of Resorts and President and Chief Executive Officer of
Associates, or shall otherwise be materially inconsistent with the
responsibility, authority or duties normally associated with such positions, or
(iv) during the first 12 months of the term of this Agreement, Daly shall
determine in good faith that he is unable to develop or maintain a satisfactory
working relationship with the chief executive officer of Resorts. In such
event, Daly shall be entitled to receive (i) his then-current Base Salary
through the date of such termination, (ii) in the event that the applicable
performance targets for the year are achieved, a pro-rated bonus for the
portion of the year in which such termination occurs, which pro-rated bonus
shall be payable in the same form and at the same time as bonus payments are
made to senior executives generally, and (iii) continuation of his then-current
Base Salary through the first anniversary of the date of such termination.
(2) Daly may also terminate this Agreement at any time without good
reason by giving Vail at least one hundred twenty (120) days prior written
notice. In such event, Daly shall be entitled to receive his then-current Base
Salary through the date of termination.
(e) Termination Due To Disability. In the event that Daly becomes
-----------------------------
permanently disabled (as determined by the Board of Directors of Resorts in
good faith), Vail shall have the right to terminate this Agreement upon written
notice to Daly; provided, however, that Daly shall be entitled to receive (i)
his then-current Base Salary through the date of such termination, and (ii)
continuation of his then-current Base Salary through the earlier of (x) the
scheduled expiration date of this Agreement (but in no event less than 12
months from the date of disability) or (y) the date on which his long-term
disability insurance payments commence.
(f) Termination Due To Death. This Agreement shall be deemed automatically
------------------------
terminated upon the death of Daly. In such event, Daly's personal
representative shall be entitled to receive (i) his then-current Base Salary
through such date of termination, and (ii) in the event that the applicable
performance targets for the year are achieved, a pro-rated bonus for the
portion of the year in which such termination occurs, which pro-rated bonus
shall be
-4-
<PAGE>
payable in the same form and at the same time as bonus payments are made to
senior executives generally. In addition, Vail shall continue to provide such
health, dental or other medical insurance coverage to Daly's surviving spouse
and dependents at Vail's expense as is made available to spouses and dependents
of other employees in similar positions through the first anniversary of such
termination.
(g) Change in Control. Notwithstanding the above, in the event that at any
-----------------
time after a change in control of Vail (i) this Agreement is terminated by Vail
without cause, (ii) this Agreement is terminated by Daly for good reason, or
(iii) Vail gives notice of non-renewal of this Agreement, then in any such case
Daly shall be entitled to receive (i) his then-current Base Salary through the
date of such termination or non-renewal, (ii) in the event that the applicable
performance targets for the year are achieved, a pro-rated bonus for the
portion of the year in which such termination occurs, which pro-rated bonus
shall be payable in the same form and at the same time as bonus payments are
made to senior executives generally, and (iii) continuation of his then-current
Base Salary for a period of 18 months from the date of termination or
nonrenewal. For purposes of this Agreement, a change in control" shall mean the
acquisition by any person or group of affiliated persons (other than Apollo Ski
Partners, L.P. and its affiliates) of equity securities of Resorts or Associates
representing either a majority of the combined ordinary voting power of all
outstanding voting securities of Resorts or Associates or a majority of the
common equity interest in Resorts or Associates.
(h) Other Benefits. During any period in which Daly is entitled to Base
--------------
Salary continuation following termination or expiration of this Agreement under
the terms of this Section 3, Daly shall also be entitled to continuation of
then-current health, dental and other insurance benefits for Daly and his
dependents at Vail's expense. Except as expressly set forth in this Section 3,
Daly shall not be entitled to receive any compensation or other benefits in
connection with termination of his employment; provided, however, that
termination of Daly's employment hereunder shall not affect his right to
receive deferred compensation earned prior to such termination (which amounts
shall be payable at Vail's option either in a lump sum within 30 days of
termination or in accordance with the terms of the applicable plan) or his
rights to vested retirement benefits in accordance with the terms of the
applicable plan. Notwithstanding the foregoing, all deferred compensation shall
be forfeited by Daly in the event of termination of employment pursuant to
Section 3(b) or Section 3(d)(2) of this Agreement.
(i) Payment of Salary Continuation. Payment of Base Salary following
------------------------------
termination of this Agreement as required by this Section 3 shall be made in
accordance with Associates' normal payroll practices; provided, however, that
in the event of a breach by Daly of the provisions of Sections 4 through 7,
Vail shall be entitled to cease all such payments. No termination of this
Agreement shall affect any of the rights and obligations of the parties hereto
under Sections 4 through 7, but such rights and obligations shall survive such
termination in accordance with the terms of such Sections.
-5-
<PAGE>
4. Non Competition.
---------------
The provisions of this Section 4 shall apply for a period of one (1)
year beginning with the date of the termination of Daly's employment with Vail
for any reason. During such period, Daly will not, without the prior written
consent of the Board, directly or indirectly, become associated, either as
owner, employee, officer, director, independent contractor, agent, partner,
advisor or in any other capacity calling for the rendition of personal services,
with any individual, partnership, corporation, or other organization (i) in
Eagle County, Colorado whose business or enterprise is competitive in any way
with any of the businesses or enterprises of Vail and/or the Companies or (ii)
in the states of Colorado and Utah whose business or enterprise is alpine or
nordic ski area operation; provided, however, that the foregoing shall not
preclude Daly from having passive investments in less than five percent (5%) of
the outstanding capital stock of a competitive corporation which is listed on a
national securities exchange or regularly traded in the over-the-counter market
or which have been approved in writing by the Board.
(c) If, for any reason, any portion of this covenant shall be held to be
unenforceable it shall be deemed to be reformed so that it is enforceable to
the maximum extent permitted by law.
5. Document Return; Resignations.
-----------------------------
Upon termination of Daly's employment with Vail for any reason, Daly
agrees that he shall promptly surrender to Vail or the Companies all letters,
papers, documents, instruments, records, books, products, and any other
materials owned by Vail or the Companies or used by Daly in the performance of
his duties under this Agreement. Additionally, upon termination of Daly's
employment with Vail for any reason, Daly agrees to immediately resign from, and
execute appropriate resignation letters relating to, all management or Board
positions he may have by reason of his employment or involvement with Vail,
specifically including but not limited to Vail, any of the Companies, the Beaver
Creek Resort Company of Colorado and the various condominium associations in
which Daly serves at the direction of Vail (the "Associations").
6. Confidentiality.
---------------
During the term of this Agreement, and at all times following the
termination of Daly's employment with Vail for any reason, Daly shall not
disclose, directly or indirectly, to any person, firm or entity, or any
officer, director, stockholder, partner, associate, employee, agent or
representative thereof, any confidential information or trade secrets of Vail
or any of the Companies, the Beaver Creek Resort Company of Colorado or the
Associations.
-6-
<PAGE>
7. Nondisparagement.
----------------
For a period of five (5) years following the termination of Daly's
employment with Vail for any reason, Daly agrees that he shall not make any
statements disparaging of Vail or the Companies, the Board, and the officers,
directors, stockholders, or employees of Vail or the Companies, the Beaver
Creek Resort Company of Colorado or the Associations. Vail shall similarly not
disparage Daly following such termination, it being understood that, subject to
the terms of this Section 7, Vail and Daly, as appropriate, may respond
truthfully to inquiries from prospective employers of Daly, the press and other
relevant parties.
8. Injunctive Relief.
-----------------
The parties acknowledge that the remedy at law for any violation or
threatened violation of this Agreement will be inadequate and that,
accordingly, either party shall be entitled to injunctive relief in the event
of such a violation or threatened violation without being required to post bond
or other surety. The above stated remedies shall be in addition to, and not in
limitation of, any other rights or remedies to which either party is or may be
entitled at law, in equity, or under this Agreement.
9. Non-Assignability.
-----------------
It is understood that this Employment Agreement has been entered into
personally by the parties. Neither party shall have the right to assign,
transfer, encumber or dispose of any duties, rights or payments due hereunder,
which duties, rights and payments with respect hereto are expressly declared to
be non-assignable and non-transferable, being based upon the personal services
of Daly, and any attempted assignment or transfer shall be null and void and
without binding effect on either party; provided, however, that, subject to
Daly's rights under Section 3(g) hereof, Vail may assign this Agreement to any
affiliate or to any successor corporation.
10. Complete Agreement.
------------------
This Agreement constitutes the full understanding and entire employment
agreement of the parties, and supersedes and is in lieu of any and all other
understandings or agreements between Vail and Daly. Nothing herein is intended
to limit any rights or duties Daly has under the terms of any applicable
option, incentive or other similar agreements.
11. Arbitration.
-----------
Any controversy or claim arising out of or in relation to this Agreement
or any breach thereof shall be settled by arbitration in Vail, Colorado in
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association (hereinafter "AAA Rules") before a panel of three
arbitrators, one of whom shall be selected by Vail, the second of whom shall be
selected by Daly and the third of whom shall be selected by the other two
-7-
<PAGE>
arbitrators; provided, however, that to the extent that any of the AAA Rules
or any portion thereof is inconsistent with the provisions of this Section 11,
the provisions of this Section shall govern. If for any reason the AAA Rules
cannot be followed or if any one of the parties fails or refuses to select an
arbitrator within thirty (30) days after the time of notification of demand for
arbitration by the other, or if the arbitrators selected by the parties to this
Agreement cannot agree on the selection of a third arbitrator within thirty
(30) days after such time as Vail and Daly have each been notified of the
selection of the other's arbitrator, the necessary arbitrator or arbitrators
shall be selected by the Chief Judge of the Fifth Judicial District or, if that
officer fails or refuses to make an appointment, by the President of the
Colorado Bar Association. In the event that any controversy or claim is
submitted for arbitration hereunder relating to the failure or refusal by Vail
or Daly to perform in full all of its obligations hereunder, Vail or Daly, as
applicable, shall have the burden of proof (as to both production of evidence
and persuasion) with respect to the justification for such failure or refusal.
Any award entered by the arbitrators shall be final, binding and non-appealable,
and judgment may be entered thereon by any party in accordance with the
applicable law in any court of competent jurisdiction. The arbitrators shall
award the prevailing party its reasonable attorneys' fees and costs. The
arbitrators shall not have the power to direct equitable relief.
12. Amendments.
----------
Any amendment to this Agreement shall be made only in writing and signed
by each of the parties hereto.
13. Governing Law.
-------------
The internal laws of the State of Colorado law shall govern the
construction and enforcement of this Agreement.
14. Notices.
-------
Any notice required or authorized hereunder shall be deemed delivered
with deposited, postage prepaid, in the United States mail, certified, with
return receipt requested, addressed to the parties as follows:
Andrew P. Daly
P.O. Box 1514
Vail, Colorado 81658
Vail Resorts, Inc.
Vail Associates, Inc.
P.O. Box 7
Vail, Colorado 81658
Attn: General Counsel
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 1st day of October, 1996.
EMPLOYER:
VAIL RESORTS, INC.
By:
----------------------
VAIL ASSOCIATES, INC.
By:
----------------------
EXECUTIVE:
/s/ Andrew P. Daly
-------------------------
Andrew P. Daly
-9-
<PAGE>
EXHIBIT 10.11(p)
CREDIT AGREEMENT
among
THE VAIL CORPORATION
(D/B/A "VAIL ASSOCIATES, INC.")
Borrower
NATIONSBANK OF TEXAS, N.A.
Agent
and
THE LENDERS NAMED HEREIN
$340,000,000
JANUARY 3, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
SECTION 1 DEFINITIONS AND TERMS........................................................ 1
1.1 Definitions.................................................................. 1
1.2 Number and Gender of Words................................................... 14
1.3 Accounting Principles........................................................ 14
SECTION 2 COMMITMENT................................................................... 15
2.1 Credit Facility.............................................................. 15
2.2 Loan Procedure............................................................... 15
2.3 LC Subfacility............................................................... 16
SECTION 3 TERMS OF PAYMENT............................................................. 18
3.1 Notes and Payments........................................................... 18
3.2 Interest and Principal Payments; Voluntary Commitment Reductions............. 18
3.3 Interest Options............................................................. 20
3.4 Quotation of Rates........................................................... 20
3.5 Default Rate................................................................. 20
3.6 Interest Recapture........................................................... 20
3.7 Interest Calculations........................................................ 20
3.8 Maximum Rate................................................................. 21
3.9 Interest Periods............................................................. 21
3.10 Conversions.................................................................. 21
3.11 Order of Application......................................................... 21
3.12 Sharing of Payments, Etc..................................................... 22
3.13 Booking Loans................................................................ 22
3.14 Basis Unavailable or Inadequate for LIBOR.................................... 22
3.15 Additional Costs............................................................. 22
3.16 Change in Laws............................................................... 23
3.17 Funding Loss................................................................. 23
3.18 Foreign Lenders.............................................................. 23
3.19 Affected Lender's Obligation to Mitigate..................................... 23
3.20 Replacement Lender........................................................... 24
SECTION 4. FEES......................................................................... 24
4.1 Treatment of Fees............................................................ 24
4.2 Underwriting and Administrative Fees......................................... 24
4.3 LC Fees...................................................................... 24
4.4 Commitment Fee............................................................... 24
SECTION 5 SECURITY..................................................................... 24
5.1 Guaranties................................................................... 24
5.2 Collateral................................................................... 24
5.3 Additional Security and Guaranties........................................... 25
5.4 Financing Statements......................................................... 25
SECTION 6 CONDITIONS PRECEDENT......................................................... 26
6.1 Initial Advance.............................................................. 26
6.2 Each Advance................................................................. 27
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
SECTION 7 REPRESENTATIONS AND WARRANTIES............................................... 27
7.1 Regulation U................................................................. 27
7.2 Corporate Existence, Good Standing, Authority and Compliance................. 27
7.3 Subsidiaries................................................................. 28
7.4 Authorization and Contravention.............................................. 28
7.5 Binding Effect............................................................... 28
7.6 Financial Statements; Fiscal Year............................................ 28
7.7 Litigation................................................................... 28
7.8 Taxes........................................................................ 28
7.9 Environmental Matters........................................................ 28
7.10 Employee Plans............................................................... 29
7.11 Properties and Liens......................................................... 29
7.12 Chief Executive Offices...................................................... 29
7.13 Government Regulations....................................................... 29
7.14 Transactions with Affiliates................................................. 29
7.15 Debt......................................................................... 29
7.16 Material Agreements.......................................................... 29
7.17 Labor Matters................................................................ 29
7.18 Solvency..................................................................... 30
7.19 Trade Names.................................................................. 30
7.20 Intellectual Property........................................................ 30
7.21 Full Disclosure.............................................................. 30
7.22 Stock Purchase Agreement..................................................... 30
SECTION 8 AFFIRMATIVE COVENANTS........................................................ 30
8.1 Items to be Furnished........................................................ 30
8.2 Use of Proceeds.............................................................. 31
8.3 Books and Records............................................................ 31
8.4 Inspections.................................................................. 31
8.5 Taxes........................................................................ 32
8.6 Payment of Obligations....................................................... 32
8.7 Expenses..................................................................... 32
8.8 Maintenance of Existence, Assets, and Business............................... 32
8.9 Insurance.................................................................... 32
8.10 Preservation and Protection of Rights........................................ 32
8.11 Environmental Laws........................................................... 33
8.12 Subsidiaries................................................................. 33
8.13 Indemnification.............................................................. 33
8.14 Interest Rate Hedging........................................................ 33
SECTION 9 NEGATIVE COVENANTS........................................................... 33
9.1 Taxes........................................................................ 33
9.2 Payment of Obligations....................................................... 33
9.3 Employee Plans............................................................... 33
9.4 Debt......................................................................... 34
9.5 Liens........................................................................ 34
9.6 Transactions with Affiliates................................................. 34
9.7 Compliance with Laws and Documents........................................... 34
9.8 Loans, Advances and Investments.............................................. 34
9.9 Management Fees and Distributions............................................ 35
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
9.10 Sale of Assets............................................................... 36
9.11 Mergers and Dissolutions..................................................... 36
9.12 Assignment................................................................... 36
9.13 Fiscal Year and Accounting Methods........................................... 36
9.14 New Businesses............................................................... 36
9.15 Government Regulations....................................................... 36
SECTION 10 FINANCIAL COVENANTS.......................................................... 36
10.1 Maximum Leverage Ratio....................................................... 36
10.2 Minimum Fixed Charge Coverage Ratio.......................................... 37
10.3 Interest Coverage Ratio...................................................... 37
SECTION 11 DEFAULT...................................................................... 38
11.1 Payment of Obligation........................................................ 38
11.2 Covenants.................................................................... 38
11.3 Debtor Relief................................................................ 38
11.4 Judgments and Attachments.................................................... 38
11.5 Government Action............................................................ 38
11.6 Misrepresentation............................................................ 38
11.7 Ownership.................................................................... 39
11.8 Default Under Other Agreements............................................... 39
11.9 Validity and Enforceability of Loan Papers................................... 39
11.10 Employee Plans............................................................... 39
SECTION 12 RIGHTS AND REMEDIES.......................................................... 39
12.1 Remedies Upon Default........................................................ 39
12.2 Company Waivers.............................................................. 39
12.3 Performance by Agent......................................................... 39
12.4 Not in Control............................................................... 40
12.5 Course of Dealing............................................................ 40
12.6 Cumulative Rights............................................................ 40
12.7 Application of Proceeds...................................................... 40
12.8 Diminution in Value of Collateral............................................ 40
12.9 Certain Proceedings.......................................................... 40
SECTION 13 AGREEMENT AMONG LENDERS...................................................... 40
13.1 Agent........................................................................ 40
13.2 Expenses..................................................................... 41
13.3 Proportionate Absorption of Losses........................................... 41
13.4 Delegation of Duties; Reliance............................................... 42
13.5 Limitation of Agent's Liability.............................................. 42
13.6 Default; Collateral.......................................................... 43
13.7 Limitation of Liability...................................................... 43
13.8 Relationship of Lenders...................................................... 43
13.9 Collateral Matters........................................................... 43
13.10 Benefits of Agreement........................................................ 43
SECTION 14 MISCELLANEOUS................................................................ 44
14.1 Headings..................................................................... 44
14.2 Nonbusiness Days; Time....................................................... 44
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
14.3 Communications............................................................... 44
14.4 Form and Number of Documents................................................. 44
14.5 Exceptions to Covenants...................................................... 44
14.6 Survival..................................................................... 44
14.7 Governing Law................................................................ 44
14.8 Invalid Provisions........................................................... 44
14.9 Venue; Service of Process; Jury Trial........................................ 44
14.10 Amendments, Consents, Conflicts and Waivers.................................. 45
14.11 Multiple Counterparts........................................................ 46
14.12 Successors and Assigns; Participation........................................ 46
14.13 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances.. 47
14.14 Entirety..................................................................... 47
SCHEDULES AND EXHIBITS
----------------------
Schedule 1 Parties, Addresses, Committed Sums, and Wiring Information
Schedule 2 Critical Assets
Schedule 2.3 Existing Letters of Credit
Schedule 3.2 Amortization of Term Loans
Schedule 7.2 Jurisdictions of Incorporation and Business
Schedule 7.3 Corporate Structure
Schedule 7.7 Litigation Summary
Schedule 7.9 Material Environmental Matters
Schedule 7.14 Transactions with Affiliates
Schedule 7.19 Trade Names
Exhibit A-1 Revolving Credit Promissory Note
Exhibit A-2 Tranche A Promissory Note
Exhibit A-3 Tranche B Promissory Note
Exhibit B Guaranty
Exhibit C Pledge Agreement
Exhibit D Loan Request
Exhibit E Compliance Certificate
Exhibit F Conversion Request
Exhibit G LC Request
Exhibit H Assignment
</TABLE>
(iv)
<PAGE>
CREDIT AGREEMENT
----------------
This Credit Agreement is entered into as of January 3, 1997, among The Vail
Corporation, a Colorado corporation doing business as "Vail Associates, Inc."
("BORROWER"), the Lenders (defined below), and NationsBank of Texas, N.A., as
Agent for itself and the other Lenders.
In consideration of the mutual covenants contained herein, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, Lenders, and Agent hereby agree as follows:
SECTION DEFINITIONS AND TERMS.
- -------- ---------------------
Definitions.
-----------
AFFILIATE means with respect to any Person (the "relevant Person") (i) any
other Person that directly, or indirectly through one or more intermediaries,
controls the relevant Person (a "Controlling Person") or (ii) any Person (other
than the relevant Person) which is controlled by or is under common control with
a Controlling Person. As used herein, the term "control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
AGENT means NationsBank of Texas, N.A., a national banking association, and
its successor or successors as agent for Lenders under this Agreement.
APPLICABLE MARGIN means, for any day, the margin of interest over the Base
Rate or LIBOR, as the case may be, that is applicable when any interest rate is
determined under this Agreement, as follows:
(a) With respect to the Revolving Credit Tranche and the Tranche A Term
Loan, the Applicable Margin is subject to adjustment (upwards or
downwards, as appropriate) based on the ratio of Funded Debt to Resort
EBITDA, as follows:
RATIO OF FUNDED DEBT APPLICABLE APPLICABLE
TO RESORT EBITDA MARGIN FOR MARGIN FOR
LIBOR BASE RATE
LOANS LOANS
Less than 2.00 to 1.00 0.500% 0.000%
Greater than or equal to 0.750% if Subordinated 0.000%
2.00 to 1.00, but less than Debt comprises 15% or less
2.75 to 1.00 of Funded Debt and 0.625%
if Subordinated Debt
comprises more than 15% of
Funded Debt
Greater than or equal to 1.000% if Subordinated 0.000%
2.75 to 1.00, but less than Debt comprises 15% or less
3.50 to 1.00 of Funded Debt and 0.875%
if Subordinated Debt
comprises more than 15% of
Funded Debt
<PAGE>
RATIO OF FUNDED DEBT APPLICABLE APPLICABLE
TO RESORT EBITDA MARGIN FOR MARGIN FOR
LIBOR BASE RATE
LOANS LOANS
Greater than or equal to 1.375% if Subordinated 0.000%
3.50 to 1.00, but less than Debt comprises 15% or less
4.00 to 1.00 of Funded Debt and 1.250%
if Subordinated Debt
comprises more than 15% of
Funded Debt
Greater than or equal to 1.750% if Subordinated 0.250% if
4.00 to 1.00 Debt comprises 15% or less Subordinated
of Funded Debt and 1.625% Debt comprises
if Subordinated Debt 15% or less of
comprises more than 15% of Funded Debt and
Funded Debt 0.125% if
Subordinated
Debt comprises
more than 15%
of Funded Debt
Prior to Agent's receipt of the Companies' consolidated unaudited Financial
Statements for the Companies' fiscal year ended September 30, 1997, the ratio of
Funded Debt to Resort EBITDA shall be deemed to be greater than 4.00 to 1.00
until the receipt of such Financial Statements (unless and until VRI has
received Net Equity Proceeds of at least $65,000,000, whereupon the ratio shall
be deemed to be greater than 2.75 to 1.00, but less than 3.50 to 1.00 until the
receipt of such Financial Statements).
After Agent's receipt of the Companies' consolidated unaudited Financial
Statements for the Companies' fiscal year ended September 30, 1997, the ratio of
Funded Debt to Resort EBITDA shall be calculated on a consolidated basis for the
Companies in accordance with GAAP for the most recently completed fiscal year of
the Companies for which results are available. The ratio shall be determined
from the Current Financials and any related Compliance Certificate. However, if
Borrower fails to furnish to Agent the Current Financials and any related
Compliance Certificate when required pursuant to SECTION 8.1, then the ratio
shall be deemed to be greater than 4.00 to 1.00 until Borrower furnishes the
required Current Financials and any related Compliance Certificate to Agent.
Furthermore, if the Companies' audited Financial Statements subsequently
delivered to Agent for such fiscal year pursuant to SECTION 8.1(A)(II) result in
a different ratio, such revised ratio (whether higher or lower) shall govern
effective as of the date of such delivery. For purposes of determining such
ratio, Resort EBITDA for any fiscal year shall include on a pro forma basis all
EBITDA for such period relating to assets acquired (including Restricted
Subsidiaries formed or organized) during such period, but shall exclude on a pro
forma basis all EBITDA for such period relating to any such assets disposed of
in accordance with this Agreement during such period.
(b) With respect to the Tranche B Term Loan, the Applicable Margin is (i)
2.250% for LIBOR Loans and 0.750% for Base Rate Loans, if Subordinated Debt
comprises 15% or less of Funded Debt, and (ii) 2.125% for LIBOR Loans and 0.625%
for Base Rate Loans, if Subordinated Debt comprises more than 15% of Funded
Debt. Notwithstanding the foregoing, if VRI receives Net Equity Proceeds of at
least $65,000,000 within 60 days after Borrower's receipt of clearance for the
Ralston Resorts Acquisition from the U.S. Justice Department under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, then
2
<PAGE>
the Applicable Margin for the Tranche B Term Loan is subject to adjustment
(upwards or downwards, as appropriate) based on the ratio of Funded Debt to
Resort EBITDA, as follows:
RATIO OF FUNDED DEBT APPLICABLE APPLICABLE
TO RESORT EBITDA MARGIN FOR MARGIN FOR
LIBOR BASE RATE
LOANS LOANS
Less than 2.00 to 1.00 0.625% 0.000%
Greater than or equal to 0.875% if Subordinated 0.000%
2.00 to 1.00, but less than Debt comprises 15% or less
2.75 to 1.00 of Funded Debt and 0.750%
if Subordinated Debt
comprises more than 15% of
Funded Debt
Greater than or equal to 1.125% if Subordinated 0.000%
2.75 to 1.00, but less than Debt comprises 15% or less
3.50 to 1.00 of Funded Debt and 1.000%
if Subordinated Debt
comprises more than 15% of
Funded Debt
Greater than or equal to 1.500% if Subordinated 0.000%
3.50 to 1.00, but less than Debt comprises 15% or less
4.00 to 1.00 of Funded Debt and 1.375%
if Subordinated Debt
comprises more than 15% of
Funded Debt
Greater than or equal to 1.875% if Subordinated 0.375% if
4.00 to 1.00 Debt comprises 15% or less Subordinated
of Funded Debt and 1.750% Debt comprises
if Subordinated Debt 15% or less of
comprises more than 15% of Funded Debt and
Funded Debt 0.250% if
Subordinated
Debt comprises
more than 15%
of Funded Debt
If VRI receives Net Equity Proceeds of at least $65,000,000 within 60 days
after Borrower's receipt of clearance for the Ralston Resorts Acquisition from
the U.S. Justice Department under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, then (x) prior to Agent's receipt of the Companies'
unaudited consolidated Financial Statements for the Companies' fiscal year ended
September 30, 1997, the ratio of Funded Debt to Resort EBITDA shall be deemed to
be greater than 2.75 to 1.00, but less than 3.50 to 1.00, and (y) thereafter,
the ratio shall be determined as described in the last paragraph of part (a)
above of this definition.
3
<PAGE>
APPLICABLE PERCENTAGE means, for any day, the commitment fee percentage
applicable under SECTION 4.4 when commitment fees are determined under this
Agreement. The Applicable Percentage is subject to adjustment (upwards or
downwards, as appropriate) based on the ratio of Funded Debt to Resort EBITDA,
as follows:
RATIO OF FUNDED DEBT APPLICABLE
TO RESORT EBITDA PERCENTAGE
Less than 2.00 to 1.00 0.200%
Greater than or equal to 2.00 to 0.250%
1.00, but less than 2.75 to 1.00
Greater than or equal to 2.75 to 0.300%
1.00, but less than 3.50 to 1.00
Greater than or equal to 3.50 to 0.375%
1.00, but less than 4.00 to 1.00
Greater than or equal to 4.00 to 0.500% if Subordinated
1.00 Debt comprises 15% or
less of Funded Debt and
0.375% if Subordinated
Debt comprises more than
15% of Funded Debt
The ratio of Funded Debt to Resort EBITDA shall be determined as described in
the second and third paragraphs of part (a) of the definition of "Applicable
Margin."
APOLLO means any one or more of the following: Apollo Advisors, L.P., a
Delaware limited partnership, or any fund, investment vehicle or account
managed, advised or controlled by Apollo Advisors, L.P., or any of its
Affiliates, other than the Companies.
BASE RATE means, for any day, the greater of (a) the annual interest rate
most recently announced by Agent as its prime rate (which may not necessarily
represent the lowest or best rate actually charged to any customer) in effect at
its principal office in Dallas, Texas, automatically fluctuating upward and
downward as specified in each announcement without special notice to Borrower or
any other Person, and (b) the sum of the Federal Funds Rate plus 0.5%.
BASE RATE LOAN means a Loan bearing interest at the sum of the Base Rate
plus the Applicable Margin.
BORROWER is defined in the preamble to this Agreement.
BUSINESS DAY means any day, other than Saturday, Sunday, and any other day
that commercial banks are authorized or required by Law to be closed in Texas or
New York or, for purposes of any LIBOR Loan, in London.
CAPITAL LEASE means any capital lease or sublease that has been (or under
GAAP should be) capitalized on a balance sheet.
4
<PAGE>
CHANGE OF CONTROL TRANSACTION means the occurrence of any transaction or
event, other than the issuance and sale in a public offering of equity
securities of VRI, as a result of which transaction or event Apollo shall cease
to possess, and some other Person shall obtain, in either case directly or
indirectly, the power to direct or cause the direction of the management or
policies of VRI, whether through the ownership of voting securities, by contract
or otherwise.
CLOSING DATE means the date on which counterparts of this Agreement have
been executed and delivered to Agent by each party hereto in accordance with
SECTION 14.11.
CODE means the Internal Revenue Code of 1986, as amended from time to time,
and related rules and regulations from time to time in effect.
COLLATERAL is defined in SECTION 5.2.
COLLATERAL AGENCY AGREEMENT means the Collateral Agency Agreement dated as
of November 23, 1993, among VHI, Borrower, Beaver Creek Associates, Inc.,
NationsBank of Texas, N.A., as agent for certain lenders to Borrower,
NationsBank of Texas, N.A., as Collateral Agent, and the Indenture Trustees for
the Vail Bonds named therein.
COMMITTED SUM means the aggregate amount (as reduced and canceled under
this Agreement) stated beside a Lender's name for the Facility on SCHEDULE 1 as
most recently amended under this Agreement.
COMPANIES means VRI and each of VRI's Restricted and Unrestricted
Subsidiaries now or hereafter existing.
COMPLIANCE CERTIFICATE means a certificate substantially in the form of
EXHIBIT E and signed by Borrower's Chief Financial Officer, together with the
calculation worksheet described therein.
CONVERSION REQUEST means a request substantially in the form of EXHIBIT F.
CURRENT FINANCIALS means, at any time, the consolidated Financial
Statements of the Companies most recently delivered to Agent under SECTION 6.1,
8.1(A) or 8.1(B), as the case may be.
DEBT of any Person means at any date, without duplication (and calculated
in accordance with GAAP), (a) all Funded Debt of such Person, (b) all
obligations of such Person to pay the deferred purchase price of property or
services, other than (i) obligations under employment contracts or deferred
employee compensation plans and (ii) trade accounts payable and other expenses
or payables arising in the ordinary course of business, (c) all Debt of others
secured by a Lien on any asset of such Person (or for which the holder of the
Debt has an existing Right, contingent or otherwise, to be so secured), whether
or not such Debt is assumed by such Person, and (d) all guarantees and other
contingent obligations (as a general partner or otherwise) of such Person with
respect to Debt of others.
DEBTOR RELIEF LAWS means the Bankruptcy Reform Act of 1978, as amended from
time to time, and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments or similar Laws affecting creditors' Rights from time to time in
effect.
DEFAULT is defined in SECTION 11.
DEFAULT RATE means an annual rate of interest equal from day to day to the
lesser of (a) the then-existing Base Rate plus 2%, and (b) the Maximum Rate.
DISTRIBUTION means, with respect to any shares of any capital stock or
other equity securities issued by a Person, (a) the retirement, redemption,
purchase or other acquisition for value of those securities by such Person, (b)
the payment of any dividend on or with respect to those securities by such
Person, (c) any loan or advance by that Person
5
<PAGE>
to, or other investment by that Person in, the holder of any of those
securities, and (d) any other payment by that Person with respect to those
securities.
EBITDA means earnings before interest expenses, taxes and non-cash
operating charges (such as depreciation and amortization expense), and
extraordinary gains and losses, calculated on a consolidated basis for the
Companies in accordance with GAAP.
EMPLOYEE PLAN means an employee pension benefit plan covered by Title IV of
ERISA and established or maintained by any Company.
ENVIRONMENTAL LAW means any Law that relates to the pollution or protection
of ambient air, water or land or to Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and related rules and regulations.
EXCESS CASH FLOW means, in respect of any period, the following, calculated
on a consolidated basis for the Restricted Companies in accordance with GAAP:
(a) net income (excluding gains from dispositions of assets), plus depreciation
and amortization expense, plus other noncash charges, minus other noncash income
for such period, minus (b) the sum of Scheduled Principal Payments, voluntary
prepayments of principal on the Term Loans and payments or prepayments of
principal on other non-revolving indebtedness during such period, plus capital
expenditures during such period (including permitted investments under SECTION
9.8(I)).
EXISTING CREDIT AGREEMENTS means (a) the Credit Agreement dated as of
November 23, 1993, among Borrower, NationsBank of Texas, N.A., as agent, and the
banks named therein (as amended by (i) the Amended and Restated Permanent Credit
Agreement dated as of February 7, 1994, (ii) the First Amendment to Amended and
Restated Permanent Credit Agreement dated as of June 1, 1994, (iii) the Second
Amended and Restated Credit Agreement dated as of March 31, 1995, and (iv) the
First Amendment to Second Amended and Restated Credit Agreement of even date
herewith), providing for credit in an amount up to $105,000,000, and (b) the
Credit Agreement dated as of March 31, 1995, among Borrower, NationsBank of
Texas, N.A., as agent, and the banks named therein, providing for credit in an
amount up to $30,000,000.
FACILITY means, collectively, the Revolving Credit Tranche, the Tranche A
Term Loan and the Tranche B Term Loan.
