<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997
REGISTRATION NO. 333-5341
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SECURITIES AND EXCHANGE COMMISSION
---------------
AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
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, 39TH
NEW YORK, NY 10005 22ND FLOOR 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 28, 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
DISCOUNTS AND PROCEEDS TO SELLING
PRICE 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...................... 20
Dividend Policy...................... 20
Dilution............................. 20
Capitalization....................... 21
Pro Forma Financial Data............. 22
Selected Consolidated Financial and
Operating Data...................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
Business............................. 37
Management .......................... 64
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Compensation Table........... 69
Principal and Selling Stockholders .. 72
Certain Transactions................. 73
The Acquisition...................... 74
Description of Certain Indebtedness.. 76
Description of Capital Stock......... 78
Shares Eligible for Future Sale...... 81
Certain United States Federal Tax
Consequences to Non-United States
Holders of Common Stock............. 82
Underwriting......................... 85
Notice to Canadian Residents......... 87
Legal Matters........................ 89
Experts.............................. 89
Available Information................ 89
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. For a
further discussion of Resort Cash Flow, see Note (6) to Selected Consolidated
Financial and Operating Data.
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. For a further
discussion of Resort Cash Flow, see Note (6) to Selected Consolidated Financial
and Operating Data.
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.
There can be no assurance that the Company will be able to successfully
implement any or all of the above-mentioned strategies or achieve any of the
benefits anticipated therefrom. See "Risk Factors--No Assurance of Successful
Integration of Acquired Resorts/Future Acquisitions."
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."
On January 14, 1997, the Company reported Resort Revenue of $35.1 million and
Resort Cash Flow of $10.3 million for the quarter ended December 31, 1996.
These results represent an increase of 9.5% in Resort Revenue and 10.2% in
Resort Cash Flow over the results for the quarter ended December 31, 1995. The
Company also indicated that the results for the most recent quarter exclude
five days of the "Christmas/Holiday" period, which ended January 5, 1997, while
the results for the prior year quarter exclude one day of the
"Christmas/Holiday" period, which ended January 1, 1996.
The Company also reported that Ralston Resorts, which it acquired on January
3, 1997, had Resort Revenue of $29.2 million and Resort Cash Flow of $2.8
million for the quarter ended December 31, 1996. This compares to Resort
Revenue and Resort Cash Flow for the quarter ended December 31, 1995 of $27.5
million and $4.3 million, respectively. The Company did not operate Ralston
Resorts for the most recently completed quarter. The decline in Resort Cash
Flow at Ralston Resorts was due, in part, to certain anticipated higher
operating expenses. The timing of the "Christmas/Holiday" period also impacted
Ralston Resorts' results. Resort Revenue and Resort Cash Flow for Ralston
Resorts include the results of the Arapahoe Basin mountain resort, which the
Company will divest pursuant to the Consent Decree. For a further discussion of
Resort Cash Flow, see Note (6) to Selected Consolidated Financial and Operating
Data.
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 for general corpo-
rate purposes. The Company believes that this reduc-
tion 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 proceeds from the sale of Common
Stock by the Selling Stockholders. See "Use of Pro-
ceeds."
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> <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
Statement of cash flows
(Post-Effective Date)
Net cash provided by
operating
activities............ $ 1,727 $ 56,107 $ 41,104 $ 66,441
Net cash provided by
(used in) investing
activities............ 145,144 16,289 (42,244) (54,716)
Net cash used in
financing
activities............ (314,902) (26,882) (34,341) (46,547)
</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
Statement of cash flows
Net cash provided by operating
activities............................ $15,658 $ 23,442 $ 17,542 $ 22,621
Net cash used in investing
activities............................ (9,322) (12,160) (11,919) (17,570)
Net cash used in financing
activities............................ (4,522) (13,075) (6,030) (4,590)
</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
15
<PAGE>
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, 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.
PURCHASE PRICE ALLOCATION FOR THE ACQUISITION. As discussed in Note (a) to
the Pro Forma Financial Data, under the purchase accounting method, the total
acquisition cost of Ralston Resorts will be allocated to the assets and
liabilities of Ralston Resorts on the basis of their relative fair values and
pursuant to certain appraisals of such assets and liabilities which the
Company will complete prior to January 3, 1998. 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,
which was allocated to various intangible assets, including goodwill. Although
the Company believes that its final allocation will not differ materially from
its preliminary allocation, there can be no assurance that the final
allocation will not result in increased depreciation and amortization charges
in future periods from those that would have resulted from the preliminary
allocation.
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,
16
<PAGE>
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 by the Deputy Regional Forester (the "Deputy") 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 by the Deputy 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. If final approval for
construction in Category III is not received, the Company does not believe it
will have a material adverse impact on its results of operations or financial
condition; however, the Company would not be able to expand its skiable
terrain on Vail Mountain as currently contemplated. 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
17
<PAGE>
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,
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
18
<PAGE>
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."
19
<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 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 and the
Acquisition................................................. 3.54
------
Dilution of net tangible book value to new investors......... $16.46
======
</TABLE>
The portion of the difference in the net tangible book value per share of
the Company prior to the consummation of the Offerings and the Acquisition and
pro forma net tangible book value per share after the Offerings and the
Acquisition attributable to the Offerings was calculated as the increase in
net tangible assets from the Offerings divided by the total shares outstanding
after the Offerings and the Acquisition. The remainder of the difference was
allocated to the Acquisition.
Other than the shares of Common Stock issued to Foods in connection with the
Acquisition and the shares issued to George N. Gillett, Jr., the Company's
former Chairman and Chief Executive Officer, upon the exercise of options (see
"Management--Employment Agreements of the Company"), the remaining outstanding
shares of Common Stock were originally issued in 1992 in connection with the
Reorganization at an effective price of $6.85 per share.
20
<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> <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 -- 50 (4) 126
Additional paid-in
capital.............. 123,707 151,088(3) 89,850 (4) 364,745
Retained earnings..... -- -- (1,547)(5) (1,547)
-------- -------- -------- --------
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.
21
<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. For a further discussion of Resort Cash Flow, see Note
(6) to Selected Consolidated Financial and Operating Data.
22
<PAGE>
VAIL RESORTS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RALSTON ACQUISITION OFFERING PRO FORMA
THE COMPANY RESORTS ADJUSTMENTS ADJUSTMENTS COMBINED
----------- -------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equiva-
lents.................. $ 12,712 $ 1,274 $ $90,000 $ 13,986
(62,647)
(2,506)
(24,847)
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 26,522 140,032 (62,647) 235,419
(3,328) (24,847)
15,000
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
Common stock............ 200 1 50 251
Additional paid-in-capi-
tal.................... 123,707 16,024 6,485 89,950 349,826
124,253
1,079
3,328
(15,000)
Retained earnings....... -- 14,918 (1,547) 13,371
-------- -------- -------- ------- --------
Stockholders' equity.... 123,907 30,943 120,145 88,453 363,448
-------- -------- -------- ------- --------
Total liabilities and
stockholders' equity... $422,612 $231,010 $130,738 $ -- $784,360
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
financial data.
23
<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- (d)
ture.................... 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
========
Additional paid-in capi- Elimination of Ralston Resorts
tal..................... 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)
========
Common stock............. Par value of shares sold in
the Offerings 50
--------
Additional paid-in capi-
tal..................... Net proceeds of the Offerings 89,950
--------
Retained earnings........ (e) Premium on early redemption of
the Senior Subordinated Notes
(after-tax) (1,547)
--------
Effect on total stock-
holders' equity........ 88,453
========
</TABLE>
24
<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> <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 22,896 (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>
The accompanying notes are an integral part of the unaudited pro forma
financial data.
25
<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> <C> <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> <C> <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>
26
<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 was 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 Company expects the preliminary allocation to be
finalized no later than January 3, 1998. See "Risk Factors--Purchase Price
Allocation for the Acquisition."
The following table summarizes the preliminary purchase price allocation:
<TABLE>
<S> <C>
Stock 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) Pro forma weighted average common shares outstanding include actual Common
Stock outstanding at September 30, 1996, Common Stock issued to the
Company's former Chairman and Chief Executive Officer on October 11, 1996
upon the exercise of his options (see "Management--Employment Agreements
of the
27
<PAGE>
Company"), Common Stock issued to Foods pursuant to the Acquisition, Common
Stock sold in the Offerings and, the number of shares of Common Stock
necessary to reflect the dilutive effect of outstanding stock options,
calculated using the treasury stock method assuming an estimated initial
public offering price of $20.00 per share.
(g) 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 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>
(h) The terms of the Acquisition provide for certain adjustments after the
closing of the Acquisition. Such adjustments, if any, will be made
following the delivery of audited financial statements of Ralston Resorts
to the Company and Foods, and may include payment by the Company or Foods,
as the case may be, with respect to indebtedness of Ralston 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 date of
the closing of the Acquisition. The Company does not anticipate that the
size of the post-closing adjustment, if any, will be material.
28
<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 (at period
end)
Total assets........... $ 569,319 $805,881 $459,131 $450,018 $429,628 $422,612 $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
Statement of cash flows
(Post-Effective Date)
Net cash provided by
operating activities.. $ 1,727 $ 56,107 $ 41,104 $ 66,441
Net cash provided by
(used in) investing
activities............ 145,144 16,289 (42,244) (54,716)
Net cash used in
financing activities.. (314,902) (26,882) (34,341) (46,547)
</TABLE>
29
<PAGE>
RALSTON RESORTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------
1993 1994 1995 1996
-------- -------- -------- --------
<S> <C> <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
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
Statement of cash flows
Net cash provided by operating
activities....................... $ 15,658 $ 23,442 $ 17,542 $ 22,621
Net cash used in investing
activities....................... (9,322) (12,160) (11,919) (17,570)
Net cash used in financing
activities....................... (4,522) (13,075) (6,030) (4,590)
</TABLE>
30
<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.
31
<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. For a
further discussion of Resort Cash Flow, see Note (6) to Selected Consolidated
Financial and Operating Data.
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.
32
<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 an increase 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
reduction in the estimate of the Company's obligation to a medical research
foundation. The Company's potential obligation to the medical research
foundation arose from a fundraising agreement with the foundation which the
Company and its former Chairman and Chief Executive Officer entered into in
March 1989. As of September 30, 1995, the Company believed that it had no
further obligation to the medical research foundation and reduced its reserve
accordingly. During the year ended September 30, 1996, the Company became
aware that the medical research foundation believed that an obligation still
existed under the fundraising agreement. As of September 30, 1996, the Company
has estimated its obligation under the fundraising agreement at approximately
$600,000.
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.
33
<PAGE>
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 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. For a further discussion of Resort Cash Flow, see Note (6) to Selected
Consolidated Financial and Operating Data.
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.
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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 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.
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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. For a further discussion of Resort Cash
Flow, see Note (6) to Selected Consolidated Financial and Operating Data.
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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[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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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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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."
42
<PAGE>
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
43
<PAGE>
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
44
<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.
45
<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.
46
<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
47
<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.
48
<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
49
<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.
50
<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
51
<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 opportunity 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.
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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.
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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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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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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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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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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.
60
<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 by the Deputy 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 by the Deputy 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. If final approval for construction in Category
III is not received, the Company does not believe it will have a material
adverse impact on its results of operations or financial condition; however,
the Company would not be able to expand its skiable terrain on Vail Mountain
as currently contemplated.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%
62
<PAGE>
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.
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.
The Company recently learned that a motion has been filed in a pending civil
action which could, if granted, add as an additional party to such litigation
one of the Company's wholly-owned subsidiaries. Such action involves a dispute
between the Board of Commissioners of Eagle County, Colorado and the operator
of one of the terminals located at the Vail/Eagle Airport. The Company is a
party to a Standby Bond Purchase Agreement which could obligate the Company to
purchase $10.1 million of Eagle County Air Terminal Corporation Revenue Bonds
if certain events occur. See Note 10 to the Company's consolidated financial
statements. While the Company has not yet been served with any pleadings in
such case nor has it been a party to any discovery or other proceedings in
this case, the Company believes that the allegations contained in the motion
are without merit and that the ultimate outcome of the litigation will not
have a material adverse effect on the financial position or operations of the
Company.
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.
63
<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
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<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. He has been Director
of the Urban Development Corporation for the State of New York since 1983. Mr.
Mack is Chairman Emeritus and Trustee of the Long Island Jewish Medical
Center.
65
<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.
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<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
67
<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 $100,000 for the year ended
September 30, 1996 in all capacities in which they served:
68
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- -------------------------------
AWARDS PAYOUTS
-------------------- ------------
RESTRICTED
SALARY OTHER ANNUAL STOCK LTIP ALL OTHER
NAME, PRINCIPAL AND BONUS COMPENSATION AWARD(S) OPTIONS/ PAYMENTS COMPENSATION
POSITION, AND PERIOD ($) ($)(1) ($) 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 $10.00 per share.
See "Management--Stock Option Plans."
69
<PAGE>
AGGREGATE OPTION/SAR EXERCISES DURING FISCAL YEAR ENDED SEPTEMBER 30, 1996
AND OPTION/SAR VALUES AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS(1)
--------------- -------------------
SHARES
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) 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 will enter 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 will enter into employment contracts with Messrs. Ryman,
Myers, Flynn and Thompson, which will provide for annual salaries, as well as
participation in bonus, stock option and other employee benefit plans. Each
agreement will be 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.
70
<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.
71
<PAGE>
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.
72
<PAGE>
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.
73
<PAGE>
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).
74
<PAGE>
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.
75
<PAGE>
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
76
<PAGE>
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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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 Norwest Bank
Minnesota, N.A.
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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 (332,989 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 purchase from the Company and the
Selling Stockholders 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 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 Public Offers of Securities Regulations 1995 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 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 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 exceptions, 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
86
<PAGE>
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 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 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 such 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 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).
87
<PAGE>
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.
88
<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.
89
<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 15)
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 28, 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
DISCOUNTS AND PROCEEDS TO SELLING
PRICE 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>
[RECREATIONAL PHOTOGRAPH TO BE INCLUDED ON BACK COVER PAGE]
<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.............................. 131,601
Printing......................................................... 800,000
Legal Fees and Expenses.......................................... 1,100,000
Accounting Fees and Expenses..................................... 850,000
Blue Sky Fees and Expenses....................................... 10,000
Stock Certificates and Transfer Agent Fees....................... 20,000
Miscellaneous.................................................... 509,263
----------
Total.......................................................... $3,500,000
==========
</TABLE>
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 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).