FEDERAL FUNDS RATE means, for any day, the annual rate (rounded upwards, if
necessary, to the nearest 0.01%) determined (which determination is conclusive
and binding, absent manifest error) by Agent to be equal to the weighted average
of the rates on overnight federal funds transactions with member banks of the
Federal Reserve System arranged by federal funds brokers on that day, as
published by the Federal Reserve Bank of New York on the next Business Day, or,
if those rates are not published for any day, the average of the quotations at
approximately 10:00 a.m. received by Agent from three federal funds brokers of
recognized standing selected by Agent in its sole discretion.
FINANCIAL HEDGE means a swap, collar, floor, cap or other contract between
Borrower and any Lender or an Affiliate of any Lender (or another Person
reasonably acceptable to Agent), which is intended to reduce or eliminate the
risk of fluctuations in interest rates and which is legal and enforceable under
applicable Law.
FINANCIAL STATEMENTS of a Person means balance sheets, profit and loss
statements, reconciliations of capital and surplus, and statements of cash flow
prepared (a) according to GAAP, and (b) other than as stated in SECTION 1.3, in
comparative form to prior year-end figures or corresponding periods of the
preceding fiscal year, as applicable.
FOREST SERVICE ASSIGNMENTS means, collectively (a) Assignments in Trust of
each of the Forest Service Permits, and (b) any replacement of all or any
portion of the foregoing, as contemplated by SECTION 5.3(B).
6
<PAGE>
FOREST SERVICE PERMITS means the Vail Forest Service Permits and the
Ralston Forest Service Permits.
FUNDED DEBT means the following, calculated on a consolidated basis for the
Restricted Companies in accordance with GAAP: (i) all obligations for borrowed
money (whether as a direct obligation on a promissory note, bond, zero coupon
bond, debenture or other similar instrument, or as an unfulfilled reimbursement
obligation on a drawn letter of credit or similar instrument, or otherwise),
plus (but without duplication) (ii) all Capital Lease obligations (other than
the interest component of such obligations) of any Restricted Company.
FUNDING LOSS means any loss or expense that any Lender reasonably incurs
because (a) Borrower fails or refuses (for any reason whatsoever, other than a
default by Agent or the Lender claiming such loss or expense) to take any Loan
that it has requested under this Agreement, or (b) Borrower pays any LIBOR Loan
or converts any LIBOR Loan to a Base Rate Loan, in each case, before the last
day of the applicable Interest Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
GUARANTOR means any Company which has executed and delivered a Guaranty.
GUARANTY means a guaranty substantially in the form of EXHIBIT B.
HAZARDOUS SUBSTANCE means any substance that is defined or classified as a
hazardous waste, hazardous material, pollutant, contaminant or toxic or
hazardous substance under any Environmental Law.
INTELLECTUAL PROPERTY means (a) common law, federal statutory, state
statutory and foreign trademarks or service marks (including, without
limitation, all registrations and pending applications and the goodwill of the
business symbolized by or conducted in connection with any such trademark or
service mark), trademark or service mark licenses and all proceeds of trademarks
or service marks (including, without limitation, license royalties and proceeds
from infringement suits), (b) United States and foreign patents (including,
without limitation, all pending applications, continuations, continuations-in-
part, divisions, reissues, substitutions and extensions of existing patents or
applications), patent licenses and all proceeds of patents (including, without
limitation, license royalties and proceeds from infringement suits), (c)
copyrights (including, without limitation, all registrations and pending
applications), copyright licenses and all proceeds of copyrights (including,
without limitation, license royalties and proceeds from infringement suits), and
(d) trade secrets, but does not include (i) any licenses (including, without
limitation, liquor licenses) or any permits (including, without limitation,
sales tax permits) issued by a Tribunal and in which (y) the licensee's or
permittee's interest is defeasible by such Tribunal and (z) the licensee or
permittee has no right beyond the terms, conditions and periods of the license
or permit, or (ii) trade names or "dba"s to the extent they do not constitute
trademarks or service marks.
INTEREST PERIOD is determined in accordance with SECTION 3.9.
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees and judgments.
LC means (a) the Smith Creek LC and each existing letter of credit issued
by Agent for the account of any of the Companies and described on SCHEDULE 2.3,
and (b) each other letter of credit (in such form as shall be customary in
respect of obligations of a similar nature and as shall be reasonably requested
by Borrower) issued by Agent under this Agreement and an LC Agreement.
LC AGREEMENT means a letter of credit application and agreement (in form
and substance satisfactory to Agent in its reasonable discretion) submitted by
Borrower to Agent for an LC for the account of any Company.
7
<PAGE>
LC EXPOSURE means, without duplication, the sum of (a) the aggregate face
amount of all undrawn and uncancelled LCs, plus (b) the aggregate unpaid
reimbursement obligations of Borrower under drawings or drafts under any LC.
LC REQUEST means a request substantially in the form of EXHIBIT G.
LC SUBFACILITY means a subfacility under the Revolving Credit Tranche for
the issuance of LCs, as described in SECTION 2.3.
LENDERS means each of the lenders named on the attached SCHEDULE 1 or on
the most recently amended SCHEDULE 1, if any, delivered by Agent under this
Agreement, and, subject to this Agreement, their respective successors and
assigns (but not any Participant who is not otherwise a party to this
Agreement).
LIBOR means, with respect to any LIBOR Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "LIBOR" shall mean, for any LIBOR Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page (or any successor
page or any successor service for the purpose of displaying London interbank
offered rates of major banks) as the London interbank offered rate for deposits
in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on Reuters Screen
LIBO Page (or any successor page), the applicable rate shall be the arithmetic
mean of all such rates.
LIBOR LOAN means a Loan bearing interest at the sum of LIBOR plus the
Applicable Margin.
LIEN means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, a Person shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
LITIGATION means any action by or before any Tribunal.
LOAN means any amount disbursed by any Lender to Borrower or on behalf of
any Company under the Loan Papers, either as an original disbursement of funds,
the continuation of an amount outstanding, or payment under an LC.
LOAN DATE is defined in SECTION 2.2(A).
LOAN PAPERS means (a) this Agreement and the Notes, (b) the Security
Documents and documents related thereto and each Guaranty, (c) all LCs and LC
Agreements, (d) any Financial Hedge between Borrower and any Lender or an
Affiliate of any Lender, and (e) all renewals, extensions and restatements of,
and amendments and supplements to, any of the foregoing.
LOAN REQUEST means a request substantially in the form of EXHIBIT D.
MATERIAL ADVERSE EVENT means any (a) material impairment of the ability of
the Restricted Companies as a whole to perform their payment or other material
obligations under the Loan Papers or material impairment of the ability of Agent
or any Lender to enforce any of the material obligations of the Restricted
Companies as a whole under the Loan Papers, or (b) material and adverse effect
on the financial condition of the Restricted Companies as a whole.
8
<PAGE>
MATERIAL AGREEMENT means, for any Person, any agreement (excluding purchase
orders for material, services or inventory in the ordinary course of business)
to which that Person is a party, by which that Person is bound, or to which any
assets of that Person may be subject, and that is not cancelable by that Person
upon 30 or fewer days' notice without liability for further payment, other than
nominal penalty, and that requires that Person to pay more than $2,000,000
during any 12-month period.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, such Lender is permitted to contract for, charge, take,
reserve or receive on the Obligation held by such Lender.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in Sections 3(37)
or 4001(a)(3) of ERISA or Section 414(f) of the Code to which any Company (or
any Person that, for purposes of Title IV of ERISA, is a member of Borrower's
controlled group or is under common control with Borrower within the meaning of
Section 414 of the Code) is making, or has made, or is accruing, or has accrued,
an obligation to make contributions.
NET EQUITY PROCEEDS means the net cash proceeds received by the Companies
from the issuance and sale of equity securities.
NOTE means a promissory note substantially in the form of EXHIBIT A-1, A-2,
or A-3, as amended, supplemented or restated.
OBLIGATION means all present and future indebtedness and obligations, and
all renewals, increases and extensions thereof, or any part thereof, now or
hereafter owed to Agent and Lenders by the Companies under the Loan Papers,
together with all interest accruing thereon, fees, costs and expenses
(including, without limitation, all attorneys' fees and expenses incurred in the
enforcement or collection thereof) payable under the Loan Papers or in
connection with the protection of Rights under the Loan Papers.
PARTICIPANT is defined in SECTION 14.12(B).
PBGC means the Pension Benefit Guaranty Corporation, or any successor
thereof, established under ERISA.
PERMITTED DEBT means:
(a) the Obligation;
(b) amounts owed, and all guarantee obligations in existence on
the date hereof of any Company, in connection with the Vail Bonds and the
Ralston Bonds;
(c) Subordinated Debt of VRI, VHI or Borrower and Debt incurred to
refinance VRI's 12- 1/4% Senior Subordinated Notes Due 2002;
(d) Debt arising from endorsing negotiable instruments for
collection in the ordinary course of business;
(e) contingent obligations of Borrower under the $10,115,000
Standby Bond Purchase Agreement between Borrower and Colorado National
Bank, as Trustee, dated July 9, 1996;
(f) in addition to the foregoing, (i) Debt of Unrestricted
Subsidiaries which is non-recourse to the Restricted Companies and their
assets, (ii) fees and other amounts payable under the Forest Service
Permits in the ordinary course of business, and (iii) inter-Company Debt
between Restricted Companies;
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(g) approximately $3,000,000 remaining outstanding under a
$4,500,000 term loan payable by Ralston Resorts to National Australia Bank
Limited in connection with the Keystone Conference Center and refinancings
thereof; and
(h) in addition to the foregoing, up to $40,000,000 of additional
Debt of the Companies in the aggregate at any point in time.
PERMITTED LIENS means:
(a) Liens directly securing the Obligation;
(b) Liens created by, or pursuant to, the Collateral Agency
Agreement for the benefit of the holders of the Vail Bonds and the Debt
Service Reserve Funds established pursuant to the Loan Agreements
described in the Collateral Agency Agreement;
(c) Liens on the amounts in the Bond Fund, Redemption Fund and
Rebate Fund established and maintained in accordance with the provisions of
the documents executed in connection with the issuance of the Ralston
Bonds;
(d) Liens on assets of Unrestricted Subsidiaries securing Debt
which is non-recourse to the Restricted Companies and their assets;
(e) purchase money liens which encumber only the assets acquired;
(f) pledges or deposits made to secure payment of workers'
compensation, unemployment insurance or other forms of governmental
insurance or benefits or to participate in any fund in connection with
workers' compensation, unemployment insurance, pensions or other social
security programs;
(g) good-faith pledges or deposits made to secure performance of
bids, tenders, contracts (other than for the repayment of borrowed money)
or leases, or to secure statutory obligations, surety or appeal bonds or
indemnity, performance or other similar bonds in the ordinary course of
business;
(h) encumbrances and restrictions on the use of real property
which do not materially impair the use thereof;
(i) the following, if either (1) no amounts are due and payable
and no Lien has been filed or agreed to, or (2) the validity or amount
thereof is being contested in good faith by lawful proceedings diligently
conducted, reserve or other provision required by GAAP has been made,
levy and execution thereon have been (and continue to be) stayed or
payment thereof is covered in full (subject to the customary deductible)
by insurance: (i) Liens for Taxes; (ii) Liens upon, and defects of title
to, property, including any attachment of property or other legal process
prior to adjudication of a dispute on the merits; (iii) Liens imposed by
operation of law (including, without limitation, Liens of mechanics,
materialmen, warehousemen, carriers and landlords, and similar Liens);
and (iv) adverse judgments on appeal;
(j) any interest or title of a lessor or licensor in assets
being leased or licensed to a Company;
(k) licenses, leases or subleases granted to third Persons which
do not interfere in any material respect with the business conducted by the
Companies;
(l) any Lien on any asset of any corporation that becomes a
Subsidiary of VRI, which Lien exists at the time such corporation becomes
a Subsidiary of VRI and is not created in contemplation thereof;
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(m) in respect of Water Rights, the provisions of the instruments
evidencing such Water Rights and any matter affecting such Water Rights
which does not affect the Companies' rights to sufficient quantity and
quality of water to conduct business as in effect on the date hereof or
any expansion planned as of the date hereof (including, without
limitation, any Lien of the Colorado Water Conservation Board, or its
successors and assigns, on stock owned by any Company in a Colorado ditch
and reservoir company formed in accordance with the Colorado Corporation
Code, as amended);
(n) in respect of the Forest Service Permits, the provisions
of the instruments evidencing such permits and all rights of the United
States and its agencies with respect thereto or with respect to the land
affected thereby; and
(o) Liens on cash accounts not to exceed $250,000 in the
aggregate at the FirstBank of Vail established in connection with
collateralizing a portion, if any, of certain second mortgage loans made
by such bank, and guaranteed by Borrower, as part of the Vail Associates
Home Mortgage Program for Borrower's employees.
PERSON means any individual, partnership, entity or Tribunal.
PLEDGE AGREEMENTS means the following, each of even date herewith and
substantially in the form of EXHIBIT C: (a) Pledge Agreement from VRI relating
to the capital stock issued by VHI and each of VRI's other direct Restricted
Subsidiaries, (b) Pledge Agreement from VHI relating to the capital stock issued
by Borrower, (c) Pledge Agreement from Borrower relating to the capital stock
issued by Ralston Resorts and Borrower's other direct Restricted Subsidiaries,
(d) Pledge Agreement from Ralston Resorts relating to the capital stock issued
by its Restricted Subsidiaries and its Rights with respect to Distributions from
Keystone/Intrawest L.L.C., (e) Pledge Agreement from Vail Associates Real Estate
Group, Inc., relating to the capital stock issued by its direct Restricted
Subsidiaries, (f) Pledge Agreement from Beaver Creek Associates, Inc., relating
to the capital stock issued by its Restricted Subsidiary, and (g) Pledge
Agreement from Vail Associates Real Estate, Inc., relating to the capital stock
issued by its Restricted Subsidiary and its 50% ownership interest in Slifer,
Smith & Frampton/Vail Associates Real Estate, L.L.C.
POTENTIAL DEFAULT means the occurrence of any event or existence of any
circumstance that would, upon notice or lapse of time or both, become a Default.
PRINCIPAL DEBT means, at any time, the unpaid principal balance of all
Loans.
PRO RATA and PRO RATA PART means, when determined for any Lender, (a) with
respect to the Revolving Credit Tranche, if no Principal Debt is outstanding,
the proportion (stated as a percentage) that its commitment for such Tranche
bears to Lenders' aggregate commitment for such Tranche, or if any Principal
Debt is outstanding, the proportion (stated as a percentage) that its Principal
Debt under such Tranche bears to all such Principal Debt, (b) with respect to
the Tranche A Term Loan or the Tranche B Term Loan, the proportion (stated as a
percentage) that its Principal Debt under such Tranche bears to all such
Principal Debt, and (c) with respect to the Facility as a whole, if no Default
or Potential Default exists, the proportion (stated as a percentage) that its
Committed Sum bears to the Total Commitment, or if a Default or Potential
Default exists, the proportion (stated as a percentage) that the Principal Debt
owed to it bears to the aggregate Principal Debt owed to all Lenders.
PURCHASER is defined in SECTION 14.12(C).
QUARTERLY DATE means each March 31, June 30, September 30 and December 31.
RALSTON BONDS means (a) the Summit County, Colorado, Sports Facilities
Refunding Revenue Bonds (Keystone Resorts Management, Inc. Project) Series 1990,
in the original principal amount of $20,360,000, (b) the Summit County,
Colorado, Sports Facilities Refunding Revenue Bonds (Keystone Resorts
Management, Inc. Project) Series 1991, in the original principal amount of
$3,000,000, and (c) refinancings of any of the foregoing.
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RALSTON FOREST SERVICE PERMITS means (a) Term Special Use Permit Holder No.
5289-01 for Keystone ski area issued by the Service to Ralston Resorts on
December 31, 1996, and expiring on December 31, 2032; (b) Term Special Use
Permit Holder No. 5289-04 for Breckenridge ski area issued by the Service to
Ralston Resorts on December 31, 1996, and expiring on December 31, 2029; (c)
Term Special Use Permit Holder No. 5289-02 for Arapahoe Basin ski area issued by
the Service to Ralston Resorts on December 31, 1996, and expiring on December
31, 2029; and (d) any replacements of any of the foregoing, as contemplated by
SECTION 5.3(B).
RALSTON RESORTS means Ralston Resorts, Inc., a Colorado corporation.
RALSTON RESORTS ACQUISITION means Borrower's acquisition of all of the
capital stock of Ralston Resorts from Ralston Foods, Inc., pursuant to the Stock
Purchase Agreement.
REPRESENTATIVES means representatives, officers, directors, employees,
attorneys and agents.
REQUIRED LENDERS means Lenders holding more than (a) 50% of the Total
Commitment, if no Default or Potential Default exists, or (b) 50% of the
outstanding Principal Debt, if a Default or Potential Default exists.
RESERVE REQUIREMENT means, with respect to any LIBOR Loan for the relevant
Interest Period, the maximum aggregate reserve requirements (including all
basic, supplemental, emergency, special, marginal and other reserves required by
applicable Law) applicable to a member bank of the Federal Reserve System for
eurocurrency fundings or liabilities.
RESORT EBITDA means EBITDA, minus EBITDA related to real estate activities,
and minus any portion of EBITDA attributable to Unrestricted Subsidiaries.
RESPONSIBLE OFFICER means the chairman, president, chief executive officer
or chief financial officer of Borrower.
RESTRICTED COMPANY means VRI, VHI, Borrower and all of VRI's other direct
and indirect Subsidiaries (other than Unrestricted Subsidiaries).
RESTRICTED SUBSIDIARY means VHI, Borrower and all of VRI's other direct and
indirect Subsidiaries (other than Unrestricted Subsidiaries).
REVOLVING CREDIT COMMITMENT means the amount (as reduced and canceled under
this Agreement) so designated beside a Lender's name on SCHEDULE 1 as most
recently amended under this Agreement.
REVOLVING CREDIT COMMITMENT USAGE means, at any time, the sum of (a) the
aggregate Principal Debt under the Revolving Credit Tranche, plus (b) the LC
Exposure.
REVOLVING CREDIT TERMINATION DATE means the earlier of (a) April 15, 2003,
and (b) the effective date that the Lenders' commitments to lend under this
Agreement are otherwise canceled or terminated.
REVOLVING CREDIT TRANCHE is defined in SECTION 2.1.
RIGHTS means rights, remedies, powers, privileges and benefits.
SCHEDULED PRINCIPAL PAYMENTS means the installments of principal due on the
Term Loans as described on SCHEDULE 3.2.
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SECURITY DOCUMENTS means, collectively, the Pledge Agreements, the Forest
Service Assignments and any other security agreements or similar documents
entered into by any Restricted Company from time to time pursuant to the Loan
Papers, as amended, supplemented or restated.
SERVICE means the United States Department of Agriculture Forest Service or
any successor agency.
SMITH CREEK BONDS means all Smith Creek Metropolitan District, Eagle
County, Colorado Variable Rate Revenue Bonds, the initial series of which was
Series 1995 in the original principal amount of $26,000,000.
SMITH CREEK INDENTURE means the Trust Indenture dated as of April 1, 1995,
by and between Smith Creek Metropolitan District, as Issuer, and the Smith Creek
Trustee, relating to the Smith Creek Bonds.
SMITH CREEK LC means an irrevocable transferable LC issued to the Smith
Creek Trustee, under the terms of which it will be entitled to draw, with
respect to the applicable series of Smith Creek Bonds, up to (a) an amount
sufficient to pay (i) the principal of the "Outstanding Bonds" (as defined in
the Smith Creek Indenture) when due, or (ii) the portion of the purchase price
of Outstanding Bonds tendered or deemed tendered for purchase in accordance with
the Smith Creek Indenture and not subsequently remarketed corresponding to the
principal amount of such bonds, plus (b) an amount equal to approximately 210
days of accrued interest on the Outstanding Bonds (at 12% per annum or such
higher rate as the Smith Creek Trustee may designate in accordance with the
Smith Creek Indenture), to pay (i) interest on the Outstanding Bonds when due,
or (ii) the portion of the purchase price of Outstanding Bonds tendered or
deemed tendered for purchase in accordance with the Smith Creek Indenture and
not subsequently remarketed corresponding to accrued interest then due on such
bonds. The initial Smith Creek LC issued in connection with the Series 1995
Smith Creek Bonds, which will expire on October 15, 1999, will constitute an LC
issued under this Agreement.
SMITH CREEK TRUSTEE means Key Bank of Colorado, as the Trustee under the
Smith Creek Trust Indenture.
SOLVENT means, as to a Person, that (a) the aggregate fair market value of
its assets exceeds its liabilities, (b) it has sufficient cash flow to enable it
to pay its Debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
STOCK PURCHASE AGREEMENT means the Stock Purchase Agreement dated July 22,
1996, among VRI, Ralston Foods, Inc., and Ralston Resorts, as amended.
SUBORDINATED DEBT means (a) VRI's 12- 1/4% Senior Subordinated Notes Due
2002, currently in the amount of $62,647,000 and (b) any other unsecured
indebtedness for borrowed money for which a Company is directly and primarily
obligated that (i) does not have any stated maturity before the latest maturity
of any part of the Obligation if such indebtedness was created after the Closing
Date, (ii) has terms that are no more restrictive upon the Company than the
terms of the Loan Papers, and (iii) is subordinated, upon terms satisfactory to
Agent, to the payment and collection of the Obligation.
SUBSIDIARY means with respect to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person.
TAXES means, for any Person, taxes, assessments or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises or assets.
TERM LOANS means the Tranche A Term Loan and the Tranche B Term Loan.
TOTAL COMMITMENT means, at any time, the sum of all Committed Sums for all
Lenders (as reduced or canceled under this Agreement) then in effect.
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TRANCHE means each of the Revolving Credit Tranche, the Tranche A Term Loan
and the Tranche B Term Loan.
TRANCHE A COMMITMENT means the amount (as reduced or canceled under this
Agreement) so designated beside a Lender's name on SCHEDULE 1 as most recently
amended under this Agreement.
TRANCHE A TERMINATION DATE means the earlier of (a) April 15, 2003, and (b)
the effective date that Lenders' commitments to lend under this Agreement are
otherwise canceled or terminated.
TRANCHE A TERM LOAN is defined in SECTION 2.1(B).
TRANCHE B COMMITMENT means the amount (as reduced or canceled under this
Agreement) so designated beside a Lender's name on SCHEDULE 1 as most recently
amended under this Agreement.
TRANCHE B TERMINATION DATE means the earlier of (a) April 15, 2004, and (b)
the effective date that Lenders' commitments to lend under this Agreement are
otherwise canceled or terminated.
TRANCHE B TERM LOAN is defined in SECTION 2.1(C).
TRIBUNAL means any (a) local, state, or federal judicial, executive, or
legislative instrumentality, (b) private arbitration board or panel, or (c)
central bank.
TYPE means any type of Loan determined with respect to the applicable
interest option.
UCP means The Uniform Customs and Practice for Documentary Credits, 1993
Revision, International Chamber of Commerce Publication No. 500 (as amended or
modified).
UNRESTRICTED SUBSIDIARY means Vail Associates Investments, Inc., and any
newly-formed Subsidiary created by Borrower pursuant to SECTION 8.12 (which may
be a partnership, joint venture, corporation or other entity) (a) which does not
own any Forest Service Permit or the stock of any Restricted Company (regardless
of whether the Liens of the Security Documents relating to such assets have been
released) or any of the assets described on SCHEDULE 2, (b) which has (and whose
other partners, joint venturers or shareholders have) no Debt or other material
obligation which is recourse to any Restricted Company or to the assets of any
Restricted Company (other than with respect to limited guarantees or other
recourse agreements of the Companies which are permitted to be incurred
hereunder within the $40,000,000 of recourse Debt allowed under clause (h) of
the definition of "Permitted Debt"), and (c) which has been designated by
Borrower as an Unrestricted Subsidiary by notice to Agent.
VAIL BONDS means (a) the Eagle County, Colorado, Sports Facilities Revenue
Refunding Bonds (Beaver Creek Associates Project) Series 1992, in the original
principal amount of $19,600,000, (b) the Eagle County, Colorado, Sports and
Housing Facilities Refunding Bonds (Vail Associates Project) Series 1992, in the
original principal amount of $21,600,000, and (c) refinancings of any of the
foregoing.
VAIL FOREST SERVICE PERMITS means (a) Ski Area Term Special Use Permit
Holder No. 4056/01 issued by the Service to Borrower for the Vail ski area on
November 23, 1993, and expiring on October 31, 2031; (b) Term Special Use Permit
No. Holder 4191/01 issued by the Service to Borrower's wholly-owned subsidiary,
Beaver Creek Associates, Inc., for the Beaver Creek ski area on January 29,
1980, and expiring on December 31, 2006; (c) Special Use Permit Holder No.
4191/02 issued by the Service to Beaver Creek Associates, Inc., on January 29,
1980, to supplement Term Special Use Permit Holder No. 4191/01, and expiring on
December 31, 2006; and (d) any replacements of any of the foregoing, as
contemplated by SECTION 5.3(B).
VHI means Vail Holdings, Inc., a Colorado corporation and the direct owner
of Borrower.
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VRI means Vail Resorts, Inc., a Delaware corporation and the indirect owner
of Borrower.
WATER RIGHTS means all water rights and conditional water rights that are
appurtenant to real property owned by the Companies or that have been used or
are intended for use in connection with the conduct of the business of the
Companies, including but not limited to (a) ditch, well, pipeline, spring and
reservoir rights, whether or not adjudicated or evidenced by any well or other
permit, (b) all rights with respect to groundwater underlying any real property
owned by the Companies, (c) any permit to construct any water well, water from
which is intended to be used in connection with such real property, and (d) all
right, title and interest of the Companies under any decreed or pending plan of
augmentation or water exchange plan.
1.2 Number and Gender of Words. The singular number includes the plural
--------------------------
where appropriate and vice versa, and words of any gender include each other
gender where appropriate.
1.3 Accounting Principles. Under the Loan Papers and any documents
---------------------
delivered thereunder, unless otherwise stated, (a) GAAP in effect on the date of
this Agreement determines all accounting and financial terms and compliance with
financial covenants, (b) otherwise, all accounting principles applied in a
current period must be comparable in all material respects to those applied
during the preceding comparable period, and (c) while VRI has any consolidated
Restricted Subsidiaries, all accounting and financial terms and compliance with
financial covenants must be on a consolidating and consolidated basis, as
applicable.
SECTION 2 COMMITMENT.
- --------- ----------
2.1 Credit Facility.
---------------
(a) Subject to the provisions in the Loan Papers, each Lender shown on
SCHEDULE 1 as providing a Revolving Credit Commitment hereby severally and
not jointly agrees to lend to Borrower its Pro Rata Part (in accordance
with its Revolving Credit Commitment) of one or more revolving Loans in an
aggregate principal amount outstanding at any time up to such Lender's
Revolving Credit Commitment which Borrower may borrow, repay, and reborrow
under this Agreement (collectively for all Lenders, the "REVOLVING CREDIT
TRANCHE"). Revolving Credit Loans are subject to the following conditions:
(i) Each Revolving Credit Loan must occur on a Business Day and
no later than the Business Day immediately preceding the Revolving
Credit Termination Date;
(ii) Each Revolving Credit Loan must be in an amount not less
than (i) $500,000 or a greater integral multiple of $100,000 (if a
Base Rate Loan), or (ii) $1,000,000 or a greater integral multiple of
$100,000 (if a LIBOR Loan);
(iii) When determined, (i) Revolving Credit Commitment Usage may
not exceed the aggregate commitment under the Revolving Credit Tranche
(as such amount is reduced and canceled in accordance with this
Agreement), and (ii) for any Lender, its Pro Rata Part of the
Revolving Credit Commitment Usage may not exceed such Lender's
Revolving Credit Commitment; and
(iv) During each fiscal year of the Companies there must be a
period of at least 30 consecutive days (which period must include
April 15th of such year) when the unused portion of the aggregate
commitment under the Revolving Credit Tranche equals or exceeds
$50,000,000.
(b) Subject to the provisions in the Loan Papers, each Lender shown on
SCHEDULE 1 as providing a Tranche A Commitment hereby severally and not
jointly agrees to lend to Borrower on the Closing Date its part of a single
disbursement of funds in the amount of such Lender's Tranche A Commitment
which, when repaid, may not be reborrowed hereunder (collectively for all
Lenders, the "TRANCHE A TERM LOAN").
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(c) Subject to the provisions in the Loan Papers, each Lender shown on
SCHEDULE 1 as providing a Tranche B Commitment hereby severally and not
jointly agrees to lend to Borrower on the Closing Date its part of a single
disbursement of funds in the amount of such Lender's Tranche B Commitment
which, when repaid, may not be reborrowed hereunder (collectively for all
Lenders, the "TRANCHE B TERM LOAN").
2.2 Loan Procedure.
--------------
(a) Borrower may request a Loan by submitting to Agent a Loan Request,
which is irrevocable and binding on Borrower. It must be received by Agent
no later than 1:00 p.m. on the third Business Day preceding the date on
which funds are requested (the "LOAN DATE") for any LIBOR Loan or no later
than 1:00 p.m. on the Business Day immediately preceding the Loan Date for
any Base Rate Loan. Agent shall promptly notify each Lender of its receipt
of any Loan Request and its contents.
(b) Each Lender shall remit its applicable Pro Rata Part of each
requested Loan under a Tranche for which such Lender has provided a
commitment to Agent's principal office in Dallas, Texas, in funds that are
available for immediate use by Agent by 11:00 a.m. on the applicable Loan
Date. Subject to receipt of such funds, Agent shall (unless to its actual
knowledge any of the applicable conditions precedent have not been
satisfied by Borrower or waived by Required Lenders) make such funds
available to Borrower as directed in the Loan Request.
(c) Absent contrary written notice from a Lender, Agent may assume
that each Lender which has provided a commitment for the relevant Tranche
has made its Pro Rata Part of the requested Loan available to Agent on the
applicable Loan Date, and Agent may, in reliance upon such assumption (but
shall not be required to), make available to Borrower a corresponding
amount. If a Lender fails to make such Pro Rata Part of any requested Loan
available to Agent on the applicable Loan Date, Agent may recover the
applicable amount on demand (i) from that Lender, together with interest at
the Federal Funds Rate during the period commencing on the date the amount
was made available to Borrower by Agent and ending on (but excluding) the
date Agent recovers the amount from that Lender, or (ii), if that Lender
fails to pay its amount upon demand, then from Borrower, together with
interest at an annual interest rate equal to the rate applicable to the
requested Loan during the period commencing on the Loan Date and ending on
(but excluding) the date Agent recovers the amount from Borrower. No Lender
is responsible for the failure of any other Lender to fund any part of any
Loan.
2.3 LC Subfacility.
--------------
(a) Subject to the terms and conditions of this Agreement and
applicable Law, Agent agrees to issue LCs under the Revolving Credit
Tranche upon Borrower's delivery of an LC Request and an LC Agreement, each
of which must be received by Agent no later than 1:00 p.m. on the third
Business Day preceding the date on which the requested LC is to be issued;
provided that the LC Exposure may not exceed $60,000,000 and the Revolving
Credit Commitment Usage may not exceed the aggregate commitment under the
Revolving Credit Tranche (as such amount is reduced and canceled in
accordance with this Agreement). Each LC (other than Smith Creek LCs) must
expire no later than 13 months from its issuance; provided that any LC
(other than Smith Creek LCs) may, at Borrower's request, provide that it is
self-extending upon its expiration date for successive periods of 6 to 12
months each (as selected by Borrower), unless Agent has given the
beneficiary thereunder at least 30 days (but no more than 120 days) prior
written notice to the contrary (provided, however, that such notice shall
in no event be given by Agent unless (i) Agent is directed so to do by
Borrower or (ii) a Default exists). Amounts drawn under Smith Creek LCs are
subject to reinstatement upon the terms set forth therein. In no event may
any LC have an expiration date later than the Revolving Credit Termination
Date.
(b) Immediately upon Agent's issuance of any LC, Agent shall be deemed
to have sold and transferred to each Lender with a Revolving Credit
Commitment, and each such Lender shall be deemed
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irrevocably and unconditionally to have purchased and received from Agent,
without recourse or warranty, an undivided interest and participation (to
the extent of such Lender's Pro Rata Part of the Revolving Credit Tranche)
in the LC and all applicable Rights of Agent in the LC (other than Rights
to receive the fronting fees provided for in SECTION 4.3). Agent shall
provide a copy of each LC to each such Lender promptly after issuance.
(c) To induce Agent to issue and maintain LCs, and to induce Lenders
to participate in issued LCs, Borrower agrees to pay or reimburse Agent (i)
on or before the date when any draft or draw request is presented under any
LC, the amount paid or to be paid by Agent (subject to a credit, in the
case of a Smith Creek LC, for any portion of such reimbursement received by
Agent directly from the Smith Creek Trustee for the account of Borrower
under the Smith Creek Indenture) and (ii) promptly, upon demand, the amount
of any additional fees Agent customarily charges for the application and
issuance of an LC, for amending LC Agreements, for honoring drafts and draw
requests, and taking similar action in connection with letters of credit.
If Borrower (or, in the case of a drawing under a Smith Creek LC, the Smith
Creek Trustee) has not reimbursed Agent for any drafts or draws paid or to
be paid and Borrower has not requested a Loan to fund such reimbursement
obligations within 24 hours following Agent's demand for reimbursement,
Agent is irrevocably authorized to fund Borrower's reimbursement
obligations as a Loan under the Revolving Credit Tranche(and the proceeds
of the Loan shall be advanced directly to Agent to pay Borrower's unpaid
reimbursement obligations). If funds cannot be advanced under the Revolving
Credit Tranche because the Revolving Credit Commitment has been terminated
under SECTION 12.1, then Borrower's reimbursement obligation shall
constitute a demand obligation. Borrower's obligations under this SECTION
2.3(C) are absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense (other than payment)
that Borrower may have at any time against Agent or any other Person. Agent
shall promptly distribute reimbursement payments received from Borrower to
all Lenders according to their Pro Rata Part of the Revolving Credit
Tranche. From the date due to the date paid, unpaid reimbursement amounts
accrue interest that is payable on demand at the Default Rate.
(d) Agent shall promptly notify Borrower of the date and amount of any
draft or draw request presented for honor under any LC and the date and
amount of any payment by Agent in connection therewith (but failure to give
notice will not affect Borrower's obligations under this Agreement). Agent
shall pay the requested amount upon presentment of a draft or draw request
unless presentment on its face does not comply with the terms of the
applicable LC. When making payment, Agent may disregard (i) any default or
potential default that exists under any other agreement and (ii)
obligations under any other agreement that have or have not been performed
by the beneficiary or any other Person (and Agent is not liable for any of
those obligations). Borrower's reimbursement obligations to Agent and
Lenders, and each Lender's obligations to Agent, under this SECTION 2.3 are
absolute and unconditional irrespective of, and Agent is not responsible
for, (i) the validity, enforceability, sufficiency, accuracy or genuineness
of documents or endorsements (even if they are in any respect invalid,
unenforceable, insufficient, inaccurate, fraudulent or forged), (ii) any
dispute by any Company with or any Company's claims, setoffs, defenses
(other than payment), counterclaims or other Rights against Agent, any
Lender or any other Person, or (iii) the occurrence of any Potential
Default or Default.
(e) If Borrower (or, in the case of a drawing under a Smith Creek LC,
the Smith Creek Trustee) fails to reimburse Agent as provided in SECTION
2.3(C) within 24 hours after Agent's demand for reimbursement, and funds
cannot be advanced under the Revolving Credit Tranche to satisfy the
reimbursement obligations, Agent shall promptly notify each Lender of
Borrower's failure, of the date and amount paid, and of each Lender's Pro
Rata Part under the Revolving Credit Tranche of the unreimbursed amount.
Each Lender shall promptly and unconditionally make available to Agent in
immediately available funds such Pro Rata Part of the unpaid reimbursement
obligation. Funds are due and payable to Agent before the close of business
on the Business Day when Agent gives notice to each Lender of Borrower's
reimbursement failure (if notice is received by such Lender before 2:00
p.m.) (in the time zone where such Lender's office listed on SCHEDULE 1 is
located) or on the next succeeding Business Day (if received after 2:00
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p.m.). All amounts payable by any Lender accrue interest at the Federal
Funds Rate from the day the applicable draft or draw is paid by Agent to
(but not including) the date the amount is paid by the Lender to Agent.
(f) Borrower acknowledges that each LC is deemed issued upon delivery
to the beneficiary or Borrower. If Borrower requests any LC be delivered to
Borrower rather than the beneficiary, and Borrower subsequently cancels
that LC, Borrower agrees to return it to Agent together with Borrower's
written certification that it has never been delivered to the beneficiary.
If any LC is delivered to the beneficiary under Borrower's instructions,
Borrower's cancellation is ineffective without Agent's receipt of the
beneficiary's written consent and the LC. BORROWER SHALL INDEMNIFY AGENT
FOR ALL LOSSES, COSTS, DAMAGES, EXPENSES AND REASONABLE ATTORNEYS' FEES
SUFFERED OR INCURRED BY AGENT RESULTING FROM ANY DISPUTE CONCERNING
BORROWER'S CANCELLATION OF ANY LC.
(g) Agent agrees with each Lender that it will exercise and give the
same care and attention to each LC as it gives to its other letters of
credit. Each Lender and Borrower agree that, in paying any draft or draw
under any LC, Agent has no responsibility to obtain any document (other
than any documents expressly required by the respective LC) or to ascertain
or inquire as to any document's validity, enforceability, sufficiency,
accuracy or genuineness or the authority of any Person delivering it.
Neither Agent nor its Representatives will be liable to any Lender or any
Company for any LC's use or for any beneficiary's acts or omissions. Any
action, inaction, error, delay or omission taken or suffered by Agent or
any of its Representatives in connection with any LC, applicable draws,
drafts or documents, or the transmission, dispatch or delivery of any
related message or advice, if in good faith and in conformity with
applicable Laws and in accordance with the standards of care specified in
the UCP, is binding upon the Companies and Lenders and does not place Agent
or any of its Representatives under any resulting liability to any Company
or any Lender. AGENT AND ITS REPRESENTATIVES ARE NOT LIABLE TO ANY COMPANY
OR ANY LENDER FOR ANY ACTION TAKEN OR OMITTED, IN THE ABSENCE OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, BY AGENT OR ITS REPRESENTATIVE IN
CONNECTION WITH ANY LC.
(h) On the Revolving Credit Termination Date, or during the
continuance of any Default under SECTION 11.3, or upon any demand by Agent
during the continuance of any other Default, Borrower shall provide to
Agent, for the benefit of Lenders, cash collateral in an amount equal to
the then-existing LC Exposure. Any cash collateral provided by Borrower to
Agent hereunder shall be deposited by Agent in an interest-bearing cash
collateral account maintained with Agent at the office of Agent and
invested in obligations issued or guaranteed by the United States and, upon
cure of any Default or upon the surrender of any LC, Agent shall deliver
the appropriate funds (together with interest earned with respect thereto)
on deposit in such collateral account to Borrower.
(i) BORROWER SHALL PROTECT, INDEMNIFY, PAY AND SAVE AGENT, EACH LENDER
AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS, CHARGES AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE
SUBJECT TO AS A CONSEQUENCE OF THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT
IT, OR THE FAILURE OF AGENT TO HONOR A DRAFT OR DRAW REQUEST UNDER ANY LC,
UNLESS THEY ARISE AS A RESULT OF AGENT'S FAILURE TO ACT IN ACCORDANCE WITH
THE PROCEDURES OF THE UCP (AS MODIFIED BY ANY LC AGREEMENT OR OTHER WRITING
BETWEEN BORROWER AND AGENT).
(j) Although referenced in any LC, terms of any particular agreement
or other obligation to the beneficiary are not incorporated into this
Agreement in any manner. The fees and other amounts payable with respect to
each LC are as provided in this Agreement, drafts and draws under each LC
are part of the Obligation, and the terms of this Agreement control any
conflict between the terms of this Agreement and any LC Agreement.
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SECTION 3 TERMS OF PAYMENT.
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3.1 Notes and Payments.
------------------
(a) Principal Debt under the Facility shall be evidenced by Notes,
payable to each Lender in the stated principal amount of its Revolving
Credit Commitment, its Tranche A Commitment, and/or its Tranche B
Commitment, as applicable.
(b) Borrower must make each payment on the Obligation to Agent's
principal office in Dallas, Texas, in funds that will be available for
immediate use by Agent by 12:00 noon on the day due; otherwise, but subject
to SECTION 3.8, those funds continue to accrue interest as if they were
received on the next Business Day. Agent shall pay to each Lender any
payment to which that Lender is entitled on the same day Agent receives the
funds from Borrower if Agent receives the payment before 12:00 noon, and
otherwise before 12:00 noon on the following Business Day. If and to the
extent that Agent does not make payments to Lenders when due, unpaid
amounts shall accrue interest at the Federal Funds Rate from the due date
until (but not including) the payment date.
3.2 Interest and Principal Payments; Voluntary Commitment Reductions.
----------------------------------------------------------------
(a) Accrued interest on each LIBOR Loan is due and payable on the last
day of its Interest Period. If any Interest Period with respect to a LIBOR
Loan is a period greater than three months, then accrued interest is also
due and payable on the date three months after the commencement of the
Interest Period. Accrued interest on each Base Rate Loan is due and payable
on each Quarterly Date (commencing December 31, 1996) and on the Revolving
Credit Termination Date, the Tranche A Termination Date, and the Tranche B
Termination Date, respectively, with respect to those portions of the
Principal Debt due on such termination dates.
(b) The Principal Debt under the Revolving Credit Tranche is due and
payable on the Revolving Credit Termination Date. The Principal Debt under
the Term Loans is due and payable in installments as set forth on SCHEDULE
3.2. Upon any mandatory or voluntary prepayment of the Term Loans pursuant
to SECTION 3.2(D) or (E), Agent shall prepare and distribute to Borrower
and Lenders a revised SCHEDULE 3.2 reflecting the application of such
prepayments in accordance with such Sections. In any event, any Principal
Debt and accrued interest remaining outstanding under the Tranche A Term
Loan is due and payable on the Tranche A Termination Date and any Principal
Debt and accrued interest remaining outstanding under the Tranche B Term
Loan is due and payable on the Tranche B Termination Date.
(c) If the Revolving Credit Commitment Usage ever exceeds the
aggregate commitment under the Revolving Credit Tranche, Borrower shall pay
Principal Debt under the Revolving Credit Tranche in at least the amount of
that excess, together with (i) all accrued and unpaid interest on the
principal amount so paid and (ii) any resulting Funding Loss.
(d) Borrower shall make mandatory prepayments on the Term Loans equal
to the following amounts:
(i) Immediately upon receipt thereof, 100% of the net cash
proceeds (after selling expenses and income taxes related thereto and
any reserves for retained liabilities until such liabilities are
extinguished) received by any Restricted Company from any disposition
of:
(A) any asset described on SCHEDULE 2 (other than from the
licensing of Intellectual Property, the sale of equipment for
fair and adequate consideration which is replaced with new or
upgraded equipment, or the sale of inventory, in each case in the
ordinary course of business), and
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(B) any other asset (including stock of Subsidiaries) in
excess of $1,000,000 per disposition and in excess of $5,000,000
for all dispositions in any fiscal year of the Companies, other
than (1) proceeds from dispositions of real estate made by the
Companies in the ordinary course of their real estate activities,
and (2) proceeds which are reinvested by the Companies in similar
assets within 180 days;
(ii) On April 15th of each year, commencing with April 15, 1998,
50% of the Restricted Companies' Excess Cash Flow for their preceding
fiscal year; and
(iii) Immediately upon receipt thereof, 100% of the first
$65,000,000 of Net Equity Proceeds (or net cash proceeds received by
the Companies from an issuance of Subordinated Debt) and 50% of any
such net proceeds in excess of $100,000,000 (but, in each case, only
to the extent such proceeds are not used to pay Subordinated Debt,
including accrued interest and premium thereon).
Any mandatory payment of Principal Debt under this SECTION 3.2(D) on the
Term Loans shall be (A) allocated pro rata between the Term Loans, and (B)
then applied pro rata to all remaining installments of principal due on
each Term Loan.
(e) Borrower may voluntarily reduce or prepay the Facility as follows:
(i) Without premium or penalty and upon giving at least two
Business Days prior written and irrevocable notice to Agent, Borrower
may terminate all or reduce part of the unused portion of the
aggregate Revolving Credit Commitment. Each partial reduction (unless
the remaining portion of such commitment is less) must be in an amount
of not less than $5,000,000 or a greater integral multiple of
$1,000,000, and shall be Pro Rata among all Lenders according to their
respective Revolving Credit Commitments. Once terminated or reduced,
such commitments may not be reinstated or increased.
(ii) Borrower may voluntarily prepay all or any part of the
Principal Debt at any time without premium or penalty, subject to the
following conditions:
(A) Agent must receive Borrower's written payment notice
(which shall specify (1) the payment date, (2) the Type and
amount of the Loan(s) to be paid, (3) whether such payment is to
be applied to the Revolving Credit Tranche or to the Term Loans,
and (4) which option Borrower elects under clause (E) below with
respect to the application of any payment to the Term Loans; such
notice shall constitute an irrevocable and binding obligation of
Borrower to make a payment on the designated date) by 1:00 p.m.
on (x) the third Business Day preceding the date of payment of a
LIBOR Loan and (y) the date of payment of a Base Rate Loan;
(B) each partial payment on the Revolving Credit Tranche
must be in a minimum amount of at least $500,000 if a Base Rate
Loan or $1,000,000 if a LIBOR Loan or, in either case, a greater
integral multiple of $100,000, and each partial payment on the
Term Loans must be in a minimum amount of at least $5,000,000 or
a greater integral multiple of $1,000,000;
(C) all accrued interest on the principal amount so to be
prepaid must also be paid in full on the date of payment;
(D) Borrower shall pay any related Funding Loss upon demand;
and
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<PAGE>
(E) any voluntary payment of Principal Debt on the Term
Loans shall be (1) allocated pro rata between the Term Loans, and
(2) then applied, at Borrower's option, either pro rata to the
next two installments of principal due on each Term Loan or pro
rata to all remaining installments of principal due on each Term
Loan.
3.3 Interest Options. Except where specifically otherwise provided, Loans
----------------
bear interest at an annual rate equal to the lesser of (a) the Base Rate plus
the Applicable Margin or LIBOR plus the Applicable Margin for the Interest
Period, if any, selected by Borrower (in each case as designated or deemed
designated by Borrower), as the case may be, and (b) the Maximum Rate. Each
change in the Base Rate and Maximum Rate is effective, without notice to
Borrower or any other Person, upon the effective date of change.
3.4 Quotation of Rates. A Responsible Officer of Borrower may call Agent
------------------
before delivering a Loan Request to receive an indication of the interest rates
then in effect, but the indicated rates do not bind Agent or Lenders or affect
the interest rate that is actually in effect when Borrower delivers its Loan
Request or on the Loan Date.
3.5 Default Rate. If permitted by Law, all past-due Principal Debt,
------------
Borrower's past-due payment and reimbursement obligations in connection with
LCs, and past-due interest accruing on any of the foregoing bears interest from
the date due (stated or by acceleration) at the Default Rate until paid,
regardless whether payment is made before or after entry of a judgment.
3.6 Interest Recapture. If the designated interest rate applicable to any
------------------
Loan exceeds the Maximum Rate, the interest rate on that Loan is limited to the
Maximum Rate, but any subsequent reductions in the designated rate shall not
reduce the interest rate thereon below the Maximum Rate until the total amount
of accrued interest equals the amount of interest that would have accrued if
that designated rate had always been in effect. If at maturity (stated or by
acceleration), or at final payment of the Notes, the total interest paid or
accrued is less than the interest that would have accrued if the designated
rates had always been in effect, then, at that time and to the extent permitted
by Law, Borrower shall pay an amount equal to the difference between (a) the
lesser of the amount of interest that would have accrued if the designated rates
had always been in effect and the amount of interest that would have accrued if
the Maximum Rate had always been in effect, and (b) the amount of interest
actually paid or accrued on the Notes.
3.7 Interest Calculations.
---------------------
(a) Interest will be calculated on the basis of actual number of days
elapsed (including the first day, but excluding the last day), but computed
as if each calendar year consisted of 360 days for LIBOR Loans (unless the
calculation would result in an interest rate greater than the Maximum Rate,
in which event interest will be calculated on the basis of a year of 365 or
366 days, as the case may be), and 365 or 366 days, as the case may be, for
Base Rate Loans. All interest rate determinations and calculations by Agent
are conclusive and binding absent manifest error.
(b) The provisions of this Agreement relating to calculation of the
Base Rate and LIBOR are included only for the purpose of determining the
rate of interest or other amounts to be paid under this Agreement that are
based upon those rates. Each Lender may fund and maintain its funding of
all or any part of each Loan as it selects.
3.8 Maximum Rate. Regardless of any provision contained in any Loan Paper
------------
or any document related thereto, no Lender is entitled to contract for, charge,
take, reserve, receive or apply, as interest on all or any part of the
Obligation any amount in excess of the Maximum Rate, and, if Lenders ever do so,
then any excess shall be treated as a partial payment of principal and any
remaining excess shall be refunded to Borrower. In determining if the interest
paid or payable exceeds the Maximum Rate, Borrower and Lenders shall, to the
maximum extent permitted under applicable Law, (a) treat all Loans as but a
single extension of credit (and Lenders and Borrower agree that is the case and
that provision in this Agreement for multiple Loans is for convenience only),
(b) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (c) exclude voluntary payments and their effects, and
21
<PAGE>
(d) amortize, prorate, allocate and spread the total amount of interest
throughout the entire contemplated term of the Obligation. However, if the
Obligation is paid in full before the end of its full contemplated term, and if
the interest received for its actual period of existence exceeds the Maximum
Amount, Lenders shall refund any excess (and Lenders shall not, to the extent
permitted by Law, be subject to any penalties provided by any Laws for
contracting for, charging, taking, reserving or receiving interest in excess of
the Maximum Amount).
3.9 Interest Periods. When Borrower requests any LIBOR Loan, Borrower may
----------------
elect the applicable interest period (each an "INTEREST PERIOD"), which may be,
at Borrower's option, one, two, three or six months, subject to the following
conditions: (a) the initial LIBOR Interest Period commences on the applicable
Loan Date or conversion date, and each subsequent LIBOR Interest Period
commences on the day when the next preceding applicable Interest Period expires;
(b) if any LIBOR Interest Period begins on a day for which no numerically
corresponding Business Day in the calendar month at the end of the Interest
Period exists, then the Interest Period ends on the last Business Day of that
calendar month; (c) no LIBOR Interest Period for any portion of Principal Debt
may extend beyond the scheduled payment date for that portion of Principal Debt;
and (d) no more than 20 LIBOR Interest Periods may be in effect at one time.
3.10 Conversions. Subject to the dollar limits and denominations of
-----------
SECTION 2.1(A)(II) (regardless of whether a conversion relates to a portion of
the Revolving Credit Tranche or to a portion of one of the Term Loans) and the
limitations on LIBOR Interest Periods of SECTION 3.9, Borrower may (a) convert
all or part of a LIBOR Loan on the last day of the applicable Interest Period to
a Base Rate Loan, (b) convert all or part of a Base Rate Loan at any time to a
LIBOR Loan, and (c) elect a new Interest Period for all or part of a LIBOR Loan,
in each case by delivering a Conversion Request to Agent no later than 1:00 p.m.
on the third Business Day before the conversion date or the last day of the
Interest Period, as the case may be (for conversion to a LIBOR Loan or election
of a new Interest Period), and no later than 1:00 p.m. one Business Day before
the last day of the Interest Period (for conversion to a Base Rate Loan).
Absent Borrower's notice of conversion or election of a new Interest Period, a
LIBOR Loan shall be converted to a Base Rate Loan when the applicable Interest
Period expires.
3.11 Order of Application.
--------------------
(a) Mandatory prepayments on the Term Loans under SECTION 3.2(D) and
voluntary payments on the Term Loans under SECTION 3.2(E)(II) shall be
applied as set forth in such Sections.
(b) If no Default or Potential Default exists, any other payment shall
be applied to the Obligation in the order and manner as Borrower directs.
(c) If a Default or Potential Default exists or if Borrower fails to
give direction, any other payment (including proceeds from the exercise of
any Rights hereunder) shall be applied in the following order: (i) to all
fees and expenses for which Agent or Lenders have not been paid or
reimbursed in accordance with the Loan Papers (and if such payment is less
than all unpaid or unreimbursed fees and expenses, then the payment shall
be paid against unpaid and unreimbursed fees and expenses in the order of
incurrence or due date); (ii) to accrued interest on the Principal Debt;
and (iii) ratably to the remainder of the Obligation.
3.12 Sharing of Payments, Etc. If any Lender obtains any payment (whether
-------------------------
voluntary, involuntary or otherwise) that exceeds its combined Pro Rata Part of
the Tranche to which such payment relates (or which relates to a Tranche in
which such Lender does not participate) then that Lender shall purchase from the
other Lenders participations that will cause the purchasing Lender to share the
excess payment ratably with each other Lender. If all or any portion of any
excess payment is subsequently recovered from the purchasing Lender, then the
purchase shall be rescinded and the purchase price restored to the extent of the
recovery. Borrower agrees that any Lender purchasing a participation from
another Lender under this section may, to the fullest extent permitted by Law,
exercise all of its Rights of payment with respect to that participation as
fully as if that Lender were the direct creditor of Borrower in the amount of
that participation.
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<PAGE>
3.13 Booking Loans. To the extent permitted by Law, any Lender may make,
-------------
carry or transfer its Loans at, to, or for the account of any of its branch
offices or the office of any of its Affiliates. However, no Affiliate is
entitled to receive any greater payment under SECTION 3.15 than the transferor
Lender would have been entitled to receive with respect to those Loans.
3.14 Basis Unavailable or Inadequate for LIBOR. If, on or before any date
-----------------------------------------
when LIBOR is to be determined for a Loan, Agent or any Lender determines (and
Required Lenders agree with that determination) that the basis for determining
the applicable rate is not available or that the resulting rate does not
accurately reflect the cost to Lenders of making or converting Loans at that
rate for the applicable Interest Period, then Agent shall promptly notify
Borrower and Lenders of that determination (which is conclusive and binding on
Borrower absent manifest error) and the applicable Loan shall bear interest at
the sum of the Base Rate plus the Applicable Margin. Until Agent notifies
Borrower that those circumstances no longer exist, Lenders' commitments under
this Agreement to make, or to convert to, LIBOR Loans are suspended.
3.15 Additional Costs.
----------------
(a) With respect to any LIBOR Loan, (i) if any present or future Law
imposes, modifies, or deems applicable (or if compliance by any Lender with
any requirement of any Tribunal results in) any Reserve Requirement, and if
(ii) those reserves reduce any sums receivable by that Lender under this
Agreement or increase the costs incurred by that Lender in advancing or
maintaining any portion of any LIBOR Loan, then (iii) that Lender (through
Agent) shall deliver to Borrower a certificate setting forth in reasonable
detail the calculation of the amount necessary to compensate it for its
reduction or increase (which certificate is conclusive and binding absent
manifest error), and (iv) Borrower shall promptly pay that amount to that
Lender upon demand. This paragraph shall survive the satisfaction and
payment of the Obligation and termination of this Agreement. This paragraph
may be invoked by a Lender only if such Lender is generally invoking
similar provisions against other Persons to which such Lender lends funds
pursuant to facilities similar to the Facility.
(b) With respect to any Loan or LC, if any present or future Law
regarding capital adequacy or compliance by Agent (as issuer of LCs) or any
Lender with any request, directive or requirement now existing or hereafter
imposed by any Tribunal regarding capital adequacy, or any change in its
written policies or in the risk category of this transaction, reduces the
rate of return on its capital as a consequence of its obligations under
this Agreement to a level below that which it otherwise could have achieved
(taking into consideration its policies with respect to capital adequacy)
by an amount deemed by it to be material (and it may, in determining the
amount, utilize reasonable assumptions and allocations of costs and
expenses and use any reasonable averaging or attribution method), then
(unless the effect is already reflected in the rate of interest then
applicable under this Agreement) Agent or that Lender (through Agent) shall
notify Borrower and deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount necessary to compensate it
(which certificate is conclusive and binding absent manifest error), and
Borrower shall promptly pay that amount to Agent or that Lender upon
demand. This paragraph shall survive the satisfaction and payment of the
Obligation and termination of this Agreement. This paragraph may be invoked
by a Lender only if such Lender is generally invoking similar provisions
against other Persons to which such Lender lends funds pursuant to
facilities similar to the Facility.
(c) Any Taxes payable by Agent or any Lender or ruled (by a Tribunal)
payable by Agent or any Lender in respect of any Loan Paper or any document
related thereto shall, if permitted by Law, be paid by Borrower, together
with interest and penalties, if any (other than for Taxes imposed on or
measured by the overall net income of Agent or that Lender and interest and
penalties incurred as a result of the gross negligence or willful
misconduct of Agent or any Lender). Agent or that Lender (through Agent)
shall notify Borrower and deliver to Borrower a certificate setting forth
in reasonable detail the calculation of the amount of payable Taxes, which
certificate is conclusive and binding (absent manifest error), and Borrower
shall promptly pay that amount to Agent for its account or the account of
that Lender, as the case may be. If Agent
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<PAGE>
or that Lender subsequently receives a refund of the Taxes paid to it by
Borrower, then the recipient shall promptly pay the refund to Borrower.
3.16 Change in Laws. If any Law makes it unlawful for any Lender to make
--------------
or maintain LIBOR Loans, then that Lender shall promptly notify Borrower and
Agent, and (a) as to undisbursed funds, that requested Loan shall be made as a
Base Rate Loan, and (b), as to any outstanding Loan, (i) if maintaining the Loan
until the last day of the applicable Interest Period is unlawful, the Loan shall
be converted to a Base Rate Loan as of the date of notice, and Borrower shall
pay any related Funding Loss, or (ii) if not prohibited by Law, the Loan shall
be converted to a Base Rate Loan as of the last day of the applicable Interest
Period, or (iii) if any conversion will not resolve the unlawfulness, Borrower
shall promptly pay the Loan, without penalty, together with any related Funding
Loss. Concurrently with any payment contemplated by clause (iii) of the
immediately preceding sentence, Borrower shall borrow a Base Rate Loan in an
equal principal amount from such Lender (on which interest and principal shall
be payable contemporaneously with the related LIBOR Loans of the other Lenders)
and such Lender shall fund such Base Rate Loan.
3.17 Funding Loss. BORROWER AGREES TO INDEMNIFY EACH LENDER AGAINST, AND
------------
PAY TO IT UPON DEMAND, ANY FUNDING LOSS OF THAT LENDER. When any Lender demands
that Borrower pay any Funding Loss, that Lender shall deliver to Borrower and
Agent a certificate setting forth in reasonable detail the basis for imposing
Funding Loss and the calculation of the amount, which calculation is conclusive
and binding absent manifest error. The provisions of and undertakings and
indemnification set forth in this paragraph shall survive the satisfaction and
payment of the Obligation and termination of this Agreement.
3.18 Foreign Lenders. Each Lender that is organized under the Laws of any
---------------
jurisdiction other than the United States of America or any State thereof (a)
represents to Agent and Borrower that (i) no Taxes are required to be withheld
by Agent or Borrower with respect to any payments to be made to it in respect of
the Obligation and (ii) it has furnished to Agent and Borrower two duly
completed copies of U.S. Internal Revenue Service Form 4224 or Form 1001
(wherein it claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments under the Loan Papers) or Form W-8, or
any other successor tax form acceptable to Agent and Borrower, and (b) covenants
to (i) provide Agent and Borrower a new tax form upon the expiration, inaccuracy
or obsolescence of any previously delivered form according to, and to the extent
permitted by, Law, duly executed and completed by it, and (ii) comply from time
to time with all Laws with regard to the withholding tax exemption. If any of
the foregoing is not true or the applicable forms are not provided, then
Borrower and Agent (without duplication) may deduct and withhold from interest
payments under the Loan Papers United States federal income tax at the full rate
applicable under the Code. In addition, Borrower shall not be required to make
any payments contemplated by SECTION 3.15(C) to the extent that such payments
would not have been payable if such Lender had furnished the appropriate form
(properly and accurately completed in all respects) which it was otherwise
required to furnish in accordance with this SECTION 3.18.
3.19 Affected Lender's Obligation to Mitigate. Each Lender agrees that, as
----------------------------------------
promptly as practicable after it becomes aware of the occurrence of an event or
the existence of a condition which would entitle it to exercise any rights under
SECTIONS 3.15 OR 3.16, it shall use commercially reasonable efforts to make,
fund or maintain the affected Loans of such Lender through another lending
office of such Lender if (a) as a result thereof the additional moneys which
would otherwise be required to be paid in respect of such Loans of such Lender
would be reduced or the illegality or other adverse circumstances which would
otherwise affect such Loans of such Lender would cease to exist or the increased
cost which would otherwise be required to be paid in respect of such Loans would
be reduced and (b) the making, funding or maintaining of such Loans through such
other lending office would not otherwise materially adversely affect such Loans
or such Lender.
3.20 Replacement Lender. In the event Borrower becomes obligated to pay
------------------
any additional amounts to any Lender pursuant to SECTIONS 3.15 OR 3.16 as a
result of any event or condition described in any of such Sections, then, unless
such Lender has theretofore taken steps to remove or cure, and has removed or
cured, the conditions creating the cause of such obligation to pay such
additional amounts, Borrower may designate a substitute lender acceptable to
Agent (such lender herein called a "REPLACEMENT LENDER") to purchase such
Lender's rights and obligations with respect to its entire Pro Rata Part
hereunder with respect to the Facility as a whole, without recourse to or
warranty by, or expense
24
<PAGE>
to, such Lender in accordance with SECTION 14.12(C) for a purchase price equal
to the outstanding principal amounts payable to such Lender with respect to such
Pro Rata Part, plus any accrued and unpaid interest and accrued and unpaid fees
and charges in respect of such Pro Rata Part and on other terms reasonably
satisfactory to Agent. Upon such purchase by the Replacement Lender and payment
of all other amounts owing to the Lender being replaced hereunder, such Lender
shall no longer be a party hereto or have any rights or obligations hereunder,
and the Replacement Lender shall succeed to the rights and obligations of such
Lender with respect to such Pro Rata Part hereunder.
SECTION 4 FEES.
- --------- ----
4.1 Treatment of Fees. The fees described in this SECTION 4 (a) are not
-----------------
compensation for the use, detention, or forbearance of money, (b) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this Agreement, (c) are payable in accordance with SECTION 3.1(B), (d) are non-
refundable, and (e) to the fullest extent permitted by Law, bear interest, if
not paid when due, at the Default Rate.
4.2 Underwriting and Administrative Fees. Borrower shall pay to
------------------------------------
NationsBank of Texas, N.A. the fees described in the letter agreement between
them of even date herewith.
4.3 LC Fees. Borrower shall pay to Agent for the Pro Rata benefit of
-------
Lenders according to their Revolving Credit Commitments a fee for the issuance
of each LC (which fee may, subject to the provisions of this Agreement, be
included in a Loan) equal to (a) the Applicable Margin for LIBOR Loans under the
Revolving Credit Tranche (as in effect from day to day while such LC is
outstanding), multiplied by (b) the face amount of such LC as it exists from day
to day, payable in arrears on each Quarterly Date during the life of such LC,
and on the expiry date of such LC, calculated on the basis of the actual number
of days elapsed (including the first day, but excluding the last day), but
computed as if each calendar year consisted of 360 days. In addition, Borrower
shall pay to Agent for its own account a fronting fee for the issuance of each
LC equal to 0.125% of the face amount of such LC (but in no event less than
$350).
4.4 Commitment Fee. Borrower shall pay to Agent for the ratable account
--------------
of Lenders a commitment fee, payable as it accrues on each Quarterly Date and on
the Revolving Credit Termination Date, equal to the Applicable Percentage (per
annum), of the amount by which the aggregate commitment under the Revolving
Credit Tranche exceeds the average daily Commitment Usage, in each case during
the calendar quarter (or portion thereof) ending on such date, calculated on the
basis of the actual number of days elapsed (including the first day, but
excluding the last day) in a calendar year of 365 or 366 days, as the case may
be.
SECTION 5 SECURITY.
- --------- --------
5.1 Guaranties. All obligations of Borrower under the Loan Papers to
----------
which it is a party shall be guaranteed in accordance with a Guaranty of even
date herewith, executed by each Restricted Company (other than Borrower).
5.2 Collateral.
----------
(a) All obligations of Borrower under the Loan Papers to which it is a
party shall be secured to the extent and in the manner provided in the
appropriate Security Document by the following (the "COLLATERAL") (i) a
first Lien on all capital stock issued to VRI by its direct Restricted
Subsidiaries, (ii) a first Lien on all capital stock issued to Ralston
Resorts by its Restricted Subsidiaries and on its Rights with respect to
Distributions from Keystone/Intrawest L.L.C., (iii) a second Lien on all
capital stock issued to VHI by Borrower, (iv) a second Lien on all capital
stock issued to Borrower or Borrower's Restricted Subsidiaries by all
companies which were Restricted Subsidiaries of Borrower prior to the
Ralston Acquisition, and the Companies' 50% interest in Slifer, Smith &
Frampton/Vail Associates Real Estate, L.L.C., (v) a first Lien on all
capital stock issued to Borrower or any Restricted Subsidiary of Borrower
by Ralston Resorts and any
25
<PAGE>
Restricted Subsidiaries of Borrower created or acquired after the Ralston
Acquisition; (vi) a second Lien on each of the Vail Forest Service Permits,
and (vii) a first Lien on each of the Ralston Forest Service Permits.
(b) Upon receipt by the Companies of Net Equity Proceeds of at least
$65,000,000 and the application of such proceeds in prepayment of
Subordinated Debt and/or Principal Debt in accordance with SECTION
3.2(D)(III), Liens created by the Security Documents shall terminate and
Agent and Lenders shall release their interests in the Collateral. Upon
compliance with the provisions of the immediately preceding sentence or in
accordance with the provisions of SECTION 14.13, Agent will, at the expense
of Borrower, deliver to Borrower any Collateral that is in its possession
and execute and deliver such documents, certificates or other instruments
as Borrower may reasonably request to evidence the termination of such
Liens and the release of the Collateral.
5.3 Additional Security and Guaranties.
----------------------------------
(a) Lenders may, without notice or demand and without affecting any
Person's obligations under the Loan Papers, from time to time (i) receive
and hold additional collateral from any Person for the payment of all or
any part of the Obligation and exchange, enforce or release all or any part
of that collateral and (ii) accept and hold any endorsement or guaranty of
payment of all or any part of the Obligation and release any endorser or
guarantor, or any Person who has given any other security for the payment
of all or any part of the Obligation, or any other Person in any way
obligated to pay all or any part of the Obligation; provided, however, that
the provisions of this SECTION 5.3(A) shall in no event be construed to
obligate any Company to deliver to any Lender additional collateral.
(b) Borrower may from time to time substitute for any existing Forest
Service Permit another permit, license or grant of right if (i) Borrower
determines that such substitution is in the best interests of the
Companies, (ii) such substitute permit, license or grant of right contains
terms no less beneficial to the Companies than those contained in the
existing Forest Service Permit which it is intended to replace, and (iii)
such substitution does not impair in any material respect the rights of
Agent and Lenders. Upon receipt from Borrower of notice that the Service
has agreed to issue a new permit, license or grant of right in replacement
of an existing Forest Service Permit, and that Borrower elects to exercise
its rights under this SECTION 5.3(B), Agent shall release to Borrower or
(if so requested by Borrower) to the Service directly all instruments in
Agent's possession constituting the Lien on the existing Forest Service
Permit to be replaced. Agent shall also execute and deliver any and all
releases, termination agreements or other similar documents requested by
the Service or reasonably requested by Borrower in connection therewith.