10.7(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).
10.7(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).
10.8(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).
10.8(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).
10.9 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).
10.10(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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.10(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).
10.10(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).
10.10(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).
10.10(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.**
10.10(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.**
10.10(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.**
10.11(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).
10.11(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).
10.11(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).
10.11(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).
10.12 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).
10.13 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).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.14 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).
10.15 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).
10.16 Employment Agreement dated July 29, 1996 between the Company and Adam
M. Aron.**
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 1996 Stock Option Plan.**
10.22 Agreement dated October 11, 1996 between Vail Resorts, Inc. and George
N. Gillett.**
13.1 Annual Report on Form 10-K for the year ended September 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).
Powers of Attorney (set forth on the signature page of the
24.1 Registration Statement).
</TABLE>
- --------
**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 28, 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 28, 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 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).
10.7(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).
10.7(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).
10.8(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).
10.8(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).
10.9 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>
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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
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<C> <S> <C>
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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).
10.10(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.**
10.10(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.**
10.10(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.**
10.11(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).
10.11(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>
10.11(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).
10.11(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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 Employment Agreement dated July 29, 1996 between the
Company and Adam M. Aron.**
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 1996 Stock Option Plan.**
10.22 Agreement dated October 11, 1996 between Vail Resorts,
Inc. and George N. Gillett.**
13.1 Annual Report on Form 10-K for the year ended
September 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.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE NUMBER
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<S> <C> <C>
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>
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**Previously filed.
<PAGE>
EXHIBIT 1.1
8,400,000 SHARES OF COMMON STOCK
VAIL RESORTS, INC.
U.S. UNDERWRITING AGREEMENT
---------------------------
FEBRUARY __, 1997
BEAR, STEARNS & CO. INC.
FURMAN SELZ LLC
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
as Representatives of the
several U.S. Underwriters named
in Schedule I hereto
----------
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
Vail Resorts, Inc., a Delaware corporation (the "Company"), and
each of the selling stockholders listed on Schedule II hereto (the "Selling
-----------
Stockholders"), hereby confirm their respective agreements with you as follows:
1. U.S. UNDERWRITERS. The term "U.S. Underwriters", as used herein,
refers collectively to you and the other underwriters named in Schedule I
----------
hereto, for whom you are acting as representatives. Except as may be expressly
set forth below, any reference to you in this Agreement shall be solely in your
capacity as representatives of the U.S. Underwriters, and the Company and the
Selling Stockholders shall be entitled to act and rely upon any statement,
request, notice, consent, waiver or agreement purportedly on behalf of any U.S.
Underwriter made or given by Bear, Stearns & Co. Inc. ("Bear, Stearns").
2. DESCRIPTION OF STOCK.
(a) The Company and the Selling Stockholders propose to sell to the U.S.
Underwriters an aggregate of 8,400,000 shares (the "Firm U.S. Shares") of
Common Stock, par value $.01 per share (the "Common Stock"), of the
Company, upon the terms and subject to the conditions set forth herein. Of the
Firm U.S. Shares, 4,000,000 are to be issued and sold by the Company and
4,400,000 in the aggregate are to be sold severally by the Selling
Stockholders. The Selling Stockholders also propose to grant to the U.S.
<PAGE>
Underwriters the option to purchase, for the sole purpose of covering
over-allotments in connection with the sale of the Firm U.S. Shares, an
aggregate of up to 1,260,000 additional shares (the "Additional U.S.
Shares") of Common Stock upon the terms and subject to the conditions set forth
herein and for the purposes set forth in Section 5(d)-(f) hereof. The Firm
U.S. Shares and the Additional U.S. Shares are hereinafter referred to
collectively as the "U.S. Shares."
(b) It is understood and agreed to by all the parties that the Company
and each of the Selling Stockholders are concurrently entering into an
agreement (the "International Underwriting Agreement") providing for the sale
by the Company and the Selling Stockholders of an aggregate of 2,100,000 shares
(the "Firm International Shares") of Common Stock through arrangements with
certain underwriters outside the United States and Canada (the "Managers"),
for which Bear, Stearns International Limited, Furman Selz, Goldman Sachs
International, Salomon Brothers International Limited, Schroders and Smith
Barney Inc. are acting as representatives. Of the Firm International Shares,
1,000,000 are to be issued and sold by the Company and 1,100,000 in the
aggregate are to be sold severally by the Selling Stockholders. The Selling
Stockholders also propose to grant to the Managers the option to purchase,
for the sole purpose of covering over-allotments in connection with the sale of
the Firm International Shares, up to an aggregate of 315,000 additional shares
(the "Additional International Shares") of Common Stock. The Firm
International Shares and the Additional International Shares are collectively
referred to herein as the "International Shares," the U.S. Shares and the
International Shares are collectively referred to herein as the "Shares" and
this Agreement and the International Underwriting Agreement are collectively
referred to herein as the "Underwriting Agreements." Two forms of prospectus
are to be used in connection with the offering and sale of the Shares
contemplated by the foregoing, one relating to the U.S. Shares and the other
relating to the International Shares. The latter form of prospectus will be
identical to the former except for certain substitute pages as included in the
registration statement and amendments thereto as mentioned below. Except as
the context otherwise may require, references hereinafter to any prospectus,
whether in preliminary or final form and whether as amended or supplemented,
shall include the U.S. and the international versions thereof.
(c) It is also understood and agreed to by all the parties that the U.S.
Underwriters have entered into an agreement with the Managers (the "Agreement
Between U.S. Underwriters and Managers") contemplating the coordination of
certain transactions between the U.S. Underwriters and the Managers and that,
pursuant thereto and subject to the conditions set forth therein, the U.S.
Underwriters may (i) purchase from the Managers a portion of the International
Shares to be sold to the Managers pursuant to the International Underwriting
Agreement or (ii) sell to the Managers a portion of the U.S. Shares to be sold
to the U.S. Underwriters pursuant to this Agreement. The Company and the
Selling Stockholders also understand that any such purchases and sales between
the U.S. Underwriters and the Managers shall be governed by the Agreement
Between U.S. Underwriters and Managers and shall not be governed by the terms
of this Agreement.
-2-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each U.S. Underwriter that:
(a) The Company meets the requirements for the use of a Registration
Statement on Form S-2 under the Securities Act of 1933, as amended (the "Act"),
and has prepared and filed with the Securities and Exchange Commission (the
"Commission"), pursuant to the Act and the rules and regulations promulgated by
the Commission thereunder (the "Regulations"), a registration statement on Form
S-2 (File No. 333-5341) relating to the Shares and may have filed one or more
amendments thereto, including in each case preliminary prospectuses relating to
the offerings of the Shares. The Company next proposes to file with the
Commission a further amendment to the registration statement, including therein
a final prospectus, necessary to permit the registration statement to become
effective or, if no amendment is required for that purpose, then promptly
following the effectiveness of the registration statement, the Company proposes
to file with the Commission, in accordance with Rules 430A and 424(b)(1) or
Rule 424(b)(4) of the Regulations, final prospectuses with respect to the
offerings of the Shares, the final prospectus so filed in either case to
include all Rule 430A Information (as hereinafter defined) and to conform, in
content and form, to the last printer's proof thereof furnished to and approved
by you immediately prior to such filing.
As used in this Agreement, (i) "Effective Date" means the date that the
registration statement hereinabove referred to, or the most recent
post-effective amendment thereto, if any, is declared effective by the
Commission, (ii) "Registration Statement" means such registration statement as
last amended prior to the time the same was declared effective by the
Commission, including all exhibits and schedules thereto and all Rule 430A
Information deemed to be included therein at the Effective Date pursuant to
Rule 430A of the Regulations, (iii) "Rule 430A Information" means information
with respect to the Shares and the public offerings thereof permitted, pursuant
to the provisions of paragraph (a) of Rule 430A of the Regulations, to be
omitted from the form of prospectus included in the Registration Statement at
the time it is declared effective by the Commission, (iv) "U.S. Prospectus"
means the form of final prospectus relating to the U.S. Shares first filed with
the Commission pursuant to Rule 424(b) of the Regulations or, if no filing
pursuant to Rule 424(b) is required, the form of final prospectus included in
the Registration Statement at the Effective Date, (v) "International
Prospectus" means the form of final prospectus relating to the International
Shares first filed with the Commission pursuant to Rule 424(b) of the
Regulations or, if no filing pursuant to Rule 424(b) is required, the form of
final prospectus included in the Registration Statement at the Effective Date
(the U.S. Prospectus and the International Prospectus are referred to
collectively as the "Prospectuses") and (vi) "Preliminary Prospectus" means any
preliminary prospectus (as described in Rule 430 of the Regulations) with
respect to the Shares that omits Rule 430A Information and shall be deemed to
refer to and include the documents incorporated by reference therein pursuant
to Item 12 of Form S-2 which were filed under the Securities and Exchange Act
of 1934, as amended (the "Exchange Act"), on or before the Effective Date of
the Registration Statement, the date of such preliminary prospectus or the date
of the Prospectus, as the case
-3-
<PAGE>
may be, and any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include (i) the
filing of any document under the Exchange Act after the Effective Date of the
Registration Statement, the date of such preliminary prospectus or the date of
the Prospectuses, as the case may be, which is incorporated therein by
reference and (ii) any such document so filed.
(b) The Registration Statement conforms, and on the Effective Date will
conform, and the Prospectuses on the date thereof and on the date first filed
with the Commission pursuant to Rule 424(b) of the Regulations (if required)
will conform, in all material respects with the applicable requirements of the
Act and the Regulations. On the Effective Date, the date the Prospectuses are
first filed with the Commission pursuant to Rule 424(b) of the Regulations (if
required), at all times subsequent thereto to and including the Closing Date
(as defined in Section 5(b) hereof) and, if later, the Additional Closing Date
(as defined in Section 5(e) hereof), when any post-effective amendment to the
Registration Statement becomes effective or any supplement to the Prospectuses
is filed with the Commission, and during such longer period as the Prospectuses
may require to be delivered in connection with sales of Shares by the U.S.
Underwriters, the Managers or a dealer, the Registration Statement and the
Prospectuses (as amended or supplemented if the Company shall have filed with
the Commission an amendment or supplement thereto) did not and will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein (in the case of the Prospectuses, in light of the circumstances under
which they were made) not misleading. No order preventing or suspending the
use of any Preliminary Prospectus has been issued by the Commission, and when
any Preliminary Prospectus was first filed with the Commission (whether filed
as part of the Registration Statement or an amendment thereof or pursuant to
Rule 424(a) of the Regulations) and when any amendment thereof or supplement
thereto was first filed with the Commission, such Preliminary Prospectus and
any amendments thereof and supplements thereto conformed in all material
respects with the applicable requirements of the Act and the Regulations
thereunder and did not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. No representation and warranty, however, is made in
this subsection 3(b) by the Company with respect to written information
contained in or omitted from the Registration Statement, the Prospectuses, any
Preliminary Prospectus, or any amendment or supplement in reliance upon and in
conformity with written information with respect to the U.S. Underwriters and
the Managers and the plan of distribution of the Shares furnished to the
Company on your behalf by Bear, Stearns expressly for use in connection with
the preparation thereof.
(c) Each contract, agreement, instrument, lease, license or other item
required to be described in the Registration Statement or the Prospectuses or
filed as an exhibit to the Registration Statement has been so described or
filed, as the case may be.
-4-
<PAGE>
(d) Arthur Andersen LLP and Ernst & Young, LLP, with respect to the
Company, and Price Waterhouse LLP, with respect to Ralston Resorts, Inc., are
independent public accountants with respect to the Company and Ralston Resorts,
Inc., respectively, as required by and within the meaning of the Act and the
Regulations. The consolidated financial statements (including the related
notes) of the Company, its consolidated subsidiaries, and Ralston Resorts, Inc.
(the "Company Financials"), included in the Registration Statement or any
Preliminary Prospectus, or to be included in the Prospectuses, fairly present
the consolidated financial position, results of operations and cash flows of
the Company, its consolidated subsidiaries and Ralston Resorts, Inc., and the
other information purported to be shown therein at the respective dates and for
the respective periods to which they apply. The Company Financials have been
prepared in accordance with generally accepted accounting principles as in
effect in the United States ("US GAAP") consistently applied throughout the
periods involved, and are, in all material respects, in accordance with the
books and records of the Company, its consolidated subsidiaries and Ralston
Resorts, Inc., as the case may be. The "pro forma" and "pro forma as adjusted"
financial information included in the Registration Statement or any Preliminary
Prospectus, or to be included in the Prospectuses, fairly present the
information purported to be shown therein at the respective dates thereof and
for the respective periods covered thereby and all adjustments have been
properly applied. No other financial statements are required by Form S-2 or
otherwise to be included in the Registration Statement or the Prospectuses
other than those included therein.