Upon receipt of such instruments and documents, Borrower shall deliver to
Agent, or cause the Service so to deliver to Agent, the new permit, license
or grant of right, together with the Service's standard form collateral
assignment agreement relating thereto reflecting a Lien of the same
priority as the one released.
5.4 Financing Statements. Borrower will execute, or cause to be executed,
--------------------
financing statements, stock powers and other writings in the form and content
reasonably required by Agent, and Borrower will pay all costs of filing any
financing, continuation or termination statements, or other action taken by
Agent relating to the Collateral, including, without limitation, costs and
expenses of any Lien search reasonably required by Agent.
SECTION 6 CONDITIONS PRECEDENT.
- --------- --------------------
6.1 Initial Advance. In addition to the items described in SECTION 6.2,
---------------
Lenders will not be obligated to fund the initial Loan, and Agent will not be
obligated to issue the initial LC, unless the unused portion of the Revolving
Credit Commitment will be at least $50,000,000 after giving effect to the
Ralston Resorts Acquisition and all Loans and LCs outstanding under the
Revolving Credit Tranche at the close of business on the date the initial Loan
is made or the initial LC is issued and Agent has received each of the following
items:
(a) the Promissory Notes;
26
<PAGE>
(b) a Guaranty executed by each Restricted Company (other than
Borrower);
(c) (i) each Pledge Agreement (together with (A) the stock
certificates for shares subjected to a first Lien under the Pledge
Agreements and blank stock powers for such certificates, and (B) a letter
agreement between Agent and the Collateral Agent under the Collateral
Agency Agreement pursuant to which (x) Agent appoints Collateral Agent as
its agent for purposes of perfecting its security interest in the shares
held by the Collateral Agent under the Collateral Agency Agreement which
are subjected to a second Lien under the Pledge Agreements, and (y) the
Collateral Agent accepts such appointment and acknowledges the second Lien
in favor of Agent),
(ii) the Forest Service Assignments, and
(iii) UCC-1 Financing Statements with respect to the foregoing;
(d) a Second Amendment to the Pledge Agreement dated as of
November 23, 1993 (as amended by a First Amendment thereto dated July
1994), among Borrower, VHI, Beaver Creek Associates, Inc., Vail Associates
Real Estate Group, Inc., and Vail Associates Real Estate, Inc., as
obligors, and NationsBank of Texas, N.A., as the Collateral Agent under the
Collateral Agency Agreement, deleting all references therein which would
obligate the pledgors thereunder to pledge the stock of any future
subsidiaries of any such pledgor (together with appropriate UCC-3
Amendments);
(e) the initial Loan Request or the initial LC Request and LC
Agreement;
(f) an Officers' Certificate for each Company, relating to Articles of
Incorporation, Bylaws, Resolutions, and Incumbency;
(g) Certificates of Existence and Good Standing (Account Status) for
each Company from its state of organization and each other state where it
does business, each dated after September 15, 1996;
(h) Legal opinions of James S. Mandel, and special New York counsel to
Borrower;
(i) Payment in full of all amounts then due Agent under SECTION 8.7 or
the fee letter described in SECTION 4.2;
(j) Lien Search Reports for each Company from the State of Colorado,
the Colorado county in which it has its principal place of business and
each other state where it does business, each dated after September 15,
1996;
(k) Copies of the Stock Purchase Agreement and the Shareholder
Agreement referred to therein (and the Ralston Resorts Acquisition shall
have been consummated as described in SECTION 7.22);
(l) (i) Financial Statements showing the consolidated financial
condition and results of operations of the Companies and Ralston Resorts
and its Subsidiaries, respectively, as of, and for the years ended on,
September 30, 1993, 1994 and 1995, and in the case of Ralston Resorts and
its Subsidiaries only, the nine-month period ended June 30, 1996,
accompanied in each case by the unqualified opinion of a firm of
nationally-recognized independent certified public accountants, based on an
audit using generally accepted auditing standards, that such Financial
Statements were prepared in accordance with GAAP and present fairly, in all
material respects, such financial conditions and results, together with a
copy of any management letter prepared by such accounting firm in
connection with such audit, (ii) any Financial Statements for the Companies
or for Ralston Resorts and its Subsidiaries prepared for any interim
financial period ending after the periods covered in the Financial
Statements delivered under clause (i) above, and (iii) a pro forma balance
sheet of the Companies as of the Closing Date giving effect to the Ralston
Resorts Acquisition and the
27
<PAGE>
transactions contemplated hereby and reflecting estimated purchase price
accounting adjustments, and such other information relating to the Ralston
Resorts Acquisition as Agent may require;
(m) Copies of all governmental, shareholder and third party consents
and approvals (including, without limitation, those required under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended) necessary
in connection with the Ralston Resorts Acquisition and the related
financings and other transactions contemplated hereby; and
(n) Evidence that all amounts owed under the Existing Credit
Agreements have been paid in full, no letters of credit remain outstanding
thereunder, and all financing commitments thereunder have been terminated.
6.2 Each Advance. Lenders will not be obligated to fund (as opposed to
------------
continue or convert) any Loan (including the initial Loans), and Agent will not
be obligated to issue (as opposed to extend) any LC (including the initial LCs),
unless on the applicable date (and after giving effect to the requested Loan or
LC): (a) Agent shall have timely received a Loan Request or LC Request
(together with the applicable LC Agreement), as the case may be; (b) Agent shall
have received any applicable LC fee; (c) all of the representations and
warranties of the Companies in the Loan Papers are true and correct in all
material respects (unless they speak to a specific date or are based on facts
which have changed by transactions contemplated or permitted by this Agreement);
(d) no Material Adverse Event, Default or Potential Default exists; and (e) the
funding of the Loan or issuance of the LC is permitted by Law. Upon Agent's
reasonable request, Borrower shall deliver to Agent evidence substantiating any
of the matters in the Loan Papers that are necessary to enable Borrower to
qualify for the Loan or LC. Each condition precedent in this Agreement is
material to the transactions contemplated by this Agreement, and time is of the
essence with respect to each condition precedent. Subject to the prior approval
of Required Lenders, Lenders may fund any Loan, and Agent may issue any LC,
without all conditions being satisfied, but, to the extent permitted by Law,
that funding and issuance shall not be deemed to be a waiver of the requirement
that each condition precedent be satisfied as a prerequisite for any subsequent
funding or issuance, unless Required Lenders specifically waive each item in
writing.
SECTION 7 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
- --------- ------------------------------
Agent and Lenders as follows:
7.1 Regulation U. No Company is engaged principally, or as one of its
------------
important activities, in the business of extending credit for the purpose of
purchasing or carrying any "margin stock" within the meaning of Regulations U or
G of the Board of Governors of the Federal Reserve System, as amended.
7.2 Corporate Existence, Good Standing, Authority and Compliance. Each
------------------------------------------------------------
Company is duly organized, validly existing and in good standing under the Laws
of the jurisdiction in which it is incorporated or organized as identified on
SCHEDULE 7.2 (or any revised SCHEDULE 7.2 delivered by Borrower to Lenders
pursuant to SECTION 8.12, 9.10 or 9.11). Except where failure is not a Material
Adverse Event, each Restricted Company (a) is duly qualified to transact
business and is in good standing as a foreign corporation or other entity in
each jurisdiction where the nature and extent of its business and properties
require due qualification and good standing as identified on SCHEDULE 7.2 (or
any such revised SCHEDULE 7.2), and (b) possesses all requisite authority,
permits and power to conduct its business as is now being, or is contemplated by
this Agreement to be, conducted.
7.3 Subsidiaries. VRI has no Subsidiaries, other than as disclosed on
------------
SCHEDULE 7.3 (or on any revised SCHEDULE 7.3 delivered by Borrower to Lenders
pursuant to SECTION 8.12, 9.10 or 9.11). All of the outstanding shares of
capital stock (or similar voting interests) of the Companies are duly
authorized, validly issued, fully paid and nonassessable, and are owned of
record and beneficially as set forth thereon, free and clear of any Liens,
restrictions, claims or Rights of another Person, other than Permitted Liens,
and are not subject to any warrant, option or other acquisition Right of any
Person or subject to any transfer restriction, other than restrictions imposed
by (a) securities Laws and general corporate Laws, and (b) the Security
Documents.
28
<PAGE>
7.4 Authorization and Contravention. The execution and delivery by each
-------------------------------
Company of each Loan Paper or related document to which it is a party and the
performance by it of its obligations thereunder (a) are within its corporate
power, (b) have been duly authorized by all necessary corporate action, (c)
require no action by or filing with any Tribunal (other than any action or
filing that has been taken or made on or before the date of this Agreement), (d)
do not violate any provision of its charter or bylaws, (e) do not violate any
provision of Law or any order of any Tribunal applicable to it, other than
violations that individually or collectively are not a Material Adverse Event,
(f) do not violate any Material Agreements to which it is a party, or (g) do not
result in the creation or imposition of any Lien (other than the Liens created
pursuant to the Security Documents) on any asset of any Company.
7.5 Binding Effect. Upon execution and delivery by all parties thereto,
--------------
each Loan Paper which is a contract will constitute a legal and binding
obligation of each Company party thereto, enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable Debtor
Relief Laws and general principles of equity.
7.6 Financial Statements; Fiscal Year. The Current Financials were
---------------------------------
prepared in accordance with GAAP and, together with the notes thereto, present
fairly, in all material respects, the consolidated financial condition, results
of operations, and cash flows of the Companies as of, and for the portion of the
fiscal year ending on the date or dates thereof (subject only to normal year-end
adjustments). Except for transactions directly related to, or specifically
contemplated by, the Loan Papers, no subsequent material adverse changes have
occurred in the consolidated financial condition of the Companies from that
shown in the Current Financials. The fiscal year of each Company ends on
September 30.
7.7 Litigation. Except as disclosed on SCHEDULE 7.7 (or on any revised
----------
SCHEDULE 7.7 delivered by Borrower to Lenders), (a) no Company (other than as a
creditor or claimant) is subject to, or aware of the threat of, any Litigation
that is reasonably likely to be determined adversely to any Company and, if so
adversely determined, is a Material Adverse Event, (b) no outstanding or unpaid
judgments against any Company exist as of the date hereof, and (c) no Company is
a party to, or bound by, any judicial or administrative order, judgment, decree
or consent decree relating to any past or present practice, omission, activity
or undertaking which constitutes a Material Adverse Event.
7.8 Taxes. All Tax returns of each Company required to be filed have been
-----
filed (or extensions have been granted) before delinquency, other than returns
for which the failure to file is not a Material Adverse Event, and all Taxes
shown as due and payable as of the date hereof in such returns have been paid
before delinquency, other than Taxes for which the criteria for Permitted Liens
(as specified in clause (f) of the definition of "Permitted Liens") have been
satisfied or for which nonpayment is not a Material Adverse Event.
7.9 Environmental Matters. Except as disclosed on SCHEDULE 7.9 (or any
---------------------
revised SCHEDULE 7.9 delivered by Borrower to Lenders) and except for
conditions, circumstances or violations that are not, individually or in the
aggregate, a Material Adverse Event, no Company (a) knows of any environmental
condition or circumstance adversely affecting any Company's properties or
operations, (b) has, to its knowledge, received any written report of any
Company's violation of any Environmental Law, or (c) knows that any Company is
under any obligation imposed by a Tribunal to remedy any violation of any
Environmental Law. Except as disclosed on SCHEDULE 7.9 (or any such revised
SCHEDULE 7.9), each Company believes that its properties and operations do not
violate any Environmental Law, other than violations that are not, individually
or in the aggregate, a Material Adverse Event. No facility of any Company is
used for, or to the knowledge of any Company has been used for, treatment or
disposal of any Hazardous Substance or storage of Hazardous Substances, other
than in material compliance with applicable Environmental Laws.
7.10 Employee Plans. Except where occurrence or existence is not a
--------------
Material Adverse Event, (a) no Employee Plan has incurred an "accumulated
funding deficiency" (as defined in section 302 of ERISA or section 412 of the
Code), (b) no Company has incurred liability under ERISA to the PBGC in
connection with any Employee Plan (other than required insurance premiums, all
of which have been paid), (c) no Company has withdrawn in whole or in part from
participation in a Multiemployer Plan, (d) no Company has engaged in any
"prohibited transaction" (as defined in section 406 of ERISA or section 4975 of
the Code), and (e) no "reportable event" (as defined in section 4043
29
<PAGE>
of ERISA) has occurred with respect to an Employee Plan, excluding events for
which the notice requirement is waived under applicable PBGC regulations.
7.11 Properties and Liens.
--------------------
(a) Each Company has good and marketable title to all its material
property reflected on the Current Financials (other than for property that
is obsolete or that has been disposed of in the ordinary course of business
or, after the date of this Agreement, as otherwise permitted by SECTION
9.10 or SECTION 9.11).
(b) Except for Permitted Liens, no Lien exists on any property of any
Company (including, without limitation, the Forest Service Permits and the
Water Rights), and the execution, delivery, performance or observance of
the Loan Papers will not require or result in the creation of any Lien
(other than the Liens created pursuant to the Security Documents) on any
Company's property.
(c) As of the date hereof, the Forest Service Permits constitute all
of the material licenses, permits or leases from the United States Federal
Government held by the Companies for use in connection with their
respective skiing businesses.
(d) Each of the Water Rights is, to the knowledge of the Companies, in
full force and effect and, to the knowledge of the Companies, there is no
material default or existing condition which with the giving of notice or
the passage of time or both would cause a material default under any Water
Right that is material to the operation of the Companies. Subject to the
available supply and to the terms and conditions of the applicable decrees,
the Companies' Water Rights provide a dependable, legal and physical
snowmaking, irrigation and domestic water supply for the operation of the
Companies' businesses.
7.12 Chief Executive Offices. Each Company's chief executive office is
-----------------------
located as shown on SCHEDULE 7.2 (or any revised SCHEDULE 7.2 delivered by
Borrower to Lenders).
7.13 Government Regulations. No Company is subject to regulation under the
----------------------
Investment Company Act of 1940, as amended, or the Public Utility Holding
Company Act of 1935, as amended.
7.14 Transactions with Affiliates. Except as set forth in SCHEDULE 7.14,
----------------------------
no Restricted Company is a party to any transaction with any Affiliate (other
than another Restricted Company), except upon fair and reasonable terms not
materially less favorable than it could obtain or could become entitled to in an
arm's-length transaction with a Person that was not its Affiliate.
7.15 Debt. After the funding of the Loans made on the Closing Date and the
----
payment of certain Debts with the proceeds thereof as described in SECTION 8.2,
no Company will be an obligor on any Debt, other than Permitted Debt.
7.16 Material Agreements. All Material Agreements to which any Restricted
-------------------
Company is a party are in full force and effect, and no default or potential
default exists on the part of any Restricted Company thereunder that is a
Material Adverse Event.
7.17 Labor Matters. There are no binding agreements of any type with any
-------------
labor union, labor organization, collective bargaining unit or employee group to
which any Company is bound, other than Ralston Resorts' collective bargaining
agreements with the Breckenridge Professional Ski Patrol Association and
Keystone Professional Ski Patrol Association and agreements which may be entered
into after the date of this Agreement which do not constitute a Material
Adverse Event. No actual or threatened strikes, labor disputes, slow downs,
walkouts, or other concerted interruptions of operations by the employees of any
Company that constitute a Material Adverse Event exist. Hours worked by and
payment made to employees of the Companies have not been in violation of the
Fair Labor Standards Act or any other applicable Law dealing with labor matters,
other than any violations, individually or collectively, that are not a Material
Adverse Event. All payments due from any Company for employee health and
welfare insurance
30
<PAGE>
have been paid or accrued as a liability on its books, other than any
nonpayments that are not, individually or collectively, a Material Adverse
Event.
7.18 Solvency. On each Loan Date, Borrower is, and after giving effect to
--------
the requested Loan will be, Solvent.
7.19 Trade Names. No Company has used or transacted business under any
-----------
other corporate or registered trade name during the five years preceding the
Closing Date, other than as disclosed on the attached SCHEDULE 7.19.
7.20 Intellectual Property. Each Company owns (or otherwise holds rights
---------------------
to use) all material Intellectual Property, licenses, permits and trade names
necessary to continue to conduct its businesses as presently conducted by it and
proposed to be conducted by it immediately after the date of this Agreement. To
its knowledge, each Company is conducting its business without infringement or
claim of infringement of any license, patent, copyright, service mark,
trademark, trade name, trade secret or other intellectual property right of
others, other than any infringements or claims that, if successfully asserted
against or determined adversely to any Company, would not, individually or
collectively, constitute a Material Adverse Event. To the knowledge of any
Company as of the date hereof, no infringement or claim of infringement by
others of any material Intellectual Property, license, permit, trade name, or
other intellectual property of any Company exists, other than claims which will
not cause a Material Adverse Event.
7.21 Full Disclosure. Each material fact or condition relating to the Loan
---------------
Papers or the financial condition, business or property of any Company has been
disclosed to Agent. All information furnished by any Company to Agent in
connection with the Loan Papers on or before the date of this Agreement was,
taken as a whole, true and accurate in all material respects or based on
reasonable estimates on the date the information is stated or certified.
7.22 Stock Purchase Agreement. The Ralston Resorts Acquisition has been
------------------------
consummated as of the Closing Date in accordance with the Stock Purchase
Agreement and in compliance with all applicable Laws.
SECTION 8 AFFIRMATIVE COVENANTS. So long as Lenders are committed to fund
- --------- ---------------------
Loans and Agent is committed to issue LCs under this Agreement, and thereafter
until the Obligation is paid in full, Borrower covenants and agrees as follows:
8.1 Items to be Furnished. Borrower shall cause the following to be
---------------------
furnished to each Lender:
(a) With respect to each fiscal year of the Companies:
(i) Promptly after preparation, unaudited Financial Statements
showing the consolidated financial condition and results of operations
of the Companies as of the last day of such fiscal year and for such
fiscal year, accompanied by a Compliance Certificate with respect to
such Financial Statements (for purposes of adjusting the Applicable
Margin and the Applicable Percentage in accordance with the
definitions of such terms); and
(ii) Promptly after preparation, and no later than 120 days after
the last day of each fiscal year of the Companies, Financial
Statements showing the consolidated financial condition and results of
operations of the Companies as of, and for the year ended on, that
last day, accompanied by: (A) the unqualified opinion of a firm of
nationally-recognized independent certified public accountants, based
on an audit using generally accepted auditing standards, that the
Financial Statements were prepared in accordance with GAAP and present
fairly, in all material respects, the consolidated financial condition
and results of operations of the Companies, (B) any management letter
prepared by the accounting firm delivered in connection with its
audit, (C) a certificate from the accounting firm to Agent indicating
that during its audit it obtained no knowledge of any Default or
Potential Default or, if it obtained knowledge, the nature and period
of existence thereof, and (D) a Compliance Certificate with respect to
the Financial Statements.
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<PAGE>
(b) Promptly after preparation, and no later than 60 days after the
last day of each fiscal quarter of the Companies, Financial Statements
showing the consolidated financial condition and results of operations of
the Companies for the fiscal quarter and for the period from the beginning
of the current fiscal year to the last day of the fiscal quarter,
accompanied by a Compliance Certificate with respect to the Financial
Statements.
(c) Promptly after receipt, a copy of each interim or special audit
report and management letter issued by independent accountants with respect
to any Company or its financial records.
(d) Notice, promptly after any Company knows or has reason to know, of
(i) the existence and status of any Litigation that, if determined
adversely to any Company, would be a Material Adverse Event, (ii) any
change in any material fact or circumstance represented or warranted by any
Company in connection with any Loan Paper, (iii) the receipt by any Company
of notice of any violation or alleged violation of any Environmental Law or
ERISA (which individually or collectively with other violations or
allegations is reasonably likely to constitute a Material Adverse Event),
or (iv) a Default or Potential Default, specifying the nature thereof and
what action the Companies have taken, are taking, or propose to take.
(e) Promptly after filing, copies of all material reports or filings
filed by or on behalf of any Company with any securities exchange or the
Securities and Exchange Commission (including, without limitation, copies
of each Form 10-K, Form 10-Q and Form S-8 filed by or on behalf of VRI with
the Securities and Exchange Commission within 15 days after filing).
(f) Promptly upon reasonable request by Agent or Required Lenders
(through Agent), information (not otherwise required to be furnished under
the Loan Papers) respecting the business affairs, assets and liabilities of
the Companies (including, but not limited to, seasonal operating
statistics, annual budgets, etc.) and opinions, certifications and
documents in addition to those mentioned in this Agreement; provided,
however, that Agent and Lenders shall not disclose to any third Person any
data or information obtained thereby in accordance with the provisions of
this paragraph (f), except (i) with the prior written consent of the
appropriate Company, (ii) to the extent necessary to comply with Law or the
ruling of any Tribunal in which event, Agent and/or such Lenders shall
notify the appropriate Company as promptly as practicable (and, if
possible, prior to making such disclosure) and shall seek confidential
treatment of the information desired, (iii) at the request of any banking
or other regulatory authority, or (iv) to their respective Representatives
to the extent such disclosure is necessary in connection with the
transactions contemplated by the Loan Papers.
8.2 Use of Proceeds. Borrower will use some or all of the proceeds of the
---------------
initial Loan to (i) repay all amounts payable under the Existing Credit
Agreements and terminate the financing commitments thereunder, and (ii)
refinance certain Debt of Ralston Resorts in connection with the Ralston Resorts
Acquisition. Borrower will use all other proceeds of Loans and LCs to pay fees
and expenses incurred in connection with the Ralston Resorts Acquisition, for
seasonal working capital, to make advances to other Companies permitted by
SECTION 9.8, and for other general corporate purposes and capital expenditures
of the Companies. No part of the proceeds of any LC draft or drawing or of any
Loan will be used, directly or indirectly, for a purpose that violates any Law,
including without limitation, the provisions of Regulations G or U.
8.3 Books and Records. Each Company will maintain books, records and
-----------------
accounts necessary to prepare financial statements in accordance with GAAP.
8.4 Inspections. Upon reasonable request, each Company will allow Agent
-----------
(or its Representatives) to inspect any of its properties, to review reports,
files and other records and to make and take away copies, to conduct tests or
investigations, and to discuss any of its affairs, conditions and finances with
its other creditors, directors, officers, employees or representatives from time
to time, during reasonable business hours; provided, however, that Agent and its
Representatives shall not disclose to any Person any data or information
obtained thereby in accordance with the
32
<PAGE>
provisions of this SECTION 8.4 which is not a matter of public knowledge, except
(i) with the prior written consent of the appropriate Company, (ii) to the
extent necessary to comply with Law or the ruling of any Tribunal in which
event, Agent and/or its Representatives shall notify the appropriate Company as
promptly as practicable (and, if possible, prior to making such disclosure) and
shall seek confidential treatment of the information desired, (iii) at the
request of any banking or other regulatory authority, or (iv) to their
respective Representatives to the extent such disclosure is necessary in
connection with the transactions contemplated by the Loan Papers. Any of the
Lenders (or their Representatives) may accompany Agent during such inspections.
8.5 Taxes. Each Restricted Company will promptly pay when due any and all
-----
Taxes, other than Taxes which are being contested in good faith by lawful
proceedings diligently conducted, against which reserve or other provision
required by GAAP has been made; provided, however, that all such Taxes shall, in
any event, be paid prior to any levy for execution in respect of any Lien on any
property of a Restricted Company.
8.6 Payment of Obligations. Each Company will pay (or renew and extend)
----------------------
all of its obligations at such times and to such extent as may be necessary to
prevent a Material Adverse Event (except for obligations, other than Funded
Debt, which are being contested in good faith by appropriate proceedings);
provided that Borrower shall not and shall not permit any other Company to repay
advances from Apollo, other than as provided in SECTION 9.9.
8.7 Expenses. Borrower shall promptly pay upon demand (a) all reasonable
--------
and customary costs, fees, and expenses paid or incurred by Agent and its
Affiliates, in connection with the arrangement, syndication and negotiation of
the Facility and the negotiation, preparation, delivery and execution of the
Loan Papers and any related amendment, waiver, or consent (including in each
case, without limitation, the reasonable fees and expenses of Agent's counsel)
and (b) all reasonable costs and expenses of Lenders and Agent incurred by Agent
or any Lender in connection with the enforcement of the obligations of any
Company arising under the Loan Papers or the exercise of any Rights arising
under the Loan Papers (including, but not limited to, reasonable attorneys' fees
and court costs), all of which shall be a part of the Obligation and shall bear
interest, if not paid upon demand, at the Default Rate until paid.
8.8 Maintenance of Existence, Assets, and Business.
----------------------------------------------
(a) Except as otherwise permitted by SECTION 9.11, each Company will
(i) maintain its corporate existence and good standing in its state of
incorporation and its authority to transact business in all other states
where failure to maintain its authority to transact business is a Material
Adverse Event; (ii) maintain all Water Rights, licenses, permits and
franchises necessary for its business where failure is a Material Adverse
Event; and (iii) keep all of its assets that are useful in and necessary to
its business in good working order and condition (ordinary wear and tear
excepted) and make all necessary repairs and replacements.
(b) No Company will change its name in any manner (except by
registering additional trade names, in which event Borrower shall promptly
supply Lenders with a revised SCHEDULE 7.19), unless such Company shall
have given the Agent prior notice thereof.
8.9 Insurance. Each Company will maintain with financially sound,
---------
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by self-
insurance authorized by the jurisdictions in which it operates) insurance
concerning its properties and businesses against casualties and contingencies
and of types and in amounts (and with co-insurance and deductibles) as is
customary in the case of similar businesses. At Agent's request, each Company
will deliver to Agent certificates of insurance for each policy of insurance and
evidence of payment of all premiums.
8.10 Preservation and Protection of Rights. Each Company will perform the
-------------------------------------
acts and duly authorize, execute, acknowledge, deliver, file and record any
additional writings as Agent or Required Lenders may reasonably deem necessary
or appropriate to perfect and maintain the Liens created pursuant to the
Security Documents.
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8.11 Environmental Laws. Each Company will (a) conduct its business so as
------------------
to comply in all material respects with all applicable Environmental Laws and
shall promptly take required corrective action to remedy any non-compliance with
any Environmental Law, except where failure to comply or take action would not
be a Material Adverse Event, and (b) establish and maintain a management system
designed to ensure compliance with applicable Environmental Laws and minimize
material financial and other risks to each Company arising under applicable
Environmental Laws or as the result of environmentally related injuries to
Persons or property, except where failure to comply would not be a Material
Adverse Event. Borrower shall deliver reasonable evidence of compliance with
the foregoing covenant to Agent within 30 days after any written request from
Required Lenders, which request shall be made only if Required Lenders
reasonably believe that a failure to comply with the foregoing covenant would be
a Material Adverse Event.
8.12 Subsidiaries. Subject to SECTION 9.8, the Companies may create or
------------
acquire additional Subsidiaries (including Unrestricted Subsidiaries); provided
that (a) each Person that becomes a Restricted Subsidiary after the date of this
Agreement (whether as a result of acquisition, creation or otherwise) shall
execute and deliver a Guaranty within 10 days after becoming a Restricted
Subsidiary, (b) Borrower shall deliver to Agent revised SCHEDULES 7.2 and 7.3
reflecting such new Subsidiary within 10 days after it becomes a Subsidiary, and
(c) until the release, if any, of the Collateral pursuant to SECTION 5.2(B), the
appropriate Companies shall pledge to Agent for the benefit of Lenders all stock
or other ownership interests of each such new Restricted Subsidiary owned by
such Companies within 10 days after it becomes a Restricted Subsidiary.
8.13 Indemnification. BORROWER SHALL INDEMNIFY, PROTECT AND HOLD AGENT AND
---------------
LENDERS AND THEIR RESPECTIVE AFFILIATES, REPRESENTATIVES, SUCCESSORS AND ASSIGNS
AND ATTORNEYS (COLLECTIVELY, THE "INDEMNIFIED PARTIES") HARMLESS FROM AND
AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, CLAIMS AND PROCEEDINGS AND ALL COSTS, EXPENSES
(INCLUDING, WITHOUT LIMITATION, ALL ATTORNEYS' FEES AND LEGAL EXPENSES WHETHER
OR NOT SUIT IS BROUGHT) AND DISBURSEMENTS OF ANY KIND OR NATURE (THE
"INDEMNIFIED LIABILITIES") THAT MAY AT ANY TIME BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE INDEMNIFIED PARTIES, IN ANY WAY RELATING TO OR ARISING OUT
OF (A) THE DIRECT OR INDIRECT RESULT OF THE VIOLATION BY ANY COMPANY OF ANY
ENVIRONMENTAL LAW, (B) ANY COMPANY'S GENERATION, MANUFACTURE, PRODUCTION,
STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL OR PRESENCE IN
CONNECTION WITH ITS PROPERTIES OF A HAZARDOUS SUBSTANCE (INCLUDING, WITHOUT
LIMITATION, (I) ALL DAMAGES OF ANY USE, GENERATION, MANUFACTURE, PRODUCTION,
STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL OR PRESENCE, OR (II)
THE COSTS OF ANY ENVIRONMENTAL INVESTIGATION, MONITORING, REPAIR, CLEANUP OR
DETOXIFICATION AND THE PREPARATION AND IMPLEMENTATION OF ANY CLOSURE, REMEDIAL
OR OTHER PLANS), OR (C) THE LOAN PAPERS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN. HOWEVER, ALTHOUGH EACH INDEMNIFIED PARTY HAS THE RIGHT TO BE
INDEMNIFIED FOR ITS OWN ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY HAS THE RIGHT
TO BE INDEMNIFIED FOR ITS OWN FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
THE PROVISIONS OF AND UNDERTAKINGS AND INDEMNIFICATION SET FORTH IN THIS
PARAGRAPH SHALL SURVIVE THE SATISFACTION AND PAYMENT OF THE OBLIGATION AND
TERMINATION OF THIS AGREEMENT.
8.14 Interest Rate Hedging. Borrower shall enter into Financial Hedges for
---------------------
an aggregate notional amount of at least $75,000,000 on terms reasonably
acceptable to Agent within 60 days after the Closing Date.
SECTION 9 NEGATIVE COVENANTS. So long as Lenders are committed to fund Loans
- --------- ------------------
and Agent is committed to issue LCs under this Agreement, and thereafter until
the Obligation is paid in full, Borrower covenants and agrees as follows:
9.1 Taxes. No Company shall use any portion of the proceeds of any Loan
-----
to pay the wages of employees, unless a timely payment to or deposit with the
United States of America of all amounts of Tax required to be deducted and
withheld with respect to such wages is also made.
9.2 Payment of Obligations. No Company shall voluntarily prepay principal
----------------------
of, or interest on, any Funded Debt, other than the Obligation, if a Default or
Potential Default exists (or would result from such payment).
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9.3 Employee Plans. Except where a Material Adverse Event would not
--------------
result, no Company shall permit any of the events or circumstances described in
SECTION 7.10 to exist or occur.
9.4 Debt. No Company shall create, incur or suffer to exist any Debt,
----
other than Permitted Debt.
9.5 Liens. No Company shall (a) create, incur or suffer or permit to be
-----
created or incurred or to exist any Lien upon any of its assets, other than
Permitted Liens, or (b) enter into or permit to exist any arrangement or
agreement that directly or indirectly prohibits any Company from creating or
incurring any Lien, other than the Loan Papers, the Bond Documents described in
the Collateral Agency Agreement and leases or licenses that prohibit Liens on
the leased or licensed property.
9.6 Transactions with Affiliates.
----------------------------
(a) Except as set forth on SCHEDULE 7.14, no Restricted Company shall
guaranty, obtain any letter of credit or similar instrument in support of,
or create, incur or suffer to exist any Lien upon any of its assets as
security for, any Debt or other obligation of any Affiliate (other than
Debts or other obligations of another Restricted Company).
(b) No Restricted Company shall enter into or suffer to exist any
transaction with any Affiliate (other than another Restricted Company),
unless (i) such transaction is an advance or equity contribution to an
Unrestricted Subsidiary permitted by SECTION 9.8(I), (ii) such transaction
is described in SECTION 9.9 or on SCHEDULE 7.14, or (iii) such transaction
is upon fair and reasonable terms not materially less favorable than it
could obtain or could become entitled to in an arm's-length transaction
with a Person that was not its Affiliate.
9.7 Compliance with Laws and Documents. No Company shall (a) violate the
----------------------------------
provisions of any Laws or rulings of any Tribunal applicable to it or of any
Material Agreement to which it is a party if that violation alone, or when
aggregated with all other violations, would be a Material Adverse Event, (b)
violate the provisions of its charter or bylaws if such violation would cause a
Material Adverse Event, or (c) repeal, replace or amend any provision of its
charter or bylaws if that action would be a Material Adverse Event.