(e) Subsequent to the respective dates as of which information is given
in the Registration Statement, except as set forth in the Registration
Statement or as may be set forth in the Prospectuses, there has not been any
material adverse change in the business, properties, operations, condition
(financial or other) or results of operations of the Company and the
subsidiaries (as defined below) taken as a whole, whether or not arising from
transactions in the ordinary course of business, and since the date of the
latest balance sheet of the Company included in the Registration Statement, and
except as described in the Registration Statement or as may be described in the
Prospectuses, (i) neither the Company nor any subsidiary (A) has incurred or
undertaken any liabilities or obligations, direct or contingent, that are,
individually or in the aggregate, material to the Company and the subsidiaries
taken as a whole, or (B) entered into any transaction not in the ordinary
course of business that is material to the Company and the subsidiaries taken
as a whole; and (ii) the Company has not declared or paid any dividend on or
made any distribution of or with respect to any shares of its capital stock or
redeemed, purchased or otherwise acquired or agreed to redeem, purchase or
otherwise acquire any shares of its or its subsidiaries' capital stock. As
used in this Agreement, the term "subsidiary" means any corporation,
partnership, joint venture, association, company, business trust or other
entity in which the Company directly or indirectly (x) beneficially owns or
controls at least 50% of the outstanding voting securities having by the terms
thereof ordinary voting power to elect a majority of the board of directors (or
other body fulfilling a substantially similar function) of such entity
(irrespective of whether or not at the time any class or classes of such voting
securities shall have or might have voting power by reason of the happening of
any contingency) or (y) has the authority or ability to control the policies of
such entity (including, but without limitation
-5-
<PAGE>
thereto, any partnership of which the Company or a subsidiary is a general
partner or owns or has the right to obtain a majority of limited partnership
interests and any joint venture in which the Company or a subsidiary has
liability similar to the liability of a general partner of a partnership or
owns or has the right to obtain at least 50% of the joint venture interests);
provided however, that for the purposes of any representations and
- -------- -------
warranties made in this Agreement, the term "subsidiaries" shall include
Keystone/Intrawest LLC and Slifer, Smith & Frampton/Vail Associates Real
Estate, L.L.C. only to the extent of the Company's best knowledge, after due
inquiry; and, provided further, that, for the purposes of any
-------- -------
representations and warranties made in this Agreement, the term "subsidiaries"
shall exclude Avon Partners II, Limited Liability Company, Ski The Summit and
Clinton Ditch & Reservoir.
(f) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under each of the Underwriting
Agreements and to issue, sell and deliver the Shares in accordance with the
terms and conditions thereof. Each of the Underwriting Agreements has been
duly and validly authorized, executed and delivered by the Company and is a
legal and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to (i) bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws now or hereafter in effect
relating to creditors rights generally and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding at law
or in equity except insofar as rights to indemnification and contribution
contained herein may be limited by federal or state securities laws or related
public policy.
(g) The Company's execution and delivery of, and its performance of its
obligations under, the Underwriting Agreements and the consummation of the
transactions contemplated thereby, will not (i) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default under (or
an event that with notice or lapse of time, or both, would constitute a default
under) or require approval or consent under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any subsidiary pursuant to the terms of any agreement, contract,
indenture, mortgage, lease, license, arrangement or understanding to which the
Company or a subsidiary is a party, or to which any of its properties is
subject, that is material to the Company and the subsidiaries taken as a whole
(hereafter, collectively, "Material Contracts"), or any governmental franchise,
license or permit heretofore issued to the Company or any subsidiary that is
material to the Company and the subsidiaries taken as a whole (hereafter,
collectively, "Material Permits"), (ii) violate or conflict with any provision
of the certificate of incorporation, by-laws or similar governing instruments
of the Company or any subsidiary listed on Schedule III hereto (the
------------
"Material Subsidiaries") or (iii) violate or conflict with any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any Material Subsidiary or any of its respective properties or assets,
except for those violations or conflicts, that, individually or in the
aggregate, would not have a material adverse effect on the Company and the
subsidiaries taken as a whole (hereafter, a "Material Adverse Effect").
-6-
<PAGE>
(h) No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any subsidiary or any of its respective properties or assets is required for
the Company's execution and delivery of, and its performance of its obligations
under, the Underwriting Agreements, and the consummation of the transactions
contemplated thereby, except the registration of the Shares under the Act and
the Exchange Act, the authorization of the Shares for inclusion in the New
York Stock Exchange ("NYSE") and such filings and registrations as may be
required under state securities or "Blue Sky" laws and the securities laws of
foreign jurisdictions in connection with the purchase and distribution of the
Shares by the U.S. Underwriters and the Managers.
(i) All of the currently outstanding shares of capital stock of the
Company, and all of the outstanding shares of capital stock (or similar
interests) of each of the subsidiaries of the Company have been duly and
validly authorized and issued, are fully paid and nonassessable and were not
issued in violation of or subject to any preemptive rights. The shares of
Common Stock and Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"), of the Company to be outstanding on the Closing Date have been
duly authorized and, when issued, will be validly issued, fully paid and
nonassessable, and will not have been issued in violation of or be subject to
any preemptive rights. The Shares have been duly authorized and, when issued,
delivered and sold in accordance with the terms of the Underwriting Agreements,
will be validly issued, fully paid and nonassessable, and will not have been
issued in violation of or be subject to any preemptive rights, and the Managers
and the U.S. Underwriters will receive valid title to those of the Shares to be
purchased by them from the Company, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements and voting
trusts. The Company has, as of the date hereof, and will have, as of the
Closing Date and the Additional Closing Date, if any, an authorized and
outstanding capitalization as set forth in the Registration Statement and as
shall be set forth in the Prospectuses, both on an historical basis and as
adjusted to give effect to the offering of the Shares. The Company's capital
stock conforms in all material respects to the description thereof set forth in
the Registration Statement and as shall be set forth in the Prospectuses. The
Company owns directly or indirectly such percentage of the outstanding capital
stock (or similar interests) of each of its subsidiaries as is set forth
opposite the name of such subsidiary in Schedule IV hereto, free and clear
-----------
of all claims, liens, security interests, pledges, charges, encumbrances,
stockholders agreements and voting trusts, except as otherwise described in
said Schedule IV.
-----------
(j) There is no commitment, plan or arrangement to issue, and no
outstanding option, warrant or other right calling for the issuance of, any
shares of capital stock (or similar interests) of the Company or of any
subsidiary or any security or other instrument that by its terms is convertible
into, exchangeable for or evidencing the right to purchase capital stock (or
similar interests) of the Company or such subsidiary, except as described in
the Registration Statement and as shall be described in the Prospectuses.
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(k) The Company has no subsidiaries other than those listed in
Schedule IV hereto. Each of the Company and the Material Subsidiaries has
- -----------
been duly organized and is validly existing as a corporation in good standing
under the laws of its jurisdictions of incorporation. Each of the Company and
the Material Subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so
qualified or in good standing that will not in the aggregate have a Material
Adverse Effect. Each of the Company and the Material Subsidiaries has all
requisite corporate power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits of and from all public, regulatory or governmental agencies and bodies,
to own, lease and operate its properties and conduct its business as now being
conducted and as described in the Registration Statement and as shall be
described in the Prospectuses (except for those the absence of which,
individually or in the aggregate, would not have a Material Adverse Effect).
Neither the Company nor any of the Material Subsidiaries has received any
notice of proceedings relating to revocation or modification of any such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses or permits.
(l) Neither the Company nor any subsidiary is in violation or breach of,
or in default under (nor has an event occurred that with notice, lapse of time
or both, would constitute a default under) any Material Contract, and each
Material Contract is in full force and effect, and is the legal, valid, and
binding obligation of the Company or such subsidiary, as the case may be, and
(subject to applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) is enforceable as to the Company
or such subsidiary, as the case may be, in accordance with its terms, subject
to such exceptions as, individually or in the aggregate, do not have and are
not reasonably likely to have a Material Adverse Effect. Neither the Company
nor any Material Subsidiary is in violation of its certificate of
incorporation, by-laws or similar governing instrument.
(m) There is no litigation, arbitration, claim, governmental or other
proceeding or investigation pending or, to the best knowledge of the Company,
threatened in writing with respect to the Company or any subsidiary, or any of
its respective operations, businesses, properties or assets, except as
described in the Registration Statement and as shall be described in the
Prospectuses, that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Material Subsidiary is, or, to the best knowledge of the Company, with the
giving of notice or lapse of time or both would be, in violation of or
non-compliance with the requirements of any Material Permit or the provisions
of any law, rule, regulation, order, judgment or decree, including, but without
limitation thereto, all applicable federal, state and local laws and
regulations relating to (i) zoning, land use, protection of the environment,
human health and safety or hazardous or toxic substances, wastes, pollutants or
contaminants and (ii) employee or occupational safety, discrimination in
hiring, promotion or pay of employees, employee hours and wages or employee
benefits, except for such violations or failures of compliance that,
individually or in the aggregate, would not have a Material Adverse Effect.
-8-
<PAGE>
(n) Except as described in the Registration Statement and as shall be
described in the Prospectuses, the Company and each subsidiary have (i) good
and marketable title to all real and personal properties owned by them, free
and clear of all liens, security interests, pledges, charges, encumbrances, and
mortgages, and (ii) valid, subsisting and enforceable leases for all real and
personal properties leased by them, in each case, subject to such exceptions
as, individually or in the aggregate, do not have and are not reasonably likely
to have a Material Adverse Effect. Except as disclosed in the Registration
Statement, no real property owned, leased, licensed or used by the Company or
by a Material Subsidiary lies in an area that is, or to the best knowledge of
the Company will be, subject to zoning, use, or building code restrictions that
would prohibit or prevent the continued effective ownership, leasing,
licensing, or use of such real property in the business of the Company or such
Material Subsidiary as presently conducted or as the Prospectuses indicate are
contemplated to be conducted, subject to such exceptions as, individually or in
the aggregate, do not have and are not reasonably likely to have a Material
Adverse Effect. The Company will have the opportunity to lease any commercial
space created by the Keystone JV (as defined in the Prospectuses).
(o) The Company, directly or through one or more of the subsidiaries,
owns or possesses all patents, patent rights, licenses, inventions, copyrights,
trademarks, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
service marks and trade names (collectively, "Intellectual Property") necessary
to conduct its business as now conducted and proposed to be conducted as
disclosed in the Registration Statement and as shall be disclosed in the
Prospectuses, except where the failure to own or possess such Intellectual
Property, individually or in the aggregate, would not have a Material Adverse
Effect. Neither the Company nor any subsidiary has received notice of
infringement of or conflict with the asserted rights of others with respect to
any Intellectual Property, except for those which would not have a Material
Adverse Effect. To the best actual knowledge of the Company's senior
management (no duty of inquiry being implied), there is no infringement by
others of any Intellectual Property of the Company or any subsidiary that has
had or may in the future have a Material Adverse Effect. Except as set forth
on Schedule V hereto, the Company or a predecessor has registered, and the
----------
Company or a subsidiary owns the rights to all registrations of the rights to
the trademark and related logo for each of "Vail" and "Beaver Creek" in all
jurisdictions in which the failure to so register or to so own such rights to
such registrations would, individually or in the aggregate, have a Material
Adverse Effect.
(p) To the Company's best knowledge, neither the Company nor any
subsidiary, nor any director, officer or employee of the Company or any
subsidiary has, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity, made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds, violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment.
-9-
<PAGE>
(q) Except as set forth in Schedule VI hereto, no person or entity
-----------
has the right, by contract or otherwise, to require registration under the Act
of shares of capital stock or other securities of the Company or any subsidiary
solely because of the filing or effectiveness of the Registration Statement and
the consummation of the transactions contemplated by the Underwriting
Agreements, except for such rights as have been legally and effectively waived.
(r) Neither the Company nor any of its affiliates (as defined in the
Regulations) has taken or will take, directly or indirectly, prior to the
termination of the offerings of the Shares contemplated by the Underwriting
Agreements, any action designed to stabilize or manipulate the price of the
Common Stock, or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock.
(s) Neither the Company nor any subsidiary is, or intends to conduct its
business in such a manner that it would become, an "investment company" or a
company "controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act").
(t) The documents incorporated by reference or deemed to be incorporated
by reference in the Prospectuses, at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission under the Exchange Act, and, when read together with the other
information in the Prospectuses, at the time the Registration Statement, and
any amendments thereto, become effective and at the Closing Date, or Additional
Closing Date, will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(u) Except as may be set forth in the Prospectuses, the Company has not
incurred any liability for a fee, commission, or other compensation on account
of the employment of a broker or finder in connection with the transactions
contemplated by the Underwriting Agreements.
(v) Other than as disclosed in the Registration Statement and as shall
be disclosed in the Prospectuses, no labor dispute with the employees of the
Company or any subsidiary exists or, to the best knowledge of the Company, is
imminent that, individually or in the aggregate, is or is reasonably likely to
have a Material Adverse Effect.
(w) (i) All United States Federal income tax returns of the Company and
each subsidiary required by law to be filed have been filed and all taxes shown
by such returns or otherwise assessed that are due and payable have been paid,
except assessments against which appeals have been or will be promptly taken
and (ii) the Company and the subsidiaries have filed all other tax returns that
are required to have been filed by them pursuant to the applicable laws of all
other jurisdictions, except, as to each of the foregoing clauses (i) and (ii),
insofar as the failure to file such returns, individually or in the aggregate,
would not
-10-
<PAGE>
have a Material Adverse Effect, and the Company and the subsidiaries have paid
all taxes due pursuant to said returns or pursuant to any assessment received
by the Company or any subsidiary, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been provided in
accordance with US GAAP. The charges, accruals and reserves on the
consolidated books of the Company in respect of any tax liability for any years
not finally determined are adequate to meet any assessments or re-assessments
for additional tax for any years not finally determined, except to the extent
of any inadequacy that would not have a Material Adverse Effect.
(x) The Company and each subsidiary is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company and the
subsidiaries are engaged.
(y) Except as disclosed in or incorporated by reference into, the
Registration Statement and as shall be disclosed or incorporated by reference
into the Prospectuses, there are no business relationships or related party
transactions of the nature described in Item 404 of Regulation S-K of the
Commission involving the Company or any other persons referred to in such Item
404, except for such transactions that would be considered immaterial under
such Item 404.
(z) The Company has obtained and delivered to you a written undertaking
from (i) each of its directors, officers and principal stockholders and (ii)
any Directed Share Purchaser (as defined herein) who purchases 10,000 or more
Directed Shares (as defined herein), that, for a period of 180 days after the
date of this Agreement, without the prior written consent of Bear, Stearns &
Co. Inc., such person will not, 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 or other disposition of) any shares of Common
Stock, Class A Common Stock or any other shares of capital stock of the
Company, or any securities convertible into or exercisable or exchangeable for,
or warrants, options or rights to purchase or acquire, shares of Common Stock,
Class A Common Stock or any other shares of capital stock of the Company, or
any interest in the Common Stock or Class A Common Stock (including derivative
interests).
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders, with respect to itself only and severally and not
jointly, represents and warrants to, and agrees with each U.S.