9.8 Loans, Advances and Investments. Except as permitted by SECTION 9.9
-------------------------------
or SECTION 9.11, no Restricted Company shall make or suffer to exist any loan,
advance, extension of credit or capital contribution to, make any investment in,
or purchase or commit to purchase any stock or other securities or evidences of
Debt of, or interests in, any other Person, other than:
(a) expense accounts for and other loans or advances to its directors,
officers and employees in the ordinary course of business;
(b) marketable obligations issued or unconditionally guaranteed by the
United States Government or issued by any of its agencies 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;
(c) short-term investment grade domestic and eurodollar certificates
of deposit or time deposits that are fully insured by the Federal Deposit
Insurance Corporation or are issued by commercial banks organized under the
Laws of the United States of America or any of its states having combined
capital, surplus, and undivided profits of not less than $100,000,000 (as
shown on its most recently published statement of condition);
(d) commercial paper and similar obligations rated "P-1" by Moody's
Investors Service, Inc., or "A-1" by Standard & Poors Ratings Group (a
division of McGraw Hill, Inc.);
35
<PAGE>
(e) readily marketable tax-free municipal bonds of a domestic issuer
rated "A-2" or better by Moody's Investors Service, Inc., or "A" or better
by Standard & Poors Ratings Group (a division of McGraw Hill, Inc.), and
maturing within one year from the date of issuance;
(f) mutual funds or money market accounts investing primarily in items
described in clauses (b) through (e) above;
(g) demand deposit accounts maintained in the ordinary course of
business;
(h) current trade and customer accounts receivable that are for goods
furnished or services rendered in the ordinary course of business and that
are payable in accordance with customary trade terms;
(i) in addition to items covered elsewhere in this definition, but
subject to SECTIONS 8.12 and 9.14, investments in any Person (including
purchases of stock or other securities or evidence of Debt of, assets of,
or loans, advances, extensions of credit or capital contributions to such
Person, but excluding capital appreciation and accrued interest), provided
that all such investments (when added to those made by Unrestricted
Subsidiaries) made in (i) Unrestricted Subsidiaries, (ii) Persons that are
not Affiliates of Borrower after such investment (excluding investments in
Keystone/Intrawest LLC existing on the date of this Agreement and the
existing obligation of Ralston Resorts to contribute to Keystone/Intrawest
LLC additional land which had a book value as of June 30, 1996, of
$8,900,000), and (iii) Apollo shall not in the aggregate exceed 15% of the
Companies' consolidated net worth at the time of determination; and
(j) the following investments:
(i) Housing Revenue Bonds, Series A-1, A-2, A-3, and B-2, issued
by Eagle Bend Affordable Housing Corporation, held in the face amount
of $800,000;
(ii) Housing Revenue Bonds, Series 1993C, issued by Lake Creek
Affordable Housing Corporation, held in the face amount of $1,166,250;
(iii) the possible purchase of bonds with respect to Borrower's
contingent obligations under the $10,115,000 Standby Bond Purchase
Agreement between Borrower and Colorado National Bank, as Trustee,
dated July 9, 1996;
(iv) a secured loan of $300,000 made to Andrew P. Daly in 1991, a
secured loan of $438,750 to be made to Lucinda M. Daly, and a secured
loan of $350,000 to be made to Mr. and Mrs. James P. Thompson; and
(v) Workers compensation reserve account, established pursuant to
a self-insurance permit from the State of Colorado Department of
Labor, invested exclusively in items described in clauses (b) through
(f) above.
9.9 Management Fees and Distributions. No Company shall make any
---------------------------------
Distribution, except as follows:
(a) if no Default or Potential Default exists (or would result
therefrom), the Companies may pay management fees to Apollo of up to
$500,000 (in cash and/or services) in any fiscal year of the Companies;
(b) VRI may make payments of up to $55,000,000 in connection with its
distribution of a nontransferable right to receive up to $5.00 per share of
VRI's Common Stock to all stockholders of record on October 11, 1996, and a
related payable accruing to certain option holders (provided that such
payments may only be made to the extent the Companies receive sufficient
gross proceeds under contracts existing as of September 30, 1996, for the
sale of certain real estate and related amenities); and
36
<PAGE>
(c) any Company may make Distributions to a Restricted Company.
9.10 Sale of Assets. No Company shall sell, assign, lease, transfer or
--------------
otherwise dispose of all or any material portion of the assets described in
SCHEDULE 2, if the ratio described in SECTION 10.1 would increase as a result of
such disposition after any application of proceeds thereof to the Term Loans
under SECTION 3.2(D)(I)(A). Any sale of assets is subject to the mandatory
prepayment provisions of SECTION 3.2(D)(I).
9.11 Mergers and Dissolutions. No Restricted Company shall merge or
------------------------
consolidate with any other Person (unless Borrower or, if Borrower is not a
party to such merger or consolidation, a Restricted Subsidiary is the surviving
entity in connection with any such merger or consolidation) or liquidate, wind
up or dissolve (or suffer any liquidation or dissolution). Prior to any such
merger or consolidation, Borrower shall deliver any notice and legal opinion
required by SECTION 2(B)(II) of the relevant Pledge Agreement, if applicable.
Promptly after such merger or consolidation, Borrower shall deliver to Agent
revised SCHEDULES 7.2 and 7.3 reflecting any merger or consolidation.
9.12 Assignment. No Company shall assign or transfer any of its Rights or
----------
cause to be delegated its duties or obligations under any of the Loan Papers.
9.13 Fiscal Year and Accounting Methods. No Company shall change its
----------------------------------
fiscal year or its method of accounting (other than immaterial changes in
methods or as required by GAAP).
9.14 New Businesses. No Restricted Company shall engage in any business,
--------------
except the businesses in which they are presently engaged and any other business
reasonably related to the Companies' current operations or the resort, leisure
or ski business; provided, however, that the foregoing shall not be construed to
prohibit the cessation by any Company of its business activities or the sale or
transfer of the business or assets of such Company to the extent not otherwise
prohibited by this Agreement.
9.15 Government Regulations. No Company shall conduct its business in a
----------------------
way that it becomes regulated under the Investment Company Act of 1940, as
amended, or the Public Utility Holding Company Act of 1935, as amended.
SECTION 10 FINANCIAL COVENANTS. So long as Lenders are committed to fund Loans
- ---------- -------------------
and Agent is committed to issue LCs under this Agreement, and thereafter until
the Obligation is paid and performed in full (except for provisions under the
Loan Papers expressly intended to survive payment of the Obligation and
termination of the Loan Papers), Borrower covenants and agrees as follows to
comply with each of the following ratios. For purposes of determining each such
ratio, Resort EBITDA for any period shall include on a pro forma basis all
EBITDA for such period relating to assets acquired (including Restricted
Subsidiaries formed or acquired) during such period, but shall exclude on a pro
forma basis all EBITDA for such period relating to any such assets disposed of
in accordance with this Agreement during such period.
10.1 Maximum Leverage Ratio. As calculated as of the last day of each
----------------------
fiscal quarter of the Companies, the Companies shall not permit the ratio of (x)
the unpaid principal amount of Funded Debt existing as of such last day to (y)
Resort EBITDA for the four fiscal quarters ending on such last day to exceed the
------
following:
37
<PAGE>
MAXIMUM LEVERAGE RATIO IF MAXIMUM LEVERAGE RATIO IF
FACILITY IS SECURED FACILITY IS NO LONGER SECURED
(PURSUANT TO (S) 5.2(B))
As of the last day of each fiscal As of the last day of each fiscal
quarter occurring after the Closing quarter occurring after the Closing
Date through and including Date through and including
December 31, 1998: 4.75 to 1.00 December 31, 1998: 4.25 to 1.00
As of the last day of each fiscal As of the last day of each fiscal
quarter commencing with March 31, quarter commencing with March 31,
1999, through and including 1999: 3.75 to 1.00
December 31, 1999: 4.25 to 1.00
As of the last day of each fiscal
quarter commencing with March 31,
2000: 4.00 to 1.00
10.2 Minimum Fixed Charge Coverage Ratio. As calculated as of the last day
-----------------------------------
of each fiscal quarter of the Companies, the Companies shall not permit the
ratio of (x) Resort EBITDA for the four fiscal quarters ending on such last day
minus Adjusted Capital Expenditures to (y) Scheduled Principal Payments and
interest on the Obligation and scheduled principal and interest payments on all
other Funded Debt (other than with respect to principal payments on VRI's 12-
1/4% Senior Subordinated Notes Due 2002) in such four fiscal quarters to be less
----
than the following:
As of the last day of each fiscal quarter occurring after the 1.15 to 1.00
Closing Date through and including June 30, 1999:
As of the last day of each fiscal quarter commencing with 1.20 to 1.00
September 30, 1999, through and including June 30, 2000:
As of the last day of each fiscal quarter commencing with 1.25 to 1.00
September 30, 2000:
For purposes of clause (y) of such ratio for the four-quarter periods ending on
December 31, 1996, March 31, 1997, and June 30, 1997, payments of principal and
interest shall be calculated as though all such Debt was incurred at the
beginning of such four-quarter period. As used in this SECTION 10.2, "ADJUSTED
CAPITAL EXPENDITURES" means (a) for the four fiscal quarters ending any December
31, the lesser of (i) the Companies' actual capital expenditures during such
four fiscal quarters, and (ii) $25,000,000, and (b) for the four fiscal quarters
ending on any March 31, June 30, or September 30, the lesser of (i) the
Companies' actual capital expenditures during such four fiscal quarters, and
(ii) $15,000,000.
10.3 Interest Coverage Ratio. As calculated as of the last day of each
-----------------------
fiscal quarter of the Companies, the Companies shall not permit the ratio of (x)
Resort EBITDA for the four fiscal quarters ending on such last day to (y)
payments of interest on Funded Debt in such four fiscal quarters to be less than
----
the following:
38
<PAGE>
As of the last day of each fiscal quarter occurring after the 2.25 to 1.00
Closing Date through and including June 30, 1998:
As of the last day of each fiscal quarter commencing with 2.50 to 1.00
September 30, 1998, through and including June 30, 1999:
As of the last day of each fiscal quarter commencing with 2.75 to 1.00
September 30, 1999, through and including June 30, 2000:
As of the last day of each fiscal quarter commencing with 3.00 to 1.00
September 30, 2000:
For purposes of clause (y) of such ratio for the four-quarter periods ending on
December 31, 1996, March 31, 1997, and June 30, 1997, the payments of interest
on Funded Debt shall be calculated as though such Funded Debt was incurred at
the beginning of such four-quarter period.
SECTION 11 DEFAULT. The term "DEFAULT" means the occurrence of any one or more
- ---------- -------
of the following events:
11.1 Payment of Obligation. The failure or refusal of any Company to pay
---------------------
(i) any principal payment contemplated by SECTION 3.2(B) of this Agreement after
such payment becomes due and payable hereunder, (ii) any principal payment
(other than those contemplated by SECTION 3.2(B)) or interest payment
contemplated to be made hereunder within 3 Business Days after demand therefor
by Agent, (iii) any amount contemplated to be paid hereunder in respect of fees,
costs, expenses or indemnities within 10 Business Days after demand therefor by
Agent and (iv) any amount in respect of its reimbursement obligations in
connection with any drawing under an LC within 3 Business Days after demand
therefor by Agent.
11.2 Covenants. The failure or refusal of any Company to punctually and
---------
properly perform, observe, and comply with:
(a) Any covenant, agreement or condition applicable to it contained in
SECTIONS 8.2, 8.14, 9 (other than SECTIONS 9.1, 9.3, 9.6 and 9.7) or 10; or
(b) Any other covenant, agreement or condition applicable to it
contained in any Loan Paper (other than the covenants to pay the Obligation
and the covenants in clause (a) preceding), and failure or refusal
continues for 30 days.
11.3 Debtor Relief. Any Restricted Company (a) fails to pay its Debts
-------------
generally as they become due, (b) voluntarily seeks, consents to, or acquiesces
in the benefit of any Debtor Relief Law, or (c) becomes a party to or is made
the subject of any proceeding provided for by any Debtor Relief Law, other than
as a creditor or claimant, that could suspend or otherwise adversely affect the
Rights of Agent or any Lender granted in the Loan Papers (unless, if the
proceeding is involuntary, the applicable petition is dismissed within 60 days
after its filing).
11.4 Judgments and Attachments. Any Restricted Company fails, within 60
-------------------------
days after entry, to pay, bond or otherwise discharge any judgment or order for
the payment of money in excess of $5,000,000 (individually or collectively) or
any warrant of attachment, sequestration or similar proceeding against any
assets of any Restricted Company having a value (individually or collectively)
of $5,000,000, which is neither (a) stayed on appeal nor (b)
39
<PAGE>
diligently contested in good faith by appropriate proceedings and adequate
reserves have been set aside on its books in accordance with GAAP.
11.5 Government Action. Any Tribunal condemns, seizes or otherwise
-----------------
appropriates, or takes custody or control of all or any substantial portion of
the assets described on SCHEDULE 2.
11.6 Misrepresentation. Any material representation or warranty made by any
-----------------
Company in connection with any Loan Paper at any time proves to have been
materially incorrect when made; provided that if such Company made such
representation or warranty in good faith without any knowledge on the part of
the Companies that it was materially incorrect, such misrepresentation shall not
constitute a Default if the Companies notify Agent of such misrepresentation
within 5 Business Days after such Company has knowledge thereof.
11.7 Ownership. There shall occur a Change of Control Transaction.
---------
11.8 Default Under Other Agreements. (a) Any Restricted Company fails to
------------------------------
pay when due (after lapse of any applicable grace period) any recourse Debt in
excess (individually or collectively) of $5,000,000; (b) any default exists
under any agreement to which any Restricted Company is a party, the effect of
which is to cause, or to permit any Person (other than a Restricted Company) to
cause, any recourse obligation in excess (individually or collectively) of
$5,000,000 to become due and payable by any Restricted Company before its stated
maturity, except to the extent such obligation is declared to be due and payable
as a result of the sale of any asset to which it relates; or (c) an "Enforcement
Notice" is delivered by the Beaver Creek Indenture Trustee or the Vail Indenture
Trustee under the Collateral Agency Agreement (and has not been rescinded or
withdrawn).
11.9 Validity and Enforceability of Loan Papers. Except in accordance with
------------------------------------------
its terms or as otherwise expressly permitted by this Agreement, any Loan Paper
at any time after its execution and delivery ceases to be in full force and
effect in any material respect or is declared to be null and void or its
validity or enforceability is contested by any Company party thereto or any
Company denies that it has any further liability or obligations under any Loan
Paper to which it is a party.
11.10 Employee Plans. Except where occurrence or existence is not a Material
--------------
Adverse Event, (a) an Employee Plan incurs an "accumulated funding deficiency"
(as defined in section 302 of ERISA or section 412 of the Code), (b) a Company
incurs liability under ERISA to the PBGC in connection with any Employee Plan
(other than required insurance premiums paid when due), (c) a Company withdraws
in whole or in part from participation in a Multiemployer Plan, (d) a Company
engages in any "prohibited transaction" (as defined in section 406 of ERISA or
section 4975 of the Code), or (e) a "reportable event" (as defined in section
4043 of ERISA) occurs with respect to an Employee Plan, excluding events for
which the notice requirement is waived under applicable PBGC regulations.
SECTION 12 RIGHTS AND REMEDIES.
- ---------- -------------------
12.1 Remedies Upon Default.
---------------------
(a) If a Default exists under SECTION 11.3, the commitment to extend
credit under this Agreement automatically terminates, the entire unpaid
balance of the Obligation automatically becomes due and payable without any
action of any kind whatsoever, and Borrower must provide cash collateral in
an amount equal to the then-existing LC Exposure.
(b) If any Default exists, subject to the terms of SECTION 13.5(B),
Agent may (with the consent of, and must, upon the request of, Required
Lenders), do any one or more of the following: (i) if the maturity of the
Obligation has not already been accelerated under SECTION 12.1(A), declare
the entire unpaid balance of all or any part of the Obligation immediately
due and payable, whereupon it is due and payable; (ii) terminate the
commitments of Lenders to extend credit or to continue or convert any Loan
under this Agreement; (iii) reduce any claim to judgment; (iv) demand
Borrower to provide cash collateral in an amount equal to the
40
<PAGE>
LC Exposure then existing; and (v) exercise any and all other legal or
equitable Rights afforded by the Loan Papers, the Laws of the State of New
York, or any other applicable jurisdiction. In addition, Agent may (with
the consent of, and must, upon the request of, Lenders holding at least 50%
of the Revolving Credit Commitment) terminate the Revolving Credit
Commitment.
12.2 Company Waivers. TO THE EXTENT PERMITTED BY LAW, EACH COMPANY WAIVES
---------------
PRESENTMENT AND DEMAND FOR PAYMENT, PROTEST, NOTICE OF INTENTION TO ACCELERATE,
NOTICE OF ACCELERATION AND NOTICE OF PROTEST AND NONPAYMENT, AND AGREES THAT ITS
LIABILITY WITH RESPECT TO ALL OR ANY PART OF THE OBLIGATION IS NOT AFFECTED BY
ANY RENEWAL OR EXTENSION IN THE TIME OF PAYMENT OF ALL OR ANY PART OF THE
OBLIGATION, BY ANY INDULGENCE, OR BY ANY RELEASE OR CHANGE IN ANY SECURITY FOR
THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATION.
12.3 Performance by Agent. If any covenant, duty or agreement of any
--------------------
Company is not performed in accordance with the terms of the Loan Papers, Agent
may, while a Default exists, at its option (but subject to the approval of
Required Lenders), perform or attempt to perform that covenant, duty or
agreement on behalf of that Company (and any amount expended by Agent in its
performance or attempted performance is payable by the Companies, jointly and
severally, to Agent on demand, becomes part of the Obligation, and bears
interest at the Default Rate from the date of Agent's expenditure until paid).
However, Agent does not assume and shall never have, except by its express
written consent, any liability or responsibility for the performance of any
covenant, duty or agreement of any Company.
12.4 Not in Control. None of the covenants or other provisions contained in
--------------
any Loan Paper shall, or shall be deemed to, give Agent or Lenders the Right to
exercise control over the assets (including, without limitation, real property),
affairs, or management of any Company; the power of Agent and Lenders is limited
to the Right to exercise the remedies provided in this SECTION 12.
12.5 Course of Dealing. The acceptance by Agent or Lenders of any partial
-----------------
payment on the Obligation shall not be deemed to be a waiver of any Default then
existing. No waiver by Agent, Required Lenders or Lenders of any Default shall
be deemed to be a waiver of any other then-existing or subsequent Default. No
delay or omission by Agent, Required Lenders or Lenders in exercising any Right
under the Loan Papers will impair that Right or be construed as a waiver thereof
or any acquiescence therein, nor will any single or partial exercise of any
Right preclude other or further exercise thereof or the exercise of any other
Right under the Loan Papers or otherwise.
12.6 Cumulative Rights. All Rights available to Agent, Required Lenders,
-----------------
and Lenders under the Loan Papers are cumulative of and in addition to all other
Rights granted to Agent, Required Lenders, and Lenders at law or in equity,
whether or not the Obligation is due and payable and whether or not Agent,
Required Lenders, or Lenders have instituted any suit for collection,
foreclosure, or other action in connection with the Loan Papers.
12.7 Application of Proceeds. Any and all proceeds ever received by Agent
-----------------------
or Lenders from the exercise of any Rights pertaining to the Obligation shall be
applied to the Obligation according to SECTION 3.11.
12.8 Diminution in Value of Collateral. Neither Agent nor any Lender has
---------------------------------
any liability or responsibility whatsoever for any diminution in or loss of
value of any collateral now or hereafter securing payment or performance of all
or any part of the Obligation (other than diminution in or loss of value caused
by its gross negligence or willful misconduct).
12.9 Certain Proceedings. The Companies will promptly execute and deliver,
-------------------
or cause the execution and delivery of, all applications, certificates,
instruments, registration statements and all other documents and papers Agent or
Required Lenders reasonably request in connection with the obtaining of any
consent, approval, registration, qualification, permit, license or authorization
of any Tribunal or other Person necessary or appropriate for the effective
exercise of any Rights under the Loan Papers. Because Borrower agrees that
Agent's and Required Lenders' remedies at Law for failure of the Companies to
comply with the provisions of this paragraph would be inadequate and that
failure
41
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would not be adequately compensable in damages, Borrower agrees that the
covenants of this paragraph may be specifically enforced.
SECTION 13 AGREEMENT AMONG LENDERS.
- ---------- -----------------------
13.1 Agent.
-----
(a) Each Lender appoints Agent (and Agent accepts appointment) as its
nominee and agent, in its name and on its behalf pursuant to the terms and
conditions of the Loan Papers: (i) to act as its nominee and on its behalf
in and under all Loan Papers; (ii) to arrange the means whereby its funds
are to be made available to Borrower under the Loan Papers; (iii) to take
any action that it properly requests under the Loan Papers (subject to the
concurrence of other Lenders as may be required under the Loan Papers);
(iv) to receive all documents and items to be furnished to it under the
Loan Papers; (v) to be the secured party, mortgagee, beneficiary, recipient
and similar party in respect of any collateral for the benefit of Lenders;
(vi) to promptly distribute to it all material information, requests,
documents and items received from any Company under the Loan Papers; (vii)
to promptly distribute to it its ratable part of each payment (whether
voluntary, as proceeds of collateral upon or after foreclosure, as proceeds
of insurance thereon, or otherwise) in accordance with the terms of the
Loan Papers; and (viii) to deliver to the appropriate Persons requests,
demands, approvals, and consents received from it.
(b) If the initial or any successor Agent ever ceases to be a party to
this Agreement or if the initial or any successor Agent ever resigns
(whether voluntarily or at the request of Required Lenders), then Required
Lenders shall appoint the successor Agent from among Lenders (other than
the resigning Agent). If Required Lenders fail to appoint a successor Agent
within 30 days after the resigning Agent has given notice of resignation or
Required Lenders have removed the resigning Agent, then the resigning Agent
may, on behalf of Lenders, appoint a successor Agent, which must be a
commercial bank having a combined capital and surplus of at least
$1,000,000,000 (as shown on its most recently published statement of
condition). Upon its acceptance of appointment as successor Agent, the
successor Agent succeeds to and becomes vested with all of the Rights of
the prior Agent, and the prior Agent is discharged from its duties and
obligations of Agent under the Loan Papers (but, when used in connection
with LCs issued and outstanding before the appointment of the successor
Agent, "Agent" shall continue to refer solely to NationsBank of Texas, N.A.
(but, any LCs issued or renewed after the appointment of any successor
Agent shall be issued or renewed by the successor Agent)), and each Lender
shall execute the documents as any Lender, the resigning or removed Agent,
or the successor Agent reasonably request to reflect the change. After any
Agent's resignation or removal as Agent under the Loan Papers, the
provisions of this SECTION 13 inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under the Loan Papers.
(c) Agent, in its capacity as a Lender, has the same Rights under the
Loan Papers as any other Lender and may exercise those Rights as if it were
not acting as Agent; the term "Lender" shall, unless the context otherwise
indicates, include Agent; and Agent's resignation or removal shall not
impair or otherwise affect any Rights that it has or may have in its
capacity as an individual Lender. Each Lender and Borrower agree that Agent
is not a fiduciary for Lenders or for Borrower but simply is acting in the
capacity described in this Agreement to alleviate administrative burdens
for Borrower and Lenders, that Agent has no duties or responsibilities to
Lenders or Borrower, except those expressly set forth in the Loan Papers,
and that Agent in its capacity as a Lender has all Rights of any other
Lender.
(d) Agent may now or hereafter be engaged in one or more loan, letter
of credit, leasing or other financing transactions with Borrower, act as
trustee or depositary for Borrower, or otherwise be engaged in other
transactions with Borrower (collectively, the "OTHER ACTIVITIES") not the
subject of the Loan Papers. Without limiting the Rights of Lenders
specifically set forth in the Loan Papers, Agent is not responsible to
account to Lenders for those other activities, and no Lender shall have any
interest in any other activities, any present or future guaranties by or
for the account of Borrower that are not contemplated or included in the
Loan
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Papers, any present or future offset exercised by Agent in respect of those
other activities, any present or future property taken as security for any
of those other activities, or any property now or hereafter in Agent's
possession or control that may be or become security for the obligations of
Borrower arising under the Loan Papers by reason of the general description
of indebtedness secured or of property contained in any other agreements,
documents, or instruments related to any of those other activities (but, if
any payments in respect of those guaranties or that property or the
proceeds thereof is applied by Agent to reduce the Obligation, then each
Lender is entitled to share ratably in the application as provided in the
Loan Papers).
13.2 Expenses. Each Lender shall pay its Pro Rata Part (based on the
--------
Facility as a whole) of any reasonable expenses (including, without limitation,
court costs, reasonable attorneys' fees and other costs of collection) incurred
by Agent (while acting in such capacity) in connection with any of the Loan
Papers if Agent is not reimbursed from other sources within 30 days after
incurrence. Each Lender is entitled to receive its Pro Rata Part (based on the
Facility as a whole) of any reimbursement that it makes to Agent if Agent is
subsequently reimbursed from other sources.
13.3 Proportionate Absorption of Losses. Except as otherwise provided in
----------------------------------
the Loan Papers, nothing in the Loan Papers gives any Lender any advantage over
any other Lender insofar as the Obligation is concerned or to relieve any Lender
from absorbing its Pro Rata Part of any losses sustained with respect to any
portion of the Obligation in which it participates (except to the extent
unilateral actions or inactions by any Lender result in Borrower or any other
obligor on the Obligation having any credit, allowance, setoff, defense, or
counterclaim solely with respect to all or any part of that Lender's portion of
the Obligation).
13.4 Delegation of Duties; Reliance. Lenders may perform any of their
------------------------------
duties or exercise any of their Rights under the Loan Papers by or through
Agent, and Lenders and Agent may perform any of their duties or exercise any of
their Rights under the Loan Papers by or through their respective
Representatives. Agent, Lenders and their respective Representatives (a) are
entitled to rely upon (and shall be protected in relying upon) any written or
oral statement believed by it or them to be genuine and correct and to have been
signed or made by the proper Person and, with respect to legal matters, upon
opinion of counsel selected by Agent or that Lender (but nothing in this clause
(a) permits Agent to rely on (i) oral statements if a writing is required by
this Agreement or (ii) any other writing if a specific writing is required by
this Agreement), (b) are entitled to deem and treat each Lender as the owner and
holder of its portion of the Principal Debt for all purposes until, subject to
SECTION 14.12, written notice of the assignment or transfer is given to and
received by Agent (and any request, authorization, consent or approval of any
Lender is conclusive and binding on each subsequent holder, assignee or
transferee of or Participant in that Lender's portion of the Principal Debt
until that notice is given and received), (c) are not deemed to have notice of
the occurrence of a Default unless a responsible officer of Agent, who handles
matters associated with the Loan Papers and transactions thereunder, has actual
knowledge or Agent has been notified by a Lender or Borrower, and (d) are
entitled to consult with legal counsel (including counsel for Borrower),
independent accountants, and other experts selected by Agent and are not liable
for any action taken or omitted to be taken in good faith by it in accordance
with the advice of counsel, accountants, or experts.
13.5 Limitation of Agent's Liability.
-------------------------------
(a) NEITHER AGENT NOR ANY OF ITS AFFILIATES, REPRESENTATIVES,
SUCCESSORS OR ASSIGNS WILL BE LIABLE FOR ANY ACTION TAKEN OR OMITTED TO BE
TAKEN BY IT OR THEM UNDER THE LOAN PAPERS IN GOOD FAITH AND BELIEVED BY IT
OR THEM TO BE WITHIN THE DISCRETION OR POWER CONFERRED UPON IT OR THEM BY
THE LOAN PAPERS OR BE RESPONSIBLE FOR THE CONSEQUENCES OF ANY ERROR OF
JUDGMENT (EXCEPT FOR FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), AND
NONE OF THEM HAS A FIDUCIARY RELATIONSHIP WITH ANY LENDER BY VIRTUE OF THE
LOAN PAPERS (BUT NOTHING IN THIS AGREEMENT NEGATES THE OBLIGATION OF AGENT
TO ACCOUNT FOR FUNDS RECEIVED BY IT FOR THE ACCOUNT OF ANY LENDER).
(b) Unless indemnified to its satisfaction, Agent may not be compelled
to do any act under the Loan Papers or to take any action toward the
execution or enforcement of the powers thereby created or to prosecute or
defend any suit in respect of the Loan Papers. If Agent requests
instructions from Lenders, or
43
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Required Lenders, as the case may be, with respect to any act or action in
connection with any Loan Paper, Agent is entitled to refrain (without
incurring any liability to any Person by so refraining) from that act or
action unless and until it has received instructions. In no event, however,
may Agent or any of its Representatives be required to take any action that
it or they determine could incur for it or them criminal or onerous civil
liability or that is contrary to any Loan Paper or applicable Law. Without
limiting the generality of the foregoing, no Lender has any right of action
against Agent as a result of Agent's acting or refraining from acting under
this Agreement in accordance with instructions of Required Lenders (or of
all Lenders, if instructions from all Lenders is specifically required by
the terms of the Loan Papers).
(c) Agent is not responsible to any Lender or any Participant for, and
each Lender represents and warrants that it has not relied upon Agent in
respect of, (i) the creditworthiness of any Company and the risks involved
to that Lender, (ii) the effectiveness, enforceability, genuineness,
validity or due execution of any Loan Paper (other than by Agent), (iii)
any representation, warranty, document, certificate, report or statement
made therein (other than by Agent) or furnished thereunder or in connection
therewith, (iv) the adequacy of any collateral now or hereafter securing
the Obligation or the existence, priority or perfection of any Lien now or
hereafter granted or purported to be granted on the collateral under any
Loan Paper, or (v) the observance of or compliance with any of the terms,
covenants or conditions of any Loan Paper on the part of any Company. EACH
LENDER AGREES TO INDEMNIFY AGENT AND ITS REPRESENTATIVES AND HOLD THEM
HARMLESS FROM AND AGAINST (BUT LIMITED TO SUCH LENDER'S PRO RATA PART,
BASED ON THE FACILITY AS A WHOLE, OF) ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, REASONABLE
EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER THAT
MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THEM IN ANY WAY
RELATING TO OR ARISING OUT OF THE LOAN PAPERS OR ANY ACTION TAKEN OR
OMITTED BY THEM UNDER THE LOAN PAPERS IF AGENT AND ITS REPRESENTATIVES ARE
NOT REIMBURSED FOR SUCH AMOUNTS BY ANY COMPANY. Although Agent and its
Representatives have the right to be indemnified under this Agreement for
its or their own ordinary negligence, Agent and its Representatives do not
have the right to be indemnified under this Agreement for its or their own
fraud, gross negligence or willful misconduct.
13.6 Default; Collateral. While a Default exists, Lenders agree to promptly
-------------------
confer in order that Required Lenders or Lenders, as the case may be, may agree
upon a course of action for the enforcement of the Rights of Lenders; and Agent
is entitled to refrain from taking any action (without incurring any liability
to any Person for so refraining) unless and until it has received instructions
from Required Lenders. In actions with respect to any property of Borrower,
Agent is acting for the ratable benefit of each Lender. Agent shall hold, for
the ratable benefit of all Lenders, any security it receives for the Obligation
or any guaranty of the Obligation it receives upon or in lieu of foreclosure.
13.7 Limitation of Liability. No Lender or any Participant will incur any
-----------------------
liability to any other Lender or Participant, except for acts or omissions in
bad faith, and neither Agent nor any Lender or Participant will incur any
liability to any other Person for any act or omission of any other Lender or any
Participant.
13.8 Relationship of Lenders. The Loan Papers and the documents delivered
-----------------------
in connection therewith do not create a partnership or joint venture among Agent
and Lenders or among Lenders.
13.9 Collateral Matters.
------------------
(a) Each Lender authorizes and directs Agent to enter into the
Security Documents for the ratable benefit of Lenders and the other secured
parties identified therein. Each Lender agrees that any action taken by
Agent concerning any Collateral with the consent of, or at the request of,
Required Lenders in accordance with the provisions of the Loan Papers, and
the exercise by Agent (with the consent of, or at the request of, Required
Lenders) of powers concerning the Collateral set forth in any Loan Paper,
together with other reasonably incidental powers, shall be authorized by
and binding upon all Lenders.
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(b) Agent is authorized on behalf of all Lenders, without the
necessity of any notice to or further consent from any Lender, from time to
time before a Default or Potential Default, to take any action with respect
to any Collateral or Security Documents that may be necessary to perfect
and maintain perfected the Liens upon the Collateral granted by the
Security Documents.
(c) Agent has no obligation whatsoever to any Lender or to any other
Person to assure that the Collateral exists or is owned by any Company or
is cared for, protected or insured or has been encumbered or that the Liens
granted under the Security Documents have been properly or sufficiently or
lawfully created, perfected, protected or enforced, or are entitled to any
particular priority.
(d) Agent shall exercise the same care and prudent judgment with
respect to the Collateral and the Security Documents as it normally and
customarily exercises in respect of similar collateral and security
documents.
(e) Lenders irrevocably authorize Agent to release any Lien upon any
Collateral in accordance with SECTION 5.2(B) or 5.3(B).
13.10 Benefits of Agreement. None of the provisions of this SECTION 13 inure
---------------------
to the benefit of any Company or any other Person other than Agent and Lenders;
consequently, no Company or any other Person is entitled to rely upon, or to
raise as a defense, in any manner whatsoever, the failure of Agent or any Lender
to comply with these provisions.
SECTION 14 MISCELLANEOUS.
- ---------- -------------
14.1 Headings. The headings, captions and arrangements used in any of the
--------
Loan Papers are, unless specified otherwise, for convenience only and shall not
be deemed to limit, amplify or modify the terms of the Loan Papers, nor affect
the meaning thereof.
14.2 Nonbusiness Days; Time. Any payment or action that is due under any
----------------------
Loan Paper on a non-Business Day may be delayed until the next-succeeding
Business Day (but interest shall continue to accrue on any applicable payment
until payment is in fact made) unless the payment concerns a LIBOR Loan, in
which case if the next-succeeding Business Day is in the next calendar month,
then such payment shall be made on the next-preceding Business Day. Unless
otherwise indicated, all time references (e.g., 1:00 p.m.) are to Dallas, Texas
time.
14.3 Communications. Unless otherwise specifically provided, whenever any
--------------
Loan Paper requires or permits any consent, approval, notice, request or demand
from one party to another, communication must be in writing (which may be by
telex or telecopy) to be effective and shall be deemed to have been given (a) if
by telex, when transmitted to the appropriate telex number and the appropriate
answerback is received, (b) if by telecopy, when transmitted to the appropriate
telecopy number (and all communications sent by telecopy must be confirmed
promptly thereafter by telephone; but any requirement in this parenthetical
shall not affect the date when the telecopy shall be deemed to have been
delivered), (c) if by mail, on the third Business Day after it is enclosed in an
envelope and properly addressed, stamped, sealed, and deposited in the
appropriate official postal service, or (d) if by any other means, when actually
delivered. Until changed by notice pursuant to this Agreement, the address (and
telecopy number) for each party to a Loan Paper is set forth on the attached
SCHEDULE 1.
14.4 Form and Number of Documents. The form, substance, and number of
----------------------------
counterparts of each writing to be furnished under the Loan Papers must be
satisfactory to Agent and its counsel, each in its reasonable discretion.
14.5 Exceptions to Covenants. The Companies may not take or fail to take
-----------------------
any action that is permitted as an exception to any of the covenants contained
in any Loan Paper if that action or omission would result in the breach of any
other covenant contained in any Loan Paper.
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14.6 Survival. All covenants, agreements, undertakings, representations and
--------
warranties made in any of the Loan Papers survive all closings under the Loan
Papers and, except as otherwise indicated, are not affected by any investigation
made by any party.
14.7 Governing Law. The Laws (other than conflict-of-laws provisions) of
-------------
the State of New York and of the United States of America govern the Rights and
duties of the parties to the Loan Papers and the validity, construction,
enforcement and interpretation of the Loan Papers.
14.8 Invalid Provisions. Any provision in any Loan Paper held to be
------------------
illegal, invalid or unenforceable is fully severable; the appropriate Loan Paper
shall be construed and enforced as if that provision had never been included;
and the remaining provisions shall remain in full force and effect and shall not
be affected by the severed provision. Agent, Lenders, and the Companies shall
negotiate, in good faith, the terms of a replacement provision as similar to the
severed provision as may be possible and be legal, valid and enforceable.
14.9 Venue; Service of Process; Jury Trial. EACH PARTY TO ANY LOAN PAPER,
-------------------------------------
IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE OF
BORROWER, FOR EACH OTHER COMPANY), (a) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS, (b)
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING
OUT OF OR IN CONNECTION WITH THE LOAN PAPERS AND THE OBLIGATION BROUGHT IN
DISTRICT COURTS OF DALLAS OR HARRIS COUNTY, TEXAS, OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN OR SOUTHERN DISTRICT OF TEXAS, DALLAS OR HOUSTON
DIVISION, (c) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY
OF THE AFOREMENTIONED COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (d)
IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY TO ANY LOAN PAPER
ARISING OUT OF OR IN CONNECTION WITH THE LOAN PAPERS OR THE OBLIGATION MAY BE
BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (e) IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN PAPER. The scope
of each of the foregoing waivers is intended to be all-encompassing of any and
all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including, without limitation, contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
Borrower (for itself and on behalf of each other Company) acknowledges that
these waivers are a material inducement to Agent's and each Lender's agreement
to enter into a business relationship, that Agent and each Lender has already
relied on these waivers in entering into this Agreement, and that Agent and each
Lender will continue to rely on each of these waivers in related future
dealings. Borrower (for itself and on behalf of each other Company) further
warrants and represents that it has reviewed these waivers with its legal
counsel, and that it knowingly and voluntarily agrees to each waiver following
consultation with legal counsel. THE WAIVERS IN THIS SECTION 14.9 MAY NOT BE
MODIFIED EXCEPT IN ACCORDANCE WITH SECTION 14.10, AND SHALL, EXCEPT TO THE
EXTENT WAIVED OR MODIFIED IN ACCORDANCE WITH SECTION 14.10, APPLY TO ANY
SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR PLACEMENTS TO OR OF THIS OR ANY OTHER LOAN
PAPER. In the event of Litigation, this Agreement may be filed as a written
consent to a trial by the court.
14.10 Amendments, Consents, Conflicts and Waivers.
-------------------------------------------
(a) Unless otherwise specifically provided, (i) this Agreement may be
amended only by an instrument in writing executed by Borrower, Agent and
Required Lenders and supplemented only by documents delivered or to be
delivered in accordance with the express terms of this Agreement, and (ii)
the other Loan Papers may only be the subject of an amendment, modification
or waiver that has been approved by Required Lenders and Borrower.
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(b) Any amendment to or consent or waiver under any Loan Paper that
purports to waive any mandatory prepayment or change the allocation of any
payment among the Revolving Credit Loans, the Tranche A Loans and the
Tranche B Loans must be by an instrument in writing executed by Borrower,
Agent, Lenders holding at least 50% of the Revolving Credit Commitment,
Lenders holding at least 50% of the Tranche A Commitment and Lenders
holding at least 50% of the Tranche B Commitment. Any amendment to or
consent or waiver that purports to reactivate (or would have the effect of
reactivating) the Revolving Credit Commitment after its termination
pursuant to SECTION 12.1 must be by an instrument in writing executed by
Borrower, Agent and Lenders holding at least 50% of the Revolving Credit
Commitment. Any amendment to or consent or waiver under any Loan Paper that
purports to accomplish any of the following must be by an instrument in
writing executed by Borrower and Agent and executed (or approved, as the
case may be) by each Lender: (i) extend the due date, decrease the amount
of, or reallocate among the Tranches any scheduled payment of the
Obligation; (ii) decrease any rate or amount of interest, fees or other
sums payable to Agent or Lenders under this Agreement (except such
reductions as are contemplated by this Agreement); (iii) change the
definition of "Committed Sum," "Required Lenders," "Revolving Credit
Commitment," "Revolving Credit Termination Date," "Tranche A Commitment,"
"Tranche A Termination Date," "Tranche B Commitment," or "Tranche B
Termination Date;" (iv) increase any one or more Lenders' Committed Sums;
(v) waive compliance with, amend or release (in whole or in part) the
Guaranties of VRI or all or substantially all of the Restricted
Subsidiaries; (vi) consent to the release of any material portion of the
Collateral (other than pursuant to SECTION 5.2(B) or 5.3(B), which may be
released by Agent alone in accordance with SECTION 13.9(E)); or (vii)
change this clause (b), SECTION 9.12 or any other matter specifically
requiring the consent of all Lenders under this Agreement.
(c) Any conflict or ambiguity between the terms and provisions of this
Agreement and terms and provisions in any other Loan Paper is controlled by
the terms and provisions of this Agreement.
(d) No course of dealing or any failure or delay by Agent, any Lender,
or any of their respective Representatives with respect to exercising any
Right of Agent or any Lender under this Agreement operates as a waiver
thereof. A waiver must be in writing and signed by Agent and Lenders (or
Required Lenders, if permitted under this Agreement) to be effective, and a
waiver will be effective only in the specific instance and for the specific
purpose for which it is given.
14.11 Multiple Counterparts. Each Loan Paper (other than the Notes) may be
---------------------
executed in a number of identical counterparts, each of which shall be deemed an
original for all purposes and all of which constitute, collectively, one
agreement; but, in making proof of thereof, it shall not be necessary to produce
or account for more than one counterpart. Each Lender need not execute the same
counterpart of this Agreement so long as identical counterparts are executed by
Borrower, each Lender, and Agent. This Agreement shall become effective when
counterparts of this Agreement have been executed and delivered to Agent by each
Lender, Agent and Borrower, or, in the case only of Lenders, when Agent has
received telecopied, telexed or other evidence satisfactory to it that each
Lender has executed and is delivering to Agent a counterpart of this Agreement.
14.12 Successors and Assigns; Participation.
-------------------------------------
(a) The Loan Papers bind and inure to the benefit of the parties
hereto, any intended beneficiary thereof, and each of their respective
successors and permitted assigns. No Lender may transfer, pledge, assign,
sell any participation in, or otherwise encumber its portion of the
Obligation, except as permitted by this SECTION 14.12.
(b) Any Lender may, in the ordinary course of its business, at any
time sell to one or more Persons (each a "PARTICIPANT") participating
interests in all or any part of its Rights and obligations under the Loan
Papers. The selling Lender shall remain a "Lender" under this Agreement
(and the Participant shall not constitute a "Lender" under this Agreement)
and its obligations under this Agreement shall remain unchanged. The
selling Lender shall remain solely responsible for the performance of its
obligations under the Loan Papers
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and shall remain the holder of its share of the Principal Debt for all
purposes under this Agreement. Borrower and Agent shall continue to deal
solely and directly with the selling Lender in connection with that
Lender's Rights and obligations under the Loan Papers. Participants have no
Rights under the Loan Papers, other than certain voting Rights as provided
below. Subject to the following, each Lender may obtain (on behalf of its
Participants) the benefits of SECTION 3 with respect to all participations
in its part of the Obligation outstanding from time to time so long as
Borrower is not obligated to pay any amount in excess of the amount that
would be due to that Lender under SECTION 3 calculated as though no
participation have been made. No Lender may sell any participating interest
under which the Participant has any Rights to approve any amendment,
modification or waiver of any Loan Paper, except to the extent the
amendment, modification or waiver extends the due date for payment of any
principal, interest or fees due under the Loan Papers or reduces the
interest rate or the amount of principal or fees applicable to the
Obligation (except reductions contemplated by this Agreement). Except in
the case of the sale of a participating interest to another Lender, the
relevant participation agreement shall prohibit the Participant from
transferring, pledging, assigning, selling participation in, or otherwise
encumbering its portion of the Obligation.
(c) Any Lender may at any time, in the ordinary course of its
business, (i) without the consent of Borrower or Agent, assign all or any
part of its Rights and obligations under the Loan Papers to any of its
Affiliates (each a "PURCHASER") and (ii) upon the prior written consent of
Borrower (if no Default or Potential Default exists) and Agent (which will
not be unreasonably withheld), assign to any other Person (each of which is
also a "PURCHASER") all or any part (but if less than all, then not less
than $5,000,000) of its Rights and obligations under the Loan Papers. In
each case, the Purchaser shall assume those Rights and obligations under an
assignment agreement substantially in the form of the attached EXHIBIT H.
Each assignment under this SECTION 14.12(C) shall include a ratable
interest in the assigning Lender's Rights and obligations under the
Facility with respect to the Tranche or Tranches affected by such
assignment. Upon (i) delivery of an executed copy of the assignment
agreement to Borrower and Agent and the recordation thereof in the Register
provided for in SECTION 14.12(D) and (ii) with respect to each assignment
after the completion of the primary syndication described above, payment of
a fee of $3,500 from the transferor to Agent, from and after the effective
date specified in the Assignment Agreement (which shall be after the date
of delivery), the Purchaser shall for all purposes be a Lender party to
this Agreement and shall have all the Rights and obligations of a Lender
under this Agreement to the same extent as if it were an original party to
this Agreement with commitments as set forth in the assignment agreement,
and the transferor Lender shall be released from its obligations under this
Agreement to a corresponding extent, and, except as provided in the
following sentence, no further consent or action by Borrower, Lenders or
Agent shall be required. Upon the consummation of any transfer to a
Purchaser under this clause (c), the then-existing SCHEDULE 1 shall
automatically be deemed to reflect the name, address, Revolving Credit
Commitment, Tranche A Commitment, and/or Tranche B Commitment, as the case
may be, and Committed Sum of such Purchaser, Agent shall deliver to
Borrower and Lenders an amended SCHEDULE 1 reflecting those changes,
Borrower shall execute and deliver to each of the transferor Lender and the
Purchaser a Note or Notes, as applicable, in the face amount of its
Revolving Credit Commitment, Tranche A Commitment, and/or Tranche B
Commitment, as the case may be, following transfer, and, upon receipt of
its new Note or Notes, as applicable, the transferor Lender shall return to
Borrower the relevant Note or Notes previously delivered to it under this
Agreement. A Purchaser is subject to all the provisions in this section as
if it were a Lender signatory to this Agreement as of the date of this
Agreement.
(d) Agent shall maintain at its address on SCHEDULE 1 a copy of each
Lender assignment agreement delivered to it in accordance with the terms of
SECTION 14.12(C) and a register for the recordation of the principal
amount, Type and Interest Period of each Loan and the names, addresses and
Commitments of each Lender from time to time (the "REGISTER"). Agent will
make reasonable efforts to maintain the accuracy of the Register and to
promptly update the Register from time to time, as necessary. The entries
in the Register shall be conclusive in the absence of manifest error and
Borrower, Agent and Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection
by Borrower and each Lender, at any reasonable time and from time to time
upon reasonable prior notice.
48
<PAGE>
(c) This SECTION 14.12 relates to absolute assignments and,
notwithstanding SECTION 14.12(A), does not prohibit assignments creating
security interests. Specifically, without limitation, any Lender may at any
time, without the consent of Borrower or Agent, assign all or any part of
its Rights under the Loan Papers to a Federal Reserve Bank without
releasing the transferor Lender from its obligations thereunder.
14.13 Discharge Only Upon Payment in Full; Reinstatement in Certain
-------------------------------------------------------------
Circumstances. Each Company's obligations under the Loan Papers remain in full
- -------------
force and effect until the Total Commitment is terminated and the Obligation is
paid in full (except for provisions under the Loan Papers expressly intended to
survive payment of the Obligation and termination of the Loan Papers). If at any
time any payment of the principal of or interest on any Note or any other amount
payable by Borrower or any other obligor on the Obligation under any Loan Paper
is rescinded or must be restored or returned upon the insolvency, bankruptcy or
reorganization of Borrower or otherwise, the obligations of each Company under
the Loan Papers with respect to that payment shall be reinstated as though the
payment had been due but not made at that time.
14.14 ENTIRETY. THE RIGHTS AND OBLIGATIONS OF THE COMPANIES, LENDERS
--------
AND AGENT SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS AND
INSTRUMENTS, AND ANY PRIOR ORAL AGREEMENTS AMONG THE PARTIES ARE SUPERSEDED BY
AND MERGED INTO THOSE WRITINGS. THIS AGREEMENT AND THE OTHER WRITTEN LOAN PAPERS
(EACH AS AMENDED IN WRITING FROM TIME TO TIME) EXECUTED BY ANY COMPANY, ANY
LENDER OR AGENT REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. This
Agreement supersedes all prior written agreements and understandings relating to
the subject matter hereof, including, without limitation, the Offering
Memorandum dated September 1996, and may be supplemented only by documents
delivered in accordance with the terms hereof.
EXECUTED as of the day and year first mentioned.
THE VAIL CORPORATION
By: ___________________________________________
Name: ___________________________________________
___________________________________________
NATIONSBANK OF TEXAS, N.A.
By: ___________________________________________
Frank M. Johnson
Senior Vice President
49
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: ___________________________________________
Andrew T. Fay
Vice President
50
<PAGE>
COLORADO NATIONAL BANK
By: ___________________________________________
William J. Sullivan
Vice President
51
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: ___________________________________________
Mischa Zabotin
Vice President
52
<PAGE>
BANKERS TRUST COMPANY
By: ___________________________________________
Name: ___________________________________________
Title:___________________________________________
53
<PAGE>
BANK OF AMERICA ILLINOIS
By: ___________________________________________
Name: ___________________________________________
Title:___________________________________________
54
<PAGE>
FLEET NATIONAL BANK
By: ___________________________________________
Guy G. Smith
Senior Vice President
55
<PAGE>
HARRIS TRUST AND SAVINGS BANK
By: ___________________________________________
James H. Colley
Vice President
56
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
LOS ANGELES AGENCY
By: ___________________________________________
Paul Clifford
Deputy General Manager
57
<PAGE>
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION
By: ___________________________________________
Sandra A. Sauer
Vice President
58
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: ___________________________________________
Name: ___________________________________________
Title:___________________________________________
59
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: ___________________________________________
Jeffrey W. Maillet
Senior Vice President and Portfolio Manager
60
<PAGE>
KEY BANK OF COLORADO
By: ___________________________________________
Name: ___________________________________________
Title:___________________________________________
61
<PAGE>
MARINE MIDLAND BANK
By: ___________________________________________
John Lyons
Senior Vice President
62
<PAGE>
THE NIPPON CREDIT BANK, LTD., LOS ANGELES
AGENCY
By: ___________________________________________
Name: ___________________________________________
Title:___________________________________________
63
<PAGE>
CITY NATIONAL BANK
By: ___________________________________________
David A. Nelson
Vice President
64
<PAGE>
EXHIBIT 10.11(q)
FIRST AMENDMENT TO PLEDGE AGREEMENT
This First Amendment to Pledge Agreement (this "AMENDMENT") is entered
into as of July *, 1994 among the undersigned. Capitalized terms used but not
defined in this Amendment (unless otherwise indicated) have the meaning given
such terms in the Pledge Agreement (defined below).
RECITALS
--------
1. THE VAIL CORPORATION, a Colorado corporation (with its successors, the
"BORROWER"), VAIL ASSOCIATES, INC., a Colorado corporation (with its successors,
"VAIL"), BEAVER CREEK ASSOCIATES, INC., a Colorado corporation (with its
successors, "BEAVER CREEK"), VAIL ASSOCIATES REAL ESTATE GROUP, INC., a Colorado
corporation (with its successors, "VAREG"), and VAIL ASSOCIATES REAL ESTATE,
INC., a Colorado corporation (with its successors, "VARE")(the Borrower, Vail,
Beaver Creek, VAREG and VARE collectively, the "OBLIGORS" and each individually,
an "OBLIGOR"), and NATIONSBANK OF TEXAS, N.A., as collateral agent (with its
successors in such capacity, the "COLLATERAL AGENT") for the Secured Parties
identified in that certain Collateral Agency Agreement, dated as of November 23,
1993 (as amended or replaced from time-to-time, the "COLLATERAL AGREEMENT"),
executed that certain Pledge Agreement dated as of November 23, 1993 ( the
"PLEDGE AGREEMENT").
A. Borrower and NationsBank of Texas, N.A., as Agent, executed and
delivered that certain Credit Agreement dated as of November 23, 1993.
Subsequently, Borrower, doing business as "Vail Associates, Inc.," the Banks
listed on SCHEDULE 1 to the Credit Agreement (defined below) ("BANKS"), and
NATIONSBANK OF TEXAS, N.A., as Agent for itself and the other Banks ("AGENT"),
executed that Amended and Restated Permanent Credit Agreement dated as of
February 7, 1994 (as amended, modified, or restated, the "CREDIT AGREEMENT").
B. Borrower, Agent, and Banks executed that First Amendment to
Amended and Restated Permanent Credit Agreement dated as of June 1, 1994 (the
"FIRST AMENDMENT"). The First Amendment included the addition of an Unrestricted
Subsidiary (as defined in the Credit Agreement) in which VARE owns a 50 percent
interest. Borrower, Collateral Agent, and the Obligors now desire to amend the
Pledge Agreement to include as part of the Pledged Stock the 50 percent interest
of VARE in that Unrestricted Subsidiary.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the undersigned agree as follows:
1. Amendment to Pledge Agreement. The Pledge Agreement is amended as
-----------------------------
follows:
(a) The definition of "Pledged Stock" is amended by deleting the
existing definition in its entirety and substituting the following in
its place:
PLEDGED STOCK means (a) any membership interest in Slifer,
Smith & Frampton\Vail Associates Real Estate, L.L.C. and (b) all
of the issued and outstanding capital stock now owned or hereafter
acquired by Vail or any Subsidiary of Vail (other than any
Unrestricted Subsidiary which is not a direct Subsidiary of Vail)
in the corporations identified on EXHIBIT C, including any
additional or substitute membership interests or shares of capital
stock now owned or hereafter acquired by Vail or any such
Subsidiary of Vail in each such corporation issued after the date
hereof and any membership interest or capital stock of any
corporation that shall become a Subsidiary of Vail (other than any
Unrestricted Subsidiary which is not a direct Subsidiary of Vail)
at any time or from time to time and all the capital stock which
is required to be included in this definition pursuant to the
provisions of SECTION 2.B.(D) of this agreement.
1
<PAGE>
(b) EXHIBIT C (Pledged Stock) to the Pledge Agreement shall be
amended by deleting the existing exhibit in its entirety and
substituting in its place the amended EXHIBIT C attached to this
Amendment.
2. Representations and Warranties. Borrower and each other Obligor
------------------------------
represent and warrant to Banks that the execution and delivery of this Amendment
has been authorized by all requisite corporate action on the part of Borrower
and each other Obligor and will not violate their respective organizational
documents. Borrower and each other Obligor further represent and warrant to
Banks that (a) the representations and warranties in each Loan Paper (as defined
in the Credit Agreement) to which it is a party are true and correct in all
material respects on and as of the date of this Amendment as though made on the
date of this Amendment (except to the extent that (i) such representations and
warranties speak to a specific date or (ii) the facts on which such
representations and warranties are based have been changed by transactions
contemplated by the Credit Agreement), (b) Borrower and each other Obligor is in
full compliance with all covenants and agreements contained in each Loan Paper
(as defined in the Credit Agreement) to which it is a party, and (c) no
Enforcement Notice is in effect.
3. Counterparts. This Amendment may be executed in any number of
------------
counterparts with the same effect as if all signatories had signed the same
document. All counterparts must be construed together to constitute one and the
same instrument.
[Remainder of Page Intentionally Left Blank,
Signatures on Immediately Following Page.]
2
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date set out
in the preamble to this Amendment.
VAIL HOLDINGS, INC., fka Vail Associates, Inc.
THE VAIL CORPORATION, dba Vail Associates, Inc.
By:______________________________________________
Gerald E. Flynn, Senior Vice President of each
of the foregoing entities.
BEAVER CREEK ASSOCIATES, INC.
VAIL ASSOCIATES REAL ESTATE GROUP, INC.
VAIL ASSOCIATES REAL ESTATE, INC.
By:______________________________________________
Gerald E. Flynn, Vice President of each of the
foregoing entities.
NATIONSBANK OF TEXAS, N.A.,
as COLLATERAL AGENT
By:______________________________________________
Frank M. Johnson, Vice President
3
<PAGE>
EXHIBIT C
---------
PLEDGED STOCK
-------------
<TABLE>
<CAPTION>
AUTHORIZED AND
OUTSTANDING PLEDGED PERCENTAGE
CORPORATE NAMES SHARES PAR VALUE STOCK\INTEREST OWNED
- --------------------------- -------------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Vail Food Services, Inc. 1,000 $1.00 1,000 100%
Vail Associates Real 1,000/1/ $1.00 800 80%
Estate, Inc.
The Vail Corporation 1,000 $1.00 1,000 100%
Beaver Creek 1,000 $1.00 1,000 100%
Consultants, Inc.
Beaver Creek Associates, 1,000 $1.00 1,000 100%
Inc.
Vail Associates 1,000 $1.00 1,000 100%
Consultants, Inc.
Beaver Creek Food 1,000 $1.00 1,000 100%
Services, Inc.
Vail Associates 1,000/2/ $1.00 800 80%
Hospitality Corporation
Piney River Ranch, Inc. 1,000 $1.00 1,000 100%
Vail Associates Ranch & 1,000 $1.00 1,000 100%
Land Company
Vail Trademarks, Inc. 1,000 $1.00 1,000 100%
Vail Associates Real 1,000 $1.00 1,000 100%
Estate Group, Inc.
Vail Associates Holdings, 1,000 $1.00 1,000 100%
Ltd.
Vail Associates 1,000 $1.00 1,000 100%
Management Company
Vail/Arrowhead, Inc. 1,000 $1.00 1,000 100%
Slifer, Smith & NA NA 50% 50%/3/
Frampton\Vail Associates
Real Estate, L.L.C.
</TABLE>
_____________________
/1/ 20% of the outstanding shares of common stock owned by Theodore E. Ryczek.
/2/ 20% of the outstanding shares of common stock owned by Bradley R. Tjossem.
/3/ The remaining 50% Membership Interest is owned by Slifer, Smith & Frampton,
Inc.
4
<PAGE>
EXHIBIT 10.11(r)
SECOND AMENDMENT TO PLEDGE AGREEMENT
This Second Amendment to Pledge Agreement (this "AMENDMENT") is
entered into as of December 30, 1996 among the undersigned. Capitalized terms
used but not defined in this Amendment (unless otherwise indicated) have the
meaning given such terms in the Pledge Agreement (defined below).
RECITALS
--------
1. THE VAIL CORPORATION, a Colorado corporation (with its successors,
"BORROWER") and NationsBank of Texas, N.A., as agent (with its successors in
such capacity, "AGENT"), and the banks party thereto ("BANKS") entered into that
certain Credit Agreement dated as of November 23, 1993 (as amended by (i) that
certain Amended and Restated Permanent Credit Agreement dated as of February 7,
1994, (ii) that certain First Amendment to Amended and Restated Permanent Credit
Agreement dated as of June 1, 1994, (iii) that certain Second Amended and
Restated Credit Agreement dated as of March 31, 1995, (iv) that certain First
Amendment to Second Amended and Restated Credit Agreement dated as of December
30, 1996, and (v) as further amended from time to time, the "CREDIT AGREEMENT").
A. Borrower, VAIL ASSOCIATES, INC., a Colorado corporation (now known
as Vail Holdings, Inc., with its successors, "VHI"), BEAVER CREEK ASSOCIATES,
INC., a Colorado corporation (with its successors, "BEAVER CREEK"), VAIL
ASSOCIATES REAL ESTATE GROUP, INC., a Colorado corporation (with its successors,
"VAREG"), and VAIL ASSOCIATES REAL ESTATE, INC., a Colorado corporation (with
its successors, "VARE") (Borrower, VHI, Beaver Creek, VAREG and VARE
collectively, the "OBLIGORS" and each individually, an "OBLIGOR"), and
NATIONSBANK OF TEXAS, N.A., as collateral agent (with its successors in such
capacity, the "COLLATERAL AGENT") for the Secured Parties identified in that
certain Collateral Agency Agreement, dated as of November 23, 1993 (as amended
or replaced from time to time, the "COLLATERAL AGREEMENT"), executed that
certain Pledge Agreement dated as of November 23, 1993 (as amended by that
certain First Amendment to Pledge Agreement dated July, 1994 , and as further
amended from time to time, the "PLEDGE AGREEMENT").
B. Obligors and Banks now desire to amend the Pledge Agreement as set
out in this Amendment and have directed the Collateral Agent to so amend the
Pledge Agreement.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the undersigned agree as follows:
1. Amendments to Pledge Agreement.
------------------------------
(a) The Pledge Agreement's definition of "Pledged Stock" is
amended by deleting the existing definition in its entirety and
substituting the following:
"Pledged Stock means (a) any membership interest in Slifer,
Smith & Frampton/Vail Associates Real Estate, L.L.C. and (b) all
of the issued and outstanding capital stock now owned or hereafter
acquired by Vail or any Subsidiary of Vail (other than any
Unrestricted Subsidiary) in the corporations identified on EXHIBIT
C, including any additional or substitute membership interests or
shares of capital stock now owned or hereafter acquired by Vail or
any such Subsidiary of Vail in each such corporation issued after
the date hereof and all the capital stock which is required to be
included in this definition pursuant to the provisions of Section
2.B.(d) of this agreement."
(b) Section 2.B.(d) of the Pledge Agreement is hereby amended by
deleting such Section in its entirety and substituting the following:
<PAGE>
"(d) The Pledged Stock will at all times include all of the
issued and outstanding capital stock of each corporation
identified on Exhibit C which is a wholly-owned Subsidiary of Vail
---------
and the Borrower (other than director's qualifying shares and
shares released from the security interest created hereby) and, in
the case of each other Subsidiary of Vail or the Borrower
identified on Exhibit C, all of the issued and outstanding
---------
capital stock of such Subsidiary owned by Vail or the Borrower or
any Subsidiary (other than an Unrestricted Subsidiary) of Vail or
the Borrower (other than director's qualifying shares and shares
released from the security interest created hereby)."
(c) Exhibit C (Pledged Stock) to the Pledge Agreement is hereby
---------
amended by deleting such Exhibit in its entirety and substituting
Exhibit C annexed to this Amendment.
---------
2. Representations and Warranties. Each Obligor represents and
------------------------------
warrants to Banks that the execution and delivery of this Amendment has been
authorized by all requisite corporate action on the part of each Obligor and
will not violate its organizational documents. Each Obligor further represents
and warrants to Banks that (a) the representations and warranties in each Loan
Paper (as defined in the Credit Agreement) to which it is a party are true and
correct in all material respects on and as of the date of this Amendment as
though made on the date of this Amendment (except to the extent that (i) such
representations and warranties speak to a specific date or (ii) the facts on
which such representations and warranties are based have been changed by
transactions contemplated or permitted by the Credit Agreement), (b) no Material
Adverse Event (as defined in the Credit Agreement) has occurred and no Default
or Potential Default (each as defined in the Credit Agreement) has occurred and
is continuing, and (c) no Enforcement Notice is in effect.
3. Counterparts. This Amendment may be executed in any number of
------------
counterparts with the same effect as if all signatories had signed the same
document. All counterparts must be construed together to constitute one and the
same instrument.
4. Governing Law. This Amendment must be construed--and its
-------------
performance enforced--under New York law.
This Amendment is executed as of the date set forth in the preamble.
[Remainder of Page Left Intentionally Blank, Signatures on Following Pages]
2
<PAGE>
VAIL HOLDINGS, INC., fka Vail Associates, Inc.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
THE VAIL CORPORATION, dba Vail Associates, Inc.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
BEAVER CREEK ASSOCIATES, INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
VAIL ASSOCIATES REAL ESTATE GROUP, INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
VAIL ASSOCIATES REAL ESTATE, INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
NATIONSBANK OF TEXAS, N.A.,
as Collateral Agent
By:___________________________________________
Frank M. Johnson, Senior Vice President
3
<PAGE>
The undersigned directed the Collateral Agent
to obtain, and hereby accept, this Second
Amendment to Pledge Agreement:
NATIONSBANK OF TEXAS, N.A.,
as a Bank and as Agent
By:___________________________________________
Frank M. Johnson, Senior Vice President
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION, as a Bank
By:___________________________________________
Name:_________________________________________
Title:________________________________________
THE FIRST NATIONAL BANK OF BOSTON,
as a Bank
By:___________________________________________
Name:_________________________________________
Title:________________________________________
COLORADO NATIONAL BANK, as a Bank
By:___________________________________________
Name:_________________________________________
Title:________________________________________
4
<PAGE>
EXHIBIT C
---------
PLEDGED STOCK
-------------
<TABLE>
<CAPTION>
AUTHORIZED AND
OUTSTANDING PLEDGED PERCENTAGE
CORPORATE NAMES SHARES PAR VALUE STOCK\INTEREST OWNED
- ----------------------------- -------------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Vail Food Services, Inc. 1,000 $1.00 1,000 100%
Vail Associates Real 1,000/1/ $1.00 800 80%
Estate, Inc.
The Vail Corporation 1,000 $1.00 1,000 100%
Beaver Creek Consultants, 1,000 $1.00 1,000 100%
Inc.
Beaver Creek Associates, 1,000 $1.00 1,000 100%
Inc.
Vail Associates 1,000 $1.00 1,000 100%
Consultants, Inc.
Beaver Creek Food 1,000 $1.00 1,000 100%
Services, Inc.
Vail/Beaver Creek Resort 1,000/2/ $1.00 800 80%
Properties, Inc. (formerly
Vail Associates
Hospitality Corporation)
Piney River Ranch, Inc. 1,000 $1.00 1,000 100%
Vail Associates Ranch and 1,000 $1.00 1,000 100%
Land Company
Vail Trademarks, Inc. 1,000 $1.00 1,000 100%
Vail Associates Real 1,000 $1.00 1,000 100%
Estate Group, Inc.
Vail Associates Holdings, 1,000 $1.00 1,000 100%
Ltd.
</TABLE>
- ---------------------
/1/ 20% of the outstanding shares of common stock owned by Theodore E. Ryczek.
/2/ 20% of the outstanding shares of common stock owned by Paul A. Jeppson.
5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Vail Associates 1,000 $1.00 1,000 100%
Management Company
Vail/Arrowhead, Inc. 1,000 $1.00 1,000 100%
Slifer, Smith & NA NA 50% 50%/3/
Frampton\Vail Associates
Real Estate, L.L.C.
</TABLE>
- ---------------------
/3/ The remaining 50% Membership Interest is owned by Slifer, Smith & Frampton,
Inc.
6
<PAGE>
EXHIBIT 10.21
Execution Copy
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") entered into as of July 29, 1996,
by and between Vail Resorts, Inc., a Delaware corporation with its principal
office in Avon, Colorado (the "Company"), and Adam M. Aron, a resident of Avon,
Colorado ("Executive").
WHEREAS, the Company wishes to employ Executive as its Chairman of the
Board and Chief Executive Officer and both parties desire to enter into an
employment agreement to reflect Executive's new capacity upon the terms and
conditions set forth herein:
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment. The Company hereby employs Executive as its Chairman of
----------
the Board and Chief Executive Officer. Executive shall also serve as a member of
the Company's Board of Directors (the "Board") and its Executive Committee.
Executive shall also serve as Chairman of each of Vail Associates, Inc. and Vail
Associates Real Estate Group, Inc., the Company's principal subsidiaries.
Executive hereby accepts such employment and agrees to perform his duties and
responsibilities in accordance with the terms, conditions and provisions
hereinafter set forth.
1.1. Employment Term. The term of Executive's employment under this
---------------
Agreement shall commence as of the date hereof (the "Effective Date") and shall
continue until September 30, 1999; provided, however, that on and after October
1, 1997, the Agreement shall automatically renew with the term of the Agreement
always being at least two years. Notwithstanding the foregoing, Executive's
employment and this Agreement may be terminated in accordance with Section 5
hereof. The period commencing on the Effective Date and ending on the date on
which the term of Executive's employment under the Agreement shall terminate is
hereinafter referred to as the "Employment Term."
1.2 Duties and Responsibilities. Executive shall serve as the Company's
---------------------------
Chairman of the Board and Chief Executive Officer and in such other senior
positions, if any, to which he may be elected by the Board during the
Employment Term. During the Employment Term, Executive shall perform all duties
and accept all responsibilities incident to, and not inconsistent with, such
positions as may be reasonably assigned to him by the Board.
1.3 Extent of Service. During the Employment Term, Executive agrees to
-----------------
use his best efforts to carry out his duties and responsibilities under Section
1.2 hereof and, consistent with the other provisions of this Agreement, to
devote substantially all his business time, attention and energy thereto except
to the extent required by Executive's outside board
<PAGE>
directorships, civic or charitable activities. Executive agrees not be
become engaged in any other business, civic or charitable activity which, in
his reasonable judgment, is likely to materially interfere with his ability to
discharge his duties and responsibilities to the Company. Executive agrees to
resign from or discontinue any other business, civic or charitable activity
which, in the reasonable judgment of the Board, is likely to materially
interfere with his ability to discharge his duties and responsibilities to the
Company.
1.4 Base Salary. For all the services rendered by Executive hereunder,
-----------
the Company shall pay Executive a base salary ("Base Salary"), commencing on the
Effective Date, at the annual rate of $560,000, payable in installments at such
times as the Company customarily pays its other senior level executives (but in
any event no less often than monthly). Executive's Base Salary for each fiscal
year of the Company commencing after the Effective Date shall be reviewed for
appropriate adjustment (but shall not be reduced below $560,000 in any case) by
the Board pursuant to its normal performance review policies for senior level
executives.