Underwriter that:
(a) If such Selling Stockholder is a corporation, partnership or limited
liability company, such Selling Stockholder has been duly organized and is
validly existing as a corporation, partnership or limited liability company, as
the case may be, in good standing under the laws of its jurisdiction of
organization.
(b) Such Selling Stockholder is the sole owner of the Shares set forth
opposite its name on Schedule II hereto. Except for the security interests
-----------
described in Schedule VII
------------
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<PAGE>
hereto (which schedule also sets forth a description of the obligation secured
and the identity of the lender(s)), such Selling Stockholder holds such Shares
free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts. Each U.S.
Underwriter and Manager will receive valid title to such Shares, free and clear
of all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts except for those that have been created by such
U.S. Underwriter or Manager. On the Closing Date, each Selling Stockholder
whose Shares are subject to a security interest on the date hereof agrees to
deliver such Shares to the U.S. Underwriters and Managers together with a
written acknowledgment from the pledgee satisfactory to Bear, Stearns that such
Shares are no longer subject to such security interest.
(c) There is no commitment, plan or arrangement to transfer, and no
outstanding option, warrant or other right calling for the transfer of, any of
the Shares to be sold by such Selling Stockholder to the U.S. Underwriters or
to the Managers pursuant to the Underwriting Agreements.
(d) Each of the Underwriting Agreements has been duly and validly
executed and delivered by such Selling Stockholder and is a legal and binding
obligation of such Selling Stockholder, enforceable against such Selling
Stockholder in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity), and except insofar
as rights to indemnification and contribution contained herein may be limited
by federal or state securities laws or related public policy.
(e) The execution, delivery and performance by such Selling Stockholder
of the Underwriting Agreements, and the consummation of the transactions
contemplated thereby, will not (i) conflict with or result in a breach of
any of the terms and provisions of, or constitute a default under (or an event
that with notice or lapse of time, or both, would constitute a default under)
or require approval or consent under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of such Selling
Stockholder pursuant to the terms of any agreement, contract, indenture,
mortgage, lease, license, arrangement or understanding to which such Selling
Stockholder is a party, or to which any of its properties is subject or (ii)
violate or conflict with any provision of the certificate of incorporation,
by-laws or similar governing instruments of such Selling Stockholder or any
judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body having jurisdiction over such
Selling Stockholder or any of its properties or assets.
(f) No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over such Selling
Stockholder or any of its properties or assets is
-12-
<PAGE>
required for such Selling Stockholder's execution and delivery of, and
performance of its obligation under, the Underwriting Agreements, and the
consummation of the transactions contemplated thereby except the registration
of the Shares under the Act and the Exchange Act, the authorization of the
Shares for inclusion in the New York Stock Exchange ("NYSE") and such filings
and registrations as may be required under state securities or "Blue Sky" laws
and the securities laws of foreign jurisdictions in connection with the
purchase and distribution of the Shares by the U.S. Underwriters and the
Managers.
(g) To the extent that any statements or omissions are made in the
Registration Statement, the Prospectuses or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder specifically for use therein, on the
Effective Date, the date the Prospectuses are first filed with the Commission
pursuant to Rule 424(b) of the Regulations (if required), at all times
subsequent thereto, to and including the Closing Date, when any post-effective
amendment to the Registration Statement becomes effective or any supplement to
the Prospectuses is filed with the Commission, and during such longer period as
the Prospectuses may require to be delivered in connection with sales of Shares
by the U.S. Underwriters, the Managers or a dealer, the Registration Statement
and the Prospectuses (as amended or supplemented if the Company shall have
filed with the Commission an amendment or supplement thereto) did not and will
not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein (in the case of the Prospectuses, in light of the
circumstances under which they were made) not misleading. Such Selling
Stockholder has reviewed the most recent Preliminary Prospectuses, the
Prospectuses (if the same shall be in existence) and the Registration
Statement, and the information regarding such Selling Stockholder set forth
therein under the caption "Principal and Selling Stockholders" is complete and
accurate in all material respects. From the Effective Date through the Closing
Date, such Selling Stockholder will promptly advise Bear, Stearns in writing if
and to the extent that such information does not conform with the requirements
of the Act and the Regulations or contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements made therein (in the case of the
Prospectuses, in light of the circumstances under which they were made) not
misleading.
(h) Such Selling Stockholder has not taken, directly or indirectly, any
action designed to stabilize or manipulate the price of the Common Stock, or
that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock in violation of Regulation M,
Rule 10b-6 and 10b-7 promulgated under the Exchange Act or any other applicable
securities law or regulation.
5. PURCHASE, SALE AND DELIVERY OF THE U.S. SHARES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each of the U.S. Underwriters an
aggregate of 4,000,000 shares of Common
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<PAGE>
Stock, and the Selling Stockholders severally and not jointly, agree to sell to
the U.S. Underwriters an aggregate of 4,400,000 shares of Common Stock (each
such Selling Stockholder to sell the number of Shares set forth opposite its
name in Schedule II hereto under the caption "Number of Firm U.S. Shares to
-----------
be Sold"), and each U.S. Underwriter agrees, severally and not jointly, to
purchase from the Company and the Selling Stockholders, the number of Firm U.S.
Shares set forth opposite the name of such U.S. Underwriter in Schedule I
----------
hereto, all at a purchase price per share of [$_____] (the "Purchase
Price"). The number of Firm U.S. Shares to be purchased from the Company and
the Selling Stockholders by each U.S. Underwriter (as adjusted by Bear, Stearns
to eliminate fractions) shall be determined by multiplying the aggregate number
of Firm U.S. Shares to be sold by the Company or the Selling Stockholders, as
the case may be, as set forth above by a fraction (A) the numerator of which is
the total number of Firm U.S. Shares set forth opposite the name of such U.S.
Underwriter in Schedule I hereto and (B) the denominator of which is the
----------
total number of Firm U.S. Shares.
(b) Delivery of the Firm U.S. Shares and payment of the Purchase Price
therefor shall be made at the offices of Bear, Stearns & Co. Inc. at 245 Park
Avenue, New York, New York 10167, or such other location in the New York City
metropolitan area as Bear, Stearns shall determine and advise the Company and
the Selling Stockholders upon at least two full business days' (as defined in
Section 20 hereof) notice in writing. Such delivery and payment shall be made
at 10:00 A.M., New York City time, on the third full business day following the
determination of the Purchase Price, or at such other time as may be agreed
upon by Bear, Stearns, the Company and the Selling Stockholders. The time and
date of such delivery and payment are herein called the "Closing Date."
Delivery of the Firm U.S. Shares shall be made to or upon the order of Bear,
Stearns, for the respective accounts of the U.S. Underwriters, against payment
to the Company or the Selling Stockholders, as the case may be, of the
aggregate Purchase Price therefor by wire transfer of same day funds to the
Company or the Selling Stockholders, as the case may be.
(c) Certificates for the Firm U.S. Shares shall be registered in such
name or names and in such authorized denominations as Bear, Stearns may request
in writing at least two full business days prior to the Closing Date, provided
that, if so specified by Bear, Stearns, the Firm U.S. Shares may be represented
by a global certificate registered in the name of Cede & Co. ("Cede"), as
nominee of the Depositary Trust Company. Bear, Stearns shall be permitted to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date, unless the Firm U.S. Shares are to be
represented by a global certificate.
(d) The Selling Stockholders hereby grant to the U.S. Underwriters an
option (the "U.S. Option") to purchase from the Selling Stockholders the
Additional U.S. Shares at the Purchase Price, for the sole purpose of covering
over-allotments in the offering of the Firm U.S. Shares by the U.S.
Underwriters. The U.S. Option shall be exercisable by the U.S. Underwriters on
one occasion only, at any time before the expiration of 30 days from the date
of the U.S. Prospectus, for the purchase of all or part of the Additional U.S.
Shares,
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<PAGE>
such exercise to be made by notice, given by Bear, Stearns to the Selling
Stockholders in the manner specified in Section 16 hereof, which notice shall
set forth the aggregate number of Additional U.S. Shares with respect to which
the U.S. Option is being exercised, the denominations and the name or names in
which certificates evidencing the Additional U.S. Shares so purchased are to be
registered, and the date and time of delivery of such Additional U.S. Shares,
which date may be at or subsequent to the Closing Date and shall not be less
than two nor more than ten days after such notice. The aggregate number of
Additional U.S. Shares to be sold by each Selling Stockholder shall be as set
forth in Schedule II hereto. The aggregate number of Additional U.S.
-----------
Shares so purchased from the Selling Stockholders by each U.S. Underwriter (as
adjusted by Bear, Stearns to eliminate fractions) shall be determined by
multiplying the total number of such Additional U.S. Shares to be purchased by
the U.S. Underwriters by a fraction, (A) the numerator of which is the number
of Firm U.S. Shares set forth opposite the name of such U.S. Underwriter in
Schedule I hereto and (B) the denominator of which is the total number of
- ----------
Firm U.S. Shares. The Company agrees to take all reasonable actions necessary
or desirable to facilitate the exercise of the U.S. Option by the U.S.
Underwriters.
(e) Delivery of the Additional U.S. Shares so purchased and payment of
the Purchase Price therefor shall be made at the offices of Bear, Stearns & Co.
Inc. at 245 Park Avenue, New York, New York 10167, or such other location in
the New York City metropolitan area as Bear, Stearns shall determine and advise
the Selling Stockholders as provided in Section 16 hereof upon at least two
full business days' notice in writing. Such delivery and payment shall be made
at 10:00 A.M., New York City time, on the date designated in such notice or at
such other time and date as may be agreed upon by Bear, Stearns and the Selling
Stockholders. The time and date of such delivery and payment are herein called
the "Additional Closing Date." Delivery of the Additional U.S. Shares shall be
made to or upon the order of Bear, Stearns, for the respective accounts of the
U.S. Underwriters, against payment to the Selling Stockholders of the aggregate
Purchase Price therefor by wire transfer of same day funds to the Selling
Stockholders.
(f) Certificates for the Additional U.S. Shares purchased by the U.S.
Underwriters, when so delivered, shall be registered in such name or names and
in such authorized denominations as Bear, Stearns shall have requested in the
notice of exercise of the U.S. Option, provided that, if so specified therein,
such Additional U.S. Shares may be represented by a global certificate
registered in the name of Cede. Bear, Stearns shall be permitted to
examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date, unless the Additional U.S. Shares are
to be represented by a global certificate.
(g) The U.S. Underwriters shall not be obligated to purchase any Firm
U.S. Shares from the Company or the Selling Stockholders except upon tender to
the U.S. Underwriters by the Company or the Selling Stockholders, as the case
may be, of all of the Firm U.S. Shares and the U.S. Underwriters shall not be
obligated to purchase any Additional U.S. Shares from the Selling Stockholders
except upon tender to the U.S. Underwriters by the
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<PAGE>
Selling Stockholders of all of the Additional U.S. Shares specified in the
notice of exercise of the U.S. Option. The Company or the Selling Stockholders
shall not be obligated to sell or deliver any Firm U.S. Shares or Additional
U.S. Shares, as the case may be, except upon tender of payment by the U.S.
Underwriters for all the Firm U.S. Shares or the Additional U.S. Shares, as the
case may be, agreed to be purchased by the U.S. Underwriters hereunder.
6. THE OFFERING.
(a) The Company and the Selling Stockholders have been advised by Bear,
Stearns that the U.S. Underwriters propose to make a public offering of their
respective portions of the U.S. Shares as soon after the Registration Statement
and this Agreement have become effective as in your judgment is advisable. The
Company and the Selling Stockholders have been further advised by Bear, Stearns
that the U.S. Shares are to be offered (i) to the public initially at a price
of [$_____] per share, (ii) to Directed Share Purchasers (as defined
below) at a price of [$_____] per share, (iii) to certain dealers selected
by you at a price that represents a concession not in excess of [$_____]
per share, and (iv) to any U.S. Underwriter or to certain other dealers that
any U.S. Underwriters may allow, and such dealers may reallow, a further
concession, not in excess of [$_____] per share, and that after the
initial offering of the U.S. Shares, the public offering price and such
concessions may be changed by you.
(b) It is understood by all parties that approximately 250,000 Shares
("Directed Shares") will initially be reserved by the Underwriters for offer
and sale upon the terms set forth in the Prospectuses to directors, officers,
employees and other persons associated with the Company (the "Directed Share
Purchasers") who have heretofore delivered to Bear, Stearns agreements to
purchase Directed Shares in form satisfactory to Bear, Stearns, and that any
allocation of such Directed Shares among the Directed Share Purchasers shall be
made in accordance with timely directions received by Bear, Stearns from the
Company; provided, however, that under no circumstances will Bear,
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Stearns or any other U.S. Underwriter be liable to the Company or to any of the
Directed Share Purchasers for any action taken or omitted in good faith in
connection with transactions effected with the Directed Share Purchasers. It
is further understood that any such Directed Shares that are not purchased by
Directed Share Purchasers will be offered by the U.S. Underwriters for sale to
the public upon the terms set forth in section 6(a) hereof.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees with
each U.S. Underwriter that:
(a) The Company shall use its best efforts to cause the Registration
Statement to become effective as promptly as possible and to maintain it in
effect. If the Registration Statement has become or becomes effective pursuant
to Rule 430A of the Regulations, or filing of the Prospectuses with the
Commission is otherwise required under Rule 424(b) of the Regulations, the
Company shall file the Prospectuses, properly completed, with the
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<PAGE>
Commission pursuant to Rule 424(b) of the Regulations within the time period
therein prescribed and shall provide evidence satisfactory to you of such
timely filing. The Company shall promptly advise you and confirm such advice
in writing, (i) when the Registration Statement or any post-effective amendment
thereto has become effective, (ii) of the initiation or threatening of any
proceedings for, or receipt by the Company of any notice with respect to, the
suspension of the qualification of the Shares for sale in any jurisdiction or
the issuance by the Commission of any order suspending the effectiveness of the
Registration Statement and (iii) of receipt by the Company or any
representative of or attorney for the Company of any other communications from
the Commission relating to the Company, the Registration Statement, any
Preliminary Prospectus, the Prospectuses or the transactions contemplated by
the Underwriting Agreements. The Company shall make every reasonable effort to
prevent the issuance of an order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and, if any such
order is issued, to obtain its lifting as soon as possible. The Company shall
not file any amendment to the Registration Statement or any amendment of or
supplement to the Prospectuses before or after the Effective Date to which you
shall reasonably object after being timely furnished in advance a copy thereof
unless the Company shall conclude, upon the advice of counsel, that any such
amendment must be filed at a time prior to obtaining such consent.