1.5 Retirement and Benefit Coverages. During the Employment Term,
--------------------------------
Executive shall be entitled to participate in all (a) employee pension and
retirement plans and programs ("Retirement Plans") and (b) welfare benefit plans
and programs ("Benefit Coverages"), in each case as made available to the
Company's senior level executives as a group or to its employees generally and
as such Retirement Plans or Benefit Coverages may be in effect from time to
time. However, Executive specifically acknowledges that the Company has no
pension plan in effect as of the Effective Date. In addition, Executive shall be
entitled to (i) the Company's regular holiday and vacation policy, (ii) annual
membership in any clubs owned or managed by the Company (which shall terminate
concurrently with the date of termination of the Employment Term pursuant to
Section 5.1, 5.2, 5.3 or 5.6 and on the 90th day following the date of
termination of the Employment Term pursuant to Section 5.4 or 5.5), (iii)
customary use of the Company's products or services at no charge, and (iv) an
additional $5.0 million of term life insurance and $500,000 of annual disability
income protection (assuming Executive can medically qualify for coverage at
reasonable cost).
1.6 Relocation Reimbursement. Executive shall be entitled to up to
------------------------
$250,000 to reimburse all documented moving and relocation expenses, including a
tax equivalency payment (i.e., a "gross-up" for state and federal income taxes).
----
Reimbursement shall be made to Executive within 15 days of written request
therefor accompanied by appropriate documentation of such expenses, and shall
include repayment of (i) all costs incurred by Executive in selling his
residences in Florida and Illinois, including legal fees, transfer and stamp
taxes, brokers' commissions, and other customary closing costs; (ii) all costs
of moving and/or storing Executive's furniture, other possessions and
automobiles; and (iii) all costs of commuting between Colorado and Illinois for
Executive or his family for up to 13 months; provided, however, in no case shall
the Company's obligation to reimburse Executive in accordance with this Section
exceed $250,000 including the tax equivalency payment.
2
<PAGE>
1.7(a) Special Incentive Compensation. Executive shall be entitled to a
------------------------------
bonus at the annual rate of $250,000 ($20,833.33 per full month of service) for
the period from the Effective Date through September 30, 1997, to be paid on
October 1, 1997.
1.7(b) Annual Incentive/Long-Term Incentive Program. On or after
--------------------------------------------
October 1, 1997, Executive shall be entitled to participate in a short-term or
long-term incentive compensation program established by the Company for its
senior level executives generally. Payments under such programs shall depend
upon achievement of certain business performance targets specified and approved
annually in advance by the Board (or a Committee thereof) in its sole
discretion; provided, however, that Executive's "target opportunity" under any
such program shall be at least at the highest level of target award for any
other senior level executive, with Executive's bonus being at least $250,000
annually if the Company achieves the performance targets for such year.
Executive's short-term and long-term incentive compensation shall be paid to him
in the same form and at the same times that such compensation is paid to the
Company's senior level executives generally. Executive specifically acknowledges
that a portion of such incentive compensation may be deferred subject to
subsequent year financial performance of the Company, if such a provision is
consistent with the Company's then-existing compensation program for other
senior level executives.
1.8 Restricted Stock. Executive shall be entitled to receive, as of the
----------------
Effective Date, 18,750 shares of the Company's common stock, $.01 par value
(the "Restricted Stock"). The number of shares of Restricted Stock shall be
increased by 2,679 shares on March 31, 1997 in the event that both the
Company's initial public offering of common stock (the "IPO") and the Company's
proposed acquisition of Ralston Resorts, Inc. (the "Acquisition") have not
occurred by such date. The certificates representing the Restricted Stock shall
be retained by the Company until such shares have vested. Except as provided in
Sections 5 and 6 below, Executive's right to 20% of such shares shall vest as
of the completion of each year of Executive's employment beginning on the
Effective Date. Prior to vesting, Executive shall be entitled to vote the
shares of Restricted Stock and to be credited with any dividends attributable
to such shares; provided, however, that no payment of such dividends shall be
made unless and until, and only to the extent that, the related shares are
vested; and provided, further, that the Restricted Stock shall not be entitled
to receive any of the proceeds of the $55.0 million special dividend as
described in the Company's 1996 S-2 filing. Upon termination of the Employment
Term for any reason, that portion of the Restricted Stock that is not vested
(after giving effect to any acceleration of vesting pursuant to Sections 5 and
6) shall be forfeited by Executive.
1.9 Stock Options. Executive shall receive, as of the Effective Date,
-------------
an option to purchase 130,000 shares of common stock of the Company divided into
Tranche A and Tranche B of 65,000 shares each (the "Option"), which Option shall
be a "non-qualified stock option" for federal income tax purposes. The number of
shares subject to the Option shall be adjusted for stock splits, stock
combinations or stock dividends but not for equity additions. The Option
exercise price shall be $40 per share, subject to reduction to $35 per share on
March 31, 1997 in the event that the IPO and the Acquisition have not occurred
by such date. Except as
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provided in Sections 5 and 6 below, the Option shall vest with respect to
20% of the shares covered thereby as of the completion of each year of
Executive's employment beginning on the Effective Date. Upon termination of the
Employment Term for any reason, that portion of the Option that is not vested
(after giving effect to any acceleration of vesting pursuant to Sections 5 and
6) shall expire and be forfeited. The Option shall have a 10 year term;
provided, however, that in the event of earlier termination of the Employment
Term, the Option shall expire 90 days after the date of such termination if
such termination is pursuant to Sections 5.3 or 5.6, and shall expire nine
months after the date of such termination if such termination is for any other
reason. Executive shall be credited with any dividends attributable to shares
covered by the Option other than regular dividends paid out of the Company's
current earnings in accordance with a multi-year dividend policy adopted and
consistently applied by the Board (it being understood that, since the
Company's current policy is not to pay regular dividends, the payment of
dividends under a new dividend policy that is intended in good faith to result
in periodic dividends over a multi-year period shall be deemed regular
dividends). Payment of such credited dividends shall be made at the time of,
and only if and to the extent that, the Option becomes vested and the shares
are purchased upon exercise of the Option; provided, however, that the shares
subject to the Option shall not be entitled to receive the proceeds of, and the
related exercise price shall not be adjusted on account of, the $55.0 million
special dividend as described in the Company's 1996 S-2 filing.
1.10 Home Purchase. The Company shall purchase a home of Executive's
-------------
choosing in the Vail Valley for Executive's use as his personal residence
during the Employment Term and extending through but not beyond 90 days
thereafter. It shall be a condition of Executive's employment that Executive
live in such residence, and that the residence be located at the Company's
Vail, Beaver Creek, or Arrowhead resorts for the convenience of the Company.
From such residence Executive shall be expected by the Company to observe the
operation of the resorts, be on immediate 24-hour call in case of accident or
emergency, maintain a Company telephone extension in the residence, as well as
entertain customers and others important to the Company. The purchase price for
such residence shall not exceed $1.5 million, unless the Company at its sole
option chooses to fund a higher purchase price. The Company shall pay for the
real estate taxes, property insurance, homeowner's association assessments, and
exterior painting as needed, and shall provide that the major operational
systems of the residence are functional. Otherwise, Executive shall provide and
pay for the maintenance of the residence, including snow removal and
landscaping, interior painting as needed, insurance on Executive's possessions,
maintenance or replacement (if necessary) of appliances, and other incidental
repair. The Company agrees not to require Executive to change his residence
during the Employment Term other than in connection with the relocation of
Executive's office to another location in Eagle County, Summit County or the
Denver metropolitan area. The foregoing shall not preclude Executive, at his
sole option, from changing his personal residence to a new home during the
Employment Term so long as such new residence meets all of the requirements of
this Section and Executive bears all costs or losses resulting from such change,
including all brokerage commissions, transfer and stamp taxes,
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assessments and other charges as well as any sale of the previous home.
1.11 Reimbursement of Expenses. Executive shall be reimbursed for
-------------------------
customary travel, entertainment and other out-of-pocket expenses reasonably
incurred by him on behalf of the Company in the performance of his duties
hereunder, which reimbursement shall be made in accordance with the Company's
normal reimbursement policies.
2. Confidential Information. Executive recognizes and acknowledges
------------------------
that, by reason of his employment by and service to the Company before, during
and, if applicable, after the Employment Term, he has had and will continue to
have access to certain confidential and proprietary information relating to the
Company's business, which may include, but is not limited to, trade secrets,
trade "know-how", customer information, supplier information, cost and pricing
information, marketing and sales techniques, strategies and programs, computer
programs and software and financial information (collectively referred to as
''Confidential Information"). Executive acknowledges that such Confidential
Information is a valuable and unique asset of the Company and Executive
covenants that he will not at any time during the course of his employment use
any Confidential Information or divulge or disclose any Confidential Information
to any person, firm or corporation except in connection with Executive's good
faith belief as to the proper performance of his duties for the Company.
Executive also covenants that, at any time after the termination of his
employment, he will not directly or indirectly use any Confidential Information
for any purpose or divulge or disclose any Confidential Information to any
person, firm or corporation, unless such information is in the public domain
through no fault of Executive or except when required to do so by a court of
law, by any governmental agency having supervisory authority over the business
of the Company or over Executive or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order him to
divulge, disclose or make accessible such information, in which case Executive
will inform the Company in writing promptly of such required disclosure.
3. Non-Competition, Non-Solicitation and Non-Disparagement.
-------------------------------------------------------
(a) During his employment by the Company and for a period of one year
thereafter, Executive will not, except with the prior written consent of the
Board, directly or indirectly own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of,
or be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with, or use or permit his name to be
used in connection with, any business or enterprise that is engaged in a
"Competing Enterprise," which is defined as an entity whose operations are
conducted within the ski industry in North America or in the real estate
development, lodging or hospitality industries in the State of Colorado.
Notwithstanding the foregoing, Executive may participate, own, finance, manage,
obtain employment or otherwise be connected with a larger regional, national or
international business or enterprise (a "New Employer") which owns or operates a
5
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Competing Enterprise as a brand, branch, division, subsidiary or affiliate
provided that (i) the Competing Enterprise accounts for less than 10% of the
New Employer's annual revenues and annual net income on both a historical or
pro forma basis for the New Employer's most recently completed fiscal year, and
(ii) Executive's duties for the New Employer are not primarily related to the
conduct of such Competing Enterprise.
(b) The foregoing restrictions shall not be construed to prohibit the
ownership by Executive of less than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"), provided that such ownership
represents a passive investment and that neither Executive nor any group of
persons including Executive in any way, either directly or indirectly, manages
or exercises control of any such corporation, guarantees any of its financial
obligations, otherwise takes any part in its business (other than exercising
his rights as a shareholder), or seeks to do any of the foregoing.
(c) Executive further covenants and agrees that, during his employment
by the Company and for the period of one year thereafter, Executive will not
solicit for another business or enterprise any person who is a managerial or
higher level employee of the Company at the time of Executive's termination.
(d) During Executive's employment and for a period of five years
thereafter, Executive agrees that he shall not make any public statements
disparaging of the Company or its subsidiaries, the Board, or the officers,
directors, stockholders, or employees of the Company or its subsidiaries. The
Company shall similarly not disparage Executive following such termination.
Notwithstanding the foregoing, the parties may respond truthfully to inquiries
from governmental agencies or from prospective employers of Executive.
Similarly, nothing in this provision is intended to prevent either party from
seeking to enforce the provisions of this Agreement through appropriate
proceedings.
4. Equitable Relief.
----------------
(a) Executive acknowledges and agrees that the restrictions contained in
Sections 2 and 3 are reasonable and necessary to protect and preserve the
legitimate interests, properties, goodwill and business of the Company, that
the Company would not have entered into this Agreement in the absence of such
restrictions and that irreparable injury will be suffered by the Company should
Executive breach any of the provisions of those Sections. Executive represents
and acknowledges that (i) he has been advised by the Company to consult his own
legal counsel in respect of this Agreement, and (ii) that he has had full
opportunity, prior to execution of this Agreement, to review thoroughly this
Agreement with his counsel.
(b) Executive further acknowledges and agrees that a breach of any of
the restrictions in Sections 2 and 3 cannot be adequately compensated by
monetary damages. Executive agrees that the Company shall be entitled to
preliminary and permanent injunctive
6
<PAGE>
relief, without the necessity of proving actual damages, as well as an
equitable accounting of all earnings, profits and other benefits arising from
any violation of Sections 2 or 3 hereof, which rights shall be cumulative and
in addition to any other rights or remedies to which the Company may be
entitled. In the event that any of the provisions of Sections 2 or 3 hereof
should ever be adjudicated to exceed the time, geographic, service, or other
limitations permitted by applicable law in any jurisdiction, it is the
intention of the parties that the provision shall be amended to the extent of
the maximum time, geographic, service, or other limitations permitted by
applicable law, that such amendment shall apply only within the jurisdiction of
the court that made such adjudication and that the provision otherwise be
enforced to the maximum extent permitted by law.
5. Termination. The Employment Term shall terminate upon the occurrence
-----------
of any one of the following events:
5.1 Disability. The Company may terminate the Employment Term if
----------
Executive is unable substantially to perform his duties and responsibilities
hereunder to the full extent required by the Board by reason of illness, injury
or incapacity for six consecutive months, or for more than nine months in the
aggregate during any period of 12 calendar months (a "Disability"); provided,
however, that the Company shall continue to pay Executive his Base Salary until
the Company acts to terminate the Employment Term and Executive shall be
entitled to all Restricted Stock and Options that are vested as of the date of
such termination. In addition, in the event Executive executes a written release
in connection with such termination (such release to be effective only if the
Company executes such release) substantially in the form attached hereto as
Annex I (the "Release"), Executive shall be entitled to receive (i) upon the
achievement of the Company's performance targets for such year, a pro rata
portion of the incentive compensation Executive would have received under the
plans described in Section 1.7(b) for the year in which such termination
occurred, which amounts shall be payable in accordance with the terms of the
applicable plan, (ii) all deferred incentive compensation earned by Executive
with respect to prior years, which amounts shall be payable at the Company's
option either in a lump sum within 30 days of termination or in accordance with
the terms of the applicable plan, (iii) all amounts (including accrued vacation
pay but excluding severance compensation) to which Executive is then entitled
upon termination of employment under applicable plans and programs of the
Company then in effect, and (iv) all other amounts then due and payable to
Executive pursuant to the terms of this Agreement with respect to services
rendered prior to termination of employment. In addition, if Executive executes
the Release, all unvested shares of Restricted Stock and Tranche A of the Option
shall automatically become 100% vested upon termination of the Employment Term
pursuant to this Section 5.1. The Company shall have no further liability or
obligation to Executive for compensation under this Agreement. In the event of
any dispute under this Section 5.1 and to the extent determined by the Board to
be job-related and consistent with business necessity, Executive shall submit to
a physical examination by a licensed physician selected by the Board and
approved by Executive, such approval not to be unreasonably withheld.
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<PAGE>
5.2 Death. The Employment Term shall terminate in the event of
-----
Executive's death. In such event, the Company shall pay to Executive's
executors, legal representatives or administrators, as applicable, an amount
equal to the installment of his Base Salary set forth in Section 1.4 hereof for
the month in which he dies. In addition, Executive's estate shall be entitled to
receive (i) previously vested shares of Restricted Stock and Options, (ii) upon
the achievement of the Company's performance targets for such year, a pro rata
portion of the incentive compensation Executive would have received under the
plans described in Section 1.7(b) for the year in which such termination
occurred, which amounts shall be payable in accordance with the terms of the
applicable plan, (iii) all deferred incentive compensation earned by Executive
with respect to prior years, which amounts shall be payable at the Company's
option either in a lump sum within 30 days of termination or in accordance with
the terms of the applicable plan, (iv) all amounts (including accrued vacation
pay but excluding severance compensation) to which Executive is then entitled
upon termination of employment under applicable plans and programs of the
Company then in effect, and (v) all other amounts then due and payable to
Executive pursuant to the terms of this Agreement with respect to services
rendered prior to termination of employment. In addition, all unvested shares of
Restricted Stock and Tranche A of the Option shall automatically become 100%
vested upon termination of the Employment Term pursuant to this Section 5.2. The
Company shall have no further liability or obligation under this Agreement to
his executors, legal representatives, administrators, heirs or assigns or any
other person claiming under or through him.
5.3 Cause. The Company may terminate the Employment Term at any time
-----
for "cause" upon written notice to Executive, in which event all payments under
this Agreement shall cease, except for (i) Base Salary to the extent already
earned or accrued, (ii) previously vested shares of Restricted Stock and
Options, (iii) all amounts (including accrued vacation pay but excluding
severance compensation) to which Executive is then entitled upon termination of
employment under applicable plans and programs of the Company then in effect,
and (iv) all other amounts then due and payable to Executive pursuant to the
terms of this Agreement with respect to services rendered prior to termination
of employment. For purposes of this Agreement, Executive's employment may be
terminated for "cause" if (i) Executive is convicted of a felony, (ii) in the
reasonable determination of the Board, Executive has (x) committed an act of
fraud, embezzlement, or theft in connection with Executive's duties in the
course of his employment with the Company, or (y) engaged in gross mismanagement
or gross negligence in the course of his employment with the Company or (iii)
Executive has breached his obligations under this Agreement, including
inattention to or neglect of duties, and shall not have remedied such breach
within 30 days after receiving written notice from the Board specifying the
details thereof; provided, however, that in any case under clause (ii) or (iii),
the act or failure to act by Executive is materially harmful to the reputation,
goodwill or business position of the Company or its subsidiaries.
8
<PAGE>
5.4 Termination Without Cause.
-------------------------
(a) The Company may terminate the Employment Term at any time without
cause upon written notice to Executive; provided, however, that in the event
that such notice is given, Executive shall be under no obligation to render any
additional services to the Company and shall be allowed to seek other
employment, subject to the restrictions set forth in Section 3(a). Upon any such
termination, except as provided in Section 5.4(b) below, Executive shall be
entitled to receive, as liquidated damages for the failure of the Company to
continue to employ Executive, only the amount due to Executive under the
Company's then-current severance pay plan for employees and (i) Base Salary to
the extent already earned or accrued, (ii) all deferred incentive compensation
earned by Executive with respect to prior years, which amounts shall be payable
at the Company's option either in a lump sum within 30 days of termination or in
accordance with the terms of the applicable plans, (iii) previously vested
shares of Restricted Stock and Options, (iv) all amounts (including accrued
vacation pay) to which Executive is then entitled upon termination of employment
under applicable plans and programs of the Company then in effect, and (v) all
other amounts then due and payable to Executive pursuant to the terms of this
Agreement with respect to services rendered prior to termination of employment.
The Company shall have no further liability or obligation to Executive for
compensation under this Agreement.
(b) Notwithstanding the foregoing, upon such termination, in the event
that Executive executes the Release, Executive shall be entitled to receive, in
lieu of the payments described in subsection (a) hereof, which Executive agrees
to waive, as liquidated damages for the failure of the Company to continue to
employ Executive, (i) two years' of Executive's Base Salary in accordance with
Section 1.4 or, if greater, for the balance of the current Employment Term
(without regard to Executive's removal), payable in accordance with the
Company's normal payroll practices over such period, (ii) previously vested
shares of Restricted Stock and Options, (iii) upon the achievement of the
Company's performance targets for such year, a pro rata portion of the incentive
compensation Executive would have received under the plans described in Section
1.7(b) for the year in which such termination occurred, which amounts shall be
payable in accordance with the terms of the applicable plan, (iv) all deferred
incentive compensation earned by Executive with respect to prior years, which
amounts shall be payable at the Company's option either in a lump sum within 30
days of termination or in accordance with the terms of the applicable plan, (v)
all amounts (including accrued vacation pay but excluding severance
compensation) to which Executive is then entitled upon termination of employment
under applicable plans and programs of the Company then in effect, and (vi) all
other amounts then due and payable to Executive pursuant to the terms of this
Agreement with respect to services rendered prior to termination of employment.
In addition, if Executive executes the Release, all unvested shares of
Restricted Stock and Tranche A of the Option shall automatically become 100%
vested upon termination of the Employment Term pursuant to this Section 5.4. The
Company shall have no further liability or obligation to Executive for
compensation under this Agreement.
9
<PAGE>
5.5 Constructive Termination Without Cause.
--------------------------------------
(a) Resignation by Executive for good reason ("Constructive Termination
Without Cause") shall mean a termination of Executive's employment at his
initiative following the occurrence, without Executive's written consent, of
(i) a material diminution in Executive's duties, responsibilities, authority,
or status, (ii) a reduction in Executive's Base Salary below $560,000 per year
or failure to pay Executive's bonus or incentive compensation in violation of
Section 1.7(a) or (b), (iii) a failure to convey, within 10 business days after
written request of Executive, any vested Restricted Shares or any shares
purchased upon exercise of the Option, (iv) the assignment to Executive of
duties or obligations despite his stated written objection to the Board which
would require Executive to violate any law, or interpretation thereof, of any
governmental body of the United States or the state of Colorado, (v) an
involuntary relocation of Executive's office outside of Eagle or Summit
Counties or the Denver metropolitan area or away from the Company's principal
executive offices, or (vi) a failure of the Company to comply with any of the
material terms of this Agreement.
(b) In the event of a Constructive Termination Without Cause, if
Executive executes the Release, Executive shall be entitled to receive (i) two
years' of Executive's Base Salary in accordance with Section 1.4 or, if greater,
for the balance of the current Employment Term (without regard to Executive's
removal), payable in accordance with the Company's normal payroll practices over
such period, (ii) previously vested shares of Restricted Stock and Options,
(iii) upon the achievement of the Company's performance targets for such year, a
pro rata portion of the incentive compensation Executive would have received
under the plans described in Section 1.7(b) for the year in which such
termination occurred, which amounts shall be payable in accordance with the
terms of the applicable plan, (iv) all deferred incentive compensation earned by
Executive with respect to prior years, which amounts shall be payable at the
Company's option either in a lump sum within 30 days of termination or in
accordance with the terms of the applicable plan, (v) all amounts (including
accrued vacation pay but excluding severance compensation) to which Executive is
then entitled upon termination of employment under applicable plans and programs
of the Company then in effect, and (vi) all other amounts then due and payable
to Executive pursuant to the terms of this Agreement with respect to services
rendered prior to termination of employment. In addition, if Executive executes
the Release, all unvested shares of Restricted Stock and Tranche A of the Option
shall automatically become 100% vested upon termination of the Employment Term
pursuant to this Section 5.5. In the event Executive refuses to execute the
Release, he shall receive, as liquidated damages for the failure of the Company
to continue to employ Executive, only the amount due to Executive under the
Company's then current severance pay plan for employees and (i) Base Salary to
the extent already earned or accrued, (ii) all deferred incentive compensation
earned by Executive with respect to prior years, which amounts shall be payable
at the Company's option either in a lump sum within 30 days of termination or in
accordance with the terms of the applicable plans, (iii) previously vested
shares of Restricted Stock and Options, (iv) all amounts (including accrued
vacation pay) to which Executive is then entitled upon termination of employment
under applicable plans and programs of the Company then in
10
<PAGE>
effect, and (v) all other amounts then due and payable to Executive
pursuant to the terms of this Agreement with respect to services rendered prior
to termination of employment. The Company shall have no further liability or
obligation to Executive for compensation under this Agreement.
(c) Prior to resigning under this Section, Executive shall give written
notice to the Board and offer a 30-day period for the Company to cure. If, and
only if, the Company cures an issue raised by the Executive under this Section,
and Executive again feels it necessary to resign under this Section, Executive
shall again given written notice to the Board and offer a new 30-day period for
the Company to cure. If no cure has been effected by the end of the applicable
cure period, Executive may resign immediately in accordance with the provisions
of subsections (a) and (b) above. After two such cure periods, only written
notice must be given but no cure period will be required.
5.6 Voluntary Termination. Executive may voluntarily terminate the
---------------------
Employment Term upon 30 days' prior written notice for any reason. In such
event, Executive shall be entitled only to (i) Base Salary to the extent
already earned or accrued, (ii) previously vested shares of Restricted Stock
and Options, (iii) all amounts (including accrued vacation pay but excluding
severance compensation) to which Executive is then entitled upon termination of
employment under applicable plans and programs of the Company then in effect,
and (iv) all other amounts then due and payable to Executive pursuant to the
terms of this Agreement with respect to services rendered prior to termination
of employment. The Company shall have no further liability or obligation to
Executive for compensation under this Agreement. A voluntary termination under
this Section 5.6 shall not be deemed a breach of this Agreement.
6. Acceleration of Vesting Following a Change of Control. In the event
-----------------------------------------------------
of a "change of control" of the Company, defined to mean that a person other
than Apollo Ski Partners L.P. or its affiliates ("Apollo") owns at least 51% of
the Company's outstanding common stock or controls at least 51% of the seats on
the Board, all of Executive's rights under the Option and to the Restricted
Stock shall immediately vest if either (i) Executive remains employed with the
Company for at least six months after a change of control occurs, or (ii)
Executive's employment is terminated following such change in control pursuant
to Section 5.1, 5.2, 5.4, or 5.5. In the event Apollo sells two-thirds or more
of its shares of common stock in connection with a change in control occurring
prior to the IPO, at Executive's sole option, some or all of Executive's shares
which are vested or become vested under this Section 6 (including shares covered
by the Option) may be sold for the same price and terms as Apollo receives and
the proceeds (net of the applicable exercise price in the case of shares covered
by the Option, which exercise price shall be paid to the Company) shall be held
in escrow by a mutually acceptable escrow agent and paid to Executive on the
third business day following the completion of the six-month period referenced
in clause (i) above or the date of termination of Executive's employment
pursuant to Section 5.1, 5.2, 5.4 or 5.5, as applicable. In the event of
termination of Executive's employment prior to completion of such six-month
period other than pursuant to Section 5.1, 5.2, 5.4 of 5.5, Executive shall be
entitled to receive only that portion of such proceeds as is attributable to
Executive's shares that are vested as of the date of
11
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termination without regard to this Section 6, and the balance of such
proceeds shall be forfeited to the Company.
7. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of Executive's employment and the
Employment Term to the extent necessary to the intended rights and obligations.
8. No Mitigation. Executive shall not be required to mitigate the
-------------
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise and there shall be no offset against amounts due
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain. All payments to be made by the
Company to Executive hereunder shall be made without any offset or deduction for
any amounts owed by Executive to the Company.
9. Arbitration; Expenses. In the event of any dispute under the
---------------------
provisions of this Agreement other than a dispute in which the primary relief
sought is an equitable remedy such as an injunction, the parties shall be
required to have the dispute, controversy or claim settled by arbitration in the
City of New York, New York in accordance with the National Rules for the
Resolution of Employment Disputes then in effect of the American Arbitration
Association, before a panel of three arbitrators, two of whom shall be selected
by the Company and Executive, respectively, and the third of whom shall be
selected by the other two arbitrators. Any award entered by the arbitrators
shall be final, binding and nonappealable and judgment may be entered thereon by
either party in accordance with applicable law in any court of competent
jurisdiction. This arbitration provision shall be specifically enforceable. The
arbitrators shall have no authority to modify any provision of this Agreement or
to award a remedy for a dispute involving this Agreement other than a benefit
specifically provided under or by virtue of the Agreement. The Company shall be
responsible for all of its own legal fees and other expenses relating to such
arbitration. The fees of the American Arbitration Association anti the legal
fees and expenses of Executive relating to such arbitration shall be borne in
the manner determined by order of the arbitrators.
10. Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received):
If to the Company, to:
Vail Resorts, Inc.
P.O. Box 7
Vail, CO 81658
Attention: General Counsel
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If to Executive, to:
Adam M. Aron
c/o Vail Resorts, Inc.
P.O. Box 7
Vail, CO 81658
With a required copy to:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Robert J. Lichtenstein, Esq.
or to such other names or addresses as the Company or Executive, as the case
may be, shall designate by notice to each other person entitled to receive
notices in the manner specified in this Section.
11. Contents of Agreement; Amendment and Assignment.
-----------------------------------------------
(a) This Agreement supersedes all prior agreements and sets forth the
entire understanding between the parties hereto with respect to the subject
matter hereof and cannot be changed, modified, extended or terminated except as
provided herein or upon written amendment approved by the Company and executed
on its behalf by a duly authorized officer and by Executive.
(b) All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties hereto, except that the duties and responsibilities of Executive
hereunder are of a personal nature and shall not be assignable or delegatable in
whole or in part by Executive. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business or assets of the Company,
by agreement in form and substance satisfactory to Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the extent
the Company would be required to perform if no such succession had taken place,
and upon request by the Company Executive shall acknowledge, by agreement in
form and substance reasonably acceptable to such successor, that this Agreement
may be enforced against Executive by such successor.
12. Severability. If any provision of this Agreement or application
------------
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this
13
<PAGE>
Agreement which can be given effect without the invalid or unenforceable
provision or application and shall not invalidate or render unenforceable such
provision or application in any other jurisdiction. If any provision is held
void, invalid or unenforceable with respect to particular circumstances, it
shall nevertheless remain in full force and effect in all other circumstances.
13. Remedies Cumulative; No Waiver. No remedy conferred upon a party by
------------------------------
this Agreement is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given hereunder or now or hereafter existing at law or in equity. No
delay or omission by a party in exercising any right, remedy or power hereunder
or existing at law or in equity shall be construed as a waiver thereof, and any
such right, remedy or power may be exercised by such party from time to time
and as often as may be deemed expedient or necessary by such party in its sole
discretion.
14. Beneficiaries/References. Executive shall be entitled, to the
------------------------
extent permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death by giving the Company written notice thereof. In the event of
Executive's death or a judicial determination of his incompetence, references in
this Agreement to Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative.
15. Miscellaneous. All section headings used in this Agreement are for
-------------
convenience only. This Agreement may be executed in counterparts, each of which
is an original. It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for any of the other counterparts.
16. Withholding. The Company may withhold from any payments under this
-----------
Agreement all federal, state and local taxes as the Company is required to
withhold pursuant to any law or governmental rule or regulation. Executive
shall bear all expense of, and be solely responsible for, all federal, state
and local taxes due with respect to any payment received hereunder.
17. Indemnification and Insurance. Executive shall be indemnified with
-----------------------------
respect to his services hereunder to the full extent provided in the Company's
by-laws, and the Company agrees during the Employment Term to maintain
directors' and officers' liability insurance with coverage and other terms that
are customary for similarly situated companies.
18. Governing Law. This Agreement shall be governed by and interpreted
-------------
under the laws of the State of Colorado without giving effect to any conflict
of laws provisions.
14
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
VAIL RESORTS, INC. EXECUTIVE
By: /s/ James S. Mandel /s/ Adam M. Aron
____________________________ ____________________________
James S. Mandel Adam M. Aron
Sr. Vice President
15
<PAGE>
MUTUAL RELEASE
This mutual release (this "Release") is entered into as of this ______
day of ___________________, ____ (the "Release Date") by Adam M. Aron ("Aron"),
on the one hand and Vail Resorts, Inc. ("VRI") on the other hand.
1. Reference is hereby made to the employment agreement dated July 29,
1996 (the "Employment Agreement") by the parties hereto setting forth the
agreements among the parties regarding the termination of the employment
relationship between Aron and VRI. Capitalized terms used but not defined herein
have the meanings ascribed to them in the Employment Agreement.
2. Aron, for himself, his wife, heirs, executors, administrators,
successors, and assigns, hereby releases and discharges VRI and its respective
direct and indirect parents and subsidiaries, and other affiliated companies,
and each of their respective past and present officers, directors, agents and
employees, from any and all actions, causes of action, claims, demands,
grievances, and complaints, known and unknown, which Aron or his wife, heirs,
executors, administrators, successors, or assigns ever had or may have at any
time through the Release Date. Aron acknowledges and agrees that this Release
is intended to and does cover, but is not limited to, (i) any claim of
employment discrimination of any kind whether based on a federal, state, or
local statute or court decision, including the Age Discrimination in Employment
Act with appropriate notice and recision periods observed; (ii) any claim,
whether statutory, common law, or otherwise, arising out of the terms or
conditions of Aron's employment at VRI and/or Aron's separation from VRI;
enumeration of specific rights, claims, and causes of action being released
shall not be construed to limit the general scope of this Release. It is the
intent of the parties that by this Release Aron is giving up all rights, claims
and causes of action occurring prior to the Release Date, whether or not any
damage or injury therefrom has yet occurred. Aron accepts the risk of loss with
respect to both undiscovered claims and with respect to claims for any harm
hereafter suffered arising out of conduct, statements, performance or decisions
occurring before the Release Date.
3. VRI hereby releases and discharges Aron, his wife, heirs, executors,
administrators, successors, and assigns, from any and all actions, causes of
actions, claims, demands, grievances and complaints, known and unknown, which
VRI ever had or may have at any time through the Release Date. VRI acknowledges
and agrees that this Release is intended to and does cover, but is not limited
to, (i) any claim, whether statutory, common law, or otherwise, arising out of
the terms or conditions of Aron's employment at VRI and/or Aron's separation
from VRI, and (ii) any claim for attorneys' fees, costs, disbursements, or
other like expenses. The enumeration of specific rights, claims, and causes of
action being released shall not be construed to limit the general scope of this
Release. It is the intent of the parties that by this Release VRI is giving up
all of its respective rights, claims, and causes of action occurring
16
<PAGE>
prior to the Release Date, whether or not any damage or injury therefrom has yet
occurred. VRI accepts the risk of loss with respect to both undiscovered claims
and with respect to claims for any harm hereafter suffered arising out of
conduct, statements, performance or decisions occurring before the Release Date.
4. This Release shall in no event (i) apply to any claim by either Aron
or VRI arising from any breach by the other party of its obligations under the
Employment Agreement occurring on or after the Release Date, (ii) waive Aron's
claim with respect to compensation or benefits earned or accrued prior to the
Release Date to the extent such claim survives termination of Aron's employment
under the terms of the Employment Agreement, or (iii) waive Aron's right to
indemnification under the by-laws of the Company.
5. This Mutual Release shall be effective as of the Release Date and
only if executed by both parties.
IN WITNESS WHEREOF, each party hereto, intending to be legally bound,
has executed this Mutual Release on the date indicated below.