(b) Within the time during which the Prospectuses are required to be
delivered under the Act, the Company shall comply with all requirements imposed
upon it by the Act, as now or hereafter amended, and by the Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Shares as contemplated by the provisions hereof and
by the Prospectuses. If, during such period, any event shall occur as a result
of which the Prospectuses as then amended or supplemented include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading, or if it shall
be necessary at any time to amend the Registration Statement or supplement the
Prospectuses to comply with the Act and the Regulations, the Company shall
notify you promptly and prepare and file with the Commission an appropriate
post-effective amendment to the Registration Statement or supplement to each
Prospectus (in form and substance reasonably satisfactory to you) that will
correct such statement or omission and shall use its best efforts to have any
such post-effective amendment to the Registration Statement declared effective
as soon as possible.
(c) The Company shall promptly deliver to you two manually-signed copies
of the Registration Statement, including exhibits and all amendments thereto,
and to those persons (including your counsel) whom you identify to the Company,
such quantity of conformed copies of the Registration Statement, with exhibits,
each Preliminary Prospectus, the Prospectuses and all amendments of and
supplements to such documents, if any, as you may reasonably request.
(d) The Company shall cooperate with the U.S. Underwriters, the Managers
and Kramer, Levin, Naftalis & Frankel ("Underwriters' Counsel") in connection
with their
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efforts to qualify or register the Shares for sale under the state securities
(or "Blue Sky") or foreign laws of such jurisdictions as you shall reasonably
request, shall execute such applications and documents and furnish such
information as reasonably may be required for such purpose and shall comply
with such laws so as to continue such registrations and qualifications in
effect for so long as may be required to complete the distribution of the
Shares; provided, however, that in connection therewith the Company
-------
shall not be required to (i) qualify as a foreign corporation in any
jurisdiction in which it is not so qualified as of the date hereof, (ii) file a
consent to service of process in any jurisdiction in any action other than one
arising out of the offering or sale of the Shares in such jurisdiction or (iii)
become subject to taxation in any jurisdiction in which it is not now so
subject.
(e) The Company shall make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you, in such numbers
as you reasonably may request for distribution to the U.S. Underwriters, as
soon as practicable but in no event later than 45 days after the end of its
fiscal quarter in which the first anniversary date of the Effective Date
occurs, an earnings statement, covering a period of at least twelve consecutive
full calendar months commencing after the Effective Date, that satisfies the
provisions of Section 11(a) of the Act and Rule 158 of the Regulations.
(f) For a period of 180 days after the date of this Agreement, without
the prior written consent of Bear, Stearns, the Company shall not, 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 or other
disposition of), any shares of Common Stock or Class A Common Stock or any
other shares of capital stock of the Company, or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, shares of Common Stock, Class A Common Stock or any other
shares of capital stock of the Company, or any interest in the Common Stock or
Class A Common Stock (including derivative interests) other than (A) for
the stock split referred to in the Prospectuses, and (B) the Company's issuance
and sale of Shares in accordance with the Underwriting Agreements, and (C) the
issuance of stock options under, or the issuance of Common Stock upon the
exercise of stock options granted under, any stock option plan described in the
Prospectuses.
(g) During the five years following the Effective Date, the Company
shall furnish to Bear, Stearns, in such quantity as Bear, Stearns may
reasonably request for distribution to the U.S. Underwriters, copies of (i) all
reports to its stockholders, (ii) all reports, financial statements, and proxy
or information statements filed by the Company with the Commission, the NYSE or
any national securities exchange and (iii) such other information concerning
the Company and its affairs as Bear, Stearns may reasonably request from time
to time.
(h) The Company shall apply the proceeds from the sale of the Shares to
be sold by it under the Underwriting Agreements in the manner set forth under
"Use of Proceeds" in the Prospectuses. The Company shall take such steps as
shall be necessary to ensure that neither the Company nor any subsidiary shall
become an "investment company" or a company
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<PAGE>
"controlled" by an "investment company" within the meaning of such terms under
the Investment Company Act.
(i) The Company shall use its best efforts promptly to cause the Shares
to be included in the NYSE and shall use its best efforts to comply with the
rules and regulations of the NYSE in order to maintain the inclusion of the
Shares in the NYSE.
(j) The Company shall comply with all registration, filing and reporting
requirements of the Exchange Act and the rules and regulations thereunder,
which may from time to time be applicable to the Company, and shall timely file
with the Commission such reports on Form SR as may be required pursuant to Rule
463 of the Regulations.
(k) The Company shall comply with all provisions of all undertakings
contained in the Registration Statement.
(l) Prior to the Closing Date, the Company shall issue no press release
or other communication or hold any press conference with respect to the
offerings of the Shares, or the financial condition, results of operations,
operations, business properties, assets, liabilities, or prospects of the
Company, without your prior consent, which consent shall not be unreasonably
withheld.
8. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder,
severally and not jointly, covenants and agrees with each U.S. Underwriter
that:
(a) For a period of 180 days after the date of this Agreement, without
the prior written consent of Bear, Stearns, such Selling Stockholder shall not,
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
or other disposition) of any shares of Common Stock, Class A Common Stock or
any other shares of capital stock of the Company, or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, shares of Common Stock, Class A Common Stock or any other
shares of capital stock of the Company, or any interest in the Common Stock or
Class A Common Stock (including derivative interests) for a period of 180 days
after the date of this Agreement; provided, however, that such Selling
-------
Stockholder may transfer any or all of such securities by will or intestacy or
otherwise to an affiliate of such Selling Stockholder; provided,
--------
further that in either such case it shall be a condition to the transfer
- -------
that the transferee execute a legally binding agreement acceptable to Bear,
Stearns stating that the transferee is receiving and agrees to hold the
securities subject to the provisions of this Agreement and provided
--------
further that such Selling Stockholder may pledge any or all of such
- -------
securities which do not constitute Shares hereunder as collateral in a
bona-fide loan transaction, and the pledgee shall not be bound by the
provisions of this Section 8(a).
(b) If, within the time during which the Prospectuses are required to be
delivered under the Act, such Selling Stockholder shall believe or have any
reasonable grounds to
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believe that the Prospectuses as then amended or supplemented include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, with
respect to such Selling Stockholder, or that any of the representations of such
Selling Stockholder contained in the Underwriting Agreements are untrue, such
Selling Stockholder shall notify you and the Company promptly to such effect.
(c) Such Selling Stockholder will not take, directly or indirectly,
prior to the termination of the offering of the Shares contemplated by the
Underwriting Agreements, any action designed to stabilize or manipulate the
price of the Common Stock, or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common Stock.
(d) In order to document the U.S. Underwriters' and the Managers'
compliance with the reporting and withholding provisions of the Internal
Revenue Code of 1986, as amended, such Selling Stockholder shall deliver to you
on or prior to the Closing Date, a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department Regulations in lieu thereof).
9. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated by the Underwriting Agreements are consummated or this Agreement
is terminated, the Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company and the Selling Stockholders
(excluding the Selling Stockholders' legal fees) under the Underwriting
Agreements, including those in connection with (a) preparing, printing,
duplicating, filing and distributing the Registration Statement (including all
amendments thereof and exhibits thereto), any Preliminary Prospectus, the
Prospectuses and any supplements thereto, the Underwriting Agreements and all
related agreements, and all other documents relating to the public offering of
the Shares, (b) the issuance, transfer and delivery of the Shares to the U.S.
Underwriters and the Managers, including any transfer or other taxes payable
thereon, (c) the registration and qualification if any, of the Shares under
state securities or Blue Sky laws or the securities laws of foreign
jurisdictions, or where applicable the obtaining of exemptions therefrom,
including the costs of preparing, printing and distributing to the U.S.
Underwriters and Managers (i) a preliminary and final Blue Sky Memorandum and
the reasonable fees and disbursements of Underwriters' Counsel in connection
therewith, and (ii) a preliminary and final Canadian Blue Sky Memorandum
and the reasonable fees and expenses of Stikeman, Elliott in connection
therewith, (d) the inclusion of the Shares in the NYSE, (e) the printing of
certificates representing the Shares and (f) the cost and charges of any
transfer agent and registrar for the Shares. The Selling Stockholders and the
Company may agree among themselves as to the respective amounts at such costs
and expenses for which each of them shall be responsible.
10. CONDITIONS OF THE U.S. UNDERWRITERS' OBLIGATIONS. The
obligations of the several U.S. Underwriters to purchase and pay for the U.S.
Shares, as provided herein, shall be subject to (i) the accuracy in all
material respects of the representations and warranties of
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<PAGE>
the Company and each of the Selling Stockholders herein contained, as of the
date hereof, as of the Closing Date and, with respect to the Additional U.S.
Shares, the accuracy in all material respects of the representations and
warranties of the Company and the Selling Stockholders as of the Additional
Closing Date, (ii) the absence from any certificates, opinions, written
statements or letters furnished pursuant to this Section 10 to you or to
Underwriters' Counsel of any qualification or limitation not previously
approved in writing by you, (iii) the performance by the Company and each of
the Selling Stockholders of their respective obligations hereunder and (iv) the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., New York City time, on the date of this Agreement or at such
later time and date as shall have been consented to in writing by Bear,
Stearns. All post-effective amendments to the Registration Statement shall
have become effective. If the Company shall have relied upon Rule 430A of the
Regulations, the Prospectuses shall have been filed with the Commission in a
timely fashion in accordance with Section 7(a) hereof. All filings required by
Rule 424 of the Regulations shall have been made and no such filings shall have
been made without your consent. No stop order suspending the effectiveness of
the Registration Statement or any post-effective amendment thereof shall have
been issued by the Commission or any state securities commission and no
proceedings therefor shall have been initiated or threatened by the Commission
or any state securities commission.
(b) At the Closing Date (and, with respect to the Additional U.S.
Shares, the Additional Closing Date), you shall have received the written
opinion of James Mandel, Esq., Senior Vice President and General Counsel of the
Company, dated the date of its delivery, addressed to the U.S. Underwriters and
the Managers, and in form and substance reasonably acceptable to Underwriters'
Counsel, to the effect set forth in clauses (i), (v), (vi), (ix),(x), (xiv) and
(xv) below, and the written opinion of Cahill Gordon & Reindel, counsel for
the Company, dated the date of its delivery, addressed to the U.S. Underwriters
and the Managers, and in form and substance reasonably satisfactory to
Underwriters' Counsel, to the effect set forth in clauses (ii), (iii), (iv),
(vii), (viii), (xi), (xii), (xiii) and (xvi) below:
(i) Each of the Company and the domestic subsidiaries listed in
Schedule III hereto (the "Material Domestic Subsidiaries") (A) has
------------
been duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and is duly
qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned,
leased or licensed) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified or
in good standing that will not in the aggregate have a Material Adverse
Effect, and (B) has all requisite corporate power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses and permits of and from all public,
regulatory or governmental agencies and bodies, to own, lease and license
its respective properties and conduct its business as now being conducted
and as
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<PAGE>
described in the Registration Statement and the Prospectuses, except for
those the absence of which, individually or in the aggregate, would not
have a Material Adverse Effect. All of the issued and outstanding
capital stock (or similar interests) of each Material Domestic Subsidiary
have been duly and validly authorized and issued, are fully paid and
nonassessable and were not issued in violation of or subject to any
preemptive rights and are owned by the Company or a subsidiary, free and
clear of all claims, liens, security interests, pledges, charges,
encumbrances, stockholders agreements and voting trusts, except as
otherwise described in Schedule IV to the U.S. Underwriting
-----------
Agreement.
(ii) The authorized capital stock of the Company is as set forth
in the Prospectuses under the caption "Capitalization". All of the
outstanding shares of such capital stock, including, without limitation,
the shares of Common Stock to be sold to the U.S. Underwriters and the
Managers pursuant to the Underwriting Agreements, have been duly and
validly authorized and issued, are fully paid and nonassessable and were
not issued in violation of or subject to any preemptive rights set forth
in the Company's certificate of incorporation or by-laws, provided under
the laws of the Company's jurisdiction of incorporation or, to the actual
knowledge of such counsel, set forth in any agreement, contract or other
arrangement or understanding to which the Company is a party or by which
it is bound. To such counsel's actual knowledge, there is no outstanding
option, warrant or other right calling for the issuance of any shares of
capital stock (or similar interests) of the Company or of any Material
Domestic Subsidiary or any security or other instrument that by its terms
is convertible into, exchangeable for or evidencing the right to purchase
capital stock (or similar interests) of the Company or any Material
Domestic Subsidiary, except as described in the Registration Statement
and the Prospectuses. Upon delivery of and payment for the Shares to be
sold by the Company to each U.S. Underwriter and Manager in accordance
with the Underwriting Agreements, each U.S. Underwriter and each Manager
(assuming that it acquires such Shares without notice of any adverse
claim, as such term is used in Section 8-302 of the Uniform Commercial
Code in effect in the State of New York) will acquire valid title to the
Shares so sold and delivered to it, free and clear of all liens, pledges,
charges, claims, security interests, restrictions on transfer, agreements
or other defects of title whatsoever (other than those resulting from any
action taken by such U.S. Underwriter or such Manager). The capital
stock of the Company conforms in all material respects to the description
thereof contained in the Registration Statement and the Prospectuses.
(iii) The Shares have been duly authorized for inclusion in the
NYSE, subject only to official notice of issuance.
(iv) The Company has all requisite corporate right, power and
authority to execute, deliver and perform its obligations under each of
the Underwriting Agreements and to issue, sell and deliver the shares in
accordance with the terms and
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<PAGE>
conditions thereof. Each of the Underwriting Agreements has been duly
and validly authorized, executed and delivered by the Company.
(v) To such counsel's knowledge, there is no litigation,
arbitration or governmental or other action, suit, proceeding or
investigation before any court or before or by any public, regulatory or
governmental agency or body pending or threatened against, or involving
the properties or business of, the Company or any subsidiary, that, if
resolved against the Company or such subsidiary, individually or, to the
extent involving related claims or issues, in the aggregate, is of a
character required to be disclosed in the Registration Statement and the
Prospectuses that has not been properly disclosed therein; and to such
counsel's knowledge, there is no contract or document concerning the
Company or any subsidiary of a character required to be described in the
Registration Statement and the Prospectuses or to be filed as an exhibit
to the Registration Statement, that is not so described or filed.
(vi) The Company's execution and delivery of, and its performance
of its obligations under, each of the Underwriting Agreements and the
consummation of the transactions contemplated thereby, will not (A)
conflict with or result in a breach of any of the terms and provisions
of, or constitute a default under (or an event that with notice or lapse
of time, or both, would constitute a default under) or require approval
or consent under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to the terms of any Material Contract or any Material
Permit, (B) violate or conflict with any provision of the certificate of
incorporation, by-laws or similar governing instruments of the Company or
any Material Domestic Subsidiary, or (C) to such counsel's knowledge,
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency
or body having jurisdiction over the Company or any Material Domestic
Subsidiary or any of its respective properties or assets, except for
those violations or conflicts that, individually or in the aggregate,
would not have a Material Adverse Effect.
(vii) The Registration Statement and the Prospectuses (except for
the financial statements and the notes thereto, the financial statement
schedules and the other financial and accounting data included therein,
as to which no opinion need be expressed) comply as to form in all
material respects with the requirements of the Act and the Regulations.
(viii) The Registration Statement has become effective under the
Act, and such counsel is not aware of any stop order suspending the
effectiveness of the Registration Statement and to such counsel's
knowledge no proceedings therefor have been initiated or threatened by
the Commission, and there are no other filings on the part of the Company
required by the Act or the Regulations, including those required by Rule
424(b) of the Regulations, that to such counsel's knowledge have not been
made.
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<PAGE>
(ix) To such counsel's knowledge, no consent, approval,
authorization, order, registration, filing, qualification, license or
permit of or with any court or any public, governmental, or regulatory
agency or body having jurisdiction over the Company or any Material
Domestic Subsidiary or any of its respective properties or assets is
required for the Company's execution and delivery of, and its performance
of its obligations under, each of the Underwriting Agreements, and the
consummation of the transactions contemplated thereby, and the issuance,
sale and delivery of the Shares, except for (A) such as may be required
under state securities or Blue Sky laws and the securities laws of
foreign jurisdictions in connection with the purchase and distribution of
the Shares by the U.S. Underwriters and the Managers (as to which such
counsel need express no opinion) and (B) such as have been made or
obtained under the Act, the Exchange Act or the rules of the NYSE.
(x) Insofar as statements in the Prospectuses under the captions
"Risk Factors -- Antitrust," "Risk Factors -- Forest Service Permits,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources," "Business -- Real
Estate," "Business -- Regulation and Legislation," "Management --
Employment Agreements of the Company, "Management -- Stock Option Plans,"
and "Business -- Legal Proceedings" purport to summarize the nature and
status of litigation or the provisions of laws rules, regulations,
orders, judgments or decrees, or the terms of any Material Contracts or
Material Permits, such statements are correct in all material respects.
(xi) To such counsel's actual knowledge, no person or entity has
the right, by contract or otherwise, to require registration under the
Act of shares of capital stock or other securities of the Company or any
subsidiary solely because of the filing or effectiveness of the
Registration Statement and the consummation of the transactions
contemplated by the Underwriting Agreements, except for such rights as
have been legally and effectively waived.
(xii) Each of the Underwriting Agreements constitutes valid and
binding obligations of the Company, enforceable against the Company in
accordance with the terms thereof, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity), and except insofar as rights to indemnification and contribution
contained therein may be limited by federal or state securities laws or
related public policy.
(xiii) The Company is not an "investment company" or a company
"controlled" by an "investment company" as defined in the Investment
Company Act.
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<PAGE>
(xiv) To such counsel's knowledge, after due inquiry, neither the
Company nor any of its subsidiaries has violated any provision of any
law, regulation, order, judgment or decree or the rules and regulations
promulgated thereunder, which, individually or in the aggregate, is
reasonably likely to result in any material adverse change in the
business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole.
(xv) To such counsel's knowledge, after due inquiry, except as
otherwise set forth in the Registration Statement or such as are not
material to the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries has good and marketable title to all
material real and personal property purported to be owned by them, free
and clear of all liens, security interests, pledges, charges,
encumbrances and mortgages.
(xvi) Statements in the Prospectuses under the captions "The
Acquisition," "Description of Certain Indebtedness," "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Certain United
States Federal Tax Consequences to Non-United States Holders of Common
Stock" are correct in all material respects.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent certified public accountants of the Company,
representatives of the U.S. Underwriters and the Managers and Underwriters'
Counsel at which the contents of the Registration Statement, the Prospectuses
and any amendments thereof or supplements thereto and related matters were
discussed and, although such counsel has not undertaken to investigate or
verify independently and are not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectuses or any amendments
thereof or supplements thereto, on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of representatives of the
Company) no facts have come to such counsel's attention which lead such counsel
to believe that the Registration Statement, on the effective date thereof (or
any post-effective amendment thereof as of the date of such amendment),
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectuses, on the date thereof or the
date of such opinion, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading (it being understood that such counsel need
express no view with respect to the financial statements and related notes, the
financial statement schedules and the other financial, statistical and
accounting data included therein).
In rendering such opinion, such counsel may limit its opinions to the
laws of the State of New York, the corporate laws of the State of
Delaware and the federal laws of the United
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<PAGE>
States of America, and may rely, as to matters of fact, to the extent such
counsel may deem proper, on certificates of responsible officers of the Company
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and the subsidiaries. A copy of the
opinion of any such other counsel shall be delivered to Underwriters' Counsel.
(c) At the Closing Date (and, with respect to the Additional U.S.
Shares, the Additional Closing Date), you shall have received the written
opinion of Delaney & Balcomb, P.C., special counsel for the U.S.
Underwriters and Managers, dated the date of its delivery, addressed to the
U.S. Underwriters and the Managers, and in form and scope satisfactory to
Underwriters' Counsel, to the effect that:
(i) there are no pending material legal or governmental
proceedings by or pending before the United States Forest Service (the
"Forest Service") or similar federal or state governmental regulatory
officials and bodies against the Company or any of its subsidiaries that
are not described or referred to in the Prospectuses;
(ii) the Company and its subsidiaries have all necessary licenses,
permits, approvals, certificates, consents, orders and other
authorizations of and from the Forest Service and similar federal or
state governmental regulatory officials and bodies necessary to conduct
its business as described in the Prospectuses. All such licenses,
permits, approvals, certificates, consents, orders and other
authorizations are in full force and effect, and neither the Company nor
any of its subsidiaries has received notice of any proceeding or action
relating to the revocation or modification of any such license, permit,
approval, certificate, consent, order or other authorization; and
(iii) the statements in the Prospectuses under the captions "Risk
Factors -- Forest Service Permits", "Business -- Regulation and
Legislation" and "Business -- Legal Proceedings" (as to the Colorado Ski
Safety Act) are accurate in all material respects and provide a fair
summary of the matters referred to therein.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company at which the
contents of certain portions of the Prospectuses and amendments thereof or
supplements thereto and related matters were discussed and have reviewed the
agreements and other documents listed in an appendix to such opinion, although
such counsel has not undertaken to investigate or verify independently and are
not passing upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectuses or any amendments thereof or supplements thereto,
no facts have come to such counsel's attention which lead such counsel to
believe that the Registration Statement, on the effective date thereof (or any
post-effective amendment thereof as of the date of such amendment), contained
an untrue statement of a material fact or omitted to state any material
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<PAGE>
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectuses, on the date thereof or the date of
such opinion, contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
view with respect to the financial statements and related notes, the financial
statement schedules and the other financial and accounting data included
therein).
In rendering such opinion, such counsel (i) may limit its opinions to the
federal laws of the United States of America and the laws of the States of
Colorado and the other jurisdictions in which such firm is admitted and (ii)
may rely as to matters of fact, to the extent such counsel may deem proper, on
certificates of responsible officers of the Company and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the Company and the subsidiaries.
(d) At the Closing Date, you shall have received the written opinion of
counsel for each of the Selling Stockholders, dated the date of its delivery,
addressed to the U.S. Underwriters and the Managers, and in form and scope
reasonably satisfactory to Underwriters' Counsel, to the effect that:
(i) If the Selling Stockholder is not an individual, such Selling
Stockholder has been duly organized and is validly existing as a
corporation, partnership or limited liability company, as the case may
be, in good standing under the laws of its jurisdiction of organization.
(ii) The Selling Stockholder is the sole beneficial and record
owner of the number of Shares to be sold by such Selling Stockholder to
the U.S. Underwriters and the Managers, and, upon delivery of and payment
for the Shares to be sold by the Selling Stockholder to each U.S.
Underwriter and Manager in accordance with the Underwriting Agreements,
each U.S. Underwriter and Manager (assuming that it acquires such Shares
without notice of any adverse claim, as such term is used in Section
8-302 of the Uniform Commercial Code in effect in the State of New York
(the "UCC")) will acquire valid title to such Shares, free and clear of
any adverse claim as such term is used in Section 8-302 of the UCC (other
than those resulting from any action by such U.S. Underwriter or such
Manager).
(iii) Each of the Underwriting Agreements has been duly executed
and delivered by the Selling Stockholder and is a legal and binding
obligation of the Selling Stockholder, enforceable against the Selling
Stockholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a proceeding
at law or in equity), and
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<PAGE>
except insofar as rights to indemnification and contribution contained
therein may be limited by federal or state securities laws or related
public policy.
(iv) The execution, delivery and performance by the Selling
Stockholder of the Underwriting Agreements and the consummation by the
Selling Stockholders of the transactions contemplated thereby, will
not violate such Selling Stockholder's certificate of incorporation,
by-laws or similar governing instruments or, to the best of such
counsel's actual knowledge, (A) conflict with or result in a breach of
any of the terms and provisions of, or constitute a default under (or an
event that with notice or lapse of time, or both, would constitute a
default under) or require approval or consent under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Selling Stockholder pursuant to the terms of
any agreement, contract, indenture, mortgage, lease, license, arrangement
or understanding to which the Selling Stockholder is a party, or to which
any of its properties is subject and which is material to such Selling
Stockholder or (B) violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Selling
Stockholder or any of its properties or assets, except for those
violations or conflicts, that, individually or in the aggregate, would
not have a Material Adverse Effect.
(v) To such counsel's knowledge, no consent, approval,
authorization, order, registration, filing, qualification, license or
permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Selling Stockholder or any of
its properties or assets is required for the Selling Stockholder's
execution and delivery of, and performance of its obligation under, the
Underwriting Agreements and the consummation of the transactions
contemplated thereby except for (A) such as may be required under state
securities or Blue Sky laws and the securities laws of foreign
jurisdictions in connection with the purchase and distribution of the
Shares by the U.S. Underwriters and the Managers (as to which such
counsel need express no opinion) and (B) such as have been made or
obtained under the Act, the Exchange Act or the rules of the NYSE.
In rendering such opinion, such counsel may rely (i) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws; (ii) as to matters of fact, to the extent
such counsel may deem proper, on certificates of responsible officers of the
Selling Stockholder and certificates or other written statements of officers of
departments of jurisdictions having custody of documents respecting the
corporate existence or good standing of the Selling Stockholder. The opinion
of counsel for the Company shall specifically state that its opinion and the
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opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, you and they are justified in relying thereon.
(e) At the Closing Date (and, with respect to the Additional U.S.
Shares, the Additional Closing Date), you shall have received a certificate of
each Selling Stockholder, dated the date of its delivery, to the effect that as
of the date of such certificate the representations and warranties of such
Selling Stockholder set forth in Section 4 hereof are true and correct as of
the Closing Date and the obligations of the Selling Stockholder to be performed
hereunder on or prior thereto have been duly performed.
(f) At the Closing Date (and, with respect to the Additional U.S.
Shares, the Additional Closing Date), you shall have received a certificate of
the Company executed by each of the Chief Executive Officer and the Chief
Financial Officer of the Company, dated the date of its delivery, to the effect
that the conditions set forth in subsection (a) of this Section 10 have been
satisfied, that as of the date of such certificate the representations and
warranties of the Company set forth in Section 3 hereof are true and correct in
all material respects as of such Closing Date, the obligations of the Company
to be performed hereunder on or prior thereto have been duly performed in all
material respects, and subsequent to the respective dates of which information
is given in the Registration Statement and the Prospectuses, the Company and
its subsidiaries have not sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane, accident
or other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and there has not been any
material adverse change, or any development involving a material adverse
change, in the business prospects, properties, operations, condition (financial
or otherwise), or results of operations of the Company and its subsidiaries
taken as a whole, except in which case as described in or contemplated by the
Prospectuses.