VAIL RESORTS, INC.
____________________________ By:____________________________
Adam M. Aron
Date:_______________________ Date:__________________________
17
<PAGE>
EXHIBIT 10.26
VAIL RESORTS, INC.
1996 LONG TERM INCENTIVE AND SHARE AWARD PLAN
1. Purposes.
--------
The purposes of the 1996 Long Term Incentive and Share Award Plan are
to advance the interests of Vail Resorts, Inc. and its shareholders by providing
a means to attract, retain, and motivate employees and directors of the Company
upon whose judgment, initiative and efforts the continued success, growth and
development of the Company is dependent.
1. Definitions.
-----------
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a participating
employer under the Plan, provided that the Company directly or indirectly owns
at least 20% of the combined voting power of all classes of stock of such entity
or at least 20% of the ownership interests in such entity.
(b) "Award" means any Option, SAR, Restricted Share, Restricted Share
Unit, Performance Share, Performance Unit, Dividend Equivalent, or Other Share-
Based Award granted to an Eligible Person under the Plan.
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which
have been designated by such Eligible Person in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under this Plan upon the death of the Eligible Person, or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to
include successor provisions thereto and regulations thereunder.
(g) "Committee" means the Compensation Committee of the Board, or
such other Board committee as may be designated by the Board to administer the
Plan, or if the Board so designates, the entire Board.
(h) "Company" means Vail Resorts, Inc., a corporation organized under
the laws of Delaware, or any successor corporation.
<PAGE>
2
(i) "Director" means a member of the Board who is not an employee of
the Company, a Subsidiary or an Affiliate.
(j) "Dividend Equivalent" means a right, granted under Section 5(g),
to receive cash, Shares, or other property equal in value to dividends paid with
respect to a specified number of Shares. Dividend Equivalents may be awarded on
a free-standing basis or in connection with another Award, and may be paid
currently or on a deferred basis.
(k) "Eligible Person" means (i) an employee of the Company, a
Subsidiary or an Affiliate, including any director who is an employee, who is
responsible for or contributes to the management, growth and/or profitability of
the business of the Company, its Subsidiaries or Affiliates or (ii) a Director.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include successor provisions thereto and regulations
thereunder.
(m) "Fair Market Value" means, with respect to Shares or other
property, the fair market value of such Shares or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. If the Shares are listed on any established stock exchange or a
national market system, unless otherwise determined by the Committee in good
faith, the Fair Market Value of Shares shall mean the mean between the high and
low selling prices per Share on the immediately preceding date (or, if the
Shares were not traded on that day, the next preceding day that the Shares were
traded) on the principal exchange on which the Shares are traded, as such prices
are officially quoted on such exchange.
(n) "ISO" means any option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "NQSO" means any Option that is not an ISO.
(p) "Option" means a right, granted under Section 5(b), to purchase
Shares.
(q) "Other Share-Based Award" means a right, granted under Section
5(h), that relates to or is valued by reference to Shares.
(r) "Participant" means an Eligible Person who has been granted an
Award under the Plan.
(s) "Performance Share" means a performance share granted under
Section 5(f).
(t) "Performance Unit" means a performance unit granted under Section
5(f).
(u) "Plan" means this 1996 Long Term Incentive and Share Award Plan.
(v) "Restricted Shares" means an Award of Shares under Section 5(d)
that may be subject to certain restrictions and to a risk of forfeiture.
<PAGE>
3
(w) "Restricted Share Unit" means a right, granted under Section
5(e), to receive Shares or cash at the end of a specified deferral period.
(x) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(y) "SAR" or "Share Appreciation Right" means the right, granted
under Section 5(c), to be paid an amount measured by the difference between the
exercise price of the right and the Fair Market Value of Shares on the date of
exercise of the right, with payment to be made in cash, Shares, or property as
specified in the Award or determined by the Committee.
(z) "Shares" means common stock, $.01 par value per share, of the
Company.
(aa) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns shares
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3. Administration.
--------------
(a) Authority of the Committee. The Plan shall be administered by
--------------------------
the Committee, and the Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Eligible Persons to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted to each
Eligible Person;
(iv) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price, or purchase price, and any bases for adjusting
such exercise, grant or purchase price, any restriction or condition, any
schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement of an Award,
and waiver or accelerations thereof, and waivers of performance conditions
relating to an Award, based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in
connection with an Award;
(v) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Shares, other Awards, or other property, or an Award
may be canceled, forfeited, exchanged, or surrendered;
(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards, or other property payable with
respect to an Award will be
<PAGE>
4
deferred either automatically, at the election of the Committee, or at the
election of the Eligible Person;
(vii) to prescribe the form of each Award Agreement, which need not
be identical for each Eligible Person;
(viii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder;
(x) to accelerate the exercisability or vesting of all or any portion
of any Award or to extend the period during which an Award is exercisable;
and
(xi) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary
or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. The Committee shall
-----------------------------------------
have sole discretion in exercising its authority under the Plan. Any action of
the Committee with respect to the Plan shall be final, conclusive, and binding
on all persons, including the Company, Subsidiaries, Affiliates, Eligible
Persons, any person claiming any rights under the Plan from or through any
Eligible Person, and shareholders. The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee
may delegate to officers or managers of the Company or any Subsidiary or
Affiliate the authority, subject to such terms as the Committee shall determine,
to perform administrative functions and, with respect to Awards granted to
persons not subject to Section 16 of the Exchange Act, to perform such other
functions as the Committee may determine, to the extent permitted under Rule
16b-3 (if applicable) and applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
-----------------------
entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any officer or other employee of the Company or any
Subsidiary or Affiliate, the Company's independent certified public accountants,
or other professional retained by the Company to assist in the administration of
the Plan. No member of the Committee, nor any officer or employee of the
Company acting on behalf of the Committee, shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all members of the Committee and any officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect to any such
action, determination, or interpretation.
(d) Limitation on Committee's Discretion. Anything in this Plan to
------------------------------------
the contrary notwithstanding, in the case of any Award which is intended to
qualify as "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, if the Award Agreement so provides, the Committee
shall have no discretion to increase the amount of
<PAGE>
5
compensation payable under the Award to the extent such an increase would cause
the Award to lose its qualification as such performance-based compensation.
4. Shares Subject to the Plan.
--------------------------
(a) Subject to adjustment as provided in Section 4(b) hereof, the
total number of Shares reserved for issuance in connection with Awards under the
Plan shall be 750,000. No Award may be granted if the number of Shares to which
such Award relates, when added to the number of Shares previously issued under
the Plan, exceeds the number of Shares reserved under the preceding sentence.
If any Awards are forfeited, canceled, terminated, exchanged or surrendered or
such Award is settled in cash or otherwise terminates without a distribution of
Shares to the Participant, any Shares counted against the number of Shares
reserved and available under the Plan with respect to such Award shall, to the
extent of any such forfeiture, settlement, termination, cancellation, exchange
or surrender, again be available for Awards under the Plan. Upon the exercise
of any Award granted in tandem with any other Awards, such related Awards shall
be canceled to the extent of the number of Shares as to which the Award is
exercised.
(b) In the event that the Committee shall determine that any dividend
in Shares, recapitalization, Share split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Shares such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Eligible Persons under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems appropriate and, in such manner as
it may deem equitable, adjust any or all of (i) the number and kind of shares
which may thereafter be issued under the Plan, (ii) the number and kind of
shares, other securities or other consideration issued or issuable in respect of
outstanding Awards, and (iii) the exercise price, grant price, or purchase price
relating to any Award; provided, however, in each case that, with respect to
-----------------
ISOs, such adjustment shall be made in accordance with Section 424(a) of the
Code, unless the Committee determines otherwise. In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria
and performance objectives included in, Awards in recognition of unusual or non-
recurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any Subsidiary or Affiliate or the
financial statements of the Company or any Subsidiary or Affiliate, or in
response to changes in applicable laws, regulations, or accounting principles;
provided, however, that, if an Award Agreement specifically so provides, the
- -----------------
Committee shall not have discretion to increase the amount of compensation
payable under the Award to the extent such an increase would cause the Award to
lose its qualification as performance-based compensation for purposes of Section
162(m)(4)(C) of the Code and the regulations thereunder.
(c) Any Shares distributed pursuant to an Award may consist, in whole
or in part, of authorized and unissued Shares or treasury Shares including
Shares acquired by purchase in the open market or in private transactions.
5. Specific Terms of Awards.
------------------------
(a) General. Awards may be granted on the terms and conditions set
-------
forth in this Section 5. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
7(d)), such additional terms and conditions, not
<PAGE>
6
inconsistent with the provisions of the Plan, as the Committee shall determine,
including terms regarding forfeiture of Awards or continued exercisability of
Awards in the event of termination of employment by the Eligible Person.
(b) Options. The Committee is authorized to grant Options, which may
-------
be NQSOs or ISOs, to Eligible Persons on the following terms and conditions:
(i) Exercise Price. The exercise price per Share purchasable under
--------------
an Option shall be determined by the Committee, and the Committee may,
without limitation, set an exercise price that is based upon achievement of
performance criteria if deemed appropriate by the Committee.
(ii) Time and Method of Exercise. The Committee shall determine at
---------------------------
the date of grant or thereafter the time or times at which an Option may be
exercised in whole or in part (including, without limitation, upon
achievement of performance criteria if deemed appropriate by the
Committee), the methods by which such exercise price may be paid or deemed
to be paid (including, without limitation, broker-assisted exercise
arrangements), the form of such payment (including, without limitation,
cash, Shares, notes or other property), and the methods by which Shares
will be delivered or deemed to be delivered to Eligible Persons.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
----
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that the ISO shall be granted within ten
years from the earlier of the date of adoption or shareholder approval of
the Plan. ISOs may only be granted to employees of the Company or a
Subsidiary.
(c) SARs. The Committee is authorized to grant SARs (Share
----
Appreciation Rights) to Eligible Persons on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Eligible Person to
----------------
whom it is granted a right to receive with respect to each Share subject
thereto, upon exercise thereof, the excess of (1) the Fair Market Value of
one Share on the date of exercise (or, if the Committee shall so determine
in the case of any such right, the Fair Market Value of one Share at any
time during a specified period before or after the date of exercise) over
(2) the exercise price of the SAR as determined by the Committee as of the
date of grant of the SAR (which, in the case of an SAR granted in tandem
with an Option, shall be equal to the exercise price of the underlying
Option).
(ii) Other Terms. The Committee shall determine, at the time of
-----------
grant or thereafter, the time or times at which an SAR may be exercised in
whole or in part, the method of exercise, method of settlement, form of
consideration payable in settlement, method by which Shares will be
delivered or deemed to be delivered to Eligible Persons, whether or not an
SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Unless the Committee determines otherwise, an SAR
(1) granted in tandem with an NQSO may be granted at the time of grant of
the related NQSO or at any time thereafter and (2) granted in tandem with
an ISO may only be granted at the time of grant of the related ISO.
<PAGE>
7
(d) Restricted Shares. The Committee is authorized to grant
-----------------
Restricted Shares to Eligible Persons on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be subject to
-------------------------
such restrictions on transferability and other restrictions, if any, as the
Committee may impose at the date of grant or thereafter, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including, without limitation, upon achievement of
performance criteria if deemed appropriate by the Committee), in such
installments, or otherwise, as the Committee may determine. Except to the
extent restricted under the Award Agreement relating to the Restricted
Shares, an Eligible Person granted Restricted Shares shall have all of the
rights of a shareholder including, without limitation, the right to vote
Restricted Shares and the right to receive dividends thereon. The
Committee must certify in writing prior to the lapse of restrictions
conditioned on achievement of performance criteria that such performance
criteria were in fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee, at
----------
the date of grant or thereafter, upon termination of employment during the
applicable restriction period, Restricted Shares and any accrued but unpaid
dividends or Dividend Equivalents that are at that time subject to
restrictions shall be forfeited; provided, however, that the Committee may
-----------------
provide, by rule or regulation or in any Award Agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating
to Restricted Shares will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Shares.
(iii) Certificates for Shares. Restricted Shares granted under the
-----------------------
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the name of
the Eligible Person, such certificates shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Shares, and the Company shall retain physical possession of the
certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall be either
---------
paid at the dividend payment date, or deferred for payment to such date as
determined by the Committee, in cash or in unrestricted Shares having a
Fair Market Value equal to the amount of such dividends. Shares
distributed in connection with a Share split or dividend in Shares, and
other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Shares with
respect to which such Shares or other property has been distributed.
(e) Restricted Share Units. The Committee is authorized to grant
----------------------
Restricted Share Units to Eligible Persons, subject to the following terms and
conditions:
(i) Award and Restrictions. Delivery of Shares or cash, as the case
----------------------
may be, will occur upon expiration of the deferral period specified for
Restricted Share Units by the Committee (or, if permitted by the Committee,
as elected by the Eligible Person). In addition, Restricted Share Units
shall be subject to such restrictions as the Committee may impose, if any
(including, without limitation, the achievement of performance
<PAGE>
8
criteria if deemed appropriate by the Committee), at the date of grant or
thereafter, which restrictions may lapse at the expiration of the deferral
period or at earlier or later specified times, separately or in
combination, in installments or otherwise, as the Committee may determine.
The Committee must certify in writing prior to the lapse of restrictions
conditioned on the achievement of performance criteria that such
performance criteria were in fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the Committee at
----------
date of grant or thereafter, upon termination of employment (as determined
under criteria established by the Committee) during the applicable deferral
period or portion thereof to which forfeiture conditions apply (as provided
in the Award Agreement evidencing the Restricted Share Units), or upon
failure to satisfy any other conditions precedent to the delivery of Shares
or cash to which such Restricted Share Units relate, all Restricted Share
Units that are at that time subject to deferral or restriction shall be
forfeited; provided, however, that the Committee may provide, by rule or
-----------------
regulation or in any Award Agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Restricted
Share Units will be waived in whole or in part in the event of termination
resulting from specified causes, and the Committee may in other cases waive
in whole or in part the forfeiture of Restricted Share Units.
(a) Performance Shares and Performance Units. The Committee is
----------------------------------------
authorized to grant Performance Shares or Performance Units or both to Eligible
Persons on the following terms and conditions:
(i) Performance Period. The Committee shall determine a performance
------------------
period (the "Performance Period") of one or more years and shall determine
the performance objectives for grants of Performance Shares and Performance
Units. Performance objectives may vary from Eligible Person to Eligible
Person and shall be based upon such performance criteria as the Committee
may deem appropriate. Performance Periods may overlap and Eligible Persons
may participate simultaneously with respect to Performance Shares and
Performance Units for which different Performance Periods are prescribed.
(ii) Award Value. At the beginning of a Performance Period, the
-----------
Committee shall determine for each Eligible Person or group of Eligible
Persons with respect to that Performance Period the range of number of
Shares, if any, in the case of Performance Shares, and the range of dollar
values, if any, in the case of Performance Units, which may be fixed or may
vary in accordance with such performance or other criteria specified by the
Committee, which shall be paid to an Eligible Person as an Award if the
relevant measure of Company performance for the Performance Period is met.
(iii) Significant Events. If during the course of a Performance
------------------
Period there shall occur significant events as determined by the Committee
which the Committee expects to have a substantial effect on a performance
objective during such period, the Committee may revise such objective;
provided, however, that, if an Award Agreement so provides, the Committee
-----------------
shall not have any discretion to increase the amount of compensation
payable under the Award to the extent such an increase would cause the
Award to lose its qualification as performance-based compensation for
purposes of Section 162(m)(4)(C) of the Code and the regulations
thereunder.
<PAGE>
9
(iv) Forfeiture. Except as otherwise determined by the Committee, at
----------
the date of grant or thereafter, upon termination of employment during the
applicable Performance Period, Performance Shares and Performance Units for
which the Performance Period was prescribed shall be forfeited; provided,
---------
however, that the Committee may provide, by rule or regulation or in any
-------
Award Agreement, or may determine in an individual case, that restrictions
or forfeiture conditions relating to Performance Shares and Performance
Units will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases waive
in whole or in part the forfeiture of Performance Shares and Performance
Units.
(v) Payment. Each Performance Share or Performance Unit may be paid
-------
in whole Shares, or cash, or a combination of Shares and cash either as a
lump sum payment or in installments, all as the Committee shall determine,
at the time of grant of the Performance Share or Performance Unit or
otherwise, commencing as soon as practicable after the end of the relevant
Performance Period. The Committee must certify in writing prior to the
payment of any Performance Share or Performance Unit that the performance
objectives and any other material terms were in fact satisfied.
(g) Dividend Equivalents. The Committee is authorized to grant
--------------------
Dividend Equivalents to Eligible Persons. The Committee may provide, at the
date of grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may specify,
provided that Dividend Equivalents (other than freestanding Dividend
Equivalents) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate.
(h) Other Share-Based Awards. The Committee is authorized, subject
------------------------
to limitations under applicable law, to grant to Eligible Persons such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, unrestricted shares awarded purely as a "bonus" and not subject to
any restrictions or conditions, other rights convertible or exchangeable into
Shares, purchase rights for Shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the performance of specified
Subsidiaries or Affiliates. The Committee shall determine the terms and
conditions of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 5(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Shares,
notes or other property, as the Committee shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, shall also be
authorized pursuant to this Section 5(h).
6. Certain Provisions Applicable to Awards.
---------------------------------------
(a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards
-----------------------------------------------------
granted under the Plan may, in the discretion of the Committee, be granted to
Eligible Persons either alone or in addition to, in tandem with, or in exchange
or substitution for, any other Award granted under the Plan or any award granted
under any other plan or agreement of the Company,
<PAGE>
10
any Subsidiary or Affiliate, or any business entity to be acquired by the
Company or a Subsidiary or Affiliate, or any other right of an Eligible Person
to receive payment from the Company or any Subsidiary or Affiliate. Awards may
be granted in addition to or in tandem with such other Awards or awards, and may
be granted either as of the same time as or a different time from the grant of
such other Awards or awards. The per Share exercise price of any Option, grant
price of any SAR, or purchase price of any other Award conferring a right to
purchase Shares which is granted, in connection with the substitution of awards
granted under any other plan or agreement of the Company or any Subsidiary or
Affiliate or any business entity to be acquired by the Company or any Subsidiary
or Affiliate, shall be determined by the Committee, in its discretion.
(b) Terms of Awards. The term of each Award granted to an Eligible
---------------
Person shall be for such period as may be determined by the Committee; provided,
---------
however, that in no event shall the term of any ISO or an SAR granted in tandem
- -------
therewith exceed a period of ten years from the date of its grant (or such
shorter period as may be applicable under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan
----------------------------
and any applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award may
be made in such forms as the Committee shall determine at the date of grant or
thereafter, including, without limitation, cash, Shares, or other property, and
may be made in a single payment or transfer, in installments, or on a deferred
basis. The Committee may make rules relating to installment or deferred
payments with respect to Awards, including the rate of interest to be credited
with respect to such payments.
(d) Nontransferability. Unless otherwise set forth by the Committee
------------------
in an Award Agreement, Awards (except for vested shares) shall not be
transferable by an Eligible Person except by will or the laws of descent and
distribution (except pursuant to a Beneficiary designation) and shall be
exercisable during the lifetime of an Eligible Person only by such Eligible
Person or his guardian or legal representative. An Eligible Person's rights
under the Plan may not be pledged, mortgaged, hypothecated, or otherwise
encumbered, and shall not be subject to claims of the Eligible Person's
creditors.
7. General Provisions.
------------------
(a) Compliance with Legal and Trading Requirements. The Plan, the
----------------------------------------------
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan and any Award Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company, in
its discretion, may postpone the issuance or delivery of Shares under any Award
until completion of such stock exchange or market system listing or registration
or qualification of such Shares or other required action under any state or
federal law, rule or regulation as the Company may consider appropriate, and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Shares in compliance with applicable laws, rules and regulations.
No provisions of the Plan shall be interpreted or construed to obligate the
Company to register any Shares under federal or state law.
<PAGE>
11
(b) No Right to Continued Employment or Service. Neither the Plan
-------------------------------------------
nor any action taken thereunder shall be construed as giving any employee or
director the right to be retained in the employ or service of the Company or any
of its Subsidiaries or Affiliates, nor shall it interfere in any way with the
right of the Company or any of its Subsidiaries or Affiliates to terminate any
employee's or director's employment or service at any time.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized
-----
to withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to an Eligible Person, amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Eligible Persons to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Person's tax obligations.
(d) Changes to the Plan and Awards. The Board may amend, alter,
------------------------------
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders of the Company
or Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders to the extent such shareholder approval is required under
Section 422 of the Code; provided, however, that, without the consent of an
------------------
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may impair the rights or, in any other manner, adversely
affect the rights of such Participant under any Award theretofore granted to him
or her.
(e) No Rights to Awards; No Shareholder Rights. No Eligible Person
------------------------------------------
or employee shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Eligible Persons and
employees. No Award shall confer on any Eligible Person any of the rights of a
shareholder of the Company unless and until Shares are duly issued or
transferred to the Eligible Person in accordance with the terms of the Award.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
-------------------------
"unfunded" plan for incentive compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award shall give any such Participant any rights that are greater than those
of a general creditor of the Company; provided, however, that the Committee may
-----------------
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, Shares, other Awards, or
other property pursuant to any Award, which trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan by
--------------------------
the Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of options and other awards otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
<PAGE>
12
(h) Not Compensation for Benefit Plans. No Award payable under this
----------------------------------
Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company for the
benefit of its employees or directors unless the Company shall determine
otherwise.
(i) No Fractional Shares. No fractional Shares shall be issued or
--------------------
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional Shares or whether such fractional Shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction, and effect of the
-------------
Plan, any rules and regulations relating to the Plan, and any Award Agreement
shall be determined in accordance with the laws of Colorado without giving
effect to principles of conflict of laws.
(k) Effective Date; Plan Termination. The Plan shall become
--------------------------------
effective as of July 29, 1996 (the "Effective Date"). The Plan shall terminate
as to future awards on the date which is ten (10) years after the Effective
Date.
(1) Titles and Headings. The titles and headings of the sections in
-------------------
the Plan are for convenience of reference only. In the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
<PAGE>
EXHIBIT 10.27
AGREEMENT
Agreement dated as of October 11, 1996 between VAIL RESORTS, INC.
(formerly Gillett Holdings, Inc.) a Delaware corporation (the "Company") and
GEORGE N. GILLETT ("Gillett").
Gillett is a party to an employment agreement with the Company and
certain of its affiliates dated October 8, 1992, as amended as of September 1,
1993 (the "Employment Agreement"), and has served as an officer and director of
the Company. Pursuant to the Employment Agreement, Gillett received certain
options to purchase shares of the Company's common stock, $.01 par value,
formerly designated as Class 2 common stock (the "Common Stock"), of which
options to purchase 204,082 shares at an exercise price of $13.70 per share (the
"$13.70 Options") and options to purchase 582,404 shares at an exercise price of
$23.67 per share (the "$23.67 Options") remain outstanding. The parties desire
to terminate the Employment Agreement and to provide for the cancellation or
exercise of Gillett's outstanding options upon the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, the parties agree as follows:
1. Termination of Employment Agreement. The Employment Agreement
-----------------------------------
is hereby terminated as of September 30, 1996 and shall thereafter be of no
further force and effect. Such termination shall be deemed a termination
pursuant to Section 6.2.1 of the Employment Agreement, and accordingly Gillett
shall be entitled to receive his Base Salary (as defined in the Employment
Agreement) through October 7, 1997, payable in the manner set forth in such
Section 6.2.1. Except as expressly set forth in this Agreement, Gillett shall be
entitled to no other compensation or benefits in connection with termination of
the Employment Agreement. Gillett hereby resigns from all directorships and
other positions with the Company and its subsidiaries effective immediately.
2. Exercise of Options. As payment in full of the exercise price
-------------------
under the $13.70 Options, Gillett hereby agrees to pay to the Company the sum of
$59,928 and waives the right to participate in the $55 million distribution
described in the Company's pending Form S-2 registration statement
(the "Distribution") with respect to the 204,082 shares of Common Stock issuable
upon exercise of the $13.70 Options as well as the 357,488 shares of Common
Stock held by Gillett on the date hereof. Notwithstanding the foregoing, in the
event that the sum of such payment and the actual amount of the Distribution
waived by Gillett pursuant to the preceding sentence is less than the aggregate
exercise price of the $13.70 Options, Gillett shall promptly pay the amount of
such difference to the Company or the Company may deduct such difference from
the amounts payable to Gillett pursuant to Section 1 hereof.
3. Cancellation of $23.67 Options. As payment in full for the
------------------------------
cancellation of the $23.67 Options, the Company will issue 168,159 shares of
Common Stock to Gillett. Gillett
<PAGE>
hereby cancels and surrenders to the Company the $23.67 Options. Gillett shall
be entitled to participate in the Distribution with respect to such 168,159
shares when and as such Distribution is made.
4. Continuation of Benefits. From the date hereof though December 31,
------------------------
1996, the Company shall continue to provide Gillett's existing group life,
disability, medical and dental insurance benefits, and shall thereafter make
such benefits available as required by COBRA. In addition, the Company shall
continue to provide Gillett with use of his existing office (including telephone
and secretarial service) at no cost through December 31, 1996; provided,
however, that Gillett may continue to utilize such office subsequent to such
date in the event that Gillett assumes the lease for such office space and pays
all expenses associated therewith. Gillett and his immediate family members will
receive season passes to the Company's ski resorts for the 1996-97 season, and
Gillett will be permitted to use his existing club memberships (as designated by
the Company) including but not limited to Game Creek Club during such period.
Gillett will resign from all such club memberships as of September 30, 1997.
Gillett and his immediate family members shall be entitled to utilize the
Company's Beaver Creek golf course at no charge through the 1997 season. Gillett
shall receive or retain ownership of his existing Company car.
5. Noncompetition. Until July 1, 1997, Gillett will not, directly or
--------------
indirectly, without the prior written consent of the Company, own, manage,
operate, participate in, be employed by or act as an independent contractor or
agent of, or have any financial interest or responsibility in or with, any firm,
person, corporation, enterprise or other entity which owns, manages or operates,
directly or indirectly, an alpine or nordic skiing operation in Colorado;
provided, however, that this provision shall not prohibit Gillett from
participating in the ownership or management of any of the Telluride, Purgatory
or Wolf Creek ski resorts.
6. Confidential Information. Gillett acknowledges that the
------------------------
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company or its affiliates that are not
generally available to the public ("Confidential Information") are the property
of the Company. Gillett agrees that he shall not disclose to any unauthorized
person or use for his own account any Confidential Information without the prior
written consent of the Company, unless and to the extent that such matters
become generally known to and available for use by the public other than as a
result of Gillett's acts or omissions to act. Notwithstanding the foregoing, in
the event Gillett becomes legally compelled to disclose Confidential Information
pursuant to judicial or administrative subpoena or process or other legal
obligation, Gillett may make such disclosure only to the extent required, in the
opinion of counsel for Gillett, to comply with such subpoena, process or other
obligation. Gillett shall, as promptly as possible and in any event prior to
making of such disclosure, notify the Company of any such subpoena, process or
obligation and shall cooperate with the Company in seeking a protective order or
other means of protecting the confidentiality of the Confidential Information.
In addition to the foregoing, Gillett hereby agrees to make no public statements
whatsoever concerning the Company (including statements to media
representatives) and to refrain from
<PAGE>
discussing the Company's affairs with any governmental or regulatory agency or
body unless compelled to do so by applicable law.
7. Foundation Obligations. Gillett hereby agrees to indemnify the
----------------------
Company and its subsidiaries and affiliates against 50% of all costs, damages
and expenses incurred by the Company or Vail Associates, Inc. after the date
hereof in connection with the obligations of Vail Associates pursuant to the
Medical Service Agreement dated March 31, 1989 with J. Richard Steadman, M.D.
(the "Steadman Agreement") up to a maximum of $600,000. The Company shall be
entitled to withhold $600,000 from the final payments to Gillett pursuant to
Section 1 pending final resolution of the amount (if any) of such liability;
provided, however, that in the event that the Company's contemplated initial
public offering of Common Stock has occurred, Gillett may in lieu of such
withholding pledge shares of Common Stock with a market value of not less than
$1,000,000 to secure his obligation pursuant to this Section 6. In the event
that the market value of such pledged shares shall at any time be less than
$750,000. Gillett shall promptly pledge additional shares of Comon Stock to
resore the value of the pledged shares to equal at least $750,000 or shall make
other arrangements to secure such obligation satisfactory to the Company. The
Company shall be entitled to control the defense and resolution of any matters
arising under the Steadman Agreement.
8. Sale of Shares. When the Company's current contemplated public
--------------
offering of Common Stock is consummated substantially in accordance with
Amendment No. 1 to the Company's pending Form S-2 registration statement,
Gillett shall have the right to sell at least 168,159 shares in said offering
(it being understood that a reduction in the size of such offering shall reduce
Gillett's ability to sell his shares). The parties agree to use good faith
efforts to allow Gillett to sell more if he so desires.
9. Delivery of Shares. The Company may hold the shares to be
------------------
issued hereunder or any proceeds from the sale thereof by Gillett until such
time as Gillett provides evidence of the payment of any applicable income tax
owing by reason of the issuance of the shares. When said evidence is provided
all remaining shares and/or proceeds shall be released.
10. Severability. In the event any provision of this Agreement or
------------
the application of any such provision shall be held to be prohibited or
unenforceable in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability. The remaining provisions of this Agreement shall remain in
full force and effect, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. The parties shall use their best efforts to replace the
provision that is contrary to law with a legal one approximating to the maximum
extent possible the original intent of the parties. Gillett acknowledges that
damages would be an inadequate remedy for any breach of the provisions of this
Agreement and agrees that his obligations hereunder shall be specifically
enforceable.
3
<PAGE>
11. Entire Agreement. This Agreement embodies the complete agreement
----------------
and understanding among the parties and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
12. Amendment and Waivers: Termination. Any provision of this
----------------------------------
Agreement may be amended or waived only with the prior written consent of the
Company and Gillett.
13. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws of the State of Colorado, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
14. Counterparts and Facsimile. This Agreement may be executed by the
--------------------------
parties in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. This Agreement may be executed by facsimile signature
with an original signature to be promptly delivered thereafter.
****
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
VAIL RESORTS, INC.
F/K/A GILLETT HOLDINGS, INC.
By: /s/ James S. Mandel
----------------------------------
Name: James S. Mandel
Title: Senior Vice President
VAIL HOLDINGS, INC.
F/K/A VAIL ASSOCIATES, INC.
By: /s/ James S. Mandel
----------------------------------
Name: James S. Mandel
Title: Senior Vice President
4
<PAGE>
VAIL ASSOCIATES REAL ESTATE, INC.
By: /s/ James S. Mandel
--------------------------------
Name: James S. Mandel
Title: Vice President
BEAVER CREEK ASSOCIATES, INC.
By: /s/ James S. Mandel
---------------------------------
Name: James S. Mandel
Title: Vice President
/s/ George N. Gillett, Jr.
-----------------------------------
GEORGE N. GILLETT
5
<PAGE>
EXHIBIT 21.1
VAIL RESORTS, INC. AND
SUBSIDIARIES
VAIL RESORTS, INC.
(DELAWARE)
GILLETT
GROUP
MANAGEMENT, 100%
INC.
(DELAWARE)
GILLETT
BROADCASTING
OF MARYLAND, 100%
INC.
(DELAWARE)
GHTV, INC.
(DELAWARE) 100%
GILLETT
BROADCASTING,
INC. 100%
(DELAWARE)
VAIL HOLDINGS, INC.
(COLORADO) 100%
THE VAIL CORPORATION
(D/B/A/ "VAIL ASSOCIATES, INC.") 100%
(COLORADO)
(SEE PAGE TWO)
EXHIBIT 21.1
CORPORATE STRUCTURE
PAGE TWO
VAIL
ASSOCIATES
INVESTMENTS, 100%
INC.
(COLORADO)
VAIL
TRADEMARKS,
INC. 100%
(COLORADO)
VAIL
ASSOCIATES
REAL ESTATE 100%
GROUP, INC.
(COLORADO)
BEAVER CREEK
CONSULTANTS,
INC. 100%
(COLORADO)
BEAVER CREEK
ASSOCIATES,
INC. 100%
(COLORADO)
VAIL/BEAVER
CREEK RESORT
PROPERTIES, 80%
INC.
(COLORADO)
VAIL FOOD
SERVICES, INC. 100%
(COLORADO)
PINEY RIVER
RANCH, INC. 100%
(COLORADO)
VAIL/
ARROWHEAD,
INC. 100%
(COLORADO)
RALSTON
RESORTS, INC 100%
(COLORADO)
VAIL
ASSOCIATES
HOLDINGS, 100%
LTD.
(COLORADO)
VAIL
ASSOCIATES
REAL ESTATE, 80%
INC.
(COLORADO)
VAIL
ASSOCIATES
CONSULTANTS, 100%
INC.
(COLORADO)
VAIL
ASSOCIATES
MANAGEMENT 100%
COMPANY
(COLORADO)
BEAVER CREEK
FOOD
SERVICES, INC. 100%
(COLORADO)
KEYSTONE
CONFERENCE
SERVICES, 100%
INC.
(COLORADO)
KEYSTONE
DEVELOPMENT
SALES, INC. 100%
(COLORADO)
KEYSTONE
FOOD &
BEVERAGE 100%
COMPANY
(COLORADO)
KEYSTONE
RESORT
PROPERTY
MANAGEMENT 100%
COMPANY
(COLORADO)
VAIL ASSOCIATES
RAND AND LAND 100%
COMPANY
(COLORADO)
<PAGE>
Exhibit 23.1
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
January 7, 1997.
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 7, 1994, (with respect to the financial
statements of Packerland Packing Company, Inc.) which is included in the
Registration Statement (Form S-2) and related Prospectus of Vail Resorts, Inc.
for the registration of shares of its Common Stock.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 7, 1997
<PAGE>
Exhibit 23.3
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated October 31, 1996
relating to the financial statements of Ralston Resorts, Inc., which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
Price Waterhouse LLP
Denver, Colorado
January 7, 1997