(g) At the time this Agreement is executed and at the Closing Date (and,
with respect to the Additional U.S. Shares, the Additional Closing Date), you
shall have received a letter, from Arthur Andersen LLP, dated the date of its
delivery, addressed to the U.S. Underwriters and the Managers and in form and
substance reasonably satisfactory to you, to the effect that: (i) they are
independent accountants with respect to the Company within the meaning of the
Act and the applicable published rules and regulations thereunder; (ii) in
their opinion, the Company's consolidated financial statements audited by such
firm and included in the Registration Statement and the Prospectuses comply as
to form in all material respects with the applicable accounting requirements of
the Act and the applicable published rules and regulations thereunder with
respect to registration statements on Form S-2; (iii) on the basis of
procedures consisting of a reading of the latest available unaudited interim
consolidated financial data of the Company and the subsidiaries, if any, a
reading of the minutes of meetings and consents of the stockholders and boards
of directors of the Company and the subsidiaries and the committees of such
boards subsequent to September 30, 1996, inquiries of certain officers and
other employees of the Company and its subsidiaries who have responsibility for
financial and accounting matters of the Company and its subsidiaries with
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respect to transactions and events subsequent to September 30, 1996, and other
specified procedures and inquiries to a date not more than five days prior to
the date of such letter, nothing has come to their attention that would cause
them to believe that: (A) with respect to the period subsequent to
September 30, 1996, there were, as of the date of the most recent available
monthly consolidated financial statements of the Company and the subsidiaries,
if any, and as of a specified date not more than five days prior to the date of
such letter, any changes in the capital stock or increases in long-term
indebtedness of the Company or any decrease in net current assets or
stockholders' equity of the Company, in each case as compared with the amounts
shown in the most recent balance sheet included in the Registration Statement
and the Prospectuses, except for changes or decreases that the Registration
Statement and the Prospectuses disclose have occurred or may occur; (B) the
unaudited pro forma consolidated financial information of the Company and the
subsidiaries included in the Prospectuses do not comply as to form in all
material respects with the applicable accounting requirements of the Act and
the applicable published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of such financial information or that the application of the pro
forma adjustments to the historical amounts are not arithmetically
accurate; or (C) that during the period from September 30, 1996 to the date
of the most recent available monthly consolidated financial statements of the
Company and the subsidiaries, if any, and to a specified date not more than
five days prior to the date of such letter, there was any decrease, as compared
with the corresponding period in the prior fiscal year, in total revenues,
resort revenues or real estate revenues, operating income from continuing
operations, EBITDA (as defined in the Prospectuses) or total or per share net
income, except for decreases that the Prospectuses disclose have occurred or
may occur; and (iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings and other financial
information pertaining to the Company and the subsidiaries set forth in the
Prospectuses, which have been specified by you prior to the date of this
Agreement, to the extent that such dollar amounts, numbers, percentages and
information may be derived from the general accounting and financial records of
the Company that are subject to the internal control structure policies and
procedures of the Company's and the subsidiaries' accounting systems or that
have been derived directly from such accounting records by analysis or
computation, and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified readings,
inquiries, and other appropriate procedures specified by you (which procedures
do not constitute an examination in accordance with generally accepted auditing
standards) set forth in such letter, and found them to be in agreement.
(h) At the time this Agreement is executed and at the Closing Date (and,
with respect to the Additional U.S. Shares, the Additional Closing Date), you
shall have received a letter, from Ernst & Young LLP, dated the date of its
delivery, addressed to the U.S. Underwriters and the Managers and in form and
substance reasonably satisfactory to you, to the effect that: (i) they are
independent accountants with respect to the Company within the meaning of the
Act and the applicable published rules and regulations thereunder; (ii) in
their opinion, the Company Financials audited by such firm which are referred
to in the Prospectuses under
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<PAGE>
the second paragraph of "Experts" comply as to form in all material respects
with the applicable accounting requirements of the Act and the applicable
published rules and regulations thereunder with respect to registration
statements on Form S-2.
(i) All proceedings taken in connection with the sale of the Shares as
contemplated by the Underwriting Agreements shall be reasonably satisfactory in
form and substance to you and to Underwriters' Counsel, and you shall have
received from Underwriters' Counsel a written opinion, dated as of the Closing
Date and addressed to the U.S. Underwriters and the Managers, with respect to
the sale of the Firm U.S. Shares, and dated as of the Additional Closing Date
with respect to the sale of the Additional U.S. Shares, as to such matters as
you reasonably may require, and the Company shall have furnished to
Underwriters' Counsel such documents as Underwriters' Counsel may reasonably
request for the purpose of enabling Underwriters' Counsel to pass upon such
matters.
(j) The NASD, upon review of the terms of the underwriting
arrangements for the public offering of the Shares, shall have raised no
objections thereto.
(k) The Shares shall have been included in the NYSE, subject to official
notice of issuance.
(l) At the time the Underwriting Agreements are executed, each Selling
Stockholder shall have executed and delivered to you a United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department Regulations in lieu thereof).
(m) Prior to the Closing Date and, with respect to the Additional U.S.
Shares, the Additional Closing Date, the Company and each Selling Stockholder
shall have furnished to you such further information, certificates and
documents as you may reasonably request.
(n) The closing of the purchase of the International Shares pursuant
to the International Underwriting Agreement shall occur concurrently with (i)
the closing described in Section 5(b) hereof, in the case of the Firm U.S.
Shares, and (ii) the closing described in Section 5(e) hereof, in the case of
the Additional U.S. Shares.
(o) At the time this Agreement is executed and at the Closing Date (and,
with respect to the Additional U.S. Shares, the Additional Closing Date), you
shall have received a letter, from Price Waterhouse LLP, dated the date of its
delivery, addressed to the Managers and the U.S. Underwriters and in form and
substance reasonably satisfactory to you, to the effect that: (i) they are
independent accountants with respect to Ralston Resorts, Inc. within the
meaning of the Act and the applicable published rules and regulations
thereunder; (ii) in their opinion, the Company Financials audited by such firm
which are referred to in the Prospectuses under the third paragraph of
"Experts" comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations thereunder with respect to registration statements on Form S-2.
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<PAGE>
If any of the conditions specified in this Section 10 shall not have been
fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements, or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 10 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the U.S. Underwriters hereunder not
theretofore discharged may be canceled by you at, or at any time prior to, the
Closing Date and with respect to the Additional U.S. Shares, the Additional
Closing Date. Notice of such cancellation shall be given to the Company in
writing, or by telephone, telex, telephonic facsimile or telegraph, confirmed
in writing.
11. INDEMNIFICATION.
(a) Each of the Selling Stockholders, severally among themselves and not
jointly, and the Company, severally and not jointly with the Selling
Stockholders, agree to indemnify and hold harmless each U.S. Underwriter and
each person, if any, who controls any U.S. Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all
losses, liabilities, claims, damages and expenses whatsoever (including but not
limited to attorneys' fees and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation, provided that such settlement was effected with the
Company's and the Selling Stockholders' written consent in accordance with
Section 11(c) hereof), to which they or any of them may become subject under
the Act, the Exchange Act or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
made by the Company or the Selling Stockholders contained in the Registration
Statement or the U.S. Prospectus or any Preliminary Prospectus, or in any
supplement thereto or amendment thereof, or in any document required to be
delivered with any Preliminary Prospectus or the U.S. Prospectus pursuant to
Item 11 of Form S-2, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the U.S. Prospectus,
in light of the circumstances under which they were made) not misleading;
provided, however, that neither the Company nor the Selling
- -------- -------
Stockholders shall be liable under this subsection 11(a) to any U.S.
Underwriter in any such case to the extent but only to the extent that any such
loss, liability, claim, damage or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on your behalf with respect to the U.S.
Underwriters; provided further, that the obligations of each Selling
-------- -------
Stockholder under this subsection 11(a) shall only arise to the extent that any
loss, liability, claim, damage or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder with respect to such
Selling Stockholder expressly for use in the U.S. Prospectus or the
Registration Statement and shall be limited to the product of the number of
shares of Common Stock sold
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by such Selling Stockholder and the Purchase Price; and provided
--------
further, that with respect to any Preliminary Prospectus, such indemnity
- -------
shall not inure to the benefit of any U.S. Underwriter (or the benefit of any
person controlling such U.S. Underwriter) if the person asserting any such
losses, liabilities, claims, damages or expenses purchased the shares of Common
Stock that are the subject thereof from such U.S. Underwriter and if such
person was not sent or given a copy of the U.S. Prospectus at or prior to
confirmation of the sale of such shares to such person in any case where such
sending or giving is required by the Act and the untrue statement or omission
of a material fact contained in such Preliminary Prospectus was corrected in
the U.S. Prospectus. This indemnity agreement will be in addition to any
liability that the Company and the Selling Stockholders may otherwise have to
any U.S. Underwriter or to any controlling person of such U.S. Underwriter,
including under this Agreement.
(b) Each U.S. Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and the
Selling Stockholders, against any losses, liabilities, claims, damages and
expenses whatsoever (including but not limited to attorneys' fees and any and
all expenses reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation, provided
that such settlement was effected with such U.S. Underwriter's written consent
in accordance with Section 11(c) hereof), to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
U.S. Prospectus or any Preliminary Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the U.S. Prospectus,
in light of the circumstances under which they were made) not misleading, in
each case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by you or on your behalf with respect to such U.S. Underwriter
expressly for use in the Registration Statement or U.S. Prospectus;
provided, however, that in no case shall such U.S. Underwriter be
- -------- -------
liable or responsible for any amount in excess of the underwriting discount
applicable to the U.S. Shares purchased by such U.S. Underwriter hereunder.
This indemnity will be in addition to any liability that the U.S. Underwriter
may otherwise have to the Company or any such director, officer or controlling
person, or the Selling Stockholders, including under this Agreement. The
Company acknowledges that the statements set forth in the last paragraph of the
cover page, the legend concerning stabilization on the inside front cover page
of the U.S. Prospectus and the statements set forth under the captions
"Underwriting" and "Notice to Canadian Residents" in the U.S.
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Prospectus constitute the only information furnished in writing by or on behalf
of any U.S. Underwriter expressly for use in the Registration Statement, any
related Preliminary Prospectus and the U.S. Prospectus.
(c) Promptly after receipt by an indemnified party under subsection
11(a) or (b) above of notice of the assertion of any claim, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability that it may have under this Section 11 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability that it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party
or parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in
connection with the defense of such action, (ii) the indemnifying parties shall
not have employed counsel to take charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them that are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties with respect to such
different defenses), in any of which events such fees and expenses shall be
borne by the indemnifying parties. The indemnifying party under subsection
11(a) or (b) above shall only be liable for the legal expenses of one counsel
for all indemnified parties in each jurisdiction in which any claim or action
is brought; provided, however, that the indemnifying party shall be
-------- -------
liable for separate counsel for any indemnified party in a jurisdiction, if
counsel to the indemnified parties shall have reasonably concluded that there
may be defenses available to such indemnified party that are different from or
additional to those available to one or more of the other indemnified parties
and that separate counsel for such indemnified party is prudent under the
circumstances. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent; provided, however, that
-------- -------
such written consent was not unreasonably withheld.
12. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 11 hereof is
for any reason held to be unavailable from the Company or the Selling
Stockholders or is insufficient to hold harmless a party indemnified
thereunder, the Company, the Selling Stockholders and the U.S. Underwriters
shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the
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nature contemplated by such indemnification provisions (including any
investigation, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company and the Selling Stockholders,
any contribution received by the Company and the Selling Stockholders from
persons, other than one or more of the U.S. Underwriters, who may also be
liable for contribution, including persons who control the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, officers
of the Company who signed the Registration Statement and directors of the
Company) to which the Company, the Selling Stockholders and one or more of the
U.S. Underwriters may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders, and the U.S. Underwriters, respectively, from the offering of the
U.S. Shares or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 11 hereof, in such proportion as
is appropriate to reflect not only the relative benefits referred to above but
also the relative fault of the Company, the Selling Stockholders, and the U.S.
Underwriters, respectively, in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company, the Selling Stockholders, and the U.S. Underwriters, respectively,
shall be deemed to be in the same proportion as (i) the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Stockholders and (ii) the
underwriting discounts and commissions received by the U.S. Underwriters,
respectively, in each case as set forth in the table on the cover page of the
U.S. Prospectus. The relative fault of the Company and the Selling
Stockholders, and of the U.S. Underwriters, respectively, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Selling Stockholders, or the U.S. Underwriters, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Stockholders and the U.S.
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 12 were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to above. The Selling Stockholders' and the U.S.
Underwriters' obligations in this Section 12 to contribute are several and not
joint. Notwithstanding the provisions of this Section 12, (i) in no case shall
any U.S. Underwriter be required to contribute any amount in excess of the
amount by which the aggregate public offering price of the U.S. Shares
underwritten by it and distributed to the public exceeds the amount of any
damages that such U.S. Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or such omission or alleged
omission, (ii) in no case shall any Selling Stockholder be required to
contribute any amount in excess of the amount which such Selling Stockholder
would be required to pay if the indemnification obligation provided in Section
11 were available and sufficient or in excess of the amount by which the
product of the number of U.S. Shares sold by such Selling Stockholder and the
Purchase Price
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exceeds the amount of any damages that such Selling Stockholder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
such omission or alleged omission and (iii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 12, each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
such U.S. Underwriter and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 12. Any
party entitled to contribution shall, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 12, notify such party or parties from whom contribution may
be sought, but the omission to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have under this Section 12 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its written consent; provided, however, that such written
-------- -------
consent was not unreasonably withheld.
13. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations
and warranties, covenants and agreements of the U.S. Underwriters, the Company
and the Selling Stockholders contained in this Agreement, including without
limitation the agreements contained in Sections 7, 8 and 9 hereof, the
indemnity agreements contained in Section 11 hereof and the contribution
agreements contained in Section 12 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
U.S. Underwriters or any controlling person of any U.S. Underwriter or by or on
behalf of the Company, any of its officers and directors, or the Selling
Stockholders, and shall survive delivery of the U.S. Shares to and payment for
the U.S. Shares by the U.S. Underwriters. The representations contained in
Sections 3 and 4 hereof and the agreements contained in Sections 7, 8, 9, 11,
12 and 15(d) hereof shall survive the termination of this Agreement including
pursuant to Section 14 or 15 hereof.
14. DEFAULT BY A U.S. UNDERWRITER.
(a) If any U.S. Underwriter or U.S. Underwriters shall default in its or
their obligation to purchase Firm U.S. Shares or Additional U.S. Shares
hereunder, and if the Firm U.S. Shares or Additional U.S. Shares with respect
to which such default relates do not (after giving effect to arrangements, if
any, made pursuant to subsection 14(b) below) exceed in the aggregate 10% of
the number of shares of Firm U.S. Shares or Additional U.S. Shares, as the case
may be, that all U.S. Underwriters have agreed to purchase hereunder, then such
Firm U.S. Shares or Additional U.S. Shares to which the default relates shall
be purchased by the non-defaulting U.S. Underwriters in proportion to the
respective
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<PAGE>
proportions that the numbers of Firm U.S. Shares set forth opposite their
respective names in Schedule I hereto bear to the aggregate number of Firm
----------
U.S. Shares set forth opposite the names of the non-defaulting U.S.
Underwriters.
(b) If such default relates to more than 10% of the Firm U.S. Shares or
Additional U.S. Shares, as the case may be, you may, in your discretion,
arrange for another party or parties (including any non-defaulting U.S.
Underwriter or U.S. Underwriters who so agree) to purchase such Firm U.S.
Shares or Additional U.S. Shares, as the case may be, to which such default
relates on the terms contained herein. If within five (5) calendar days after
such a default you do not arrange for the purchase of the Firm U.S. Shares or
Additional U.S. Shares, as the case may be, to which such default relates as
provided in this Section 14, this Agreement (or, in the case of a default with
respect to the Additional U.S. Shares, the obligations of the U.S. Underwriters
to purchase and of the Selling Stockholders to sell the Additional U.S. Shares)
shall thereupon terminate, without liability on the part of the Company or the
Selling Stockholders with respect thereto (except in each case as provided in
Sections 9, 11(a) and 12 hereof) or the several non-defaulting U.S.
Underwriters (except as provided in Sections 11(b) and 12 hereof), but nothing
in this Agreement shall relieve a defaulting U.S. Underwriter or U.S.
Underwriters of its or their liability, if any, to the other several U.S.
Underwriters, the Company and the Selling Stockholders for damages occasioned
by its or their default hereunder.
(c) If the Firm U.S. Shares or Additional U.S. Shares to which the
default relates are to be purchased by the non-defaulting U.S. Underwriters, or
are to be purchased by another party or parties as aforesaid, you or the
Company shall have the right to postpone the Closing Date or Additional Closing
Date, as the case may be, for a period not exceeding five (5) business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the U.S. Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the U.S. Prospectus that, in the
opinion of Underwriters' Counsel, may thereby be made necessary or advisable.
The term "U.S. Underwriter" as used in this Agreement shall include any party
substituted under this Section 14 with like effect as if it had originally been
a party to this Agreement with respect to such Firm U.S. Shares and Additional
U.S. Shares.
15. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective upon the later of (i) when you
and the Company shall have received notification of the effectiveness of the
Registration Statement and (ii) the execution and delivery of this Agreement by
the parties hereto. If either the initial public offering price or the
purchase price per Share has not been agreed upon prior to 5:00 P.M., New York
time, on the fourth full business day after the Registration Statement shall
have become effective, this Agreement shall thereupon terminate without
liability to the Company or the Underwriters except as herein expressly
provided. Until this Agreement becomes effective as aforesaid, this Agreement
may be terminated by the Company by
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<PAGE>
notifying you or by you by notifying the Company without any liability of any
party to any party hereunder. Notwithstanding the foregoing, the provisions of
this Section 15 and of Sections 9, 11, 12 and 13 hereof shall at all times be
in full force and effect.
(b) This Agreement and the obligations of the U.S. Underwriters
hereunder may be terminated by you by written notice to the Company at any time
at or prior to the Closing Date (and, with respect to the Additional U.S.
Shares, the Additional Closing Date), without liability (other than with
respect to Sections 11 and 12) on the part of any U.S. Underwriter to the
Company and the Selling Stockholders if, on or prior to such date, (i) the
Company or the Selling Stockholders shall have failed, refused or been unable
to perform in any material respect any agreement on its part to be performed
hereunder, (ii) any other condition to the obligations of the U.S. Underwriters
set forth in Section 10 hereof is not fulfilled when and as required in any
material respect, (iii) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or in the over-the-counter market shall
have been suspended or materially limited, or minimum prices shall have been
established on either exchange or such market by the Commission, or by either
exchange or other regulatory body or governmental authority having
jurisdiction, (iv) a general banking moratorium shall have been declared by
Federal or New York State authorities, (v) there is a downgrading in the rating
of the Company's debt securities by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the Act),
(vi) there shall have occurred any outbreak or escalation of armed hostilities
involving the United States on or after the date hereof, or if there has been a
declaration by the United States of a national emergency or war, the effect of
which shall be, in your judgment, to make it inadvisable or impracticable to
proceed with the sale and delivery of the Shares on the terms and in the manner
contemplated in the Prospectuses, (vii) in your reasonable opinion any material
adverse change shall have occurred since the respective dates as of which
information is given in the Registration Statement or the Prospectuses
affecting the business, prospects, condition (financial or other) or results of
operations of the Company and its subsidiaries taken as a whole, whether or not
arising in the ordinary course of business other than as set forth in the
Prospectuses or contemplated thereby, (viii) there shall have occurred such a
material adverse change in the financial markets in the United States such as,
in your judgment, makes it inadvisable or impracticable to proceed with the
sale and delivery of the Shares on the terms and in the manner contemplated in
the Prospectuses, or (ix) there shall have been any enactment, proposal,
publication, decree or other promulgation of any foreign or United States
federal or state statute, regulation, rule or order of any court or other
governmental authority that would, in your reasonable judgment, make it
inadvisable or impracticable to proceed with the sale and delivery of the
Shares on the terms and in the manner contemplated in the Prospectuses. Your
right to terminate this Agreement will not be waived or otherwise relinquished
by their failure to give notice of termination prior to the time that the event
giving rise to the right to terminate shall have ceased to exist, provided that
notice is given prior to the Closing Date (and, with respect to the Additional
U.S. Shares, the Additional Closing Date).
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<PAGE>
(c) Any notice of termination pursuant to this Section 15 shall be by
telephone, telex, telephonic facsimile, or telegraph, confirmed in writing by
letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to notification by you as provided
in subsection 15(a) or 15(b) hereof), or if the sale of the U.S. Shares
provided for herein is not consummated because any condition to the obligations
of the U.S. Underwriters set forth herein is not satisfied (other than with
respect to Section 10(n) hereof as a result of a default by the Managers in the
purchase of the International Shares) or because of any refusal, inability or
failure on the part of the Company or the Selling Stockholders to perform any
agreement herein or to comply with any provision hereof (other than by reason
of a default of the U.S. Underwriters), the Company agrees, subject to demand
by you, to reimburse the U.S. Underwriters for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of Underwriters' Counsel),
incurred by the U.S. Underwriters in connection herewith.
16. NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to any
one or more of the U.S. Underwriters, shall be hand delivered, telexed,
telegraphed or faxed to each such U.S. Underwriter in care of Bear, Stearns &
Co. Inc., 245 Park Avenue, New York, New York 10167, Attention: Corporate
Finance Department (Fax No. 212-272-3092); if sent to the Company, shall be
hand delivered, telexed, telegraphed or faxed to the Company, to Vail Resorts,
Inc., Post Office Box 7, Vail Colorado 81658, Attention: James S. Mandel, Esq.
with a copy to James J. Clark, Esq., Cahill Gordon & Reindel, 80 Pine Street,
New York, New York 10005; and if sent to any Selling Stockholders, shall be
hand delivered, telexed, telegraphed or faxed to the appropriate party as
follows: to Meadow Walk Limited Partnership, c/o Icahn Associates Corp., 114
W. 47th Street, New York, New York 10036, (Fax No. 212-921-3359); to George N.
Gillett, Jr., c/o Booth Creek Inc., 1000 South Frontage Road West, Suite 100,
Vail, Colorado 81657 (Fax No. 970-479-0291); Apollo Ski Partners, L.P., 2
Manhattanville Road, Purchase, New York, 10577 (Fax No. 914-694-8032).
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together
shall constitute one instrument.
18. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, each of the U.S. Underwriters, the Company and the
Selling Stockholders, and the controlling persons, directors, officers,
employees and agents referred to in Sections 11 and 12 hereof, and their
respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its
capacity as such, of U.S. Shares from the U.S. Underwriters.
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<PAGE>
19. CONSTRUCTION. This Agreement shall be construed in accordance
with the laws of the State of New York.
20. DEFINITION OF BUSINESS DAY. For the purposes of this Agreement,
"business day" means any day on which the New York Stock Exchange is open for
trading.
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<PAGE>
If the foregoing correctly sets forth the complete agreement among the
U.S. Underwriters, the Company and the Selling Stockholders, please so indicate
in the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
VAIL RESORTS, INC.
_____________________________
Name:
Title:
SELLING STOCKHOLDERS
APOLLO SKI PARTNERS, L.P.
By: Apollo Investment Fund, L.P.
By: Apollo Advisors, L.P.
By: Apollo Capital Management, Inc.
By:___________________________
Name:
Title:
MEADOW WALK LIMITED PARTNERSHIP
By:___________________________
Name:
Title:
______________________________
GEORGE N. GILLETT, JR.
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<PAGE>
Accepted as of the date first
above written.
BEAR, STEARNS & CO. INC.
FURMAN SELZ LLC
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
Acting severally on behalf
of themselves and the several
U.S. Underwriters named in Schedule I
----------
annexed hereto.
BEAR, STEARNS & CO. INC.
____________________
Name:
Title:
FURMAN SELZ LLC
____________________
Name:
Title:
GOLDMAN, SACHS & CO.
____________________
Name:
Title:
SALOMON BROTHERS INC
____________________
Name:
Title:
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<PAGE>
SCHRODER WERTHEIM & CO.
___________________
Name:
Title:
SMITH BARNEY INC.
____________________
Name:
Title:
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<PAGE>
SCHEDULE I
Number of
Firm U.S. Shares
Name of U.S. Underwriter to be Purchased
- ------------------------ ---------------
Bear, Stearns & Co. Inc...............................................
Furman Selz LLC ......................................................
Goldman, Sachs & Co...................................................
Salomon Brothers Inc..................................................
Schroder Wertheim & Co. ..............................................
Smith Barney Inc. ....................................................
TOTAL 8,400,000
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<PAGE>
SCHEDULE II
Number of Maximum Number
Firm U.S. of Additional U.S.
Name of Selling Stockholder Shares to be Sold Shares to be Sold
- --------------------------- ----------------- -----------------
Apollo Ski Partners, L.P. 2,368,000 632,000
Meadow Walk Limited Partnership 1,760,000 408,798
George N. Gillett, Jr. 272,000 219,202
========= =========
Totals 4,400,000 1,260,000
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<PAGE>
SCHEDULE III
MATERIAL SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ---- -------------
Vail Holdings, Inc. Colorado
The Vail Corporation Colorado
Vail Associates Investments, Inc. Colorado
Vail Trademarks, Inc. Colorado
Vail Associates Real Estate Group, Inc. Colorado
Beaver Creek Consultants, Inc. Colorado
Beaver Creek Associates, Inc. Colorado
Vail/Beaver Creek Resort Properties, Inc. Colorado
Vail Food Services, Inc. Colorado
Piney River Ranch, Inc. Colorado
Vail/Arrowhead, Inc. Colorado
Beaver Creek Food Services, Inc. Colorado
Vail Associates Holdings, Ltd. Colorado
Vail Associates Real Estate, Inc. Colorado
Vail Associates Consultants, Inc. Colorado
Vail Associates Management Company Colorado
Vail Associates Ranch and Land Company Colorado
Ralston Resorts, Inc. Colorado
Keystone Conference Services, Inc. Colorado
Keystone Food and Beverage Company Colorado
Keystone Property Management Company Colorado
Keystone Development Sales Inc. Colorado
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<PAGE>
SCHEDULE IV
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Percent
Name Jurisdiction of Equity
- ---- ------------ ---------
<S> <C> <C>
Vail Holdings, Inc. Colorado 100%
The Vail Corporation Colorado 100
Avon Partners II, Limited Liability Company Colorado 50
Vail Associates Investments, Inc. Colorado 100
Vail Trademarks, Inc. Colorado 100
Vail Associates Real Estate Group, Inc. Colorado 100
Beaver Creek Consultants, Inc. Colorado 100
Beaver Creek Associates, Inc. Colorado 100
Vail/Beaver Creek Resort Properties, Inc. Colorado 80
Vail Food Services, Inc. Colorado 100
Piney River Ranch, Inc. Colorado 100
Vail/Arrowhead, Inc. Colorado 100
Beaver Creek Food Services, Inc. Colorado 100
Vail Associates Holdings, Ltd. Colorado 100
Vail Associates Real Estate, Inc. Colorado 100
Vail Associates Consultants, Inc. Colorado 80
Vail Associates Management Company Colorado 100
Vail Associates Ranch and Land Company Colorado 100
Slifer, Smith & Frampton/Vail Associates Real Estate,
L.L.C. Colorado 50
Gillett Group Management, Inc. Delaware 100
Gillett Broadcasting of Maryland, Inc. Delaware 100
GHTV, Inc. Delaware 100
Gillett Broadcasting, Inc. Delaware 100
Ralston Resorts, Inc. Colorado 100
Keystone Conference Services, Inc. Colorado 100
Keystone Food and Beverage Company Colorado 100
Keystone Property Management Company Colorado 100
Keystone Development Sales Inc. Colorado 100
Ski The Summit Colorado 100
Clinton Ditch & Reservoir Colorado 100
Keystone Intrawest LLC Colorado 100
</TABLE>
-47-
<PAGE>
SCHEDULE V
None
SCHEDULE VI
None
-48-
<PAGE>
EXHIBIT 5.1
LETTERHEAD OF CAHILL GORDON & REINDEL
January 28, 1997
(212) 701-3000
Re: Vail Resorts, Inc.
Registration Statement on Form S-2 (No. 333-5341)
Dear Ladies and Gentlemen:
As counsel for Vail Resorts, Inc. (the "Company"), we are representing the
Company in connection with the registration statement on Form S-2 (the
"Registration Statement") filed with the Securities and Exchange Commission on
June 6, 1996, as amended on each of September 19, 1996, January 8, 1997 and
January 28, 1997, relating to the registration under the Securities Act of
1933, as amended, of 10,500,000 shares of the Company's common stock, par
value $.01 per share, (the "Common Stock").
We advise you that in our opinion the Common Stock to be sold by the
Company, when issued in the manner and for the consideration contemplated by
the Registration Statement, will be validly issued, fully paid and non-
assessable, and the Common Stock to be sold by the Selling Stockholders has
been validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement and related Prospectus. Our
consent to such reference does not constitute a consent under Section 7 of the
Act, as in consenting to such reference we have not certified any part of the
Registration Statement and do not otherwise come within the categories or
persons whose consent is required under said Section 7 or under the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
Cahill Gordon & Reindel
<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 24, 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 24, 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 27, 1997
